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Operator: Greetings, and welcome to the Reynolds Consumer Products, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Swartzberg, Vice President of Investor Relations. Thank you, sir. You may begin. Mark Swartzberg: Thank you, operator. Good morning, and thank you for joining us for Reynolds Consumer Products' Third Quarter Earnings Conference Call. Please note that this call is being webcast on the Investor Relations section of our corporate site at reynoldsconsumerproducts.com. Our earnings press release and investor deck are also available. With me on the call today are Scott Huckins, our President and Chief Executive Officer; and Nathan Lowe, our Chief Financial Officer. Following prepared remarks, we will open the call for a brief question-and-answer session. Before we begin, I would like to remind you that this morning's discussion will contain forward-looking statements, which are subject to risks, uncertainties and changes in circumstances that could cause actual results and outcomes to differ materially from those described today. Please refer to the Risk Factors section in our SEC filings. The company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after the call. During today's call, we will refer to certain non-GAAP or adjusted financial measures. Reconciliations of these GAAP to non-GAAP financial measures are available in our earnings press release, investor presentation deck and Form 10-Q, which can be found on the Investor Relations section of our site. Now I'd like to turn the call over to Scott. Scott Huckins: Thank you, Mark, and good morning, everyone. I am pleased with our latest results and how we are performing in what continues to be a challenging environment. As we review the third quarter, we achieved strong retail performance, gaining market share overall and in the vast majority of our categories. We demonstrated increased agility and effectiveness in managing profitability. Additionally, we successfully advanced long-term initiatives that enhance our value, including our strength as a U.S.-centric business. I will review our performance and these initiatives before turning the call over to Nathan for more on the quarter and our guide. Our retail share increases were driven by multiple business units and product lines. These include Hefty Waste Bags, Hefty Party Cups, Reynolds Wrap, Reynolds Kitchen Parchment products and store brand food bags. We are pleased by the breadth and depth of the share gains, demonstrating that both our products and our execution are winning in the marketplace. In terms of pricing, the increases in aluminum foil that we talked about on the Q2 call were implemented according to plan. Reynolds Wrap volume outperformed the category in the third quarter and reflected our position as the U.S.'s only vertically integrated foil manufacturer. This performance was driven by several factors, including the brand's strong equity and reduced price gaps compared to store brand foil, offering consumers a compelling value proposition. The combination of share gains and pricing actions across the portfolio, together with continued cost discipline delivered improved results in all 4 business units in the quarter. In terms of cost discipline, we are making progress managing manufacturing, supply chain and SG&A costs, while continuing to drive our categories and gain market share. Turning to the environment. The operating environment remains challenging with low and middle-income consumers under continued pressure and retailers facing cost inflation, especially from overseas suppliers subject to tariffs. This backdrop presents both opportunities and risks. In terms of risks, this environment can lead to more transactional relationships between suppliers and retailers. For example, our leadership in store brands could result in a customer shifting part of their business to another supplier. However, this also presents a huge opportunity. We can leverage our category leadership while working to become an even more valued supplier by reducing product costs and inefficiencies in our supply chain. Our strong U.S.-centric manufacturing footprint and supply chain remain a source of advantage, especially in this climate of economic and trade uncertainty. Our new Chief Commercial Officer, Carlen Hooker, has hit the ground running and is leading growth programs to further drive share category by category at each of our major customers. There are multiple components of her team's work, including the improvements in revenue growth management processes and tools that I mentioned last quarter. These improvements benefited performance in multiple channels in the quarter, and we are continuing the shift to higher return programs this holiday season and beyond. Household foil is an important category for us and an example of where the implementation of these tools contributed to solid category performance in the quarter. Reynolds Wrap retail sales were up 7%, similar to the category with volumes a point better than the categories minus 1%. As I mentioned, price gaps to store brands also narrowed in the quarter, creating a constructive backdrop further benefiting volume performance. As you would expect, we are monitoring aluminum costs and foil dynamics very closely and we'll continue adjusting our pricing and promotional plans to advance the category in our business. Our innovation is another competitive advantage, and we are strengthening our ability to convert consumer insights into products that drive their categories. Reynolds Wrap Fun Foil is expanding distribution for the holidays in performing strongly online, creating new usage occasions by responding to consumers' appetite for customization and variety. The Reynolds brand also continues to drive transformation in the rapidly growing parchment segment. Circana recently recognized Reynolds Kitchens Air Fryer Liners as a 2025 new product pacesetter for our record of growth and strong alignment with consumer trends. Further, our newest parchment innovations, Reynolds Kitchens Air Fryer cups and parchment cooking bags recently earned additional e-com and mass distribution gains. Our other flagship brand, Hefty, is a nearly $2 billion brand that might be best known for its waste bag momentum. However, Hefty's growth potential extends far beyond waste, consistent with its positioning as a brand that is both strong and dependable. Our 80-count Halloween party cups were recently introduced in mass and are doing well. Velocities for new Hefty ECOSAVE compostable cutlery introduced in club and mass earlier this year continue to be very encouraging. And Hefty remains very strong in waste bags, leading the scented waste bag segment, which is driving the more than $4 billion waste bag category. The Hefty Fabuloso combination of brands immediately resonated with consumers when it began 4 years ago, including the opportunity to build on the 2 brands strong shopper loyalty. Today, the Hefty Fabuloso portfolio continues to drive the waste bag category as more and more consumers find scents they love in a waste bag associated with strength that they can trust. Our newest line, Hefty Fabuloso Watermelon has achieved ACV of over 50 less than a year after launch and is especially popular with the Gen Z consumers who love it not only for its scent, but also for its fun hot pink color. Our innovation is not limited to Reynolds and Hefty either. We are winning in multiple other categories as well. Notably, our store brand food bag business is gaining significant market share driven by the increased distribution of new products in the club channel. In fact, all of the growth in the food bag category was driven by RCP supplied products in the quarter. These new products are performing well because they offer consumer strength, reliability and product features at a retail price that represents strong consumer value. Turning to profitability. As I touched on earlier, I am pleased to report that we are driving out manufacturing and supply chain costs. We have been making progress on manufacturing productivity since the start of the year and are now moving to the next leg of that journey. That involves leaning more heavily on technology, the expansion of lean principles and additional automation throughout our operations. To lead us in that work, we recently hired Scott Vail as Chief Operations Officer. Scott is responsible for the implementation of our manufacturing initiatives across our entire organization in partnership with our business unit teams. In closing, we are operating with increased agility, outperforming our categories and driving improved financial results. We are also making RCP even stronger by driving out manufacturing and supply chain costs, positioning us as an even more important supplier to our customers, in source of value for our shareholders. Nathan, over to you. Nathan Lowe: Thank you, Scott, and good morning, everyone. I am pleased to review our third quarter performance, which demonstrates our effectiveness driving results as revenue exceeded our expectations and earnings was at the upper end of our guide. Third quarter net revenues were $931 million, an increase of more than 2% from $910 million in the year ago period. Retail revenue of $864 million increased 1% by comparison to retail revenue in the third quarter of 2024, and our retail volume grew 1%, excluding foam products. As Scott mentioned, we increased share in multiple categories, and our pricing actions have been executed as planned. Our non-retail revenues also increased $13 million to $67 million in the quarter. In terms of profit, each of our business units grew EBITDA in the quarter and consolidated adjusted EBITDA was $168 million compared to $171 million in the year ago period, reflecting improved results in all operating segments and the timing of corporate expenses in the prior year. Adjusted EPS was $0.42 versus $0.41 in the year ago period reflecting lower interest costs and tax initiatives. Third quarter 2025 adjusted EPS excludes $0.04 of strategic investments in revenue growth and operational cost savings initiatives as well as CEO transition costs. Before turning to the guide, there are a few points I want to highlight regarding gross profit, SG&A and performance in our tableware business. Gross profit was down $6 million versus the year ago period, but to a much lesser extent than in the second quarter with increased alignment between pricing and input costs driving sequential improvement. As a reminder, implemented and in-flight pricing is designed to fully recover commodity and tariff impacts. SG&A was similar to the second quarter levels and down $29 million year-to-date, reflecting changes we have implemented to lower our cost base and create a more agile organization. And our tableware business grew EBITDA in the quarter, in contrast to tableware sales volumes, which were down 13%, demonstrating increasing success, driving profitability in this business as we tailor strategies for managing the various parts of the portfolio differently. Looking ahead, we are pleased to increase our revenue and adjusted EPS guidance for the year reflecting confidence in our retail trends and the programs we are implementing to drive near and longer-term results. As a result, for the full year, we now expect net revenues to be flat to down 1% by comparison to 2024 net revenues of $3.7 billion. Adjusted EBITDA of $655 million to $665 million and adjusted EPS of $1.60 to $1.64. Key features of our expectations include the following: retail volume performance in line with or better than our categories, pricing representing full recovery of increased commodity and tariff costs, non-retail revenue contributing 1 point of growth for the year, early flow-through of productivity gains from the various strategic initiatives we have been working on and continued discipline in all areas of controllable costs, including SG&A. Our full year expectations for adjusted EBITDA and adjusted EPS exclude debt refinancing costs recognized in the first quarter and approximately $40 million of pretax costs to execute strategic initiatives and CEO transition costs. In the fourth quarter, we expect net revenues to be down 1% to 5% by comparison to the fourth quarter 2024 net revenues of $1.021 billion including an assumption of flat non-retail revenues. We expect adjusted EBITDA to be between $208 million and $218 million by comparison to fourth quarter 2024 adjusted EBITDA of $213 million. And we expect Q4 adjusted EPS in a range of $0.56 to $0.60 versus $0.58 in the year-ago period. Turning to cash flow and capital allocation. Subsequent to quarter end, we made a voluntary principal payment of $50 million on our term loan facility. The elimination of relatively high-cost interest expense generates an attractive return in addition to the other attractive capital allocation options for us. We continue to be inside our target leverage range of 2 to 2.5x EBITDA, positioning us well to continue investing against our pipeline of attractive capital investment opportunities. We still anticipate an approximately $30 million to $40 million increase in capital spending for the year as we invest in high-return projects to support growth, drive margin and deliver a more robust earnings model. Much of this investment is in support of growth, the manufacturing initiatives Scott mentioned, and accelerated onshoring of production, reducing the already small portion of our business, not self-manufactured. And we have multiple in-flight programs across our business that are driving productivity and cost improvements that require no additional capital for implementation. In closing, we head into the holiday season driving our categories and pulling all levers to drive earnings in a dynamic operating environment. In addition, we are investing in the business and remain on track implementing programs that unlock even more of RCP's long-term growth and earnings potential. With that, let's open the floor for your questions. Operator? Operator: [Operator Instructions] Our first question comes from Kaumil Gajrawala with Jefferies. Please proceed with your questions. Mark Swartzberg: Maria, maybe we go to Robert and then come back. Kaumil is having a problem with his line. Operator: Okay. Perfect. Kaumil, are you there now? Okay. We will move over to Rob Ottenstein with Evercore ISI. Robert Ottenstein: Great. So I was wondering if you can kind of give us a sense of how you see the setup for the important holiday season, both in terms of promo intensity, we're seeing increase in promos in many categories. And I think your promos is starting to tick up a little bit in a couple of areas. So do you see that continuing? So love to get the sense of the promo intensity will that continue? And then on the other hand, how is the consumer -- how do you see the consumer developing into the holidays? Affordability is an issue. You mentioned stress on middle and lower-income areas sections of the population. How are you playing into that? And do you think that, that can drive growth over last year? So that's my first question. And then as a follow-up, I also wanted to ask, you mentioned in the call that you saw a risk that retailers could shift store brands to other suppliers. Just wanted to understand why you flagged that. Is there something that looks like it's in the works? And how are you dealing with that? Scott Huckins: Rob, it's Scott, Thanks for, I guess, a series of questions. I'll try to take them, I think, in the order that you asked. So I think on the topic of promo intensity, there's really 2 categories in our portfolio that we see away from us a degree of increased promotional activity. And those 2 categories would be waste bags and food bags. When we think about, though, our level of promotional intensity in each of those categories, they're really in line, meaning they look a lot like our overall level of promotion which, in turn, looks a lot like the level of promotion, we've seen pre-pandemic. And I think the results are important, right, which is as we look at waste bags, you look at Hefty branded waste bags year-to-date, retail takeaways are plus 9%, outperforming the category in the quarter by 10 points. If you look at food bag performance, you can see on the Presto segment, volume growth of 9%. So I would say we feel pretty good about our ability to navigate the promotional environment. Second question, I think, is around the state of the consumer. And I go back to just to remind, I think when we initiated the 2025 guide, we talked about we felt a consumer that was challenged and under pressure, that remains to be the case. A couple of bullet points there, I think, that will help put some dimension to that. As we think about elements of the economy, we still see inflation in that sort of 3% zone above the Fed's target of 2%. So generally not helpful or ideal. Number two, we also see the labor market cooling a bit, unemployment levels in the low 4s. But I think the most important one is we see it would be consumer sentiment. Yet again, a move 3, 4 points down in terms of confidence in the month of September, October came out last night down again a point. But the takeaway there to me is we're double digits down year-to-date heading into the holidays. So we remain of the view that consumer is under pressure. I think the sub question you asked then is how is the business prepared to respond to that. And I think it's a bit of a barbell. So more affluent consumers will tend to be brand shoppers and brand loyalists. We certainly have formidable brands that address those sets of consumer needs. The lower income demographics will tend to be more value-oriented potentially more store brand focused. Our portfolio has got a fulsome offering there and feel good about our ability to serve, if you like, both parts of the barbell. I think the last question was about flagging what's happening in store brands or activity there. The reason for bringing that up is in a climate where you've got general challenges in the economy, uncertainty in supply chains from all the tariff activity, we would certainly expect to see a step up in retailers bid activity for private brands business as those retailers are trying to drive value for their consumers in an effort to take share. And so we expect to see that environment. But I'd say having said all of that as a U.S.-centric manufacturer, we would certainly expect to win more than we lose, but we thought it was -- is important to flag as we see that evolution. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: Sorry about that earlier, guys. So I guess you're doing some hiring, you're making some changes in terms of operational capabilities. Can you maybe just talk about what the sort of grand plan is related to -- does that maybe tick up what the long-term algorithm should be? Is it more about share gains? Is it more about category growth? Just some of the things that you talked about very specifically in your prepared remarks. Can you maybe just talk about the -- where it should -- what impact that should have on the business going forward? Scott Huckins: Sure, Kaumil. So a couple of thoughts. We've certainly added some key executives that the team really, if you think of it from a P&L landscape perspective, a new Chief Commercial Officer, Carlen Hooker, who comes to us with an extensive background of building growth programs. And I mentioned in prepared remarks, the addition of Scott Vail as Chief Operations Officer. So I'll just stay with those 2. With -- those are designed to do is if you go back to the beginning of the year, we talked about initiatives across the business: one, to drive growth. And just as a reminder, we're after there is 3 things: prioritized innovation, two, the implementation of revenue growth management tools, which we commented on in prepared remarks. And then three, our opportunity to drive additional share at the customer by customer and product level. Then on the cost side, we've talked about driving manufacturing and supply chain costs out of the business. And so what we see in Scott is additional veteran leadership who has experience driving results in partnership with our business units over time. So really just think of that as key talent being added to the organization maps specifically against the initiatives we talked about at the beginning of the year. Operator: Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: I wanted to, I guess, first just ask about tableware. So down probably more than we expected, but more importantly, just line of sight to stabilization. Where are we now on how large or how small foam is? And how should we maybe think about it look more broadly, say, over the next 12 months? Do we get to a point where it has less of a weight on the overall company performance? Scott Huckins: Yes, you bet. Laura, let me start. So tableware definitely down in the quarter. Maybe put some dimension to it. About 80% of the decline would have been a function of the foam headwinds, which we'll come back to in a moment, 20% a function of non-foam declines. And on that second point in the non-foam part of the portfolio, more a reminder that nearly 2/3 of the use occasions in disposable tableware are really convenience and probably more discretionary certainly than the portfolio take it as a whole. Having said all of that, we're very pleased, frankly, with how Ryan and that team have managed the business because if you look at the profit metric despite the volumes being down low double digits, profits actually increased about 10%. So I think we're managing that quite effectively. In terms of foresight, not a ton to add, this year certainly stands to be greater headwinds than one would reasonably think about in foam for next year more a function of the state of California as an example, we're comping all year long this year, not selling foam versus obviously a very large state in the U.S. economy where you did sell foam in the previous year. So I think takeaway would be we would generally see foam being a lesser degree of a headwind next year and very pleased about how we're managing the business from a profit standpoint. Operator: Our next question comes from Andrea Teixeira with JPMorgan Chase. Andrea Teixeira: My question is more on the Hefty waste and storage, I mean, definitely impressive numbers on the volume side. And I guess, year-to-date, you're pretty much profitability and it's impressive also because that's the highest profitability you have among all the 4 divisions. It's slightly down, but I was hoping to see if -- I mean, obviously, it's a function of the -- of your RGM and promo most likely. And correct me if I'm wrong, but also the fact that you've been gaining distribution. So I was hoping to see if you can give us a little bit more of a detail on the promo impact and also how to think about like when you're going to lap those distribution gains or if you are hoping to see more of those as you go into 2026? Scott Huckins: You bet. Andrea, thanks for the question. So I think from a promo environment standpoint, we certainly have seen competitors in the category step up level of promo intensity. We feel as though ours are very much in line. I was mentioning a moment ago that with our level of promotional activity really looks a lot like the rest of the company, and in turn, what we've seen pre-pandemic. So what that tells us is, ultimately, products and execution are really driving that business. You commented on the plus 9% year-to-date, I think that would be pretty good evidence of both the products resonating from insights with consumers, and our supply chain team has done an outstanding job keeping those products in stock. I mean, we are consistently running in the high 90s in terms of case fill rates for our customers. So I think those are really the ingredients for success. Not a lot to offer for next year other than we continue, as I've said before, we're going to continue to invest our financial and human resources against innovation that has some size and durability. And I think if you looked at the Hefty waste and storage portfolio, certainly scented waste bags have been winning in the marketplace. Andrea Teixeira: That's super helpful. If I can just like a follow-up to that, ask, obviously, your private label is huge in that segment. Can you comment on how -- and you spoke before the barbell and it's pretty much a good representation of what the consumer is right now. But if you talk about like how you're positioning yourself into that consumer that needs a higher value product, especially your largest client, if you can kind of give us the state of the union, how that consumer has been behaving and if you're taking any pricing to offset anything, I'm assuming you did not on the entry level, but just curious how you're balancing that part of the portfolio, both the high end, obviously, with the fragrance led, Fabuloso on the bags on the higher-end bags, but also on how to protect the value for the entry level. Scott Huckins: Sure. What's interesting, and this is probably a good comment for the company taken as a whole. We operate in very, very stable categories. And so we generally do not see much movement in the mix between brands and store brands taken as a whole. Meaning, in any given period, you might see a 1- or 2-point change in either direction. Interestingly enough, the sales mix and waste bags is really quite static. Said differently, there's not a pronounced change in the brand store brand mix. So I think what that at least tells us is the brand loyalists continue to an increasing degree by the hefty items. And by definition, looking at the plus 5% of volume growth in the segment overall, that must also mean that we're doing a pretty good job satisfying that private label. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: So 2 for me. First, just a follow-up on the promotional commentary, your response to Andreas and Robert's question was helpful. But we're starting to hear -- we've heard from some larger food companies, including one last night. But the return on kind of these promotions are not in line with what we've seen or what they have seen historically. So I know you feel good about your performance, but I'm curious if you're seeing a similar dynamic in the categories where you compete. Scott Huckins: I guess not a ton to offer but all I can really say to that is we have certainly spent a lot of this year as I think you're aware, really investing in building out a more robust RGM or revenue growth management capability, which by design, really is about migrating trade or investment promotional dollars to their highest value at use. I wouldn't really call out anything positive or negative in terms of kind of structural characteristics about trade effectiveness, for example, I would more say our focus remains on ensuring that those dollars are optimally deployed at both the product level and customer level. Peter Grom: Okay. That's helpful. And then a follow-up just on gross margins and maybe just some perspective on what you're seeing from a cost tariff standpoint. I think back in the summer, the outlook contemplated a 2- to 4-point headwind from commodities and tariffs. So is that still the case as we sit here today? And then just the commentary on the gradual recovery as we move through the year as pricing begins to flow through. So how should we be thinking about fourth quarter gross margin? And maybe specifically, how does that exit rate inform our view of looking out to '26? Scott Huckins: Okay. A few questions there. So let's start with the pricing. So I'd say 2 to 4 points is still a good estimate, both of the cost headwinds from commodities and tariffs. So both the cost and the price side, 2 to 4 points is a good estimate. That was a full year estimate. As you look at the third quarter, there's roughly 4 points of pricing, so that would tell you that we're -- and year-to-date 2 points. So we're right in the inside range as expected and with all of the pricing intended to fully offset those costs headwinds. We don't get into specifics around gross profit or EBITDA from a guidance perspective. But certainly, we're pleased with the progression of gross profit from quarter-to-quarter this year and would expect some continuation of that. Really happy with how our earnings is starting to inflect as the guide would be the strongest EBITDA performance for quarterly performance for the year and really happy with the progress we're making on the various strategic initiatives. So we'll, of course, be back in February to tell you more about that and what it means for '26. Operator: [Operator Instructions] Our next question comes from Brian McNamara with Canaccord Genuity. Brian McNamara: So my first one is kind of a 3 for 1, but it all ties into the same theme here as it relates to consumer behavior. So Hefty waste and storage continues to do well. I know innovation is helping there, but how much is the typical lower price point in some of the categories there relative to your primary branded competitor help in this environment? Second, Presto had its best quarter for volume growth, I think, since 2020. I know you mentioned share gains across store branded bags, but does that also reflect store-branded share gains from branded bags as a whole as consumers trade down? And then finally, restaurants continue to see traffic declines. So why wouldn't we be seeing better volume growth in Reynolds Cooking and Baking, acknowledging you're outperforming there? Scott Huckins: Yes. Brian, thank you for the questions. I guess the first one is really around the waste bag category and what I think the question is really around what's driving the success there? And I think it's 2 constructs. the first, certainly, innovation has been a large part of that business for many years, and we are enjoying that today. So I think I mentioned in prepared remarks. And I think certainly the second would be really we represent the performance brand. So certainly, a performance brand, I think, in this climate, especially is probably a solid place to be in that part of the marketplace. In terms of Presto, thank you, the team will enjoy those comments. You're right, there's significant growth in the quarter, 9 points of volume. No question, there were some share wins in the food bag category, from both other store brand players as well as brands. And I think the why is around that team has had a very, very efficient or has been very efficient at designing really premium quality bags that yet are able to be priced at retail in a fashion that offers considerable consumer value. And I think that strategy continues to win in the marketplace as evidenced by the plus 9. I think the last question you asked about is consumer behavior with respect to dining out versus at home and how that might interact with the Reynolds Cooking and Baking business unit? I'd say there's probably some modest tailwinds from incremental cooking at home, I think that would be a fair assessment. And I think what probably is a bit of an offsetting effect to that, though, is increasing prices in the marketplace, reflecting the run-up in aluminum. So it's hard to be super precise about that. But I think those are the 2 forces competing against each other. Brian McNamara: That's helpful. Scott, you laid out a new strategy in February with new work streams with dedicated leaders, process, resource to go after incremental growth in ROI. You've also operated in a very difficult environment to say the least this year. So I'm curious where is the company today relative to where you thought it would be on those initiatives? And what should give investors confidence that these will bear fruit as we finish 2025 and go into 2026? Scott Huckins: I very much appreciate the question. We are feeling really good about the progress that we're making. Obviously, as we started the year, A lot has changed in the year from a macro climate as everybody on this call is well aware. So we've been put to the test, I think, to execute in a pretty challenging environment. But I think the direct answer is we're really seeing Carlen in our commercial part of the business or the front end of the business, really hitting stride. It's been off to a very fast start, both in leading the RGM initiatives, but also what we refer to as share gap selling again, where we may have share of x percent in a category, but that's not necessarily true of every retailer. And so putting programs in place to drive against those very pleased with that progress. And then the second on cost, I think whether you look at COGS or SG&A, again, I feel like we're right on schedule with the progress that we're making. And as you heard a few minutes ago, also investing importantly in talent against those to drive those forward. So I'd say we're about where we had hoped to be, and we're certainly seeing the effects starting to flow through the P&L. Operator: We've reached the end of our question-and-answer session. I would now like to turn the floor back over to Scott for closing comments. Scott Huckins: Thank you, operator. And certainly, thank you to our analysts and investors for your interest in our business. Also like to pass on our appreciation for our 6,400 teammates as we continue to do the work to unlock additional value for the company. And with that, I wish everybody a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning. My name is Angela, and I will be your conference operator today. Welcome to Luxfer's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now I will turn the call over to Kevin Grant, Vice President of Investor Relations and Business Development at Luxfer. Kevin, please go ahead. Kevin Grant: Thank you, Angela, and good morning, everyone. Welcome to Luxfer's Third Quarter 2025 Earnings Conference Call. This morning, we'll be reviewing Luxfer's financial results for the third quarter ended September 28, 2025. I'm pleased to be joined today by Andy Butcher, our Chief Executive Officer; and Steve Webster, our Chief Financial Officer. Today's webcast is accompanied by a presentation that can be accessed at luxfer.com. Please note, any references to non-GAAP financials are reconciled in the appendix of the presentation. Before we begin, a friendly reminder that any forward-looking statements made about the company's expected financial results are subject to future risks and uncertainties. We undertake no obligation to update any forward-looking statements, whether a result of new information, future events or otherwise. Please refer to the safe harbor statement on Slide 2 of today's presentation for further details. During today's call, we'll be providing adjusted third quarter 2025 financial results, excluding the recently sold Graphics Arts business and 2024 legal recoveries. Now let me introduce Luxfer's CEO, Andy Butcher. Please turn to Slide 3. Andy, please go ahead. Andrew William Butcher: Thank you, Kevin, and good morning, everyone. Thank you for joining us. The third quarter demonstrated strong execution and the earnings power of our core business. We continue to shift our mix toward higher-value markets where Luxfer differentiates through innovation and performance, particularly in defense and aerospace. These programs build on our proven technical capability and trusted position with key customers. Adjusted earnings per share was $0.30, and adjusted EBITDA was $13.6 million for an adjusted EBITDA margin of 14.6%. Margin expanded sequentially, supported by favorable mix in key end markets. Elektron remains a clear revenue and profit engine. Aerospace led performance as foundries worked through deep backlogs and higher defense spending, supporting new aircraft builds. Our magnesium heater platforms have been sizable contributors throughout the year, complemented by consistent activity in commercial powders and flare programs and improved demand in oil and gas applications. Gas Cylinders delivered in line with our expectations. SCBA volumes were higher in the quarter and aerospace inflatables increased significantly versus both the prior year and sequentially. As anticipated, market pressure in clean energy persisted, but the team offset much of this with strength in first response and aerospace helping to sustain a healthy mix. Cash generation was strong in the quarter, providing approximately $10 million of free cash flow, reflecting disciplined working capital management. We also completed the sale of Graphic Arts at the beginning of the quarter, sharpening focus on our core businesses and enabling a more concentrated allocation of resources towards higher-margin opportunities. And we were pleased to announce the addition of Stewart Watson to our Board with heavy experience in the aerospace and defense industry. Footprint optimization is advancing through our Centers of Excellence program. The Pomona to Riverside composite cylinder relocation announced last quarter remains on track. This automation-led initiative will capitalize on our technology and is expected to deliver up to $4 million of annualized savings when fully ramped. This quarter, we've announced plans to establish a Powders Center of Excellence in Saxonburg, Pennsylvania next year, which will concentrate operations to improve throughput and service for both our growing defense and specialty industrial customers while providing approximately $2 million of additional annualized savings. In short, the third quarter underscores our portfolio quality, operational resilience and our ability to align the business to higher-value sectors for stronger profitability. With that, I'll hand over to Steve to take you through the financials and our raised 2025 guidance. Steve? Stephen M. Webster: Thanks, Andy, and good morning, everyone. Let's turn to Slide 4 for a review of our consolidated financial results. In the third quarter, sales were $92.9 million, up 1.6% year-over-year, reflecting continued strength in defense and aerospace, partially offset by softer demand in certain gas cylinder end markets. Adjusted EBITDA was $13.6 million, up slightly from last year, with margins at 14.6%. Profitability was driven primarily by Elektron, where favorable mix and higher volumes in defense and aerospace, particularly in MREs and other specialty programs, supported strong margins. Pricing improvements in Gas Cylinders also contributed, helping to offset softer industrial and automotive demand. Adjusted earnings per share was $0.30, an increase of 11% year-over-year. Cash generated from operations was $11.8 million, reducing net debt to $37.3 million, resulting in a leverage of 0.7x. Year-to-date, sales have increased 5.3% to $280.5 million, driven by strength in defense, aerospace, space exploration and steady SCBA demand. Adjusted EPS improved 18.6% to $0.83, reflecting higher margins from mix improvement and disciplined execution across both segments. Turning to the quarterly prior year sales bridge on the right. Positive price action, largely in Gas Cylinders contributed $2.1 million. Volume mix declined by approximately $0.8 million with softer demand in clean energy and automotive markets, partially offset by defense and aerospace. For our adjusted EBITDA walk, higher pricing and inflation recovery together added approximately $2.9 million, complemented by a $0.6 million benefit from favorable volume mix driven by Elektron. These gains were offset by $3.4 million in planned investments to support defense and aerospace programs as well as higher operating expenses primarily related to overhead costs. For a full breakdown, please see the detailed waterfall in the appendix to Slide 12. Overall, the quarter demonstrated strong execution, steady profitability and mix improvement across our core markets. With that, let's move to Slide 5 for a closer look at Elektron's quarter 3 performance. Q3 marked another strong quarter for Elektron, powered by ongoing defense and aerospace momentum, driving higher volumes and positive mix. Sales were $50 million, up 2.5% year-over-year, reflecting elevated demand in higher-value programs. This, in turn, delivered adjusted EBITDA of $9.9 million at a 19.8% margin, up 160 basis points from last year. Defense and aerospace remained the primary growth drivers, supported by steady demand across major programs and further strength in core platforms such as flameless heating. In transportation, commercial aerospace-related alloy demand stayed firm, offsetting lower activity in auto catalysis. Specialty Industrial was softer this quarter due to weaker industrial demand in zirconium, partially offset by improved activity in oil and gas applications. Looking ahead to strengthen future efficiency, I'm pleased that we are establishing a powder center of excellence. This initiative is expected to deliver approximately $2 million of annualized savings while enhancing quality, throughput and service for defense and specialty customers. Overall, Elektron continues to execute well with elevated performance in its core markets, strong cash conversion and sustaining margins near 20%. With that, let's turn to Slide 6 for our Gas Cylinders results. Gas Cylinders performance was stable overall with sales of $42.9 million, up slightly year-over-year, driven by steady demand in SCBA and helping offset broader market softness in clean energy. Adjusted EBITDA was $3.7 million with margins holding near 9%. While mix and volume were lower in several end markets, increased pricing and ongoing cost control helped maintain profitability in line with expectations. Within the segment, SCBA remained the primary driver, continuing to deliver stable demand for first response and defense applications. Aerospace inflatables demand remained solid, though space shipments were lower this quarter due to expected off-cycle timing following a strong first half. Importantly, we still view space exploration as a meaningful long-term growth opportunity. Our Pomona to Riverside Center of Excellence remains on track. This automation-led consolidation is expected to deliver up to $4 million in annualized savings while leveraging technology for long-term efficiency gains. Let's now move to Slide 7 for a review of our updated 2025 guidance. We have raised our full year guidance, reflecting strong performance from the first 3 quarters of the year. We have increased the adjusted EPS range to $1.04 to $1.08, up from $0.97 to $1.05 from last quarter. Adjusted EBITDA has been refined to a tighter range of $50 million to $51 million, reflecting increased confidence in our outlook. We are maintaining our free cash flow guidance of $20 million to $25 million and continue to expect low single-digit sales growth versus 2024. Momentum remains centered in defense and aerospace, driven by sustained demand for defense programs and ongoing aerospace build rates, the latter supported by solid backlog visibility. That said, we continue to see some softness in automotive within Elektron and alternative fuels within gas cylinders, and these are reflected in our guidance ranges. Operational discipline remains strong with consistent performance as defense production levels stabilize following elevated early year activity. From a risk management standpoint, the direct impact from tariffs remains modest, and our teams continue to monitor and manage our supply chains. With 1 quarter to go, we're focused on closing out and positioning our investments in innovation towards markets where we have the greatest opportunities. Now I'd like to turn the call back to Andy. Andrew William Butcher: Thank you, Steve. Please turn to Slide 8. Our Luxfer Business System provides a clear structured framework to innovate, drive efficiency and stay agile, always focused on meeting customer needs and delivering profitable growth. This slide highlights how we differentiate through the Luxfer Business System and our leadership in strategic markets such as aerospace and defense. At Elektron, our advanced magnesium alloys remain a key competitive advantage. These lightweight materials deliver high strength and heat resistance at roughly 2/3 the weight of aluminum, improving range, payload and efficiency for our customers' most demanding platforms. We use operational excellence to underpin this success. We are a trusted material supplier to major OEM programs with precision manufacturing and process control that ensure mission-critical reliability. Our performance advantage lies in lightweighting that directly enhances mobility, response time and equipment handling in the field, whether it's a lighter gearbox housing that improves aircraft performance or a rugged magnesium component that reduces weight in, for example, night vision systems. Our materials provide measurable advantages where strength, precision and endurance matter most. And finally, we are seeing proven results in higher revenues. The Luxfer Business System continues to drive performance, quality and innovation, positioning us for sustained growth in core markets, where we are consistently winning new opportunities. Now please turn to Slide 9. As we close, I want to take a step back from operations and highlight how we are driving value creation for Luxfer shareholders. Our strategic approach is centered on focus and prioritization. We are aligning the business around specialized high-value products and markets where we hold leading positions and can sustain pricing power. We are strengthening customer partnerships across defense, aerospace and key industrial programs by building deeper, longer-term relationships that provide both stability and growth opportunity. Financially, we maintain a healthy balance sheet, investing selectively and quickly for growth and generating consistent free cash flow to support shareholder returns. Our operational optimization continues through the Centers of Excellence, which will deliver tangible cost savings and improved capital efficiency across both segments. We are also evaluating nearer-term opportunities to drive additional value, including portfolio simplification, operational partnerships and technology-driven growth. We remain focused on driving greater operational performance while also monitoring conditions to maintain full optionality and preparation to take strategic action at any time to maximize shareholder value. Ultimately, we have sharpened our execution focus, strengthened our balance sheet and created the foundation for sustained earnings growth and long-term stand-alone value creation. We'll now turn the call back to the operator for questions. Angela, please go ahead. Operator: [Operator Instructions] And we'll go to Steve Ferazani with Sidoti. Steve Ferazani: Andy, I guess the surprise to me was the strength in Elektron given you were comping to what was by far the strongest quarter of the year last year for Elektron. I know you had some pull forwards in the year ago quarter. I'm trying to figure out how you even top that revenue and the significant margin expansion. Can you sort of walk through what led to that given what was clearly a challenging comp? Andrew William Butcher: Yes. Thanks, Steve. It was a very nice result in Elektron. The strong demand continued in both aerospace and defense. We match that with increased orders. We also saw slightly better order intake in zirconium. The mix was nice with some higher-value products, pushed our margins up towards 20%. So yes, broad-based strength in Elektron, very pleased about that. Steve Ferazani: Can you talk a little bit about pricing and costs and how much that could be reflected in those margins? Or is it purely mix that we're looking at? Andrew William Butcher: It was mainly a mix for Elektron, a nice mix around those aerospace and defense products, continuing strength in the MRE heaters, which have been good all year with that baseline FRH demand, the add-on order and some exports. The pricing came mainly from the cylinders part of the business, where we were pleased with the improvements we were able to make there. Steve Ferazani: Yes. Turning to Gas Cylinders a little bit. I mean you've highlighted the weakness in alternative energy that we were expecting, but you've offset a lot of that this year. Can you talk a little bit about commercial space market and what you think the opportunities ahead are, which seems to be really helping out? Andrew William Butcher: Yes. The market for clean energy is down at the moment, not too much demand for CNG and hydrogen. Still winning some nice orders. But as you've said, we've been able to repurpose much of our large cylinder capacity to the space exploration market, which has been a nice win for us. Sales in Q2 were up on a strong Q1. And although Q3 was lower, that was expected, and we're now ramped up again with strong order visibility for Q4. Space exploration is a demanding application, and we operate at tight tolerances and we achieve good margins. And we believe we excel in that field and the market growth rates are high. Steve Ferazani: Okay. We know the ongoing trend consolidation on Gas Cylinders with relocation to Riverside you've said $4 million in annual savings. Now if you can provide a little bit more detail on the Powders Center for Excellence. You talked about that being $2 million in annual cost savings. I guess 2 questions here. One, if you could talk a little bit more about what's going on with the powder side because it's the first, I think I'm hearing about it. And then two, what's the timing on this net $6 million in cost savings between those 2 moves? Andrew William Butcher: Yes. So talking about the Powders Center of Excellence first. We currently operate 2 manufacturing locations in the U.S. for production of our magnesium powder. So as part of continuing our Centers of Excellence program, we've identified and we're actioning an opportunity to invest significantly in our Saxonburg site. We'll invest over $6 million of CapEx there to create a greatly improved footprint that will support our customers' needs for growth for high quality, tighter particle tolerance and also bring those efficiency and automation benefits worth around $2 million a year. And in terms of timing, we intend to complete the project over the course over the next year. With the Riverside Center of Excellence, the move from Pomona, that project was announced last quarter. That's underway. And we broke ground on that last week in Riverside, pouring some foundations. And so we'll start to see that ramp through 2026. Steve Ferazani: Okay. I know we won't hear from you again until the next conference call will be the 4Q when you're going to -- and I know it's way too early to start guiding for 2026. But are you seeing pockets for growth in 2026? Or is that going to be more of a margin story as you see things right now? Andrew William Butcher: Yes. I think you're right. It's a little early to be talking about 2026. We will give our guidance for that at the end of our full year earnings call. I do believe that we'll be seeing some areas of growth as part of that. And of course, we just covered the cost reduction programs that we're working on as well. Operator: There are no more questions in the queue. At this time, I'll turn the call over to CEO, Andy Butcher for final remarks. Andrew William Butcher: Thank you, Angela. We are very proud of the progress the team delivered this quarter, and we remain focused on delivering long-term shareholder value. I'd like to close by thanking the entire Luxfer team for their exceptional execution and commitment, and thank you for your continued support. Operator: This concludes Luxfer's Third Quarter 2025 Earnings Call. A recording of this conference call will be available in about 2 hours. A link to a recording of this webcast will be available on the Luxfer website at www.luxfer.com.
Mar Martinez: Hello. Good morning to all the people connected. Welcome to the 9 months 2025 results presentation, which will be hosted by Endesa's CEO, Jose Bogas; and the CFO, Marco Palermo. Before we start, let me remind you that after the presentation, we will have the usual Q&A session. Thank you. And now let me hand over to our CEO, Jose Bogas. José Gálvez: Okay. Thank you, Mar, and welcome to everybody. Let me open this presentation by highlighting the strong economic and financial performance of the period, which, as we will see, hopefully, resulted in a remarkable cash generation. This clearly proves the resilience of our business model, which enable us to meet our commitments, maintaining predictable results and consistently creating value despite a complex and uncertain market context. Regarding shareholder remuneration policies, we are making a steady progress in the implementation of our share buyback program, as we will detail later on. And finally, when it comes to the distribution remuneration framework, the current proposal clearly does not provide adequate support and incentives for the investment effort required by the National Energy Plan. Let's now have a look at the key financial and operational highlights of the period. On Slide #4, we can see the solid financial results achieved in this 9 months of 2025. EBITDA reached EUR 4.2 billion, marking a 9% increase year-on-year, while net income came in at EUR 1.7 billion, up by a sound 22% versus last year. Cash generation remains strong with an FFO rising to EUR 3.4 billion, a 29% increase year-on-year. These results allow us to confirm that we are well on track to reach the upper range of our forecast, both in terms of EBITDA and net income. We continue to progress on our capital allocation strategy, as you can see on Slide #5. We acquired the remaining 62.5% stake in Cetasa, enabling full consolidation of this wind asset portfolio. In September, we entered into a strategic agreement with MasOrange to provide combined energy and telecom offers. As part of the deal, which will be completed in the coming months, we will acquire Energía Colectiva, bringing over 350,000 energy customers to our portfolio and gaining access to more than 1 million potential clients. This will reinforce our commercial strategy and opens new opportunities to foster customer loyalty through an integrated service offering. Furthermore, the strategic partnership with Masdar, which we announced last March was successfully concluded in early October. And lastly, as already commented on, we are progressing on the implementation of our share buyback program. After completing the second tranche, we launched a third one with a target of up to EUR 500 million to be executed no later than February 28th next year. Slide #6 provides a brief overview of the progress achieved on the capital allocation strategy and the execution of main industrial KPIs. We invested around EUR 1.4 billion during the period with nearly half allocated to networks. As shown in the slide, industrial KPIs confirm our progress starting with grid, our efforts are reflected in the improvement of the interruption time index, while total losses remained stable at around 10%, still significantly impacted by nonmanageable losses due to localized fraud. In renewables, the consolidation of new renewable capacity allowed us to achieve a 79% emission-free output. And lastly, in the customer segment, it is important to keep in mind that we are pursuing a strategy focused on higher-value customer, reshaping our customer mix profile with a focus on long-term loyalty. From a market perspective, on Slide #7, commodity prices shown signs of normalization throughout the period, gradually stabilizing after the volatility seen in the early 2025. In the Spanish electricity market, final prices were mostly affected by the post-blackout measures to prevent future incident and the resulting notable rise in ancillary services costs, while daily electricity price averaged EUR 63 per megawatt hour, that is a 21% increase year-on-year. It remains unclear how long the system operator will maintain its special anti-blackout measures, which poses a significant cost to the system. Besides, we must consider the lesson learned from the incident. Our electrical system is secure, but we must update the system operation that has undergone structural changes now dominated by renewable technologies. In this scenario, we believe it is critical to reconsider the nuclear phaseout schedule, starting with Almaraz. This facility has become key, as its location helps to strengthen the grid security in an area with vast renewable generation. In addition to rolling out all the measures to boost electrification, there are other steps we must take to ensure system security of supply such as implementation -- implementing a flexible control model. Slide #8. shows how Mainland demand continues to consolidate sustained growth, recording a 2.4% year-on-year increase that is 1.8% adjusted. When it comes to Endesa's area, demand rose by 4.2% and 2.5%, respectively. Deep diving into the analysis by segment, residential consumption expanded significantly, largely influenced by the rise in temperatures. The rebound of industrial and services demand is part of a broader sector-wide increase in energy usage. This clearly aligns with the market rise in connection requests seen in recent years, which are now starting to materialize into actual consumptions. In this regard, it is worth highlighting the growth of the service sector demand, particularly in the Aragon area, which has seen a 9% year-on-year demand increase, mainly associated with the incorporation of data center activity. The strong performance achieved since last year is a clear sign of turning point of trend, not only in terms of the consolidation of the recovery in demand, but more importantly, in the materialization of a new industrial demand. On the next slide, we review -- that is Slide #9, we review the more significant highlight of the distribution regulatory framework. Although the new remuneration proposal introduced certain improvement, it still falls significantly short on meeting the ambitious and urgent require to achieve Spanish decarbonization and electrification goals. In subcontract, the contact evolves in a different direction and reflects very different dynamic and challenges. Grid connection requests continue to steadily rise and some demand growth scenarios such as one of those considered in the 2025 to 2030 transmission network development proposal even exceeds 2030 PNIEC assumption. Grid availability was only 17% at the beginning of September, being virtually 0 in Endesa's area as of today. Due to this capacity constraints, we have been forced to reject most of the new demand connection requests for 2025. It is crystal clear that investment in distribution network must be accelerated to meet electrification goals. The ministry's proposal being a step forward in raising the strategic investment limit by 62% for the 2026 to 2030 period. However, a fair and forward-looking regulatory framework that incentivize investment is essential. Moreover, the pending rate of return update must urgently resolve asymmetric with other European countries as well as addressing inconsistences with other regulated sectors. In conclusion, we urge the CMC to recognize this reality and to respond accordingly by approving a remuneration framework that rises to the challenge. And let me now hand over to Marco for the financial results. Marco Palermo: Thank you, Pepe, and good morning, everybody. Let's start with the analysis of the financial results. I'm now on Slide 11. As we have just mentioned, EBITDA rose to around EUR 4.2 billion, up 9% from the previous year. This solid performance was driven by several key factors. First, the removal of the 1.2% extraordinary levy, which negatively impacted last year's results by around EUR 200 million. And second, the 8% increase in generation and supply EBITDA more than offsets the lower contribution from distribution affected by one-off capital gains that we booked in 2024. Moving to Slide 12 for a closer look at Generation and Supply segment. EBITDA expansion was primarily driven by the 8% gross margin increase, while fixed costs rose slightly impacted by negative one-offs in the O&M. The moving parts of the margin evolution were as follows: Conventional Generation delivered a 16% increase, driven by strong results in gas management, supported by positive prior hedging position, more than offsetting the lower results from short position management with less opportunities in the current price context and a nuclear margin decline, mainly explained by higher variable cost due to taxes, basically the full Enresa tax and the 7% tax on generation. Supply business also contributed positively, mostly due to stronger gas retail margin, while the power supply was stable year-on-year. Finally, the renewable business remained flat overall. Higher hydro volumes were offset by lower wind and solar output and lower capture price. Moving to Slide 13 now. The free power margin evolution reflects all these dynamics normalizing compared to the record high attained last year. The integrated unitary margin stood at EUR 53 megawatt hour with a power supply margin of EUR 18 megawatt hour. This supply margin remained nearly flat, underscoring the effectiveness of our strategy focused on customer value over volume and mostly offsetting the impact of rising ancillary services and peak costs. For the full year, we expect the integrated unitary margin to remain at the current level of around EUR 53 megawatt hour. On Slide 14 now, we analyze the gas business from an integrated perspective. The gas margin showed a strong improvement supported by favorable previous hedging positions and resilient pricing in the B2C segment. The unitary margin reached EUR 10 megawatt hour with expectation of ending the year at around EUR 9 megawatt hour. Moving now to Slide 15 in the below EBITDA. D&A slightly increased compared to the previous year, mainly due to higher amortization from investment in distribution and increased depreciation in renewables, which included the consolidation of the hydro asset incorporated since February. Financial results showed a notable improvement driven by a reduction in average gross debt and lower cost of debt. Finally, the effective tax rate stood at approximately 24.5%, no longer impacted by the nondeductibility of the 1.2% temporary levy that penalized last year's results. Net income rose by a solid 22% with net ordinary income to EBITDA conversion ratio reaching 41% in the period. Turning to the next slide, Page 16. Cash generation continued to be strong with an FFO standing at EUR 3.4 billion, improving on the previous year's levels, mainly due to the robust EBITDA growth and the positive working capital evolution versus previous year, which was impacted. You probably remember by the EUR 530 million Qatar arbitration payment. On the other hand, the higher corporate income tax payment made in this third quarter reflects the exceptional results achieved in 2024 compared to 2023. On Slide 17 now, net financial debt came in at around EUR 10 billion, with cash generated in the period more than covering the deployment of CapEx, including EUR 1 billion of inorganic CapEx. In addition, the change in net debt reflects dividend payments totaling EUR 1.5 billion and the completion of the second tranche of the share buyback program, which resulted in a cash outflow of approximately EUR 450 million. Gross financial debt remained unchanged with the average cost declining to 3.3%. And now I hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. As we mentioned throughout the presentation, the solid delivery across all business areas reaffirm our confidence in achieving the top end of the full year guidance. This confirms the successful execution of our strategy and the resilience of our integrated business model. The soundness of our results is reflected in our commitment to shareholders with a solid dividend policy further supported by the share buyback program that will drive sound and long-term returns to our investors. Lastly, we firmly believe that capital allocation must rely on fair and forward-looking regulation, a stable regulatory framework that incentivize necessary investment is essential to unlock the full potential of our capacity to accelerate the energy transition. Thank you for your attention, and let's now move to the Q&A session. Operator: [Operator Instructions]. Mar Martinez: Okay. We start now with a round of different questions. And the first one comes from Peter Bisztyga from Bank of America. Peter Bisztyga: So 3, if I may. First one, just on numbers. Just looking at your strong 9-month performance, it looks like you need only EUR 300 million of net income to hit your full year guidance at the top end of the range. That would be down quite a lot versus the sort of EUR 600 million that you did in Q4 last year. So I was wondering if you could just explain what the year-on-year negative moving parts are going to be in the fourth quarter. Then next question is on ancillary services. I was just wondering what was the positive impact of higher ancillary services charges on your generation business in the 9 months? And despite your flat retail margin, do you think that you can pass on those higher ancillary services costs to your customers in 2026? So should we expect your supply margin to actually increase above 18% next year on that basis? And then finally, you lost another 130,000 regulated customers in Q3. I know you've said that you focus on high-value customers. But just wondering what proportion of your remaining 6.3 million liberalized customers you see as low value and are willing to lose? So at which point do you sort of have to start focusing on customer numbers rather than margins again? José Gálvez: Okay. Thank you, Peter. I will try just to give some color to the first question and the last one, and then Marco will add whatever. With regard to the guidance, well, as we have said, we can confirm that we expect to reach the top end of the Capital Market Day guidance for the full year 2025. That is clear, and we feel very, very, very comfortable. But we don't use to change our guidance, but believe us, we feel very, very comfortable. Regarding the customer that we have lost in the last quarter, how much customer we are thinking that could be in a vulnerable, let's say, that position. Well, it is clear for us that the competitiveness in the Spanish sector is a good thing, and it's improving the way in which we offer and supply services to our customers. But it is clear also that just because of the more than 25% churn rate that we have at the level of the system and also at the level of Endesa, there are many switchers that it's very difficult just to obtain any profitability from this. As you could see, we have reduced our customers and -- but our margins in supply even with the increase in the ancillary costs continue -- being the same at the last year, more or less. So that means that these customers that we have lost are not a value customers. So as we have said, we are trying to put first the value over the number of customers that we have. On the other hand, I would like just to add that this movement that we have done with MasOrange is trying just to really change a little bit our offer to our customer, trying to offer bundled services of telecoms and energy and given a better service just to increase the fidelity of this customer. So well, we will continue on that, and we will see if this strategy really reduced the losses and even more increase the customer in our customer base. And now Marco will add to whatever and talk about the ancillary services. Marco Palermo: Okay. Peter, thank you for your questions. Again, let me add something also on question number one. Yes, guys, I mean, it's like there is no secret here. It's EUR 0.3 billion as a net income for fourth quarter. Generally, the fourth quarter is a strong quarter. So I mean, that's why we are saying that we are very, very comfortably in the higher part of the range. Regarding question number 2, ancillary services. So there were 2 questions, I guess, there. But basically, first one, just to give you a few numbers, in order to have an idea on quarters for us, the penalization of the increase of ancillary services this year weighs approximately as a gross penalization, EUR 75 million per quarter, okay? So basically, 9 months is approximately EUR 200 million. On the other side, this is the gross penalization because you have some recovered this on the generation side. So around EUR 25 million per quarter. So if you sum up, it's like basically the impact -- the negative impact in 9 months should be approximately EUR 120 million, something like that. So that's why we say that we believe that for year-end, we will probably be around EUR 150 million net negative impact from ancillary services on our accounts. That, of course, if you see it, gross is a higher number. And in terms of supply margin, I mean, the supply margin stays where it stays because we have done -- we have managed our portfolio, but all those -- I would say that all those management was we were thinking to do that. So -- I mean, it's now what we have to do is working on absorbing somehow this higher cost on ancillaries. So that's why we have to continue to work this year, but also next year on recovering these costs. And on the loss of customers, I guess that the job that we're basically doing there, I would say, is almost done. And part of this is probably also related to the fact that on one side, we've been losing those clients that made no sense in terms of acquisition from the push channels. On the other side, I mean, we're -- somehow we decided just to go through with the acquisition of the clients our clients from MasOrange that somehow showed a different trend in terms of churn and so on that I guess is mostly related to the fact that they have a bundle -- they buy bundled products and probably in these offers, it's easier to see the value that you give to the customer. Thank you, Peter. Mar Martinez: Thank you, Peter. And now we have Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: Also 3 questions. I want to bypass a bit questions on regulation. I'm sure you get some more later. But can I ask you, if you were to receive a decent outcome, it's quite binary here, right? Either returns are good or they are just not quite good. So if you have a decent outcome, how much RAB growth do you think Endesa can deliver over the coming 5 years? The second question is, can you place a share buyback somewhere in your capital allocation priorities? Do you think this is going to be an ongoing -- not just a tool, but an ongoing feature, meaning like a base case until December '27? And could we see this continuing to '28? I'm thinking in case returns, for instance, are not particularly good in distribution. So should we look at your share buyback almost as a safety net -- as a silver lining here on capital allocation? Or is it more central? And the last question, you have been -- I think we need to give you credit. You've been the first company to talk about an inflection in power demand. You've been the first company to talk about particularly for Iberia, for Spain. Can I ask you -- it seems to me there's like 35 gigawatt of connection request to the grid when it comes to data centers in Spain. Obviously, we cannot imagine that 35 gigawatts will come online because it's the entire demand of Spain. But can I ask you 2 points on this 35 gigawatts. How much is from hyperscalers, therefore third-party data center specialized companies vis-a-vis entrepreneurs that are trying to make money out of this early-stage development? And secondly, how much of the 35 gigawatts do you think it's realistic to assume will become operational by 2030 or '35 in Spain? Is it 5%, 10%, 20%? Just trying to gauge here what we should expect for this very important driver. José Gálvez: Okay. Thank you, Alberto. Let me say you something in relation with the 2 first questions. Well, we are an under-leveraged company. That means that -- and we have strong potential just to invest or just to -- in general, just to give value to our shareholders. If we could give this value through investment in the system, we will do it. If we are not able yet because of the regulation or yes, because anything, we will look for ways just to return this value to our shareholders, as we have done with the share buyback that we have launched. So it is very clear for us that we want to give value to our shareholders. If it is possible just to do it through investment in the system, we will do it through the investment in the system. If not, we will do things like the shareholder buyback that we have done or similar thing. So that is clear, absolutely for us. With regard to the decent outcome in the distribution regulation, well, what I could tell you is that our last plan that is the plan from the year 2025 to the year '27, we invest around EUR 4 billion in gross investment in distribution. And we increased something around EUR 0.7 billion, EUR 0.8 billion in the RAB in the year 2027. What we said in that context is that we have further firepower, let's say, that has to invest even more. But if -- so if we obtain a decent remuneration, we will try to increase this investment in the future. With regard to the power demand, you're right, the 35 gigawatt of data center. Well, we will see how many will be materialized up to the year 2030 because, well, it would depend in many things. Let me say to you something. The government of Spain has increased the cap, the limit from the 100 to the 162, that will give us an increase that don't reach the one previously forecasted in the PNIEC. So we are short on that. So in that way, what I think is that we will be able just to reach the increase in demand that it was forecasted in the PNIEC and even perhaps a little bit more. And I'm talking around 3% each year up to the year 2030. But all these demand increase will be beyond the year 2030. We will have a huge increase in this year up to the year 2030, as I have said. But unfortunately, the investment that we are going to do like the Spanish sector in the distribution and transmission networks is not going to be the total amount forecasted in the PNIEC. Marco? Marco Palermo: So thank you, Alberto. And sorry if I go long on the question. I don't know why I feel that I would like to talk today. So on question number one, on the RAB increase, in the last plan that we presented -- I mean, I remember that we had approximately EUR 3 billion of net CapEx along the plan and that we were giving us an increase in RAB that was lower than EUR 1 billion. But was a previous -- the current plan, it's not the new one, and it was based on other kind of assumption. Now we have to see what is the regulation that comes out finally also in terms of level of investment and what are the kind of investments that are allowed, but it looks like this figure can somehow improve. Second question, share buyback. Is it a priority? Well, of course -- I mean, I guess that the answer is basically in the number. If you look at our net debt, and our gross debt now, I mean, despite the fact that we've been, of course, doing CapEx, we have been doing M&A. And despite the fact that we have been completing the first tranche of the share buyback, so EUR 450 million, we are still at 1.8x net debt to EBITDA. So I mean, whatever we do, we are still there. So that's why we decided just to launch -- to stop with the previous tranche and launch a new one because we do see that there is space here for a lot. Just to give you some numbers, I always said that probably this company should run at a net debt to EBITDA that is between 2.5x and 3x. So if you take the numbers of today, the EUR 5.6 billion EBITDA, I mean, you multiply there is space at least for another EUR 5 billion. And of course, as you can see, probably, you can understand that despite whatever we can assume on distribution, there is still ample margin for share buyback, and that's why we launched the third tranche. And on the third question on the power demand, we are -- it's in the make, Alberto. The answer to this question is in the make. In the sense that, that's exactly what we are discussing right now for the new business plan. And what we can say is that in this request for data centers, in terms of numbers, of course, there are many little entrepreneurs. But those little entrepreneurs, generally speaking, that they ask for small quantities of capacity. While the big guys, the one with the brand on top of the hat they go for the big numbers. So I mean, their presence is relevant when it comes to the proportion of big guys somehow requesting capacity for their data centers. Mar Martinez: Okay. We move now to Manuel Palomo from Exane BNP. Manuel Palomo: I will ask just a couple. And sorry to insist on the buyback and on the regulation. But I was wondering whether -- well, continuing with the buyback at the current share price levels, which with the stock yielding below 5% makes still a lot of sense or whether it would make much more sense to invest as much as possible in electricity distribution business, even if the 6.46% return is not changed. So it's not improved that we expect it will be. So my question is whether you will do as much as you can even if the regulation does not improve? And my second question is on the margins. I'd like you to please help me to understand what will happen with the margins for the next year because we've got one very positive driver, which is hopefully the pass-through of the ancillary services to final clients. But on the other side, I guess that we are all expecting some normalization in the hydro results. So my question is whether you could help us to understand where you expect the integrated margin for electricity to land in 2026? José Gálvez: Okay. Thank you, Manuel. Let me try to say something about the first question. You are right that, let me say, perhaps the Spanish regulation with regard to the distribution remuneration is one of the more complex of Europe and could be all over the world. What I really think is that we need certainty. And what we are obtaining is uncertainty just because of this very, very complex regulation that really you need to -- or we need to understand when we have -- when we will have the final and full picture of this, then we will take our decision about this. But let me say that it is a little bit confused. I would prefer more clear, transparent, direct regulation. And if you allow me, I would tell you something about Paracelsus. Paracelsus was 16th century alchemist that said that the difference between medicine and poison was the dose. This sets of regulation can become poison for the network. So I ask the regulator just to simplify and just to give more clear regulation. Having said that, we need to have the full picture, and we will evaluate what to do. Marco Palermo: Okay. So given that also Pepe is very inspired today, I will try to make answer short because otherwise, it would take too long here. So yes, CapEx is a priority. Let's see the final results, and then we will check. Regulation. On regulation -- sorry, on margins, what we do expect for 2026 integrated margin in line with this year. You were saying correctly, maybe the hydro next year will not be exactly the one that we have this year, not very sure about it. But if that is the case, I hope that also solar and wind will not be next year, the one that has been this year because actually, there was not so much sanction and even less wind until now in the year 2025. And I would say that's it. So basically, integrated margin 2026, in line with the margin of 2025. Thank you, Manuel -- sorry, here, they are saying buyback and versus CapEx. So CapEx, of course, again, we will do -- we want to grow. So if there are a condition, we will grow. Of course, they should be profitable -- this should be a profitable growth. And in terms of buyback, I guess that there is -- as I said, there is space in the debt, basically, frankly, for both. Then I mean, buyback, it's a way of giving back to our shareholders. That could be also a dividend policy. But all this stuff will be somehow managed and addressed in our Capital Market Day end of February next year because they are all in the make. Thank you. Mar Martinez: The next question comes from Pedro Alves from CaixaBank. Pedro Alves: Just one question, please, on -- just to understand how you frame your thoughts in terms of capital allocation besides the potential investments in distribution networks. So basically on potential M&A opportunities because given your balance sheet flexibility and the fact that valuations for renewables pipeline in Spain have sort of come down over the past year. Do you see this perhaps as the moment to buy, for instance, a renewable developer being, for instance, a smart hedge given the uncertain state of nuclear in Spain. I mean if nuclear does close, you reduce your share position in inframarginal generation and benefit from higher power prices without nuclear. And well, if it's extended, you obviously still capture the upside from your nuclear fleet. Just to understand if you can really hit the pedal now on M&A. Marco Palermo: Thank you, Pedro. So on your question, do we have space for M&A in our balance sheet? Yes. And that's exactly what we have been doing with the acquisition of the assets of Acciona, with the majority of the wind assets in Acciona, with the acquisition of clients from MasOrange. So I mean, that's -- if we see an opportunity, of course, we do it. Now does this brings us to buy renewable developers? I don't think so because, I mean, we have plenty of projects in wind, in solar, in BESS, I mean, plenty of that. What we will love eventually is something that is up and running. So if there are things there that are up and running -- but again, probably not on solar but on the other technologies. And those kind of things are not easy to find or not cheap to buy. Mar Martinez: We have now Javier Garrido from JPMorgan. Javier Garrido: I think most of them have been addressed, to be honest. So I will focus on 2 on results. Firstly, on your financial costs. Do you think that the Q3 numbers give a good outlook for the steady rate of financial costs going forward, given that your gross debt has now stabilized? And regardless of what decisions you make then on extra shareholder remuneration, you plan to keep a similar structure of financing in terms of the balance between fixed and variable costs and short and long-term debt profile? And then the second question is on the regulation and Fred. So if I understand correctly, your priority when you think about the potential improvements that might come in the final determinations of the regulator would be to get more visibility and predictability about the inclusion of assets into the RAB and lose the risk of having stranded assets. Is that correct? Or is there any other top priority in your mind about what should improve in the regulation for you to be more aggressive in your distribution CapEx profile? José Gálvez: Let me try to answer the last one in terms of the regulation. And well, it is a whole all the remuneration of the distribution. As I have said, it is complex -- very complex. We need just to understand clear. But the most important thing for me is to have the guarantee that all the investment that we are going just to go ahead with will be remunerated. That is something that in the last drop, and we are waiting for the next drop really create some kind of uncertainties. And there are many levers just to improve the remuneration in this regulation that we should understand clearly just to take the decision, but we prefer just to go ahead with investment in the system, in the network and to give the enough profitability just to give value to our shareholders. That is what we want. That is why we are working now. If we don't have the opportunity, we will look for another ways just to give value to our shareholders. Marco Palermo: Thank you, Javier. So let me answer the questions on the financial structure and financial costs. So can we assume that the financial costs that you're seeing right now are the stable financing costs? I would say, yes, in terms of price, so in terms of rate, even though I still expect that maybe we can do slightly better than that. And in terms of quantity, I mean, let's hope that we will have the opportunity to increase our debt. So I mean on the proportion fixed versus variable, we are now approximately 60% fixed and 40% variable. And I guess that probably this is close to what we want to have vis-a-vis the future in terms of structure. Thank you. Mar Martinez: The next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions from me as well. The first one is on the electricity demand dynamics in Slide #8. You have mentioned that there is a sharp increase on electricity demand. There has been a mention of some impact on new data centers in the area of Aragon. So could you be a little bit -- give us more granularity on the underlying dynamics for electricity demand increase affecting the industry services and residential activities. That would be very helpful. Then on the regulation, again, back to the need for a different proposal. Can you help us to understand which could be, in your view, the implication on some optimal regulatory outcome? And if you see the necessity for the government to intervene maybe calling a committee of collaboration between the sector, the regulator and them as well? And then the third comment is on the supply activity and the decrease on number of clients by minus 6% year-to-date. So can you help us to understand why do you see that the client base is going to remain sticky in an environment that you have defined of a significantly higher competition? José Gálvez: Okay. Thank you, Javier. Trying to be short in the answer, I will pass the question to -- just not to repeat. Marco? Marco Palermo: I mean, here things becoming hot, the climate here. So I mean, on question number one, regarding electricity demand, I mean, here, probably the nice -- the only comment that I would add, if you go back to Page #6, I guess it was, sorry -- yes, when we had the split of the -- only to comment that data centers are in the service cluster. So on industry, you start to see a recovery of industry, and that's what was easy to see for us because we were seeing our clients somehow switching from gas to power. So I mean, we were seeing this somehow or asking for more capacity. So we were seeing this starting to happen. On services is where you find the chapter of data centers that I mean, here, it looks like if you look at our area, strong increase. I mean, we believe that still much has to be seen here. And on residential, I mean, it's what has always been somehow sustaining the consumption for the time being, and it's even more related then to weather and these kind of things. On question #2, on regulation and what could be the effect of a suboptimal regulation, well, I mean, on one side, if maintained, I mean, if there is really a decision on that, of course, it means much longer time for developing the network that the country needs to have and the country deserves. So basically, it's somehow unfortunately losing an opportunity. Then does this mean that in the process things can change? I mean, I don't know. I mean, for the time being, I still want to hope that, I mean, the fundamentals will somehow will somehow be there because it's too of a good opportunity for the country. On question number three, regarding the supply decrease. I mean, frankly, the churn level that we are seeing right now, we don't think it's a sustainable level for any market, for any country. I mean -- it's over 25%, I mean, in that range. I mean we believe that it's because of many things. There are a lot of components there. I'm not so sure that all the clients are so happy just to switch so much in some cases. I can tell you that it's a level of fraud that is terrific. So we think that sooner or later, this will be somehow -- this will decrease. And in a way of somehow -- I mean, of course, fighting the fraud and so on, and it's not only in our hands. But for what we can do, of course, it's in our hands just to give a compelling proposal to clients. So that's why we decided just to acquire the clients coming from MasOrange that somehow they come with the bundled proposal. And on the other side, also try to have an agreement with them in order to offer also to the other clients of our base, other services and other offers that they can find somehow attractive. All of this in order to decrease the churn level that, as I said, is not sustainable. Mar Martinez: Okay. The next question comes from Fernando Lafuente from Alantra. Fernando Lafuente: Hopefully, the last one on regulation, just about the timing in which you expect the new drafts or new steps from the CNMC, both on the model and on the WACC. And also on networks, in this case, I would like to have your view on what would be a recurrent EBITDA for this year? And under the current circumstances, how do you see that EBITDA evolving ahead of 2026? And lastly, on the capital allocation, it's very good to hear you being more active on capital allocation and especially this message regarding shareholders' returns. My question is on the dividend policy, Marco. You basically commented that a little bit, and I know you said the Capital Markets Day. But my question is basically if under this strategy of increased value for shareholders, you could consider a new dividend policy with, let's say, more visibility or less volatility than what we've seen in the past and obviously, without wanting to give you a specific answer on what's going to be the new policy. But what are your views on that side? José Gálvez: Fernando, talking about the timing in the regulation and the CMC, who knows? But let me say, having said who knows, it's going to be before the year-end. The real thing is that we are waiting in the next days just to have another draft, that hopefully will take into account at least some of our comments on this regulation. And we hopefully think that it will improve the picture that we have today. It could be enough just to take a decision or not, I don't know. But we will see in a short period of time, the first results and movement. But the last draft or the last or the final picture could be before the end of the year. Marco Palermo: Fernando, thanks for the questions. Number two, on network. I guess that the recurrent EBITDA, the one that we were seeing for this 2025 is approximately EUR 2 billion. In 2026, we were seeing this going up in the previous plan, EUR 100 million in 2026. So then, I mean, let's see what happens, what is the final regulation and what are the decisions that we take on CapEx. And on number three, dividend policy, I mean, that's another thing that is in the make. We are having this kind of discussion right now. And yes, I guess that there are 2 parts here. On one side, CFO claiming for having somehow some flexibility in order then to fix the dividend. And on the other side, somehow giving confidence to our investors about the profile for the future. So I mean, those 2 things, I guess, that not necessarily are not compatible. That's the way we are starting to work. Having said that, your answer -- your question was very elegant. I don't know if my answer was at your level. Sorry for that. Mar Martinez: Next question comes from Rob Pulleyn from Morgan Stanley. Robert Pulleyn: The first one, if I can just revisit something from earlier. Could you confirm for the network CapEx, what is the upside to your current guidance, given the investment caps increased and appreciating it's contingent on the regulatory package. I believe that the 3-year guidance you've given to '27 is that the regulatory CapEx on networks would be EUR 1.2 billion. It'd be interesting to hear what upside potential there could be for that if the stars aligned and the regulator gives you what you ask for. And secondly, apologies if this has been answered, but I hadn't heard it. Could you give us a steer as to how the repricing of your supply contracts is going to pass on this ancillary service costs you spoke to earlier and how that will look for '26 and '27 in terms of passing that through to your retail base? Marco Palermo: Thanks, Rob. So on network CapEx level, again, it's difficult to say without having the details, and it's difficult to say because we are in the makeup of the new business plan. What I can tell you is that if the outcome is positive, we believe that the previous -- the current business plan that actually was envisaging approximately EUR 3 billion of net CapEx along the 3 years could be substantially increased. I don't want to give numbers on that. Regarding question number two on the supply, I mean, as I said, the supply margin you have seen, it's basically constant, is EUR 18, and it's because of the management of the portfolio that we did along the year. And that was what we thought doing before the increase of ancillary services came into the play. Now in order to somehow digest this increase in ancillary services, that I was estimating, is approximately something in the region of EUR 150 million, could be a bit more probably at the year-end 2025, we need time. And part of it has been done because there are contracts that somehow foresee that, but part of it cannot be done immediately. So it will -- something that will take us busy along 2026 and maybe a bit longer than that. Mar Martinez: We move now to Fernando Garcia from RBC. Fernando Garcia: I have just 2 left. So coming back to the data center topic, are you having any conversations to do PPAs with data centers? And second question, for the EUR 5 billion potential leverage optionality that you commented before, specifically related to share buyback, is there any financial limitation to do that, like, for example, EPS accretion? Marco Palermo: So on data centers, are we having a conversation on PPAs? Yes, of course, and it's mostly related with the big guys, I would say. Question number two, that is on the leverage optionality. I guess that there -- I mean, frankly, the only thing we are checking and seeing in the share buyback use is not reducing the -- structurally the liquidity of our shares, okay? That is the only real limitation and the only thing that we are carefully look for the use of the share buyback mechanism for the time being. Mar Martinez: Okay. This was the last question from the conference call. And now I will read just one pending question that comes from Philippe Ourpatian from ODDO. And the question is regarding the Portuguese statement from the rate of return and if this could be a good proxy for Spain. He mentioned the increase of 170 basis points in the write-off return. Please, Pepe. José Gálvez: Thank you. Let me say that increase of 170 basis points will give us something around 7.1%, 7.2%. Well, it is better than the one that we have today. I think it would have more sense. Also, if we take into account what the CMC are doing with other regulated sector in Spain, that will give us something around 7.2% that is very closer to the one in Portugal. Well, the other thing is that the financial remuneration rate all over Europe is something between 7% to 8%, let's say that. So well, it would be in the lower range that we see in other countries but -- well, I think it would be better than the one that we have today, of course. Mar Martinez: Okay. Now yes, this was the very last question of the conference call. Thank you for your participation. And as always, IR team will be available in case you need any further questions. Thank you very much.
Operator: Hello, everybody, and welcome to the Virtu Financial Third Quarter 2025 Earnings Call. My name is Elliot, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to Andrew Smith, Head of Investor Relations. Please go ahead. Andrew Smith: Thank you, Elliot, and good morning, everyone. Thank you for joining us. Our third quarter 2025 results were released this morning and are available on our website. With us today this morning, we have Mr. Aaron Simons, our Chief Executive Officer; Mr. Joseph Molluso, our Co-President and Co-Chief Operating Officer; and Ms. Cindy Lee, our Chief Financial Officer. We will begin with prepared remarks and then take your questions. First, a few reminders. Today's call may include forward-looking statements, which represent Virtu's current belief regarding future events and are, therefore, subject to risks, assumptions and uncertainties, which may be outside the company's control. Please note that our actual results and financial conditions may differ materially from what is indicated in these forward-looking statements. It is important to note that any forward-looking statements made on this call are based on information presently available to the company, and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release discourage you -- and encourage you to review the description of risk factors contained in our annual report, Form 10-K and other public filings. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA and adjusted EBITDA margin. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP. We direct listeners to consult the Investor portion of our website, where you'll find additional supplemental information referred to on this call as well as a reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an explanation of why we deem this information meaningful as well as how management uses these measures. And with that, I'd like to turn the call over to Aaron. Aaron Simons: Thanks, Andrew. Good morning. Let me begin by noting this quarter's prepared remarks are brief in order to leave more time for questions. As usual, all relevant performance data are included in our earnings release and supplemental material. Before I turn it over to Cindy to discuss our results, I just wanted to make a few high-level remarks to orient everyone as the company's direction moving forward. Over the past several years, we have completed major integrations, established trading in new asset classes and returned significant capital to shareholders. Our edge in the market is created by our technology, our risk management and our operational efficiency. Additionally, as a business, we carry over our attention to detail to expense management as well as our client relationships. None of that is changing. However, now we feel ready to focus on growing our trading results through investing in our infrastructure, acquiring talent and expanding our capital base. Importantly, this will not be limited to a small number of previously highlighted growth initiatives, rather an overall focus on growth everywhere in the firm. You may recall in the past, we have provided earnings scenarios at different levels of adjusted net trading income in the range of $6 million to $10 million per day, and our goal is to grow our business to trend toward the higher end of this range as a base case. Just on a personal note, I took over the role of CEO on August 1, almost exactly 17 years after first starting at Virtu. An unbelievable amount has changed since then and somehow now is always the most exciting time to be a part of this company. With that, I'd like to turn it over to Cindy for details on this quarter's performance. Cindy Lee: Thank you, Aaron. Good morning, everyone. Turning to this quarter's results. The firm reported normalized adjusted EPS of $1.05, adjusted net trading income or ANTI was $467 million or $7.4 million per day, predominantly driven by a positive operating environment, which has persisted for most of the year as well as a renewed focus on growth. Market Making reported ANTI of $344 million, were $5.1 million per day, driven by strong performance across all businesses, particularly global equities, cryptos and currencies and commodities. We're also seeing continued momentum in Virtu execution services and are excited about our work expanding the VES product set to include multi-asset class capabilities. VES reported ANTI of $123 million or $1.9 million per day, marking its best quarter since early 2021 and a sixth consecutive quarter of increased ANTI. Earlier this year, we noted goal of $2 million per day through the cycle for VES. We're encouraged by VES performance and consistent quarter-on-quarter growth regardless of the environment. VES offer market-leading financial -- market-leading financial trading products globally across the entire life cycle of a trade. Notable, VES has a suite of workflow and analytics products led by Triton which was recently awarded the top spot in Trade 2025 EMS survey for the third year in a row. These products represent a strong embedded base of revenue. On a trailing 12-month basis, the workflow and analytics business generated $137 million of ANTI. In terms of legacy revenue disclosures, we achieved strong results on our existing growth initiatives, which delivered ANTI per day that was slightly ahead of the prior quarter. Well, the areas included within the existing growth initiatives are important and represent businesses have grown meaningfully over the years. We will look to grow more rapidly in all areas of our business. While we will, of course, maintain our annual dividend, we will seek to grow our capital base to take advantage of the trading opportunities as they arrive. Now we can turn it over for Q&A. Operator: [Operator Instructions] First question comes from Patrick Moley with Piper Sandler. Patrick Moley: Welcome, Aaron. I'm really looking forward to working with you. So I have a 2-part question. First, I appreciate all the disclosure around the focus shifting to growth opportunities. I was hoping you could break that down for us a little bit more and maybe speak to some of the areas where you see the most significant opportunity for growth. How much of that is going to be expanding into existing areas where you already have a presence versus entirely new opportunities? And then as a second part, you mentioned in the deck that you'll look to dial back share repurchases in order to build more capital. I was hoping you could flesh out for us maybe how much capital you could potentially be looking to build and what that means for your longer-term capital return priorities? Aaron Simons: Sure. Thanks, Patrick. I think it's hard to predict in advance. We've always been a firm that reacts to the opportunity that's in front of us. So currently, I think there's a pretty good growth opportunity everywhere in the firm. I mean, obviously, the areas that we've highlighted previously, like crypto, options, ETF block continue to be fast-growing areas, especially given the environment. And so you'll probably continue to see growth there. In terms of the additional capital, I think we provided in the supplemental materials already in 2025 through retained earnings as well as debt financing, we've raised over $500 million of new trading capital, which has already been immediately deployed. I think in terms of a long-term plan, we want to significantly grow the P&L. So if you look at our return on capital rates, they've always been in the upper 60s to 100% return on capital. So if we want to double the P&L of the firm, we're probably going to have to double the capital base. But that's a long-term plan. It may take a few years. And if you look at the reports of the free cash flow that the business generates, I think there's pretty significant opportunity to just accumulate that organically over time. And we've always been incremental in our approach to growing, and we'll just continue to do that. Operator: We now turn to Alex Blostein with Goldman Sachs. Alexander Blostein: Aaron, a warm welcome to the call. I would love to get just a little bit more meat around those bones. Obviously, it sounds like it's a bit of a pivot in the strategy. And I guess a multipart question on this. But I guess first is why now what prevented Virtu in the past going after these opportunities that you feel like this is the right time to sort of do this today? And when you think about the existing asset classes, you spoke about, obviously, the newer things, whether it's digital and crypto or options, we know you guys have been on the past for a while. But when you think about the traditional kind of market-making businesses that you're already in, do you see an opportunity to accelerate market share gain within that as well? And what would it take, I guess, for you guys to do that? Aaron Simons: Yes, I can answer some of that. So as to the why now question, well, there's not like a step change, but there's been like a confluence of factors. So over the past several years, we've pulled off some pretty large integrations and a lot from a technical standpoint, some from a people, cultural standpoint, added significant new business lines. And now that we sort of have a handle on that and things are coming to an end, we're able to refocus some of our talent base on attacking new opportunities. So that's certainly part of it. The world hasn't gotten quieter. So there's definitely just been an uptick in overall external opportunity. And so we just sort of feel it's the right time. And I think the employees are excited about refocusing on growth. In terms of the areas, like obviously, the ones I highlighted, but yes, in our core businesses, there's definitely room to grow. So one of the things that we've always done, right, is that our platform is scaled. It operates the same way everywhere in the world. It's sort of easy for us to redeploy to new asset classes with flexibility. and compete technologically in any market. So when you say our core business, even that encompasses many, many different types of trades in different areas. So there's always like interesting new corners of the markets. There's always like sort of idiosyncratic opportunities in ETF trades or foreign markets or commodities. And we're always just going to try to adapt to what's in front of us and just focus on our processes. Joseph Molluso: Alex, I would just add to that. This is Joe. The areas that we always outlined is growth continue to be growth areas, right? So we've given that number but I think the pivot here as you describe it, is really to include options. It includes crypto, it includes ETF block, it includes rates. But it doesn't exclude other areas of our business, right? And I think we put in the supplement the capital management priority slide, and this is a little bit to Patrick's question as well, right? We have shown -- and this is the management team that's in here, right? We have shown a long-term track record that demonstrates that we know how to manage capital, right? So we've have a long-term track record of managing capital. We have a long-term track record of integrating acquisitions. We have a long-term track record of operating a scaled business. And we have a long-term track record of growing in select businesses, right? So I think with Aaron at the helm, there's a set of opportunities that are -- that we all agree are getting bigger, right? And that includes a lot of the things that I'm sure we'll talk about on this call. But we didn't want it to sort of look at it as being limited to just a handful of things that we've talked about in the past as growth initiatives. Alexander Blostein: Right. Right. And then as in addition to capital, do you guys anticipate there is a larger OpEx lift that this will be required? Or do you think you can largely leverage the existing footprint so the incremental revenues presumably will come in at a fairly high incremental margin?% Joseph Molluso: There should be -- you should still see very strong positive operating leverage in our business. That doesn't mean that we won't need to attract top talent, retain top talent. That doesn't mean that we're committed to a particular ratio of comp to net revenue that we've had in the past, but I think it will still be reasonable. It will look more like the past than not. But I think if it grows, it's going to grow because we're experiencing very high levels of positive operating leverage, good growth. And I think there's no big bang here. As Aaron said, right, we've always been incremental, and we'll continue to be incremental. Operator: We now turn to [ Elia Bud ] with Bank of America. Unknown Analyst: Aaron, congrats on the new role, Craig and I look forward to working with you. You highlighted options as an area where there will be a larger focus on growth going forward. I was wondering if you have a time line in mind for when Virtu can start customer market making in options. Is that a near-term 2026 objective or more of a 5- or even 10-year target? And then could M&A be part of your road map in options? Aaron Simons: Sure. So I don't -- we're not in the business specifically with the goal of doing customer market making 605. If we get to the point where our business is scaled and more profitable, then we have the infrastructure and the relationships where we'd love to get into that business. But really, our focus is on just being excellent at trading options, and we're focused on that and where it leads is where it leads. Joseph Molluso: Yes, [ Eli ] in terms of M&A, it goes back to the answer on capital management priorities. I think if you look at our history, we used leverage and our capital to execute 2 very highly accretive, important acquisitions to what Virtu is today. We used our capital to buy back our shares when we thought they were undervalued. And we're using our capital today to grow. And should an opportunity present itself where the returns that we can get from an M&A deal are superior to what we have looking in front of us, then we'll explore it. And I think we've got a track record of doing that prudently and not paying -- I think if you look at the acquisitions we've done, we've bought volatility at very low prices. And so I think the purchase price going in was attractive and the execution was excellent in terms of value creation and synergies. There's nothing that we're looking at today that competes with Aaron's plan to grow revenue. And so therefore, our incremental capital dollar is going to grow in the business, but we're always -- we're here to create shareholder value and allocate capital to do that. Unknown Analyst: Got it. And for a follow-up, can you hit on the revenue capture in the Market Making segment this quarter? Your 605 quoted spread opportunity declined 3% sequentially, but your Market Making revenue fell 26% sequentially. Like how should we reconcile that delta there? Joseph Molluso: It is always good to kind of look at that. I think there's a great focus on the retail business. Some very smart guys in a research report yesterday wrote that we sit downstream from a long-term secular trend in retail, and we agree with that. But the way we look at it is we performed well against the opportunity overall. Yes, those indicators were down, the volumes and volatility as well as the 605 reports showed declining activity, but we're very happy about how we performed. And I think I mentioned that focus on retail because if you look at our performance this quarter overall, there's always this hyper focus on retail, but our business is a lot broader, right? We have a global operation in multiple asset classes around the world. We did very well in crypto. We did very well in our proprietary Market-Making business in commodities, for example. We haven't talked about VES, right? So I think if you look at us, I think there's this hyper focus on retail for good reason, but there's a lot more there. Operator: We now turn to Chris Allen with Citi. Christopher Allen: I wanted to ask on the third quarter results. I think in general, people, the results were outperformed expectations given the environment realized volatility. I'm just wondering, obviously, you raised some capital during the quarter. You noted that it's been deployed, what impact that had? And then any color just on the sequential improvement in the organic growth initiatives or opportunities where there were the best tailwinds this past quarter. Joseph Molluso: Yes. Look, again, I think if you -- it's a difficult question to answer what impact did the new capital have. In terms of the debt raise, the debt raise was September 23. So that was pretty much towards the end of the quarter. Our -- on Slide 4 of the supplement, you see we earned a 95% incremental return on our capital. So my answer would be any incremental dollar that we deployed this quarter, we earned a 95% return on. And that includes the capital from the beginning of the year. In terms of the performance and what to highlight, I think we mentioned already, I think crypto was a standout, and we expect that to continue. We had a strong performance in options. We had a strong quarter in ETF block. I think all of the things that we've included as growth initiatives were above where we were in the second quarter, just a little bit. So it was all of the above, Chris. And again, I'll mention VES, right? VES is showing growth through different environments. And Steve Cavoli has done an amazing job there, and that business is set up for success. Christopher Allen: Got it. Just as a follow-up, when we think about capital -- increased capital deployment moving forward, are you thinking about developing new strategies for attacking some of the existing businesses? Or is this just putting capital to work with your existing strategies? Joseph Molluso: It's all of the above. I'll be make sure I want to point out and say that we're not looking at taking on more risk. I think everything is within the risk parameters that we've historically been comfortable with in terms of Virtu as a market participant, as a liquidity provider, as a service provider. You may -- it's mainly leveraging our existing infrastructure and connectivity. But we'll have more capital to deploy. We'll have incremental talent to develop strategies. And that's really how I'd describe it. Operator: We now turn to Dan Fannon with Jefferies. Daniel Fannon: So just wanted to clarify a few things. So as we think about Virtu's strategy over the last kind of couple of years, we've seen more consistent results and less kind of peak and trough. And given this change in putting more capital work, do you expect to see more variability in the quarter-to-quarter revenue and/or ANTI EBITDA, however you want to think about it, given -- as the opportunity set changes? Or is this going to drive more consistent results? I guess what's the goal here? Joseph Molluso: Well, the goal is, as Aaron stated, to move to the higher end of the range that we published in the past of different levels of net trading income, right? So that's always been a difficult question to answer for Virtu because you've got to give me a time parameter, right? If it's -- if you're talking about daily or weekly, maybe. If you're talking about monthly, maybe if you're talking about quarterly, it really depends, Dan. So I think Aaron stated it clearly, right? The goal is to move towards the high end of that range. It's a trend toward it as a base case, right? And there could be more variability, but I don't consider that being sort of less predictable or less volatile even, right? We're a volatile business, and we're going to remain a volatile business. And I don't think -- I really don't think of us in the past -- it's interesting to hear you say that. I don't think of us in the past year or 2 as being less volatile. I think we've just done good job growing the business, and now we're going to accelerate that growth. Daniel Fannon: Okay. And then just to clarify some of the other questions. So as we think about now you're deploying more capital today, you're going to obviously accrue more capital. Where do we think about the level of investment? So level of investment will go with the revenue opportunity. We don't need to invest today more based upon having more capital wanting to do more. So I just want to understand the timing of new investment in terms of people, strategies, all these things versus the revenue opportunity. Are those in line with each other or one comes before the other? Joseph Molluso: Mostly in line, Dan. There's no long-term lag here, I would say. Now that all being said, we are -- as I just answered your previous question, we're still a volatile business, and the environment is still going to have a big impact on our performance. So it's going to be hard to separate the noise there in terms of the environment versus the impact of incremental talent, incremental capital. But it's the age-old question for us, I think, long term, up to the right, moving towards the high end of that range. And there'll be noise quarter-to-quarter for sure. But none of it as a plan requires a multiyear sort of investment before you start seeing results. It's not instant, but it should largely be in line. Operator: [Operator Instructions] We now turn to Ken Worthington with JPMorgan. Kenneth Worthington: So the stock price has dropped a lot more recently. You've clearly highlighted routine earning growth strategies are the priority. How do opportunistic buybacks play into capital management when you see big declines in the stock price like we've seen more recently? Joseph Molluso: Ken, I think we have stated that the opportunity in front of us allows for the highest and best use of our incremental capital dollar. And the best way -- our jobs every day as managers of the business is to increase the stock price and maximize the value and putting dollars to work in the business, Aaron, and we all determined is the best way to get the stock price to where we think it should be. We -- for a very long time, we were trading at levels that we thought the incremental dollar was best spent on our stock. We're not ruling anything out publicly in terms of we still have dry powder under the buyback authorization and perhaps as we have vesting shares from compensation plans, we may look to just sort of neutralize the impact of that so that we don't have share creep. But the direction is clear that our incremental dollars are going to be spent growing the business and in our trading capital base. Kenneth Worthington: Okay. Perfect. made it crystal clear. The other narrative that was sort of going around was tokenization. So maybe how is Virtu positioned for an increase in tokenized assets moving on chain? Sort of what is your right to win? Will the infrastructure that you have need to change to support this sort of transition to tokenization? And if so, maybe to the prior question, what sort of incremental investment is required if the world moves to more tokenized on-chain assets? Aaron Simons: Yes, I can answer that. I mean I think it fits with our current business. So we're very active in many crypto markets around the world. A lot of them obviously are the centralized exchange model, but we do participate in some direct on-chain interactions. We're partnering with people in terms of various interesting initiatives like we're part of the [ PIT ] foundation, more part of the Canton network. So we're always active in developing new interesting trading infrastructure. And I think with regards to this and other sort of new opportunities, like everyone is talking about prediction markets, anything that is trading electronically and has sufficient depth of liquidity, we stand ready to make markets and our technology is adaptable to all of those opportunities. So we're excited about it. Operator: We now turn to Michael Cyprys with Morgan Stanley. Michael Cyprys: I recall in the past that we heard that doubling the capital base wouldn't necessarily double earnings. So curious what's changed in that regard? And what areas or what would be the top few areas that you anticipate allocating more capital toward? Like how might you rank order or prioritize that? And maybe you could touch upon some of the areas where you're looking to hire? Joseph Molluso: Yes. Again, Michael, I think we put a slide in the supplement. I think we have proven that we know how to allocate capital. We've proven that we're going to devote it to the highest and best use, whether it was acquisitions, integrating acquisitions, buying back our stock. And I think we -- in the past, we identified areas where we needed to grow and grew businesses that were 0 to $100 million-plus businesses and increased our capital base. So I think the markets evolved. And I think we're ready now. I think we probably weren't ready in the past, and we have the ability to do it given our infrastructure, our scaled infrastructure. And we've got the team in place, and we have a new CEO who wants us to pivot to growth, and that's what we're doing. Michael Cyprys: And just in terms of the question around prioritizing areas that you're hiring? Aaron Simons: I mean there's a lot of them, but yes, we're aggressively hiring what you would call broadly developers that's very important for our business. It's a vague term, which I hate, but we're probably hiring a lot of quants. We're hiring traders. So basically, any aspect of the business. I think just going back to the question, which I think Joe answered very well, but the previous comments, I think you have to take in the context. So it's not the case that we could just -- if someone gifted us double the amount of capital tomorrow that we could just turn it on and make twice the money. The comment is that yes, we can grow the earnings with more capital, but it requires a lot of hard work to do that. So it requires more people. It requires working on our strategies. It requires revamping and expanding our infrastructure. So it's not like a magic machine where we can just dump more money in and get more money out, but we're excited about doing the work and growing the business. Michael Cyprys: And what areas do you expect to allocate that capital to more meaningfully than others? How do you think about prioritizing that? And when you think about doubling the earnings, what areas you think will be meaningfully contributing towards that? Joseph Molluso: It will be flexible. It will be based in part on what is going on in the market. I think if you look at an area like crypto where we've done very well, crypto was a fragmented market, which necessitates the need for more capital intensity because there's no settlement utility, and there's multiple venues. ETF block is a big business that we've grown quite well, that by its nature is more capital intensive. So it really depends on the end market. It depends on the characteristics of the end market. It depends on the prime brokers. It depends on the venues. It depends on the participants, depends on the trading format. U.S. equities, 605 business is a very capital efficient business, right? So we think we're going to grow everywhere. But the capital usage is going to go to areas where we think we can -- where we need it -- where we needed to grow, right? So areas like commodities, areas like foreign exchange, they're all different, depending on the end market, depending on the market structure. So really, it just really depends on what is going on in the market and the sort of the nature of the end market. Operator: That's all the time we have for questions. I'll hand back to Aaron Simons for any final remarks. Aaron Simons: Thanks, everyone, for joining. Hopefully, this is informative, and we look forward to seeing you next quarter. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Debra A. Wasser: Hi, everyone, and welcome to Etsy's Third Quarter 2025 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. And joining me today for our prerecording are Josh Silverman, CEO; Kruti Patel Goyal, President and Chief Growth Officer; and Lanny Baker, CFO. In addition to our quarterly results, we have some exciting news to review regarding our leadership transition. Once we are finished with the presentation, we will take questions from our publishing sell-side analysts on video. Please keep in mind that our results today include forward-looking statements related to our financial guidance, our business, our operating results and our leadership transition, as noted in the slide deck posted to our website for your reference. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, some of which are described in today's earnings release and our most recent periodic report and which will be updated in future periodic reports that we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release or slide deck posted on our IR website, along with a replay of this call. With that, I'll turn it over to Josh. Joshua Silverman: Thanks, Deb. Before we dive into our third quarter results, I want to acknowledge the news we announced earlier today. After 8.5 years as Etsy's CEO, I've decided that this is the right time for me to hand over the leadership baton to the next generation. Therefore, we'll be transitioning over the next few months, and I'll become Executive Chair, while the fabulously talented Kruti Patel Goyal takes the reins as our CEO effective January 1. It's been an incredible privilege to lead Etsy through several chapters of evolution and transformation, from the turnaround of 2017 to managing through the hyperscaling of the pandemic to steering us back towards growth again in a more app-centric, discovery centric world. We've adapted and evolved with creativity, agility, urgency and heart, all while keeping our sellers at the center of everything we do. Now in our third decade, Etsy is entering a new phase, one focused on harnessing AI to further personalize and transform the shopping experience in ways that were previously unimaginable. It's an exciting moment and perfect timing, I believe, for fresh perspective and a new leader. As you know, following an incredible 2-year run as Depop's CEO reigniting their growth, I asked Kruti to return to Etsy last year as Chief Growth Officer. Kruti has been a key part of Etsy's leadership for over 15 years, and she brings deep knowledge of and passion for our mission, marketplace, customers and community. Since coming back and ramping up, she's already made a significant impact on the business, evolving our strategic priorities, redefining how we measure success and shifting how we work. She's also already taken on leadership of many of our day-to-day operations. So it's natural and an exciting next step for her to become Etsy's next CEO. If I was the right person to lead Etsy's last chapter, Kruti is the right person to lead our next. Our Board of Directors has been deeply engaged in our succession planning and wholeheartedly endorses her appointment. I also want to acknowledge Fred Wilson, who's been a part of our growth journey since 2007, first as a Board member and then as Chair. He's been an absolutely incredible Chair, passionate, wise and highly engaged. I couldn't have asked for a better partner, and we're thrilled that he will remain on our Board. On a personal note, serving as Etsy's CEO has been the honor of a lifetime. While I'm incredibly proud of the results and the growth we've delivered as a team, what I'll remember most is the impact we've had on the lives of our sellers and buyers and our role in preserving creativity and human connection in a world increasingly shaped by automation and commoditization. And I'll continue to love hearing I love Etsy every time I hear the Etsy brand mentioned. I've always found purpose in leading through transformation, and I'm excited to make room for new growth, both for Etsy and for myself. Thank you for the trust and confidence you've placed in me. I'm confident Kruti will similarly earn your trust as our next leader. With that, let's turn to our results. We're making steady progress improving our performance in 2025 with our third quarter results exceeding expectations on all 3 key financial metrics: GMS, revenue and adjusted EBITDA. I'm pleased to report that GMS for Etsy and Depop combined returned to year-over-year growth, with further sequential improvement expected at the midpoint of our fourth quarter guidance. Etsy marketplace results improved sequentially as we continue to see that the customer-centric priorities Kruti has defined are starting to gain traction. GMS improved approximately 300 basis points sequentially to $2.43 billion, down 2.4% year-over-year. In addition to the impact from these initiatives, there were some exogenous factors, which also impacted our results, and Etsy once again proved its resiliency. It gives me tremendous comfort that we benefit from such a dynamic and fundamentally sound business model. Depop's third quarter growth accelerated about 400 basis points sequentially, with GMS up 39.4% year-over-year to $292 million. New user growth and improvements to buyer conversion were primarily responsible for 59% year-over-year growth in Depop's U.S. GMS. And while not a meaningful growth driver in the third quarter, Depop launched its largest ever brand campaign targeted at raising awareness in the U.S. We're really excited that Peter and his team are continuing to build on the foundation that Kruti built at Depop, which has led to the great momentum the business has seen over the past 2 years. That said, we're all clear eyed that there's significantly more work to do. So I'll turn the call over to Kruti. Kruti Goyal: Thank you, Josh, and good morning, everyone. Since returning to Etsy earlier this year, I've been reminded at every turn that this company is built on something rare in e-commerce today, creativity, human connection and purpose. So it's an incredible honor to be named our next CEO. I'm deeply grateful to our Board for their confidence in me and to Josh for his leadership, mentorship and support over so many years. He's led Etsy through extraordinary growth. Our customer base, GMS, revenue, profitability and market cap are all multiples larger than when he started. But Etsy isn't just bigger, Etsy is better and well positioned for our next chapter of growth. We'll continue to work closely together through this transition period, and I'm so pleased that Josh will remain a sounding board for our executive team and me as our Executive Chair. I'll now cover our 4 strategic priorities, which are working together to deliver tangible value to our customers and support sustainable growth. We're showing up where shoppers find inspiration, matching them with items that feel tailor-made for them, working to deepen loyalty across our community and amplifying what sets us apart, the creativity and authenticity of our sellers. Each priority fuels the next, creating a cycle of discovery, engagement and connection that truly differentiates Etsy. Starting with showing up where shoppers discover, we know today's shopping journey isn't linear. People find inspiration everywhere. To capture this behavior, we're meeting shoppers in more of those moments with content that feels personal and relevant. A great example of how we're capitalizing on the evolving shoppers journey is our partnership with OpenAI, which gives us an early foothold in a fast-growing high-intent discovery channel and helps to create another seamless path from inspiration to purchase. In September, Etsy became the first live partner for their instant checkout feature, allowing users to buy items on Etsy directly through ChatGPT. We now provide a dedicated product feed that enables eligible purchases to be completed seamlessly within the chat experience, processed through Etsy Payments. This integration was designed to ensure buyers know its Etsy. When a customer purchases a product through Etsy and ChatGPT, they'll see the Etsy brand mark, information about the human seller and an order confirmation from us. Agentic visits represent a small slice of e-commerce traffic today but they're growing quickly. An early analysis suggests that these buyers come to Etsy with higher purchase intent than those from traditional search. And over time, we believe these types of integrations will drive incremental growth and importantly, brand consideration for Etsy. Another example of how we're showing up where shoppers discover is our marketing approach this holiday season. As we've told you, we're significantly reallocating our brand marketing spend away from linear TV into upper funnel channels intended to spark engagement and inspiration such as social video and streaming. You'll see us highlight the many ways people shop, decorate and celebrate, how they're discovering the trends shaping the moment or honoring the traditions at the heart of the season because shopping on Etsy isn't about checking a box, it's about finding something that makes someone feel seen and reminding the world that the most meaningful items come from real people. Of course, once we get shoppers' attention, the experience on Etsy has to deliver. We've made strong progress improving the Etsy app. In Q3, app GMS outperformed non-app GMS by 13 percentage points, a meaningful indicator that our work is beginning to pay off. This progress reflects a series of thoughtful improvements from a redesigned home screen central hub of what's new and relevant to simpler navigation that helps shoppers reach key features faster to a completely reimagined discovery feed powered by a new recommendations model designed to anticipate what each shopper might love next. Early results are encouraging. Engagement on our app home screen is up significantly, and app home GMS grew 20% year-over-year in the third quarter. Advancements in AI and machine learning power much of this work and are central to how we match shoppers with the right items. Over the past few months, we've made meaningful progress in our machine learning capabilities, particularly in 2 areas that are core to Etsy's differentiation, buyer understanding and item understanding. In buyer understanding, we've developed new models that more deeply interpret our users' interests through a combination of advanced ML and emerging LLM techniques. These models now power our app discovery feed where they've already driven double-digit increases in engagement metrics and have also demonstrated positive impact in our e-mails and our web homepage experience. In item understanding, we've strengthened our ability to extract richer insight from listing images, enhancing how we represent and connect inventory. This improvement has delivered measurable conversion gains across search and ads with further opportunities ahead. Rafe and his team's rapid time to market on these initiatives has been excellent, and we're excited to continue testing and iterating. Turning to our most valuable customers, starting with our buyers. We see strong opportunity not only to deepen loyalty with our top buyers, but also to nurture customers with the potential to become them by making shopping on Etsy easier and more rewarding. In the near term, we're piloting targeted offers for our most active buyers and launching the latest beta iteration of the Etsy Insider Loyalty program. We imagine with our top buyers in mind, so they feel rewarded every time they shop, with shipping discounts and 5% back in Etsy credit on every purchase, all while seeking to deliver sustainable economics for Etsy. From my perspective, one of the most important elements to our long-term success will be Etsy's ability to continue to attract creative entrepreneurs and support their ongoing success because their creativity and innovation is what makes the Etsy experience like nowhere else. Since becoming Chief Growth Officer, I've been connecting weekly with many different groups of sellers. And it's clear we can better help them spend less time managing and more time creating. We've launched new AI-powered tools to help sellers generate listing titles and draft buyer messages, 2 of the most time-consuming parts of running an Etsy shop and improved issue resolution with increased access to live knowledgeable support. We're pleased to see that our efforts are starting to make an impact. For example, seller satisfaction scores are up more than 10 percentage points from this time last year. Finally, we're amplifying our competitive differentiation. The human connection at the heart of our marketplace. It underpins and is intertwined with each of the other 3 priorities. And while we see abundant opportunities to weave human touch more deeply into every part of the Etsy experience over time, we've started with simple high-impact updates that bring sellers and their stories closer to buyers, like adding richer seller information directly on to listing pages. Early test results show that these changes are helping buyers trust listings faster and make purchase decisions with less friction. In closing, thank you to our employees, our community and to all of you for your confidence in partnership. I'm excited to take the helm come January. While we've been showing continued improved performance, there is so much more we need to do. You'll hear more from me as I continue to evolve our vision and plans for the business. And with that, I'll turn the call over to Lanny. Charles Baker: Thank you, Kruti. When I joined Etsy, I told our investors and analysts how much I have admired Josh's stewardship and transformation of this incredible business. I want to thank Josh for leading the company to where we are today and setting Etsy up for what comes next. And I can speak on behalf of the full executive team that we are incredibly excited to be part of this next phase of our journey with Kruti as the CEO. As we review our results, please keep in mind that we completed the sale of Reverb on June 2, and we've provided Reverb's Q3 2024 GMS and revenue so you can more easily separate the impact of that sale from the results of our ongoing business. Third quarter consolidated GMS was $2.72 billion, which exceeded the top end of our guidance range driven by better-than-expected results at both Etsy and Depop. Excluding Reverb from all periods, consolidated GMS grew 0.9% year-over-year and consolidated revenue grew 6.1% year-over-year to $678 million. Adjusted EBITDA was $172 million in the third quarter representing a consolidated adjusted EBITDA margin of 25.4%. Within that, Etsy marketplace margin was just shy of 30% for the quarter, and Depop's margin declined sequentially as we began to accelerate brand marketing to expand Depop's opportunity, particularly in the U.S. Etsy marketplace GMS was down 2.4% year-over-year in the third quarter and down 3.2% year-to-year on an FX-neutral basis. While we're not satisfied with any decline in Etsy GMS, we are encouraged that year-to-year GMS comparisons continued the momentum established earlier this year and improved by another 300 basis points from Q2 to Q3. Importantly, we believe that initiatives aligned with the 4 priorities that Kruti described earlier were critical factors contributing to that progress. On the tariff and trade lane front, we experienced some pressure on our U.S. import trade route during the quarter. However, sequential improvement in our U.S. domestic trade route helped offset the impact. The expiration of the de minimis exemption at the end of August weighed on performance immediately thereafter, and our business stabilized as we moved through the quarter, resulting in only a modest headwind to quarterly results. While we remain cautious about the potential impact of tariffs and trade restrictions, especially on consumer discretionary expenditures, we are encouraged by Etsy's resilience and responsiveness thus far. We believe we have benefited from the massive amount of inventory on the marketplace and a very high replacement rate on disruptive items. As we've mentioned, we have an abundance of U.S.-based supply including over 60 million active U.S. listings. And we've been highlighting domestic inventory to U.S. buyers for some time. Additionally, our team has been extremely proactive in providing non-U.S. sellers with information, advice and viable alternative solutions to help them continue shipping into the U.S. Etsy's active buyer count was 86.6 million on a trailing 12-month basis, down 5% year-over-year and 0.8% lower sequentially. We attracted 4.8 million new buyers in the third quarter and reactivated another 6.6 million lapsed buyers. Combined, new and reactivated buyers totaled 11.4 million for the quarter, a slight improvement compared to the second quarter. GMS per active buyer was $121 in the third quarter and this trailing 12-month figure has been stable year-to-date. When we look more closely at GMS provider trends, on a month-by-month basis rather than a trailing 12-month basis, we've seen encouraging improvements since April 2025, with higher average item values as well as improving purchase frequency per buyer. Slicing GMS performance according to estimated household income, we saw a favorable year-over-year inflection across all income levels in Q3, with the strongest performance among our highest income buyers, which is consistent with the U.S. consumer spending trends we are all reading about. GMS comparisons across most of our top 6 categories improved sequentially. We saw particular strength in Vintage Home & Living, jewelry above $100 and wedding and engagement rings. Kruti mentioned the great progress we're making with the Etsy app, and I want to underscore the importance and the effects of this focus. In the third quarter, on average, Etsy's app users visited roughly 5x more often than our non-app users. They viewed 3x more pages per visit and were 1.5x more likely to convert with a purchase. As we've said before, the app platform allows us to deliver a more engaging and personalized experience, form stronger, more direct relationships with buyers and increased customer lifetime value. With that in mind, we were pleased to see app downloads grow 9% year-over-year with even faster growth in downloads among new buyers. Mobile app GMS accelerated to mid-single-digit year-over-year growth in the third quarter, and the app's contribution to total GMS increased to 46% compared with just under 45% a quarter ago and 42.8% a year ago. Shifting to the seller view. Following stabilization last quarter, active sellers grew 1.7% sequentially in the third quarter leading to a moderation in the year-over-year decline. In fact, both U.S. and international seller counts began growing again on a sequential basis. The number of new sellers who made a sale in the third quarter of 2025 saw strong double-digit year-over-year growth. In addition, the percentage of total sellers with the sale in the last 12 months increased year-over-year, rebounding from the Q1 2024 trough. Moving to revenue performance. Consolidated revenue was $678 million, up 2.4% on a reported basis, which includes Reverb in the prior year period. Services revenue grew 12.7% year-over-year driven by growth in Onsite Ad revenue at both Etsy and Depop. Etsy Ads delivered another quarter of meaningful growth, supported by model enhancements that optimize seller budget pacing and improved ad quality and relevance while Depop continued to expand its boosted ad offering across the platform. Marketplace revenue decreased 1.7% year-over-year, largely reflecting the impact of the Reverb divestiture, which removed that contribution from consolidated results. Consolidated third quarter take rate improved to 24.9%, ahead of our guidance and up 90 basis points sequentially. Compared to 1 year ago, consolidated take rate expanded by 220 basis points, reflecting the divestiture of Reverb and the benefit of the growth in services and ads revenue that I just outlined. Consolidated product development spend increased by 5.7% year-over-year to $113 million, growing slightly as a percentage of revenue, as shown on the left of this slide and reflecting an increase in the number of dev employees on a year-over-year basis. We continue to be disciplined and focused in our hiring with the majority of our engineering hires this year allocated towards growth initiatives. Third quarter consolidated marketing spend increased 6% year-to-year to $208 million, representing 30.7% of revenue. The increase in consolidated marketing spending was driven primarily by incremental brand investment at Depop. Etsy marketplace spend was up only slightly from the prior year. As shown on the walk on this slide, Etsy's marketplace marketing spend gained leverage year-over-year as a percentage of consolidated revenue, whereas Depop's marketing spend lost some leverage, netting to a slight deleverage on a consolidated basis. Within Etsy marketplace marketing strategies, we remain highly encouraged by our owned marketing channels. E-mail and push notifications, combined with enhancements to our app, are allowing us to deepen our direct connections with buyers. And these channels are becoming meaningful high-growth drivers of attributed GMS without an associated investment in external ad spend. We also optimized our paid social portfolio through targeted mix shifts informed by incrementality testing, making us even better able to target higher-value audiences. In addition, we shifted low-funnel efforts to zero in on new and lapsed by our audiences and expanded mid- and upper funnel investment in high-performing channels like TikTok. Lastly, while competitive spending patterns in the Google PLA auction were helpful during the quarter, we continue to reap the benefits of our own data feed optimizations and advanced PLA segmentation strategies. Turning to our financial position. We generated a very healthy $200 million plus in free cash flow in the quarter and $635 million in the trailing 12 months. We ended the quarter with $1.6 billion in cash and investments and approximately $3 billion in convertible debt. We repurchased 2.1 million shares of Etsy stock at a total cost of roughly $120 million. Taking a longer-term view, you can see in the chart on the right that we've reduced our share count by 17% since December of 2023 through our stock buyback program, delivering significant value to our shareholders. Moving to our outlook, which assumes a stable macro environment from where we are now. Although we recognize that there is a higher-than-normal degree of uncertainty about consumer spending into the holiday season, both in the U.S. and overseas, we currently expect Q4 consolidated GMS to be between $3.5 billion and $3.65 billion, which, at the midpoint, would represent further quarter-over-quarter improvement in the apples-to-apples growth rate. We expect that our Q4 consolidated take rate will be approximately 24.5%, primarily reflecting some seasonality. Consolidated adjusted EBITDA margin will be approximately 24% reflecting stable, strong profitability for the Etsy marketplace paired with a significant sequential increase in brand marketing investment at Depop, which will compress margin performance. This investment in Depop is discretionary and opportunistic arising from our excitement about the scale and growth of the apparel resale market as well as Depop's own very encouraging momentum as the business is now at an annualized run rate of $1 billion plus. Depop's nearly 60% year-over-year GMS growth in the United States is built on top of similarly strong growth in both buyers and sellers, and we see a meaningful opportunity to increase awareness and penetration across a broader demographic range of buyers that are coming into the vintage and resale markets. Thank you all for your time today. I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question will come from Maria Ripps with Canaccord. Maria Ripps: Kruti, congrats and Josh, best of luck with the transition. I guess, I just wanted to ask about your OpenAI partnership. So is this integration available to sort of to all U.S. sellers? And how do you prioritize sort of listings that are included? And maybe secondly, can you maybe help us think through sort of the performance fee since Etsy's covering this fee, is it fair to think about this sort of an extension of your offsite ads? Or are there any sort of transaction cost on your end that you will not be incurring sort of to compensate for this additional fee? How should investors think about this? Joshua Silverman: Great. Yes, I'm happy to start. Thank you, Maria. First of all, we are incredibly excited about the opportunity for Etsy in a world of agentic commerce. And being the first partner to partner with OpenAI, we think, is a demonstration of the fact that we see a ton of opportunity where many others in e-commerce, I think, are feeling the need to play more defense. For many people in e-commerce, they're selling the exact same product that's for sale in many other places. And it just becomes a game of who can sell it cheaper and ship it faster. An agentic commerce is going to honor that for buyers. Etsy has something genuinely unique and different to offer. And so we think it's incredibly exciting that this is an opportunity for many consumers to raise consideration of Etsy and a lot of purchase occasions where they may not have thought of Etsy. And for the big model builders, they're interested in really unique pools of data, which Etsy offers unlike most and a really strong engineering culture that can actually keep up with them. And so our ability to be at the front edge of this we think positions us really well to help shape what agentic commerce can be. What kinds of data they're ingesting, how they're presenting it to their buyers, how our brand is presented, for example, which is very important to us. And so being at the table early, we think, is really critical. Maria, specifically to your questions, we -- OpenAI and the others will scrape Etsy and organically provide Etsy listings as part of their organic experience. But if you want to actually purchase the way that works, we provide a data feed directly to OpenAI that they consume and the products that are in that data feed, which is the substantial majority of Etsy's products that actually allows a buyer to actually complete the transaction within OpenAI. And importantly, that still goes through Etsy's Payment rails. So it still shows up as a guest checkout on an Etsy customer, and it's very clear to the customer that they're buying from Etsy. We pay a commission, a success-based transaction fee to OpenAI for each of those purchases. And it's not unlike what we would pay to an influencer, for example, or an affiliate. So it's a CPA-based transaction fee. At this time, we are not passing that through to our sellers. So it's not part of our offsite ads program, and we'll consider as time goes on, how to think about that. Operator: Your next question will come from Steve Forbes with Guggenheim. Steven Forbes: Congrats all around. Maybe for Kruti and Josh, maybe love to hear maybe from Kruti on this one. Given the recent changes, you mentioned sort of improvements in engagement on the app. I'd love for you maybe to just expand on that, sort of what you've seen on the engagement front, given the changes in screen real estate towards discovery. And then curious, any initial thoughts on how the recent learnings are impacting or informing your product development plans for next year as we continue this journey -- this return to growth journey and hopefully continue to see GMS trends improve next year. Kruti Goyal: Sure. I can start that out, and then feel free to add on. So on the app side, as you mentioned, we've made some meaningful investments in reshaping what the home screen looks like. And that's really intended to deliver on that first priority that we talked about showing up in a way that really enables discovery on Etsy. And so what you've seen is that we've gone from what was essentially trying to guess exactly what it is that you wanted when you first open the app to now giving you multiple windows and doorways into Etsy. And so you'll see that at the top of the home screen with that central hub that we mentioned, where you can not only pick up where you left off last but look at things that are like what you favoured it before or items that you've added to a collection before. And then below that, we've invested in ML to power a much more discovery focused feed of items that are really intended to anticipate what else you might like next that you haven't necessarily engaged with in the past. And that's been basically through leveraging new ML models that are really deciphering what interest you as a buyer might have, and then connecting that to what items match those interests. And we're seeing a meaningful uplift in the engagement in the home screen, particularly through that feed. And we're really encouraged by that. How this is playing into our product development plans more broadly? We're really encouraged by the progress that the teams have made very quickly against all the 4 priorities, the strategic priorities that we've laid out. And we're really encouraged by the early traction that we're seeing from them. We're seeing really great momentum and early indications of growth across metrics. And so what that does is that gives us confidence in the priorities that we have set and continuing to deepen our focus in those as we go into next year. Really, these 4 priorities address accelerating the entire flywheel for us through driving discovery, engagement and connection in ways that we think are going to affect all the metrics that drive our marketplace growth. And so the early traction that we're seeing is encouraging and indicates that we'll continue to invest across these 4 priorities. Joshua Silverman: And a couple of nuggets we gave in the call, app -- people who've downloaded and are using our app visit 5x more often than people that are web only. And in each of those visits on average, they see 3x as many pages. So they're visiting more often, and their engagement is a lot higher and as Kruti's talking about that flywheel, that gives us an opportunity to get to know them so much better. So that each visit we're able to become a lot more personalized and we've talked for so many years about the consideration opportunity at Etsy. The people think of us for home furnishings or they think of us for clothing or they think of us for gifts. And we want them where we can serve so many of their needs. And of course, you can buy TV ads saying, think of us for lots of things. But the best way to do it is when you're on Etsy to show you not only the thing you came for, but also to exposure to really cool things, you didn't even think to ask of, so you broaden your understanding of Etsy. And that's the flywheel where -- we're encouraged by the early results we're seeing from these efforts. Charles Baker: I'm going to pile on just to say that all of that also is powering our owned media channels. And so the data that we're gathering about those app users when they're visiting much more frequently, when they're looking at many more pages, when they're responding to the ML prompts that we are providing to them is helping us profile them, which is helping us better target our outbound e-mail and push notifications, which are becoming -- quickly becoming a really prominent and very high return marketing channel for Etsy. So the flywheel connects through the marketing as well. Operator: Our next question will come from Anna Andreeva with Piper Sandler. Anna Andreeva: Great. And let me add my congrats as well to Kruti and Josh. Josh, you will be missed. But yes, congrats, guys. We had a follow-up on the guide for the fourth quarter. So great to hear about the sequential improvement at core Etsy GMS. Are you seeing further improvement here in 4Q, just given the momentum of the initiatives and the easy compares that the business is lapping? And just curious, talk about maybe how you approach the holiday. Any specific opportunities for the business? We had a shortened holiday last year, which was not a positive. What could Gift Mode do this year? So curious on that. And then, Kruti, maybe it's early for this question, but Etsy's profitability is some of the highest among the peer set. Just strategically, do you think there's an opportunity to invest more just to reignite growth even faster? Or do you think it's important to preserve profitability? Charles Baker: Let me talk first about the outlook for the fourth quarter GMS. As we said, the consumer outlook remains uncertain. There's probably a higher degree of uncertainty around the consumer going into this holiday season than there has been for prior seasons, for some prior seasons anyway. But our assumption is that, if the consumer health stays about where it has been year-to-date into the fourth quarter. So that's the sort of underlying macroeconomic consideration. When we look at the progress we've made since the start of this year to where we are today, we believe a lot of that progress has been a reflection of the things that we've done on the initiatives that Kruti talked about earlier. And we expect to continue to make that progress into the fourth quarter. So as you look at the ranges that we've outlined for the fourth quarter, as Josh said in his prepared remarks, at the midpoint of the outlook range, it would equate to a further sequential improvement in the year-over-year growth rate for our consolidated picture as well as for the Etsy business. And we think that's -- we provided a range at the upper end of the range, it would probably be in a healthier consumer and more progress in our own initiatives and the lower end of the range might mean a little bit more challenging consumer environment. We've really tried to provide you the best picture we have today with what the fourth quarter looks like, and that's what's put into our outlook. Joshua Silverman: For our holiday season, we've got a really exciting campaign planned that really leans into the humanity of Etsy. What makes Etsy really different than the fact that you are seeing what's special in the other person and recognizing what's meaningful in the other person. It's a really great set of campaigns that will be reaching people where they consume media now, which is very different than where they have in prior years. So we're really excited about that. And on Gift Mode, in particular, it's really now deeply integrated into search and the core home screen. And so instead of having to go to a separate tab for it, it's really integrated into the core experience. And as we're getting better and better at recommendations with these new ML models, we're also getting even better at finding the perfect gift for you, both through edited and curated gift lists and then ML just for you. So we're super excited about that. Kruti Goyal: And then on the last part of your question, it is early to comment on the specifics there. But what I will say is that we have seen the profitability of our marketplace is the real strength of our marketplace. And we've always been really disciplined and thoughtful about our investments. And so I would point to Depop as really a great example of where we've been willing to make deeper investments where we think there is a lot of opportunity. And just to step back and talk about that for a moment. I'm really proud of what we've been able to accomplish at Depop. We went from 3 years of flat GMS to 2 years of accelerating growth. And over that time, we nearly doubled the scale of GMS and the number of active users and tripled the number of listings on the platform. And I think all of that goes to show that we've really achieved incredible product market fit and the growth is not just momentum, it's sustained growth based on that product market fit. And so this is really the perfect time to be making that step-up in investment against marketing Depop to really increase the exposure that we're giving to people who may not have heard of Depop before, but for whom the value proposition is really relevant and will resonate. And so I would just look to that as an example for us of when and where we think there are really great opportunities to invest more, we will absolutely take them. And we continue to see our profitability profile as strength of the business. Operator: Your next question will come from Bryan Smilek with JPMorgan. Bryan Smilek: Congrats on seeing the good improvement in execution overall. Kruti, as you step into the CEO role, can you just elaborate a bit more on how you strategically are thinking about driving sustained GMS growth here? Is it more of the same execution or leveraging the Depop playbook across product marketing? Or is there just anything else to keep in mind? Kruti Goyal: You're right. My focus is squarely on delivering robust sustainable growth, and that has been my focus since the moment I stepped back here at Etsy from Depop. And so one of the nice things about the way that this transition is playing out is that you're -- I've had the ability to really lay the groundwork for growth over this last year. So you're already seeing the investments and the changes that we think are going to be really critical to driving growth next year and over time. And so the way that I would think about it is that we step back and said, what are the things that we really need to do to strengthen the value proposition of Etsy for our -- both our buyers and our sellers, our entire community. That's what really underpins the 4 strategic priorities that we've laid out, really driving that flywheel of discovery, engagement and connection, all with human connection at the center of what makes Etsy different. And I think we all feel very encouraged by the quick progress that we've made, the quick time to market against many of these priorities and the early traction that we're seeing. We are excited about the traction, but we're far from satisfied with the growth that we're seeing. So there is a ton of potential ahead. And because we see these working, you can expect us to continue to invest in these strategic priorities going into next year. Operator: Our next question will come from Eric Sheridan with Goldman Sachs. Eric Sheridan: Just wanted to come back to loyalty and rewards and sort of build on that as a broader conversation piece. What have been your key learnings so far as you've rolled out more loyalty on the platform? How do those learnings inform the innovation or iteration of loyalty you're announcing today that looks like it's going into beta this week? And how should we think about the GMS opportunity attached to loyalty over the longer term? Kruti Goyal: Sure. I can start on that, and then please feel free to add on. So look, at the core of this priority around loyalty is the idea that Etsy should get better and better for our customers as they use it more and more. That's true for buyers and sellers, but let's talk about buyers in this case since you asked about the loyalty program. I think there are 2 main ways that Etsy can feel like that, can feel like it's getting better as you use it more. The first is what we were talking about earlier, which is our investments in personalization. It's really the #1 way that we can show our buyers that we really understand them that we're paying attention to all of the signals that they give us, and that's informing an experience that feels really tailor-made just for them that we think drives engagement -- the ongoing engagement and loyalty over time. Another piece of that is our investment in the Etsy Insider Loyalty beta program. And as you noted, we are evolving that program into version 2.0 of our beta. What we've learned from the initial version is that the rewards that we offered both drove adoption of the loyalty program and drove a meaningful uplift in frequency of engagement and purchasing. And so that was a really important learning from this first version. What we're changing in this next version is we're really reorienting it to really focus on our more frequent buyers. So again, to that point of making sure it feels like you are recognized and rewarded for the time and investment that you make in Etsy. And so the changes that we're making are really around the reward structure, so that the benefits that you get are benefits that you experience with every purchase. So shipping discounts on every purchase, rewards, Etsy credit back on every purchase. And what we're looking for is, again, to see continued adoption, frequency of engagement, frequency of purchasing and over time, renewal rates in that loyalty program. So that's the goal. And as we learn more, we'll share that. Charles Baker: I would just say from a -- thinking about the GMS opportunity, I would start out by thinking about Etsy generating $120 in GMS per buyer on a 12-month time frame. And our opportunity to increase purchase frequency through rewards and through incentives and through retention benefits, that's a huge lever for us. We feel like that number -- we know we've got plenty of customers who are spending 5 and 10x that amount with us in a given year. And we're lining up programs and marketing and communication personalization, all these things to induce more of our customers to think of Etsy earlier on and the leverage point really comes back to that GMS per buyer in the long term. Operator: Your next question will come from Youssef Squali with Truist. Youssef Squali: Excellent. Congrats all around. So maybe first question for Josh or Kruti, and this is really a follow-up to the prior question, but how do you balance the push for traffic from these GenAI platforms versus maybe direct/mobile where arguably the value that accrues to Etsy over time is higher? And then, Lanny, can you maybe unpack a little bit more the nature of the investments planned for Depop in Q4, which will compress margins near term? Is this a 1 quarter type of phenomenon around the holidays? Or is this more structural going forward? Joshua Silverman: I'm happy to start with the agentic commerce. The great news for Etsy is I don't think that it's a zero-sum game. I don't think it's an or. I think it's an and. I think people are going to shop agenticly sometimes. And when they do so, I think the smart agents are not going to say, here's the answer. Very rarely is there one right answer. I think they're going to provide a range of choice. They're going to say, for example, this is the cheapest thing you can buy. This is the thing that will arrive the fastest. And this is the thing that's most special or unique. And in that offering of here's a few curated choices, I think disproportionately Etsy is going to be presented and is going to win and a lot more often than consumers on their own might have thought of Etsy. And in all of those presentations, whether they buy that particular thing from Etsy or not, they're going to be constantly reminded, oh, Etsy has something to offer for you. And those customers are also going to go and launch their app. It's going to prompt people to think, "Oh, Etsy is so relevant for me so often." And I don't think in any near-term future, people are going to -- most people are going to exclusively shop via agents. They use agents sometimes, and they'll continue to use the app sometimes. And I think it's going to actually be a virtuous cycle that accrues disproportionately to Etsy's benefit. Charles Baker: In terms of the marketing investment, thanks for that question. Kruti said earlier, this is a really big market. We have a strong position. We have a product at Depop and a value proposition that we feel really good about. And it's an opportunity right now to really make this business quite a bit bigger and more valuable in the long term, and we're going after that pretty aggressively. The big opportunity for us in the near term, Youssef, is to expand the awareness of this great product and this great service. And so it's a brand campaign. It's not going to be concluded in 3 months. It will carry over into the first half of next year. It will take some time, frankly, for us to be able to really assess how we're performing, and we're committed to staying with that brand investment through the time that it will take to be sure that we're really expanding awareness of that product. We really like the long-term opportunity here. So it will be -- it will compress margins in this quarter, and we'll continue to make that investment going forward. Now if things look a lot better than we thought, we might step it up. If it doesn't look like it's going as we expect, we can be very maneuverable on our spending there. But our intention right now, given where we are and what we see in this marketplace is to invest there for the longer-term play in that business. Over the last couple of years, as we've leaned into the product and improved it and grown users as we've -- and they've grown really quickly, that business has demonstrated an ability to deliver very high percentage of incremental revenue growth down to the bottom line. So we know, trust and believe in its long-term profitability. We just really want to change at scale. Joshua Silverman: The cool thing on that is there's a huge opportunity for the core Etsy business in the future, but there is also a huge opportunity in Depop. Can Depop be the Venmo to our PayPal. Depop, I think we think can be on its own a multibillion-dollar asset. And so what you're seeing is us take a discrete amount of investment dollars to invest in marketing. We think it's got a good chance of working. We'll be measured and disciplined about how we track progress there. If it doesn't work, we can turn it off. But we think it's likely to work, and we think there's huge potential for Depop. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Shweta, it appears your microphone is open but we're not able to hear you, you need to select a different input [Operator Instructions]. We're still not hearing, Shweta. Why don't we go to our next question and we will return to you. Our next question will come from Nikhil Devnani with Bernstein. Nikhil Devnani: And Josh, thank you for all the help over the years, and congrats to Kruti as well. I wanted to follow up on the OpenAI theme. I think there's clearly some benefit that you and other marketplaces can realize in terms of incremental traffic and engagement in GMS. But investors are starting to worry longer term about what this means from a retention of buyer perspective and what it means for direct traffic and core profit pools for businesses like yours with on-site ads. So when you evaluated this partnership, how did you kind of think about the risk/reward longer term of something like this? Joshua Silverman: Yes. I think Etsy is different than a lot of places in that -- we have a lot of confidence in our value prop. We have a lot of confidence in the importance of our brand. Etsy is a community of over 5 million unbranded sellers selling unbranded items. And we know that when they set up their own shop and try to market themselves, it's very, very difficult for them to rise above the noise. But the Etsy brand next to their shop really helps to instill confidence in buyers and helps to elevate their product, their shop. So we know that Etsy as a brand should be pulled through in the agentic experience. When you're shopping with an agent, you want to see it's this seller powered by Etsy. And we have a lot of confidence in that value prop because we've seen it tested in the real world. So we know it makes sense to pull the Etsy brand through and have the Etsy brand be prominent. It's also been my experience from decades of doing this, that customer behavior changes much more slowly than people think. We will have an app, I believe, for many years to come, and people are going to shop agenticly. And both are going to be good and both are going to be complementary. But the great news here is that we think Etsy really does genuinely add a lot of value to our sellers and to our buyers. And I think that the agentic commerce is only going to help make that more prominent to customers and be a real win-win for all of us. The other thing is our position being an early adopter which comes from the fact that we have such a large set of inventory and a strong engineering culture means we're really at the table to help shape what this experience can be. How is it presented to the buyer? What do the economics look like? We are really at the table there. And I think that is exactly where you'd want to be in such a titanic ship like this. Kruti Goyal: Yes. One thing that I would add there is if you just like getting into the mindset of the consumer for a moment, it's really important that we are showing up where they are discovering. And this is a really great example of that. I think that we will continue to evolve as shopping behavior evolves. This is a great example. Josh, we mentioned earlier that the importance of our brand showing up in those moments, both to give buyers trust in the shops that they're looking at, but also every interaction through any channel, including agentic shopping is a reminder of Etsy and the brand so that the next time you're shopping, you're reminded to consider Etsy. So we think that it actually creates a real virtuous cycle whatever channels shoppers are shopping on. Great. All right. Hopefully, we can get Shweta back. Operator: For our next question, we'll return to Shweta. Unfortunately, we still cannot hear you, Shweta. Yes, unfortunately, we still cannot hear you, Shweta. So we are going to go to our next. For our next question, we'll go to Ygal Arounian with Citi. Ygal Arounian: Josh, we'll certainly miss working with you and Kruti, congrats on the new role. Let's see, maybe just like a quick follow-up first on the agentic AI opportunity. And first, do you think -- well, actually, I guess, first of all, I know it's super early, it might just be a very annoying question, but are there any early insights to what you've seen with the partnership so far, things like convert rates or average selling price, things like that? And is there an Etsy Ads or Offsite Ads opportunity with this as well? And then a follow-up question, just with the trends overall getting better here and starting to see some nice progress. I know we've moved away sort of from the House of Brands mentality. But just wanted to get updated thoughts on M&A capital allocation, if there's more opportunities to kind of the resale market grow here to kind of tag along with Depop. Joshua Silverman: I can take the OpenAI, you can take [ capital question ]. So yes, not an annoying question at all. We're tracking very closely what's happening with the data from agentic commerce. So what I'd say is with the partnership, we definitely saw a spike in purchases from that, but off of a very, very small base. And so good growth but off a very small base. The early data is that the traffic coming from agents is higher intent than traffic even that we normally get from search. So the conversion rate is even higher. However, I would again emphasize that it's a very small data set still. And so while we are very optimistic about this over a period of years, it's still very early days. Charles Baker: And from the capital allocation and your question about M&A and House of Brands, we've got 2 incredible brands in Etsy and in Depop. And if there were other brands that were similarly interesting and attractive, exciting to us, we might look at them. But from a -- we've been buying back our stock pretty aggressively over the last couple of years with a belief that the brands that we have are -- have tremendous long-term value in them. We've changed the momentum, we believe, at Etsy, and as -- we're not satisfied where we are, but we've made some progress, and we think we've got the plans to get the Etsy business into a stronger long-term sustainable growth mode. And Depop has got great growth under sort of looking back, and this really attractive opportunity right now for us to deploy more capital into it. So I guess what I'd wrap it up by saying is we really like our financial resources, and we really like the assets we have, and we're going to keep leaning into them very aggressively right now. Debra A. Wasser: Okay. Operator, we can get one more in. Operator: Your next question will come from Robert Coolbrith with Evercore. Robert Coolbrith: Josh and Kruti, congratulations to both of you on the transition. A couple of questions. So just on the agentic commerce, Kruti, you spoke during the call about the tailwinds you're seeing from improved buyer understanding. Just wanted to ask if you think there's a continued opportunity there in agentic context. Do you think there's going to be a meaningful sort of agent-to-agent communication and associated optimization opportunity in those channels over time? And then, Lanny, a quick follow-up. Can you just maybe help us size a bit the exogenous factors, the de minimis impact to the extent you saw it over the course of Q3? Kruti Goyal: Sure. So I can start with -- look, we think there are a lot of exciting possibilities ahead, both what you mentioned and others that we haven't even considered yet. I think our investment in deepening buyer understanding is going to serve us in any of those paths ahead with whatever opportunities present. The team has done a really incredible job of moving very quickly to take advantage of these -- the evolving capabilities of AI and LLMs to really deepen our buyer understanding in a way that is showing up most prominently right now in terms of the models that we're deploying on-site, so in our on-site and on-app experience, both across search and recommendations. And so those are some of the improvements to engagement that I mentioned earlier, especially on the app and some of the improvements to conversion on search and ads that I mentioned in the prerecorded remarks. So we are excited about the possibility that, that deepening buyer understanding opens up, and we'll certainly leverage that as new opportunities come up in channels like agentic search as well. Joshua Silverman: Can I just build on that for just a sec. One of the ways that customers are trained right now is to give 3 keywords or 2 keywords. And Etsy has just an unusually vast amount of inventory of really neat things that are relevant, and people are suddenly being trained to give paragraphs of information and context. And that's going to be exceptionally helpful to us in getting into the very perfect thing. So we're super excited about that. Charles Baker: On a quick tour of exogenous factors, the foreign currencies were about the same in the third quarter as they were in the second quarter. The competitive dynamic continued to allow us to gain opportunistically some search market share, as we described. And from a trade and tariff perspective, there -- we've seen the resilience in Etsy marketplace of stronger growth in U.S. domestic with a little bit slower growth in the international imports in the United States, right around a couple of weeks of the end of the de minimis exemption, we saw a little bit of pause in the marketplace, but that came back and was a very modest headwind for the total quarter. Debra A. Wasser: Great. All right. We are out of time. Thanks, everyone, for [ joining ] this morning. Joshua Silverman: Thank you all. Kruti Goyal: Thank you. Charles Baker: Thank you.
Pekka Rouhiainen: Good morning, everyone, and welcome to Valmet's third quarter result webcast. My name is Pekka Rouhiainen. I'm Vice President of Investor Relations. And with me today are President and CEO, Thomas Hinnerskov; and CFO, Katri Hokkanen. Thank you for taking the time to join us today. We will walk you through Valmet's third quarter. We will highlight our improving performance, key order wins and how we are navigating a market that continues to present both challenges and opportunities. Agenda is straightforward and the usual. So first, Thomas will present the Q3 highlights and discuss our strategy execution, and then Katri will go through the financials, and Thomas then conclude with the guidance and market outlook. And after the presentations, we'll open the lines for your questions, and there's also the possibility to post the questions through the digital platform. So thank you again for joining us and your interest in Valmet. But with that, Thomas, the floor is yours. Thomas Hinnerskov: Thank you very much, Pekka. And also a warm welcome and good morning from my side. Before we start, I do want to highlight that we've updated the interim report and this presentation to reflect our 2-segment structure in the new strategy, but also even more so making it more investor-friendly and easier to read. So, I hope you appreciate that and actually have noticed the change from last time. Let's start with the key highlights for Valmet's third quarter, a period that truly demanded our best as the market was challenging in some of our key areas. It's important to be clear while the process performance continued to benefit from a favorable market, Biomaterials faced real headwinds, and that's why I'm pleased with the achievements in this quarter overall. This quarter was defined by improving performance and some landmark wins achieved in a very challenging market. Next, I'll walk you through 7 highlights that together paint the picture of how Valmet is not just navigating, but actually leading in this environment. First, our Process Performance segment continued its strong growth track, delivering 11% organic growth in orders received. This is a clear signal of market trust and our team's ability to execute. The market environment was sort of a tale of 2 realities: continued good demand in Process Performance, but weaker conditions in Biomaterial. Our diversified portfolio helped us balance these forces. Despite the headwinds, we increased orders organically by 7%, reaching EUR 1.1 billion. That's a solid achievement in today's environment. A real milestone was the win of a record large tissue order from the U.S. that sets sort of a new benchmark for Valmet and it opens up for robust lifecycle opportunities going forward. Financially, we delivered our best third quarter ever comparable EBITDA of EUR 159 million and margin of 12.3%, slightly higher than last year and one step closer towards our 2030 financial target of delivering 15% comparable EBITDA margin. We've also started executing our Lead the Way strategy. And already we're seeing concrete benefits, especially through the savings from our renewed operating model coming through also here in Q3. Finally, our guidance for 2025 remains unchanged, both in terms of net sales and comparable EBITDA, are expected to stay on last year's level. That stability is a sign of solid execution and the strength of our lifecycle approach. With those highlights in mind, let's look at how our strategy is coming to life. When we launched our Lead the Way strategy in June, we set out more than just to change our operating model. It's a route to overall higher performance, more integrated customer service and increased shareholder returns. Since then, we've put the new operating model and reporting structure in place. Our teams are now aligning around lifecycle, value creation and supply chain excellence. Lead the Way isn't just a slogan. It's showing up in how we work together, how we serve our customers and how we deliver better results. Already, we're seeing concrete benefits. We are targeting, as you know, EUR 80 million in annual savings from the operating model renewal. And in Q3 alone, we realized EUR 15 million of those. We expect the full run rate from early 2026. However, it is good to note that partly we will reinvest some of that savings into growth and to capture future growth. Also we are strengthening our leadership team, especially in tissue business, where Jon joined us in August, and we made other key hires to support our execution. What's most encouraging is the feedback, however, from our customers. They're responding positively to our lifecycle approach and our regenerative purpose. It's clear that our strategy supports long-term value creation and performance. So, the Lead the Way strategy isn't just underway. It's already making a difference. We are building momentum and we are committed to delivering on our promise. And as we move forward with our new strategy, it's encouraging to see that our core strength and ongoing execution are already delivering results. While the full impact of our new strategy will unfold over time, the momentum we are seeing in orders received this quarter shows that Valmet is well positioned to capture opportunities in both favorable but also in challenging markets. In Q3, our orders received increased organically by 7%. This was the fourth consecutive quarter of organic growth. This achievement is a reflection of our team's ability to win business and deliver value even when the market conditions vary across segments. Process Performance continued its strong growth with 11% organic growth in orders received. At the same time, Biomaterial was faced with softer market condition. Our record-breaking tissue order from the U.S., however, demonstrates our capability to secure major wins in this segment. These results support a strong order backlog, provide a solid foundation as we move into the final quarter of the year and look ahead into 2026. Let's bring these numbers to life with a concrete example of how our solutions are making an impact in the market. Today, I want to show our automation platform wins outside of the pulp and paper space, which many people associate us with. We've been selected to automate a hydrogen fuel cell facility in Naepo in South Korea. The point here really is the versatility of the Valmet platform, solving problems in surprising areas even such as clean energy and fuel cells. Every new automation site expands our installed base and our opportunity for delivering this lifecycle software and services over time, delivering recurring revenue opportunities for us as Valmet. It is repeat business with Lotte Engineering & Construction, and it does introduce us to Naepo Green Energy alongside their existing LNG plant in South Korea. To sum up, this is a small win today, but a strong proof that Valmet automation platform is relevant far beyond pulp and paper. Let's now zoom in on the Process Performance segment, where our momentum has been especially strong. In Q3, Process Performance delivered another standout performance, building on the momentum we've seen throughout the year. Orders received increased to EUR 345 million with organic growth of 11%. That's, again, the fourth consecutive quarter of double-digit growth, driven by strong performance in a robust market. These figures do suggest that our market share has grown through acquisition, but definitely also organically. Net sales also grew organically, reaching EUR 361 million, but that's truly remarkable is actually our profitability. Comparable EBITDA climbed to EUR 79 million and the margin hit a record high at 21.9%. This does reflect our disciplined commercial execution, the benefit of our operating model renewal, but also improved performance in API, the acquisition or the business we acquired last year, as you will remember. With this level of performance, Process Performance is setting sort of the pace for Valmet overall. This quarter, we secured the largest tissue order in Valmet's history, a true milestone for our biomaterial business. This landmark U.S. orders expands our North American installed base, strengthening our leadership in the ultra-premium tissue segment and deepens our long-standing partnership with Sofidel. Financially, it's a record high order included in our Q3 results. Revenue will be recognized over the period of 2026 to 2028 with additional long-term growth expected from lifecycle services after the start-up. The project covers the tissue line, automation, flow control, digital solution, delivering efficiency and reliability for our customer. I would say wins like this set the stage for future growth and innovation in this segment. Moving on to the broader performance of Biomaterials segment beyond the landmark win we just discussed. This quarter, the segment operated in a notably softer market. The environment for larger projects has been subdued for some time. What's new is that the service market slowed down compared to Q1 and Q2 when our service orders grew at double-digit rates organically. Importantly, we saw the first sign of the softening already back in Q2 and communicated it also clearly at our previous webcast. We noted a more cautious environment emerging with customer activity expected to decrease throughout the year. In Q3, service orders were essentially flat 1% plus. We saw a slowdown in especially consumables and performance parts. Net sales remained at last year's level, but margin pressure was evident. Our comparable EBITA margin declined to 9.5% despite the cost benefit coming in from our operating model renewal. The margin was lower across the product portfolio, I would say. This does highlight the need for even tighter cost control. We're addressing this head-on through our new global supply unit, which is a key part of a broader strategy to strengthen cost competitiveness in the segment. This covers the operational and market development for our segment this quarter. To give you a bit more deeper look into the financial development, I'll now hand over to Katri, our CFO. The floor is yours. Katri Hokkanen: Thank you, Thomas. I will now take you through Valmet's financial development for the third quarter. I will cover profitability, cash flow, balance sheet and other key financials in my presentation. And as always, my aim is to provide a clear and transparent view of our financial position, and the drivers that are there behind our performance. Let's start with an overview of our net sales and comparable EBITA for the third quarter. Net sales for Q3 remained stable at EUR 1.3 billion. And organically, net sales were 2% higher than in Q3 last year, and this was due to currency headwinds of roughly EUR 31 million as euro strengthened against the U.S. dollar and other key currencies. Comparable EBITA reached EUR 159 million with a margin of 12.3%, as said, a record high for the third quarter. This increase was driven by a very strong performance in Process Performance Solutions and approximately EUR 15 million in cost savings from our operating model renewal. Our last 12 months comparable EBITA margin remained at 11.7%. Sequentially, it's flat, but still at record level. And actually these results show that we have ability to deliver a consistent financial performance even as market conditions fluctuate. Having covered our net sales and profitability, let's now look at our order backlog and what it means for Valmet's outlook. At the end of the third quarter, our backlog stood at EUR 4.5 billion, which is EUR 74 million higher than what we had at the end of 2024. And this solid backlog, together with healthy book-to-bill ratio this year, creates a good foundation as we move into the final quarter of this year and also to 2026. And based on our current delivery schedules, we expect that roughly EUR 3.6 billion of the backlog will be recognized as net sales in the fourth quarter as well as in 2026. And this provides us with good visibility and also supports our confidence in delivering it in line with our full year guidance. Next, I'll walk you through our cash flow and working capital development for the quarter. Cash flow from operating activities amounted to EUR 94 million in Q3 and EUR 569 million over the last 12 months. And our comparable cash conversion ratio was 92% for the last 12 months, and this is right in line with Valmet's long-term historical average. Strong cash conversion demonstrates the strength of our business model and also our ability to turn profits into cash even as market conditions fluctuate. Net working capital amounted to minus EUR 76 million or minus 1% of last 12 months' orders. Sequentially, from Q2 to Q3, we tied up EUR 63 million more working capital, but this was mainly due to timing effects, which reflect normal variation between the quarters. But to put this into perspective, if we compare with Q3 last year, we have actually released roughly EUR 100 million in net working capital. And this improvement comes from reductions in our inventories and also in our contract assets, which is a good achievement in the current environment. And if we zoom out even further at its lowest level about 5 years ago, our net working capital was EUR 0.5 billion lower than what it is today. However, it's very important to understand the underlying dynamics. So this shift reflects the growth of our Process Performance Solutions and Biomaterials Services business, which typically require more net working capital than CapEx-driven project business. As these segments have grown, while then the Biomaterial project business has been in a low cycle, our working capital profile has also evolved accordingly. And as always, payment schedule in our long-duration projects have a significant impact on net working capital development. Then year-to-date CapEx was EUR 81 million. This is representing 2.2% of net sales and it's also in line with our long-term average. I have to say that efficient cash generation, disciplined capital allocation remain our key priorities. It's supporting by both operational flexibility and also our long-term growth ambitions. Next, I will walk you through our balance sheet development and gearing. At the end of Q3, our net debt stood at EUR 945 million, and we reduced our gearing to 38%. This is a clear improvement from the previous quarter and well within our target of under 50% gearing. Our net debt-to-EBITDA ratio also improved now at 1.5. And the net average interest rate on our total debt remained stable at 3.6%. And net financial expenses fell to EUR 13 million in third quarter, and this is down from the EUR 17 million we had a year ago. And this improvement is driven by both a lower average interest rate and also a reduction of our total debt. For a context, a year ago, our average interest rate was 4.4%. It's also worth noting that the second dividend installment, EUR 0.67 per share totaling EUR 123 million, was paid in early October and it's not yet reflected in these figures. Our liquidity remains robust with a cash and cash equivalent of EUR 479 million at quarter end. So in summary, balance sheet is strong. Our gearing is comfortably below our target and our liquidity gives us the flexibility to invest in growth, support our long-term strategy even in a challenging market environment. Moving on to capital efficiency and EPS. Our comparable ROCE for the last 12 months was 13.1%. This is a solid level, but I want to be transparent. So our financial target is to reach 20% comparable ROCE by 2030 and we still have some way to go. The decrease in ROCE in recent years is mainly due to the acquisitions we have made. So these have increased our capital base and it takes time for the full earnings impact to come through. We are confident that these investments will support stronger returns over time and we have a clear plan how to get there. Then our last 12 months adjusted earnings per share was EUR 1.77, down 8% from full year 2024. And it's important to clarify that this is adjusted EPS, which excludes the acquisition-related adjustments, but includes items affecting comparability. It's sometimes assumed that these items affecting comparability are excluded from adjusted EPS, but in our reporting they are included. Even though our comparable EBITA is EUR 6 million higher year-to-date than last year, the decrease in adjusted EPS was mainly related to restructuring expenses from our operating model renewal. And these are, of course, one-off costs that support our long-term competitiveness. So we are taking the right steps to ensure stronger returns and sustainable value for our shareholders. Moving on to key figures to conclude my presentation. Most of these figures have already been presented today, but I'd like to highlight a few important topics. First, almost all key indicators have developed favorably in the third quarter. And this is a clear sign that our performance was strong even in a challenging market environment. Year-to-date net sales down 3%. This is still in line with our guidance of flat net sales for the year, so we remain on track. Items affecting comparability were minus EUR 10 million, and these are mainly related to a settlement agreement in the Biomaterial Solutions and Services segment following a delivery made 2 years ago. And the delivery required corrective actions led to a commercial dispute, which has now been resolved. And while unfortunate, incidents like this are rare but they do sometimes happen in the project business. Lastly, the effective tax rate was roughly 3 percent points lower in the third quarter and 4 percentage points lower year-to-date. While this change is rather large, it's important to note that the tax rate always reflects the geographical mix of our business. And last year, the tax rate was higher than typical. This year, it's lower. So going forward, we continue to expect a tax rate of roughly 25%. That concludes my review of the key financials. Thomas, over to you to go through guidance and our view of market outlook. Thomas Hinnerskov: Thank you very much, Katri. Let's look at the guidance and the short-term market outlook. Our 2025 guidance remains unchanged. We expect both net sales and comparable EBITDA to remain on previous year's level. This outlook is supported by our healthy backlog, our cost savings and that we are realizing from our renewed operating model. Looking ahead, our short-term market condition remains mixed. We continue to see a favorable environment in Process Performance, even though the dynamic tariff situation and the overall economic outlook does create uncertainty. The Biomaterials market overall remains challenging. The Biomaterials services markets softened clearly in Q3, and there is a risk of further softening there. One specific area of concern is consumables and performance parts, where orders have been trending down since Q1. This part of business reflects a more day-to-day customer activity and likely mirrors our customers' reduced production rates and to some extent, lower financial results. On a positive note, the tissue market stands out. We won a landmark order from the U.S. in Q3 and the pipeline looks healthy also going forward. The pipeline in our other capex-driven businesses is relatively stable. There are some mega projects in the pipeline, but as always, the timing is difficult to predict. We do remain open to work with our customers if some of these large projects move on to decision phase in 2026. For Q3, it's important to remember -- or Q4, it's important to remember that the comparison period includes in Q4 2024, a mega pulp mill order from Arauco, impacting the comparison figures, clearly also in the Process Performance and the Biomaterial Services. Despite the market challenge, I'm confident that our simplified operating model and focused strategy or strategic position as well will enable us to navigate near-term volatility, creating at the same time long-term value for both our customers and our shareholders. With that, I'll hand over to Pekka for instructions for the Q&A. Thank you, Pekka. Pekka Rouhiainen: Thank you, Thomas and Katri, for the presentations. And we'll start from the digital platform here before opening the phone lines. So please remember that you have the chance to post the questions also through this platform. But there are a couple of questions here. First of all, strong margins in Process Performance during Q3. So are there some one-off items or something like that explaining the good result? Thomas Hinnerskov: Yes, great results in Process Performance in Q3 in terms of margin. Overall, I would say they did -- the margin was supported by the savings in the operating model. They were also ahead of the curve commercially on some of the costs that are coming in. So that will impact them later on in Q4, but we're happy to take that extra result in Q3. On top of that, I would also mention that we did acquire API last year, and that performance has really come up and also showing really good results. We are very happy with that acquisition. Pekka Rouhiainen: Good. Thank you, Thomas. And then another one here regarding the savings, so EUR 15 million saved in Q3 from the operating model related things, I guess. And how much are the savings that you're expecting going to Q4 and 2026? Thomas Hinnerskov: We expect roughly the same level of savings into Q4. No, it's not going to change much. I think maybe just important to note going into '26, we will -- and that's also what we communicated at the Capital Market Day back in June 5 when we launched the strategy. Part of this operating model is also to free up resources so we can invest part of that back into future growth and therefore, actually getting into a better trajectory in '26. Pekka Rouhiainen: Good. Thank you, Thomas. That's it for the platform right now. So now operator, handing over to you. Operator: [Operator Instructions] The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I would have a few. Firstly, starting on services and the outlook that you now gave. Could you kind of talk a bit more like where is this coming from, the weakness in services? And what is the magnitude of the kind of potential further weakening if you had orders declining 2% in Q3? Is this like 5% plus decline going forward or any indications of this one? And maybe on services, if the spare parts and consumables are down, is this the highest margin part of services that is declining currently? Thomas Hinnerskov: Yes. Good question. If we look at the services and Biomaterials throughout the year, Q1 consumable spare parts really, really strong. Q2, consumer spare parts came down, mill improvements came up, and we'd still have a good growth overall in Q2. Here in Q3, you can say that that trend has sort of continued consumables and spare parts down, particularly, I would say, in Europe and North America. And then where then mill improvement projects has gone up in China and in North America, in particular, where we've seen the biggest growth. I think it's important to note that the mill improvements really are important projects for us because that's where we really help the customer as well in improving their efficiency and their cost competitiveness. And we're very happy that we have seen a good track record of that. Clearly, of course, that's slower moving in the backlog or in the order portfolio, so that the sales comes out a bit later than if it was spare parts or consumables. Panu Laitinmaki: Okay. Then on the cost savings, how did the EUR 15 million split into the 2 divisions? And maybe on '26, so should we expect EUR 15 million to impact your EBIT if you kind of get EUR 30 million for this year? Or did you indicate that you aim to invest part of that to the business, so it will be like less than EUR 15 million support to the earnings or margins? Thomas Hinnerskov: Now you had 2 questions there. What was the first part? Just I couldn't really hear you coming through. Sorry. Panu Laitinmaki: It was how did it split, the EUR 15 million, into the 2 divisions? Thomas Hinnerskov: Okay. Yes. The split between Bio and Performance Solutions, think about it like 2/3 bio and 1/3 in the process performance because you also have to think about where we took the most complexity out was actually in the Biomaterial business. Pekka Rouhiainen: And then Thomas, about 2026. Thomas Hinnerskov: Yes, 2026, we will sort of have full run rate early 2026 of these EUR 80 million. We will reinvest some of that into growth, that I said. I would think of it like 80-20, where 80% goes into supporting the results and 20% maybe in the reinvestment. And of course, you also need to think about, I think we've also communicated that earlier, that it's split between white-collar COGS and white-collar SG&A. Panu Laitinmaki: My final one is on the Process Performance. So, you answered that there was maybe some commercial, they were ahead of the curve in -- so does it mean that prices were increased before the costs increased due to tariffs or so on, and that this will kind of go away or turn in Q4? Thomas Hinnerskov: Yes. Clearly, I mean, as you also have seen, the market has been very dynamic and also in particular in terms of the tariff situation. So we have needed to adjust our pricing according to that. And then some of that tariff has come through a bit later than was originally expected. Panu Laitinmaki: Can you quantify what is the magnitude of that in the margins? Thomas Hinnerskov: Not -- I don't think we supply that kind of level of information. But there was -- there was a good impact. But you also have to consider into that API was doing better, cost savings were coming through without the reinvestment into future growth. So lots of things sort of pointed or gave some tailwind into the margin development for PPS. Operator: The next question comes from Sven Weier from UBS. Sven Weier: The first one I got is just coming back on the services outlook. I was just wondering, obviously, after Q2, you already gave a slightly weaker outlook for services into the coming quarters. I just wonder the outlook that you give today on the coming quarters, is that incrementally weaker than what you had in mind in Q2? Or is it the kind of same softness? That's the first one. Thomas Hinnerskov: Sven, thanks for joining. Overall, we've seen, as you can see, that the daily operating rates, consumables and spare parts has come down. We've seen in Q2 and Q3 roughly 9 million of tons of capacity coming out of the market where we roughly have 4 of those. So that's, of course, impact the overall consumption of these spare parts and consumables. So that has impacted. Now it is -- you can say that the situation is quite dynamic, can change positive-negative quite fast with our customers and depending on how their situation is with their customers. So it's a bit hard to say, but we do see a risk of further softening, I would say, going into Q4. Sven Weier: And is it that customers can still actually destock? Was there maybe also a prebuy ahead of the tariffs, and that's also weighing on the spare parts demand? Thomas Hinnerskov: That was probably back to Q1 where we saw spare parts and consumables coming up quite a lot and not happening really in Q2 and not in Q3 either. So I think it's more about prolonged shutdowns to actually manage the overall capacity, which then drive the consumables. Sven Weier: The other question I have was just on the Biomaterial margins and the -- which were a bit weaker than we expected. I mean, is it also that Arauco is a bit to blame here in terms of margin dilution? And is the project going according to plan? Thomas Hinnerskov: So Arauco is really going according to plan. I was actually visiting on-site there a few weeks ago. So I'm super happy that you're asking. I was there together with the CEO of Arauco, and we made a joint review of the whole project together. And it's great to see how it's progressing according to plan, and the team are really playing together to make this a success for Arauco as a customer. So very happy with the progress there, I have to say. Then just maybe to give you a little bit more flavor on the Biomaterial overall margin. We have seen -- we are seeing that sort of the overall product portfolio margin is lower than what it has been historically. But that we see more or less throughout sort of the year, and that will also go into Q4. Sven Weier: Understood. And the final question from my side, if I may, is just on the -- coming back to the cost saving bit. I mean, did you say there is an incremental EUR 15 million in Q4? Or is the run rate staying at EUR 15 million in Q4? Thomas Hinnerskov: So we've achieved -- so I'm more saying the run rate will continue like this. You can also see that in the number of people that have actually left if you sort of click on that, you will see that we have achieved actually most of the savings from a run rate perspective. Some will come during Q4, Q1, right? But most of it… Sven Weier: But you will be an EUR 80 million annualized in Q1, beginning of next year, you said, right? Thomas Hinnerskov: Yes, sometime early 2026. So sometime during Q1. Sven Weier: And did you use some of these savings then to win this major tissue project? Or do you need to invest these savings in other end markets? Thomas Hinnerskov: No. So these savings are not related to the tissue win at all. So these -- when we talk about these EUR 15 million, they are solely related to the operating model change. And that's why we're also saying in order to actually deliver on the strategy, we will reinvest some of that very sort of focused and tailored in certain markets to win more share. And then if you think about our global supply, the EUR 100 million that we talked about back in June, that's going into sort of 2 buckets. One is overall cost improvement and then, of course, also cost competitiveness. The cost competitiveness piece is a little bit of a longer game than just sort of a few quarters. Sven Weier: And then I guess tissue is not a market where you need to invest into market share gains because you are already strong. Thomas Hinnerskov: Yes. Exactly. Operator: [Operator Instructions] The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I have 2, if I may. Firstly, again, coming back to the service market. Just to be very clear here in terms of how to read your guidance. So should we see it, as you know, the market being down perhaps sequentially seasonally adjusted in absolute terms over the next 6 months? Or are you referring to kind of a year-over-year market trend, which might weaken from what we have seen now, for example, in Q2 -- sorry, Q3 with your orders being down by 2%? So just trying to get full clarity in a way on that so we don't misinterpret it how to read the guidance, please. Thomas Hinnerskov: Thanks, Mikael. I'm not sure -- I wasn't sure I understand the question, but the question is that when you -- when we say the guidance, it's -- are we comparing versus Q3 now for Q4? Or are we comparing with Q4 last year? Is that the question or? Mikael Doepel: Exactly. That's more or less the question. Yes. So trying to understand should we expect accelerating declines in demand year-over-year for the next couple of quarters? Or are you kind of looking at Q3 as a run rate and seasonal adjustment? Thomas Hinnerskov: Yes. Of course, I mean there's always seasonality in it. So we always think about sort of comparing versus the last year, not from sort of the starting point or the ending point coming out of the quarter. So I think you should think about it versus Q4, but you have to, in Q4, think about that that was impacted by the Arauco order in Q4. Not just in the capital side, but also in the Process Performance Solutions, but also in the Biomaterial Services as the service package comes through there as well. Mikael Doepel: Yes. That makes sense. Okay. And then secondly, on the U.S. market very briefly on the pulp market, in particular. Now I remember you have been talking about opportunities in that market. So you have a fairly old installed base on the pulp side, recovery boilers and all of that kind of expecting good opportunities there. I guess we haven't seen that much flowing through yet, at least in your orders. So I'm just wondering if you would like to give a bit of an update on how you see that market now. I mean, is the overall tariff or uncertainties putting things on hold? Or any color on that trend would be great. Thomas Hinnerskov: Yes. I mean North America market, a very good market. Overall, as you also alluded to, old installed base will eventually need to be upgraded and a lot of improvement projects will need to come through there. They are currently -- I would say, they've taken some capacity out during Q2, early Q3 as well to support sort of the overall situation there. However, they are running, I would say, close to optimal operating rates as we speak, right? And they are actually sort of being -- what can I say, they benefit from the current tariff situation, I would say, overall, but they still struggle with what sort of -- what's the direction when they're looking into the coming quarters and years. And therefore, I think that's also one of the reasons why you've seen quite silent CapEx market, not just in North America, but overall. Operator: The next question comes from Panu Laitinmaki from Danske Bank. Panu Laitinmaki: I wanted to ask about the EUR 10 million one-off costs. So if I understood correctly, this was a project settlement. So is this like the way you always treat this and so as an item affecting comparability? And how do you kind of define when it's a project loss test reported as part of normal business and when it's something that's taken out from the adjusted or comparable EBIT? Katri Hokkanen: Yes. Thank you, Panu, for the question. Actually, this was a delivery that we have done already 2 years ago. So in that sense, it has been delivered. And there has been a dispute with the customer, which required then corrective actions, and now we have settled it. So these are very rare, I have to say. Panu Laitinmaki: Okay. And if I may, another question. What about these large projects in pulp? So -- or the potential ones, what is like the timeline? When do you think the customers are making decisions? Is it '26? Any color on those ones? Thomas Hinnerskov: I mean, as usual, it is very, very difficult to predict when these comes out. They are very binary by nature. Of course, as you know, there are some of them in the pipeline, but question is when that decision is made. It's a bit about how the customers see actually the market for pulp developing into the future. And then -- so hard to give you sort of more insight on that one. But of course, we are working with the customers having to sort of help them out doing the solution engineering, figuring out how would actually the payback and the return on investment look like for them. Operator: The next question comes from Xin Wang from Barclays. Xin Wang: So my first question is on automation and flow control orders, which came at a very good level. Can you maybe talk about what's driving the demand, either by region or by customer groups? I think you mentioned hydrogen fuel and power in the release. And then you also talked about good pricing level being a driver. Is this across the sector or unique to Valmet? Thomas Hinnerskov: Very good question. I think if you look at our Process Performance Solutions, they actually also have customers that are in challenging situation with some overcapacity and some tough pricing in their markets. However, we do see that they are very committed to the future. They have done some CapEx investments in actually to driving their efficiency going forward or into the future. So we've seen, especially in automation, maybe we see more CapEx orders than what we've -- and then service orders or that mix have actually been a bit more heavy on the CapEx, which is great to sort of in terms of installed base and future businesses, right? Same go a bit with Flow Control. I think the pricing is more a Valmet specific thing than necessarily a sector thing. Xin Wang: Very good to hear. So maybe just a follow-up on this bit because when I look at your customer base in Flow Control, for example, I think there is 26% given out of your CMD slides being pulp and paper. For the other industries, what was the secret to gain pricing power in there in, I don't know, chemicals, renewable energy, metals and mining, et cetera? Thomas Hinnerskov: Yes. I think taking Flow Control is really about having a very strong solution offering that adds value to the customer more uniquely than any of the other competitor, having a very focused and specific commercial plan on how you're actually going to get this to market, what segments are you focusing on, not trying to go too broad, but actually being very specific on where does your solution offer a uniqueness into the market and then really pushing that. And that is actually quite a number of industries where we have -- as part of the solution where we have a uniqueness that -- where we can actually serve the customer better. Xin Wang: Okay. Great. Maybe if I can ask one more question. I think in Q3, you continued to benefit from China orders, although presumably at a far lower scale than Q2. Can you maybe comment on your expectations over there, please? Thomas Hinnerskov: Yes. So, what I also just said is that we saw several mill improvement projects in the Bio business in China, but we also had a -- also on the Process Performance Solutions, we also had some good orders coming in there. I mean I think you know the Chinese situation. It is, of course, a challenging market like it is also some other places. And you just need to be very, very focused in your commercial strategy when it comes to China in order to be successful. Otherwise, you end up getting lost and you end up getting marginalized because you're trying to do too many things for too many kind of customer segments. Operator: The next question comes from Antti Kansanen from SEB. Antti Kansanen: It's Antti from SEB. A couple of questions from me as well. I'll start with a clarification on the savings comment. So the EUR 15 million that you are flagging, am I correct to understand that this is the impact on quarterly EBIT and not any kind of an annual run rate number? So that would be the first one. Thomas Hinnerskov: That's correct. Antti Kansanen: So it's safe to assume that if -- and then I wanted to come back to the comment on reinvesting part of the savings next year. Was this originally the plan when you announced the EUR 80 million cost savings during the Capital Markets Day? Or has something changed since then? Thomas Hinnerskov: No, this was a clear part of the plan at the Capital Market Day. Antti Kansanen: Okay. Fair enough. Then the second question is on the outlook for… Thomas Hinnerskov: Antti, just to be clear, of course, we're not just flooding in resources, right? It is very tail -- it's back to the plan and the road maps we created for the strategy implementation and execution back, I mean, before the June 5, and that's where the investments are going into, in particular when it comes to certain sales forces where we do see that there are opportunities, but they're not necessarily done historically because the payback time is not within the year. Antti Kansanen: Okay. I mean that's very clear. But I'm kind of correct, assuming that this is basically the quarterly run rate of net savings that we should assume. I mean the EUR 5 million is roughly already close to 80% of, let's say, the gross number that you are talking about. So -- Thomas Hinnerskov: Not too far away. Antti Kansanen: -- repeated in terms of --yes. Okay. Good to have it correctly. But then I guess the bigger question that I had was on the service demand and on the consumables and parts side, obviously driven, as you mentioned, by the client production rates. So how do you look at it? Is this just a business cycle that you kind of have to suffer right now? Or are you seeing something more permanent happening within your existing service base that would maybe require actions that were not part of the ones that you outlined on the strategy and the CMD in June in terms of, let's say, permanent closures of shrinkening of installed base in some of your key service areas? Thomas Hinnerskov: No, I think it's driven by the moment. Of course, as I said earlier, the 9 million tonnes of capacity coming out. 4 million of those roughly is Valmet capacity or original Valmet equipment. That's, of course, a lot of it is quite old equipment, but anyhow it does, of course, drive demand. But then the lower operating -- I mean, as I also said, we're seeing very good operating rates in North America now. If they closed a few sites in Q2, in particular. Very good operating rates right now. Europe, I mean, struggling as you probably would imagine and know, and also in terms of the operating rates, right. So, it's basically sort of say demand side driven right here and now for the customer. Operator: The next question comes from Christoph Blieffert from BNP Paribas Exane. Christoph Blieffert: I have 2, please. Can you help me better understanding the margin profile of spare parts and consumables versus mill improvement projects and services, please? Thomas Hinnerskov: I think the right way to really think about it is that point one, we have a -- we set out an ambition for 2030 of having a 14% margin in our Bio business, right. That's sort of the aiming point. Secondly, that is then really about making sure we drive the lifecycle value for our customers, optimizing their outcome because we are the manufacturing equipment for the customer. In order to make them competitive, especially when it comes to older equipment, then these mill improvement projects becomes really important. And that then generates also then future service and consumable sales or parts and consumable sales. So I wouldn't try to sort of see it in isolation or the mix. I think that just clouds the bigger picture in terms of the direction of travel. I think the only thing is that it's more important to think about that it's slower turning in terms of the order book backlog that it doesn't come out tomorrow necessarily, right, with like a spare part would do. Christoph Blieffert: Okay. Understood. The second question is on 2026. Consensus expects some EUR 706 million of comparable EBITA for next year. I'm just wondering if you feel comfortable with the EUR 19 million year-on-year increase. Thomas Hinnerskov: I think -- I mean, a good question. And as you know, we do come out with our guidance for 2026 in connection with the Q4 results. I think we are standing on good grounds in terms of going into next year. We've got a good order backlog. We've got savings that helps us improve our profitability. So in that sense -- we've got PPS also having had some good growth during this year. So we are going into with some good things in the bag, but let's see back in after Q4, how that would play out and more specifically. Operator: The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I just have a very small detailed follow-up on the 9 million tonnes of capacity that you're talking about taking out from the market. Are you referring to containable, consumable, pulp or everything together, just to be clear on that number? Thomas Hinnerskov: Yes, it's mainly in the paper and board segment. Mikael Doepel: Okay. But also pulp then or just that… Thomas Hinnerskov: Yes. No, I think that is -- I think you have sort of think about it as mainly a board thing. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Pekka Rouhiainen: All right. Thank you. There seems to be no questions from the digital platform at this stage either. So it's time to start to conclude the event. And the Q4 report will be due on February 6 next year. And yes, I hope to see many of you in the various roadshows and seminars we are planning to participate still this year. But now I'd like to hand over to Thomas for any final remarks. Thomas Hinnerskov: Thank you, Pekka, and thanks to everyone who joined us today. To sum up, Valmet delivered a good performance and an improving performance in the third quarter, even as market conditions remain challenging. Our healthy order backlog and ongoing cost savings, like we also just talked a lot about from the operating model renewal, gives us confidence in our outlook. We remain fully committed to our strategy and to create long-term value for our shareholders and stakeholders. So on behalf of the entire Valmet team, thank you, and thanks for their continued trust and support. We are looking very much forward to keeping you updated on our progress. And then have a great and wonderful day. Thank you.
Operator: Greetings. Welcome to The Kraft Heinz Company Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Anne-Marie Megela, Head of Investor Relations. Thank you, Anne-Marie. You may now begin. Anne-Marie Megela: Thank you, and hello, everyone. Welcome to the Q&A session for our third quarter 2025 business update. During today's call, we may make forward-looking statements regarding our expectations for the future, including items related to our business plans and expectations, strategy, efforts and investments and related timing and expected impacts as well as statements regarding the proposed separation of Kraft Heinz into 2 independently traded companies. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release, which accompanies this call as well as our most recent 10-K, 10-Q, and 8-K filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures, which exclude certain items from our financial results reported in accordance with GAAP. Please refer to today's earnings release and the non-GAAP information available on our website at ir.kraftheinzcompany.com under News & Events for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. I will now hand it over to our Chief Executive Officer, Carlos Abrams-Rivera, for opening comments. Over to you. Carlos Abrams-Rivera: Well, thank you, Anne-Marie, and thank you, everyone, for joining us today. I am encouraged by our progress in the third quarter, recognizing there's more work to do to navigate today's complex environment. We delivered a modest year-over-year recovery in the top line performance, showing progress versus the first half of the year. That said, the operating environment remains challenging with worsening consumer sentiment and ongoing inflation influencing buying behavior around the world. To reflect our third quarter results and the expected continuation of these macro trends, we have updated our 2025 outlook. We remain on track to separate into 2 independent companies in the second half of 2026. And while we manage that transition, our priority is to drive performance today and position both businesses for long-term success. I want to thank our teams for their efforts and our customers, consumers and shareholders for their support. With that, I have Andre joining me, so let's open the call for the Q&A. Operator: [Operator Instructions] And our first question comes from the line of Andrew Lazar with Barclays. Andrew Lazar: Carlos, in light of the weaker consumer sentiment that you've talked about, we are seeing a number of food companies sort of lean in more aggressively on investment spend, both pricing related and broader A&C. I guess I'm curious how much of the '25 profit revision, if any, is due to more aggressive spending behind the brands than initially contemplated versus just the impact of sort of higher costs and volume deleverage. And if there's not significant additional spend, I guess I'm curious why wouldn't more make sense now to help jump-start volume improvement in a still tough consumer environment as you think towards next year? Carlos Abrams-Rivera: Let me have Andre kind of give you a little bit of context how we think about the updated guidance and I kind of fill in some additional information. Andre Maciel: Thanks for the question, Andrew. The profit revision is not linked to incremental investments beyond what we had previously communicated. The profit revision is a function of lower expectation on consumption in the U.S. which we can talk more about that, is a function of elongated recovery on Taste Elevation, which has been improving in a meaningful way, 70% of the revenue now is gaining market share. However, the recovery is still slower than what we anticipated. So there is a mix component to that. And we face incremental inflation in Meat and Coffee, and we didn't price certain elements of it due to competitive dynamics. And we had a few other one-offs affecting our supply chain results in Q3 that should not be expected to repeat in Q4. However, they stick in the year. Remember, though, that for this year, we are increasing promotional investment around $300 million in the U.S. We have $80 million-ish of incremental marketing spending in media. We have more R&D investments, and we have incremental headcount in selected areas, mainly commercial-related functions. So we are adding relevant investments on the business. And we don't think that adding more price at this moment will yield results. The investments we have made already allow us to have opening price points in critical categories to the retailers and to the consumers. We have investments in Meat and Cheese, in Frozen Potatoes, in Mac & Cheese and a few others. We don't believe adding more marketing at this point. Remember that the entire marketing investment increase is concentrated in the second half of the year. So we don't think going even further beyond that would deliver returns at this point. However, we are open in the future to add more marketing as we continue to go deeper in our brand assessments. But at this point, we don't think it's a matter of putting more investments. Carlos Abrams-Rivera: I think the one thing I would add, Andrew, is, I mean, listen, we think about this at our company as a very much a consumer-centric brand-driven company. So for us, what is important is that we're building brand for the long term. So when we think about stepping up investments, we are thinking in terms of the -- what Andre mentioned in R&D, in marketing, continue to drive the renovation of our products because I think that is going to be the way for us to be successful over the long term. I think the fact that we have concentrated our effort behind our Brand Growth System to make sure that we are continuing to bring distinct attributes that consumers value, that's going to be the way we continue to be able to be successful over the long term. And by the way, I think some of the pricing that we have done strategically in terms of promotions have worked. If you look at our back-to-school campaign, we were able to actually be successful in able to drive great returns behind the key brands that we focused during the back-to-school campaign, Capri Sun, Lunchables, Jell-O. So I think we are going to continue to be tactical in our investments, but really building our brand for the long term. Thanks for the question. Operator: The next question is from the line of Peter Galbo with Bank of America. Peter Galbo: I wanted to ask maybe a more conceptual question around the spin. And really, if I think about it, one of your CPG peers is going through a similar dynamic right now in terms of kind of a split and you're living kind of parallel lives, I guess, for lack of a better word. In the case of your peer, right, there was an announcement, the market responded the way that it did, and there's been a pivot on their behalf, not in terms of pursuing the split, but in terms of how they're going about it, right? There's been an alteration in terms of the path forward. I wonder just as you've solicited feedback from investors and as you've heard from investors since your announcement, has there been any thought as to a pivot for Kraft Heinz, whether that means the leadership isn't the way that you thought it would pan out, the brands that you announced at the spin now, maybe some of them move from one to the other. Just any thoughts, again, as you've heard feedback that you may potentially pivot versus the initial announcement? Carlos Abrams-Rivera: Well, thank you for the question. And listen, I think that -- let me give you a little bit of the context of how we ended up with the decision. We have spent a number of months working with our Board of Directors to make sure we felt that we were going to do something that was going to be unlocking shareholder value. And we believe in the fact that we create 2 stronger companies that can be more focused for us to drive that unlock the shareholder value. And if you think about our 2 companies, I think we have already shown that we have a playbook that we have focused on in a part of our business that will be part of the Global Taste Elevation. In fact, if you look at our Taste Elevation progress in the Q3, you are seeing already that, that playbook is working, that, in fact, we are improving our dollar sales that we're improving our share position. And in fact, in September, we gained share in 70% of the U.S. Taste Elevation business. So the playbook that we have has been working, and we want to apply it now to both companies with the right amount of resources and support. Having said that, we also have said that we are going to continue to look at opportunity for us to think what is the right way to support this with the right amount of experience, capabilities and technical resources. So I think that's something that we'll continue to do as we think about the announcements that we'll have ahead of the second half of the year with the management teams and the way we're going to create the right operating model for us to grow. So our focus remains on us doing the right thing by us creating these 2 companies. And really, in every situation, and you picked a particular peer that you had in mind, the reality is that there's many other examples of people who have done this. For us, what we're trying to do is, well, it's the right thing to do for both Kraft Heinz and our shareholders. Andre Maciel: The other thing I'll add is, look, comments on perimeter and balance sheet. On the perimeter front, we -- as we said before, we decide this perimeter: one, to allow focus; two, based on growth history and growth potential of the different brands, the margin profile and the synergies. So as we go deeper now, we're doing all the bottom-up work. There's a lot of work going on, as you can imagine. If at any moment, we think it might create more value to shareholders to have some adjustments, we will. But at this point, we think we did the right thing because we put a lot of thought before that. The second, the balance sheet. I know there was initially some maybe misunderstanding about what we intend to do with both companies, and we try to clarify that in the subsequent forums. So we said we are targeting both companies to be investment grade. We are committed to ensure that we keep the net debt at reasonable levels. We put -- even the prepared remarks, we were very clear. Our capital allocation priorities have not changed. And the second one after organic investments is to maintain the net debt at or close to 3x, and we're committed to do that, which should allow both companies to have good balance sheets with optionality. And a clarification, when you say we want to have company investment grade, for us, net debt is below 4x. And obviously, the specifics, we're going to be still discussing in the coming months and discussing greatly in agencies, but we are committed for that as well. Operator: Next questions are from the line of Tom Palmer with JPMorgan. Thomas Palmer: I wanted to just ask on Emerging Markets. It seems like excluding Indonesia, trends were more encouraging. I guess, one, and you did provide some commentary here on Indonesia from a sales overhang. But how big is Indonesia within Emerging Markets? And then when we think about the fourth quarter, the mid-single-digit growth guidance for Emerging Markets, what does that assume kind of for the business ex-Indonesia and Indonesia in terms of potentially seeing some improvement? Carlos Abrams-Rivera: Well, thanks for the question. Let me start, I guess, with the point of the context of Emerging Markets. You're correct. There is great progress outside of Indonesia, and we have continued to see the -- not only the success in terms of growth, but also the continued improvement in terms of that growth. I think for me, what it also gives me confidence is the fact that we think about the $1 billion that we have in the Emerging Markets, that actually is accelerating and is accelerating because of our key brands like Heinz, where it continues to show a tremendous amount of growth. In fact, in emerging markets, our Heinz brand year-to-date is growing 13%. So I think for us is we continue to see that as a value piece of our portfolio and one of our key growth drivers as we think about the future. In the case of Indonesia, top line is about $0.5 billion business. And frankly, what we have seen is a meaningful decline in consumer sentiment that has led then to the softening of demand. In fact, I think that the consumer sentiment in Indonesia year-over-year is about down almost 10 points in terms of consumer sentiment. So that has led to the sellout -- reducing the sell-out growth expectations and some of the challenges that we have seen in terms of our distributor -- particular distributor in the country and also how that has disrupted the overall our own business. At the same time, this is something now we're taking actions to make sure that this is only something that we can correct into the future. So we are rightsizing the inventory to the right levels. We are transitioning to a new distributor, and we're also making sure that we're reducing the pricing stability that happen in the country, while we continue to invest in Indonesia in terms of our marketing of our brand and ABC is the largest brand that we have. And we believe that us continue to drive superiority on the brand equity, making sure we continue to drive the -- also penetration in a meaningful way is going to be the best way for us to getting Indonesia back to where we wanted to be in terms of contributing the growth to the business. Andre Maciel: Just to add to that, we -- Emerging Markets aside from Indonesia grew 9.2%. So it did accelerate in a relevant way compared to the first half of the year, as we have said before. Indonesia, just maybe a little more specific, is close to $300 million revenue. So it's like 12% of the emerging markets business. So still relevant, but not massive. And we do expect the recovery in the P&L only to happen in the second half of next year because we still have adjustments to do into Q4. In Q1, there is Ramadan, which is very important for Indonesia, a big seasonality in that business, so -- which will affect Q1. So we really head into Q3, end of Q2, Q3, we're going to see the recovery there. Yes, but I think what is good is we invested a lot in this business in the past 2, 3 years. There was a lot of marketing investment to put the ABC brand, which is the leading brand in several categories in a very good spot. So market share standpoint, things are doing well, but we have to make the adjustments on the distribution network. Operator: Our next question is from the line of Steve Powers with Deutsche Bank. Stephen Robert Powers: I don't -- Carlos, I don't believe I saw it anywhere this morning, and apologies if I missed the relevant disclosure, but are you able to frame maybe pro forma the performance of Global Taste Elevation Co. versus North American Grocery Co. in the third quarter? And then also update us on how you see those businesses progressing into the fourth quarter, just so we can better assess momentum into '26 and eventual separation. And maybe alongside that, Andre, I don't know if you -- where you're -- sort of where you are in this process. But as you think ahead towards separation, I'm just curious if you have a more formal estimate around any onetime restructuring costs or cash costs that Kraft Heinz is likely to incur in preparation for the split? I'm just trying to see how we should handicap those dynamics over the next 3 or 4 quarters. Andre Maciel: Sure. Thanks for the question. Look, both companies -- both 2 big companies pro forma declined low single digits in the quarter. We see the Global Taste Elevation trajectory improving and in the very low single-digit territory at this point. And the expectation is for Q4 that to continue. So our main priority is to put the Global Taste Elevation back to growth in 2026 as it has grown for several of the last 15 years. And so that's the priority #1 to us. The North American Grocery Company had a significant improvement in trends in the third quarter compared to the first half, but also declining low single digits, though more than the Global Taste Elevation Company. But the priority #1 for the North American Grocery Company now is to ensure that we have stable cash flows heading into '26. And -- but in parallel, we're working hard to make sure that this company also has the prospects of growing low single digits into the future. In terms of one-off costs, I think it's [ a case ] to talk about that. There is a lot of work in motion right now. We are committed to be very, very disciplined with the use of cash like we have been. So you can see our results despite the EBITDA decline, our cash flow is up year-over-year, and it's going to continue to be the case here to go. So count on us to be very disciplined and do the right type of investments that are needed to put those 2 companies set up for success. Carlos Abrams-Rivera: Yes. Let me just add then particularly as we think about the North America grocery company. I think if you look at our history, we have proven that we can be an efficient operator. So as we think about our separation, we're going to have the same level of efficiency as we think about how do we actually drive both of those companies. And I think that beyond that, we also have been a great and a confident company in terms of delivering strong cash flow for our shareholders. Now I would also point out the fact that I mentioned earlier that we have a playbook that has worked. Some of that playbook, we actually already have deployed to some of the key brands that will be part of North American Grocery. So if you think back to Q3 and our results on Lunchables, on Capri Sun, those are brands that now in the future will be part of North American Grocery, and we were able to return to growth. What will happen as we go into these 2 separate companies and we can create 2 more focused companies, we can then put the right level of attention and resources to allow both of those companies and to fulfill their true potential. So I think as we go into the -- going forward, the attention of management remains in us making sure that we continue to see the progress of the company because that will support both companies as we exit into the second half of 2026. Operator: The next question is from the line of David Palmer with Evercore ISI. David Palmer: Great. In your slide presentation, you noted several of those key categories where you're clearly improving in terms of market share. Your guidance for the fourth quarter doesn't imply much improvement. And I just wanted to get your thoughts about maybe offsets. Is it categories that you're in? Are they slowing? Maybe there's some offsetting brands where you're seeing a little bit of deterioration? And then separately, there's that story of the promotion spending that you -- those investments, the $280 million that you're making. that's maybe 2% of North America retail sales. When we track in scanner data, I know these are audited numbers, but it only shows like that your volume on promotion is only up -- is only down, I'm sorry, 1%, basically unchanged. I'm just wondering what is going on with your promotions? Maybe you could tell us better than what the data is showing us, which doesn't show us much in terms of what activity you are doing? Andre Maciel: Sure. Thanks for the question. So first, regarding Q4, you are right. The outlook implies revenue in Q4 worse than revenue in Q3, about 100, 110, 120 basis points. We have inventory phasing in -- especially in North America, especially in the U.S. So we do expect this headwind of inventory to be north of 100 bps for the total company. It's a combination of inventory phasing Q4 last year to January given some timing of promotion and some September, October. We also do expect lower consumption in Q4. And that's -- so the inventory has been in our outlook for a while. There's nothing new. The different aspect that also was one of the reasons why we adjusted the expectation for sales down year to go is related to the softness in consumption. So we saw throughout Q3, the industry decelerating further in the U.S. In October, aside from hurricane noise, it also started soft. So we do expect the market share to continue to improve, especially in Taste Elevation, but we should expect share to improve, but we expect the industry to get worse. So that results in the consumption overall in the U.S. to be relatively flat to Q3, but with the inventory then headwind impacting us. The second part of your question? David Palmer: The promotions. Andre Maciel: On the promotions. So we concentrate promotion mostly about the key holidays. So our highest market share in the year historically is in Thanksgiving and Christmas. So we do have a lot more promotion activity around this upcoming holiday. Part of the investments we have made, they were to secure incremental distribution. So that's part of joint business plans that we do every year with the retailers, and we were very intentional in some cases to ensure that we expand distribution, which we have been generally getting. And in some other cases, we did invest deeper than what we would normally do during back-to-school to ensure that we can accelerate consumers trying the renovated products. So we focus a lot on trying to drive units to have those household penetrations coming in. And the expectation that this will eventually generate repeat purchases, which will help with the sales in the future. Remember, we said that at the beginning in the last quarter that we will try to do different tactics to accelerate this consumer trial of the new products. So we see that. The ROIs of those are not good, to be honest, the lifts are low. And maybe that's why when you look at the syndicated data, you have this perception. Carlos Abrams-Rivera: But I think let me add a couple of things. I think, first of all, we talked quite a bit about the U.S. because if you think about our total company, the reality is that while we're seeing some pressure in Europe in terms of the consumer, particularly in the U.K., we actually are holding our share in a moment in which the U.K. consumer also is seeing some challenges. And I mentioned earlier, Emerging Markets, where we've seen actually strong growth, whether it's in Brazil, the recovery in Mexico that we feel great about, the stability in China and really is Indonesia aspect that has been kind of holding us back in terms of getting to the double-digit growth that we can see in Emerging Markets into the future. So I think from that perspective, it is why we spent quite a bit of time talking about the U.S. And if I do a double-click on what some of the things Andre mentioned, the reality is that we are seeing some inventory pull back from customers. And I think that's a response to what they're seeing in terms of the consumer sentiment. So the fact that we have now one of the worst consumer sentiments we have seen in decades, as we go into even a holiday season, we're already seeing how customers are pulling back on inventory, and that's reflected in our guidance as well, too. So it is a unique moment right now in which this is getting -- the consumer negativity and the sentiment is extending longer than we had originally expected. And we are seeing already on top of that, that customers are also adjusting their own level of inventory to accommodate for that. Operator: The next question is from the line of John Baumgartner with Mizuho Securities. John Baumgartner: Just sticking with the promotional environment in U.S. retail. Despite the joint programming with retailers that you mentioned, Andre, and the larger investment dollars and the improving analytics, weak promos seem to be a theme right now across the center of the store. And Carlos, you mentioned some success with your lips around back-to-school, but lips have also been weaker in other parts of your portfolio as well. So I'm curious what you're finding that's working differently in the areas where the lips are stronger. Is there a distinction there? And then what changes are you making, if any, to your promo approach into '26 given the consumer environment? Carlos Abrams-Rivera: I think there were about 3 different questions in there. So let me take one. I think there's a part of it you were getting at is some of the success we've seen in back-to-school. And for us, I think one of the things that we were playing in back-to-school, and I think we did that effectively is how do we make sure we are winning in those key moments in which consumers are going disproportionately to stores. So back-to-school was actually one of our first pilot in which we kind of created a whole more executional approach of how we leverage the entire brands together during that particular moment. So what you saw is an improved in-store display and increased investment both in marketing, but also in the promotional aspects inside of the retail environment. And that actually helped us make sure that we have a cross-selling where brands cross-shopping purchase improved by 60 bps. We also saw that improving in base velocity as a result of the investments that we make in back-to-school so that when consumers were going to the store, I mentioned the fact that we have brands like Lunchables and Capri Sun. So when they go to a back-to-school time period, they were actually experiencing a product that we had now renovated in both Lunchables and Capri Sun. So that actually helps us for us to the long term to make sure we continue to build a stronger base volume as we go into the future. And I think those are key learnings that we'll take as we go into the holidays as we go into key also moments into the future. I think that was one of your questions. Andre, I think you want to address some of the other pieces. Andre Maciel: And maybe just to complement. So what you have seen working better generally is more on higher frequency than deeper discounts. So -- and we see overall lifts coming down year-over-year. The ROIs are lower than they were last year, generally in part because of higher overall incremental activity, which dilutes the lift across different players, but also in our case, as I mentioned before, because we're going deeper in certain occasions to drive household penetration. As we head into next year, we have a lot of tests running in selected places to see different type of tactics that could work well, including in some case, cross-merchandising and bundling products, putting -- adding more events in e-commerce, trying to maybe go less deep and less focus on key holidays and maybe spread these resources around in a more harmonic way throughout the year. So there are a set of different things that the teams are currently assessing to make sure that we can improve those returns into next year again. Carlos? Carlos Abrams-Rivera: Yes. The one thing just to complete the thought on your question is, I think right now, we're also seeing some challenges with the consumer. But I think what we are looking to do and the game that we're playing for the long term here is to make sure we continue to invest behind our brands to drive superiority from a consumer experience perspective. I do think that right now, the challenges we're facing are more cyclical in nature. So for us, it's important that as we get out of this particular era in which consumers are feeling with a down sentiment that we come out of it with a much stronger portfolio with stronger brands. So I do think that we are preparing ourselves not to just be victims of the moment, but actually stronger -- building a stronger company for the long term. Operator: Our next question is from the line of Robert Moskow with TD Cowen. Robert Moskow: I wanted to drill in a little bit on the commoditized categories, Carlos, like Coffee and Meats. And I guess, Cheese to some extent, these 3 categories are going to be like 40% of the sales of North American Grocery. And as you can see in your results here, Sliced Meats and Coffee have become really problematic. I guess I wanted to know, have you started rolling out the Brand Growth System to these categories? Is it harder to implement it in these than it is in the others? In your CAGNY presentation, you yourself said that you have a much lower right to win in coffee and meat. And as a result, does that make it harder to get traction with Brand Growth System than the others? Hello? [Technical Difficulty] Operator: Please stand by ladies and gentlemen, we'll resume momentarily. Ladies and gentlemen, please stand by. We are experiencing technical difficulties. We will resume momentarily. Thank you. [Technical Difficulty]
Operator: Welcome to the Third Quarter 2025 Caterpillar Earnings Conference Call. Please be advised that today's conference is being recorded. I will now hand the conference over to your speaker today, Alex Kapper. Thank you. Please go ahead. Alex Kapper: Thank you, Audra. Good morning, everyone, and welcome to Caterpillar's Third Quarter of 2025 Earnings Call. I'm Alex Kapper, Vice President of Investor Relations. Joining me today are Joe Creed, Chief Executive Officer; Andrew Bonfield, Chief Financial Officer; Kyle Epley, Senior Vice President of the Global Finance Services Division; and Rob Rengel, Senior Director of Investor Relations. During our call, we'll be discussing the third quarter earnings release we issued earlier today. You can find our slides, the news release and a webcast replay at investors.caterpillar.com under Events and Presentations. The content of this call is protected by U.S. and international copyright law. Any rebroadcast, retransmission, reproduction or distribution of all or part of this content without Caterpillar's prior written permission is prohibited. Moving to Slide 2. During our call today, we'll make forward-looking statements, which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different from the information we're sharing with you on this call. Please refer to our recent SEC filings and the forward-looking statements reminder in the news release for details on factors that individually or in aggregate could cause our actual results to vary materially from our forecast. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. On today's call, we'll also refer to non-GAAP numbers. For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the earnings call slides. Now let's advance to Slide 3 and turn the call over to our CEO, Joe Creed. Joseph Creed: Thank you, Alex, and good morning, everyone. Thanks for joining us today. Solid performance from our team generated strong results this quarter, driven by resilient demand and focused execution across our three primary segments, and as a result, sales growth and adjusted operating profit margin were both slightly above our expectations. Sales and revenues increased 10% to $17.6 billion, an all-time record for a single quarter. Backlog grew by about $2.4 billion, driven by strong orders in Energy & Transportation. The backlog is now $39.8 billion, which is also an all-time record and positions us for sustained momentum and long-term profitable growth. We also generated $3.2 billion of ME&T free cash flow, and we deployed about $1.1 billion to shareholders through dividends and share repurchases during the quarter. I'll start with my perspectives about this quarter's performance, then I'll discuss our outlook along with insights about our end markets, and finally, Andrew will provide a detailed overview of results and key assumptions. Turning to Slide 4. Sales and revenues were up 10% versus last year. The increase was primarily due to higher sales volume, partially offset by unfavorable price realization for machines. Higher sales volume was driven by higher sales of equipment to end users across our three primary segments. Third quarter adjusted operating profit margin was 17.5%. For the quarter, the net impact of incremental tariffs was near the top end of our estimated range of $500 million to $600 million. Despite the tariff headwind, adjusted operating profit margin was slightly above our expectation, primarily due to better-than-expected sales volume in Energy & Transportation. We achieved quarterly adjusted profit per share of $4.95. Compared to the third quarter of 2024, sales to users increased 12%, led by 25% growth in Energy & Transportation, while machine sales to users increased 6%. For Construction Industries, sales to users were up 7% year-over-year, broadly in line with our expectations. Let me take a minute to walk through the sales to users by region. North America increased 11% over the prior year and was better than we anticipated due to growth in both residential and nonresidential construction. While rental fleet loading was down slightly, dealers rental revenue continued to grow in the quarter. An increase in EAME was primarily due to growth in Africa and the Middle East. We saw a decline in Asia Pacific, which was below our expectations, resulting from softness in a few key subregions. Latin America increased but slightly lower than we anticipated. In Resource Industries, sales to users increased 6% year-over-year, which was slightly above our expectations. Mining was better than expected due to the timing of deliveries to end customers for large mining trucks and off-highway trucks. Heavy construction and quarry and aggregates were in line with our expectations. In Energy & Transportation, sales to users increased by 25% year-over-year with double-digit growth across all applications. The largest growth came from power generation with a 33% increase, primarily due to demand for reciprocating engines for data center applications. Turbines and turbine-related services also contributed to power generation growth. Sales to users in oil and gas, industrial and transportation all increased about 20%. The increase in oil and gas was primarily driven by higher demand for turbines and turbine-related services. Industrial grew from a relatively low level and was driven by sales into electric power applications. Transportation increased due to international locomotive deliveries. Moving to dealer inventory and our backlog. In total, dealer inventory increased by approximately $600 million versus the second quarter of 2025. Machine dealer inventory increased approximately $300 million, about in line with our expectations. As I mentioned, backlog increased sequentially by $2.4 billion, driven by robust order activity in power generation and oil and gas. Since the third quarter of 2024, our backlog has increased 39% with growth across all three primary segments. Moving to Slide 5. I'll now discuss our outlook. I'm pleased with the continued positive momentum in our business. With a record backlog, strong order rates and continued growth in sales to users, our outlook has improved since last quarter. For the fourth quarter, we anticipate strong sales growth versus the prior year. Sales growth is expected to be driven by higher volumes in all three segments. We also expect the year-over-year impact of price realization to be about flat in the fourth quarter. Excluding the net impact of incremental tariffs, fourth quarter adjusted operating profit margin is expected to be higher versus the prior year. When taking into account the net impact from incremental tariffs, we expect fourth quarter enterprise adjusted operating profit margin to be lower versus the prior year. Given the strength of our three -- across our three primary segments, we now expect full year 2025 sales and revenues to be higher than we previously anticipated, resulting in modest growth versus 2024. We continue to expect full year services revenues to be about flat versus 2024. Based on the incremental tariffs announced in 2025 and expected to be in place by November 1, we expect the full year net impact from tariffs to be between $1.6 billion and $1.75 billion. Tariff and trade negotiations remain fluid. Our team is continuously evaluating options to further reduce the impact of tariffs going forward, and we fully intend to implement longer-term actions once there is sufficient certainty. I remain confident that we'll manage the impact of tariffs over time. Excluding the net impact of incremental tariffs, full year adjusted operating profit margin is expected to be in the top half of our target margin range. Including the net impact from incremental tariffs, we expect full year adjusted operating profit margin to be near the bottom of the target range, corresponding to our current expectation for full year sales and revenues. This margin estimate includes the initial mitigating actions already implemented and currently planned throughout the rest of the year. We also expect ME&T free cash flow to be above the midpoint of the $5 billion to $10 billion target range. Andrew will provide more details on key assumptions for the fourth quarter and full year in a moment. To further support our sales outlook, I'll now share the latest view of our end markets. Starting with Construction Industries. As I mentioned earlier, we're encouraged by another quarter of growth in sales to users and strong order rates across many of our regions. Customers continue to be responsive to the attractive rates we're offering through Cat Financial. We continue to anticipate full year growth in Construction Industries sales to users despite softness in the global industry. In North America, overall construction spending remains at healthy levels and infrastructure projects funded by the IIJA continue to be awarded. We continue to expect full year growth for sales to users. Full year dealer rental revenues are also expected to grow, and we anticipate dealer rental fleet loading will increase in the fourth quarter compared to the prior year. In Asia Pacific, we anticipate full year sales to users to be about flat. China has shown positive momentum to start the year, and we expect full year growth in the above 10-ton excavator industry but from a very low level of activity. In Asia Pacific, outside of China, we expect economic conditions to be soft. In EAME, we expect growth for the year, driven by healthy construction activity in Africa and the Middle East and improving economic conditions in Europe. With ongoing weaker construction activity in Latin America, we now expect to be about flat for the full year. Moving to Resource Industries. We anticipate lower sales to users in 2025 compared to last year as customers continue to display capital discipline. However, we see positive momentum with healthy orders for large mining trucks, articulated trucks and large track-type tractors. Although most key commodities remain above investment thresholds, declining coal prices have caused an increase in the number of parked trucks. As a result, we continue to expect slightly lower rebuild activity compared to last year. Overall, customer product utilization remains high and the age of the fleet remains elevated. We also continue to see growing demand and customer acceptance of our autonomous solutions. And finally, in Energy & Transportation, we expect strong growth in full year sales for power generation compared to last year. Demand remains robust, driven by data center growth related to cloud computing and generative AI. We are also pleased by healthy orders for the prime power applications as evidenced by recent announcements with Joule Capital Partners and Hunt Energy Company. We continue to stay close to our largest data center customers and receive regular feedback on their long-term demand expectations. In oil and gas, we expect moderate growth in 2025. For reciprocating engines and services, we continue to expect softness in well servicing due to ongoing capital discipline, industry consolidation and efficiency improvements in our customers' operations. We do see positive momentum in demand for reciprocating engines used in gas compression applications. Solar turbines oil and gas backlog remains strong, and we see healthy order and inquiry activity. With our ongoing investment to increase large reciprocating engine capacity, we're continually improving manufacturing throughput to meet customer needs across a broad range of applications. Demand for products and industrial applications is improving from previous lows with order growth being driven by engines sold into electric power applications. Transportation is expected to remain stable. The strong momentum we achieved in the third quarter, combined with the anticipated growth through year-end, sets the stage for exciting opportunities ahead. As a result, I look forward to sharing more about our long-term outlook at our 2025 Investor Day on November 4. And now I'll turn it over to Andrew for a detailed overview of results and key assumptions looking forward. Andrew R. Bonfield: Thank you, Joe, and good morning, everyone. As usual, I will start with a brief overview of our third quarter results, followed by our segment performance. Then I'll discuss the balance sheet and free cash flow before concluding with our current assumptions for the full year and the fourth quarter. Beginning on Slide 6. Sales and revenues were $17.6 billion, a 10% increase versus the prior year. This was slightly better than we had expected on stronger volume. Adjusted operating profit was $3.1 billion, and our adjusted operating profit margin was 17.5%, both were slightly better than we had expected. Profit per share was $4.88 in the third quarter compared to $5.06 in the third quarter of last year. Adjusted profit per share was $4.95 in the quarter compared to $5.17 last year. Adjusted profit per share excluded restructuring costs of $0.07 in the quarter compared to $0.11 in the third quarter of 2024. Other income and expense was favorable by $132 million, primarily due to the absence of an unfavorable ME&T balance sheet translation impact, which occurred in the prior year. Excluding discrete items, the global annual effective tax rate was 24%, an increase versus our prior expectation of 23%. The higher rate had an unfavorable impact on our performance in the quarter by about $0.18. This is due to changes in recently enacted U.S. tax legislation. While the changes have a negative impact on the tax rate in 2025, they benefit 2025 cash flow. In 2026 and beyond, we would expect a positive benefit to the tax rate versus the previous estimated tax rate for 2025, subject to a consistent mix of profits. The year-over-year impact from the reduction in the average number of shares outstanding, primarily due to share repurchases, resulted in a favorable impact on adjusted profit per share of approximately $0.17. Moving to Slide 7. I'll discuss our top line results for the third quarter. Sales and revenues increased by 10% compared to the prior year, driven by higher volume, which was primarily due to stronger sales of equipment to end users. Changes in dealer inventory acted as a slight tailwind to sales, while price realization was a slight headwind. As I mentioned, sales were slightly better than we had expected in August. Moving to operating profit on Slide 8. Operating profit in the third quarter increased by 3% to $3.1 billion compared to the prior year. Adjusted operating profit increased by 4% versus the prior year to $3.1 billion. Stronger volumes, stronger sales volume and favorability in other operating income and expenses was more than offset by unfavorable manufacturing costs, unfavorable price realization and higher SG&A and R&D expenses. The unfavorable manufacturing costs largely reflected the impact of tariffs. You'll note that there was a headwind of $127 million in corporate items and eliminations this quarter compared to the prior year. The unfavorable impact was driven by higher short-term incentive compensation expense and an accrual for incremental tariffs and corporate items, which I will discuss in a moment. This was partially offset by the proceeds from an insurance claim. The adjusted operating profit margin was 17.5%, a decrease of 250 basis points compared to the prior year. The margin was slightly higher than we had anticipated, mainly due to better-than-expected sales volume in Energy & Transportation. As Joe mentioned, the net impact from incremental tariffs was near the top end of our estimated $500 million to $600 million range for the third quarter. Excluding tariffs, adjusted operating profit margin was slightly higher versus the prior year. This compares favorably to our expectations of a similar margin to the prior year, excluding tariffs. Tariffs impacted all three primary segments. And as I mentioned, part of the charge was recorded in corporate items, similar to what we saw in the second quarter. This timing impact reflects the additional tariffs that were announced within the quarter, which we noted in our 8-K filing on August 28. Moving to Slide 9. I'll review the performance of the segments. Starting with Construction Industries. Sales increased by 7% in the third quarter to $6.8 billion. The sales increase was about in line with our expectations. The 7% sales increase was primarily due to higher sales volume and favorable currency impacts, partially offset by unfavorable price realization. By region, Construction Industries sales in North America increased by 8% versus the prior year. Sales in the EAME region increased by 6%. In Asia Pacific, sales increased by 3% and in Latin America, sales decreased by 1%. Third quarter profit for Construction Industries was $1.4 billion, a 7% decrease versus the prior year. The segment's margin of 20.4% was a decrease of 300 basis points versus the prior year. The decrease was mainly due to unfavorable price realization and increased manufacturing costs largely due to tariffs, while the profit impact of higher sales volume provided a partial offset. The net impact of incremental tariffs in Construction Industries had a negative impact on the segment's margin of around 340 basis points. Excluding this impact from tariffs, the margin was slightly higher than the prior year and about in line with our expectations. Turning to Slide 10. Resource Industries sales increased by 2% in the third quarter to $3.1 billion. Sales were about in line with our expectations. Note that sales to users were slightly stronger than we had expected due to timing as shipments originally expected to occur in the fourth quarter were delivered to customers early. This resulted in a decrease in dealer inventory. Compared to the prior year, the 2% sales increase was primarily due to higher sales volume, partially offset by unfavorable price realization. Third quarter profit for Resource Industries decreased by 19% versus the prior year to $499 million. The segment's margin of 16% was a decrease of 430 basis points versus the prior year. The decrease was primarily due to unfavorable manufacturing costs from tariffs and unfavorable price realization. This was partially offset by the profit impact of higher sales volume. The net impact of incremental tariffs on Resource Industries margin was approximately 260 basis points. Excluding the impact from tariffs, the margin was lower versus the prior year and about in line with our expectations. Now on Slide 11. Energy & Transportation sales of $8.4 billion increased by 17% versus the prior year. Sales were stronger than we had expected due to higher sales volume. The 17% sales increase versus the prior year was mainly due to higher sales volume, including higher intersegment sales. Also, price realization was favorable. By application, Power generation sales increased by 31%, Oil and Gas sales increased by 20%. Sales in Industrial and Transportation each increased by 5%. Third quarter profit for Energy & Transportation increased by 17% versus the prior year to $1.7 billion. The increase was primarily due to the profit impact of higher sales volume and favorable price realization, partially offset by higher manufacturing costs, primarily due to tariffs. The segment's margin of 20% was an increase of 10 basis points versus the prior year. The net impact of incremental tariffs on Energy & Transportation's margin was approximately 140 basis points. Excluding this impact from tariffs, the margin was higher versus the prior year and slightly stronger than we had expected. Moving to Slide 12. Financial Products revenues were approximately $1.1 billion in the quarter, a 4% increase versus the prior year due to a favorable impact from higher average earning assets in North America. This was partially offset by an unfavorable impact from lower average financing rates across all regions except Latin America. Segment profit decreased by 2% to $241 million. The decrease was mainly due to a higher provision for credit losses at Cat Financial, higher SG&A expenses and an unfavorable impact from equity securities at Insurance Services. This was partially offset by a favorable impact from higher average earning assets. Our customers' financial health remains strong. Past dues were 1.47% in the quarter, down 27 basis points versus the prior year, the lowest third quarter in over 25 years. The allowance rate was 0.89%, remaining near historic lows. Business activity at Cat Financial remains healthy. Retail credit applications increased by 16% and retail new business volume grew by 7% versus the prior year. In addition, used equipment levels remain low and conversion rates remain above historical averages as customers choose to buy equipment at the end of their lease term. Moving to Slide 13. ME&T free cash flow was about $3.2 billion in the third quarter, approximately $500 million higher than the prior year as stronger operating cash more than offset higher CapEx spend. We continue to anticipate CapEx spend of around $2.5 billion this year. Moving to capital deployment. We deployed about $1.1 billion to shareholders in the third quarter. Our quarterly dividend payment was about $700 million, with the remainder reflecting share repurchases in the quarter. Our average balance sheet and liquidity positions remain strong. We ended the third quarter with an enterprise cash balance of $7.5 billion. In addition, we held $1.2 billion in slightly longer-dated liquid marketable securities to improve yields on that cash. Now on Slide 14, let me start with a few comments on the full year. Based on what we see today, we are optimistic about our top line momentum supported by healthy demand signals, including a robust backlog and growth in sales to users. Against this supportive backdrop, we now expect full year 2025 sales and revenues to increase modestly versus 2024, a slight improvement compared to our expectations last quarter. Now moving on to margins. Excluding the net impact from incremental tariffs, the full year adjusted operating profit margin is expected to be in the top half of our margin target range. Including the net impact from incremental tariffs, we expect full year adjusted operating profit margin to remain near the bottom of the target range. Given our improved sales and revenue expectations, adjusted operating profit margin should be slightly higher than we anticipated when we filed the 8-K on August 28. Based on the tariffs announced in 2025 and expected to be in place on November 1, we expect the impact from incremental tariffs for 2025 to be around $1.6 billion to $1.75 billion, net of some mitigating actions and cost controls. This assumes that the net incremental impact of tariffs will be greater in the fourth quarter than in the third, primarily due to the timing of tariff rate changes. As Joe mentioned, we expect ME&T free cash flow will be above the midpoint of the $5 billion to $10 billion target range. We continue to expect restructuring costs of approximately $300 million to $350 million this year. On taxes, as I mentioned, we now anticipate our 2025 global annual effective tax rate to be 24%, excluding discrete items. Turning to Slide 15. To assist you with your modeling, I'll provide our fourth quarter assumptions. Based on what we see today, we anticipate strong sales growth versus the prior year with higher sales volume across all three primary segments. We expect machine dealer inventory to decline slightly in the quarter compared to a $1.6 billion decrease in the prior year, which should result in a sales tailwind for the fourth quarter. We expect price to be roughly flat for the enterprise. By segment, in Construction Industries, we expect a strong sales increase in the fourth quarter versus the prior year on volume growth, driven mainly by the dealer inventory tailwind previously mentioned. Higher sales to users should benefit volume as well, while we anticipate the year-over-year price impact to be about neutral. In Resource Industries in the fourth quarter, we expect stronger sales versus the prior year, primarily due to higher volume driven by changes in dealer inventory. Note that we anticipate unfavorable sales to users in the fourth quarter in Resource Industries due to the timing impact that I mentioned a moment ago. The impact of price in Resource Industries is expected to remain unfavorable, but to a slightly lesser extent compared to what we saw in the third quarter versus the prior year. In Energy & Transportation in the fourth quarter, we anticipate strong sales growth versus the prior year, driven by continued strength in power generation. We also expect higher sales in oil and gas driven by Solar turbines and turbine-related services. Price realization should remain favorable as well. Let me provide some perspective on our expectations for Energy & Transportation. While we expect sales to increase sequentially in the fourth quarter, the increase will likely be different than the typical seasonal pattern. This reflects the impact from robust third quarter sales, which have tempered the usual fourth quarter uplift. As a result, the sequential sales growth rate between the third and fourth quarters is projected to be slightly lower than last year's level. Now I'll provide some color on our fourth quarter margin expectations. Excluding the net impact from incremental tariffs, we expect the fourth quarter enterprise adjusted operating profit margin will be higher versus the prior year. We anticipate stronger sales volume will be partially offset by higher manufacturing costs. As I mentioned, price realization for the enterprise should be roughly flat in the fourth quarter. Including the net impact from incremental tariffs, we anticipate a lower enterprise adjusted operating profit margin in the fourth quarter versus the prior year. As I mentioned, the tariff headwind should be larger than it was in the third quarter. We anticipate a net cost headwind of about $650 million to $800 million in the fourth quarter. At this point, we expect tariffs to have a minimal impact to corporate items in the fourth quarter as our current assumptions are based on tariffs announced and expected to be in place on November 1. Now I'll make a few comments regarding our segment margin expectations for the fourth quarter. In Construction Industries, excluding the net impact from incremental tariffs, we expect a higher margin compared to the prior year. This is driven primarily by the profit impact from higher sales volume, though the benefit within volume is lessened by unfavorable product mix compared to the prior year. Now including the net impact from incremental tariffs, we anticipate a lower margin in Construction Industries versus the prior year. We expect about 55% of the fourth quarter net incremental tariff impact will be incurred in Construction Industries. In Resource Industries, excluding the net impact from incremental tariffs, we anticipate a higher margin versus the prior year, mainly due to higher sales volume, partially offset by unfavorable price realization. Including the net impact from incremental tariffs, we anticipate a lower margin in Resource Industries versus the prior year. We expect about 20% of the fourth quarter net incremental tariff impact will be incurred in Resource Industries. In Energy & Transportation, excluding the net impact from incremental tariffs, we anticipate a higher margin versus the prior year, mainly due to a higher sales volume and favorable price realization. Higher manufacturing costs should act as a partial offset. Including the net impact from incremental tariffs, we anticipate a slightly lower margin compared to the prior year. We expect about 25% of the fourth quarter net incremental tariff impact will be incurred in Energy & Transportation. So turning to Slide 16. Let me summarize. We remain optimistic about our underlying business and now anticipate modestly higher sales for the full year, including a strong fourth quarter. Business activity and customer financial health remains strong as do our balance sheet and liquidity positions. Including the net impact from incremental tariffs, we expect to remain near the bottom of our target range for adjusted operating profit margins, and we expect to be above the midpoint of the target range for ME&T free cash flow. We continue to execute our strategy for long-term profitable growth. And with that, we'll take your questions. Alex Kapper: Excuse me, this is Alex. Just one quick clarification before we jump into the Q&A. The operating profit in the third quarter actually decreased by 3% to $3.1 billion compared to the prior year, and adjusted operating profit actually decreased by 4% versus the prior year to $3.1 billion. And with that, we'll take your questions. Operator: [Operator Instructions] Your first question comes from the line of Kyle Menges from Citi. Kyle Menges: It sounds like backlog growth was driven by power gen, and you alluded to orders for data center prime power applications as well. So could you just talk to the emerging data center prime power opportunity? How much latent capacity you think you have at Solar to meet this demand? And what you think you could actually deliver in the next year, given we've heard some big numbers getting thrown around by some of your customers? And then also just curious what that data center prime power backlog is looking like today. Joseph Creed: Kyle, this is Joe. So we're definitely really excited about the prime power opportunity with data centers and more broadly, just the demand for power that data centers and broader trends in the industry are putting on to the grid. We're going to see a lot more of this, I believe. Prime Power is a great opportunity for us because it creates services opportunity as we move forward as well. So definitely, you saw the Joule announcement that's in our reset. Part of our capacity addition there will go to serve some of that. And with Solar, we're seeing a lot of ordering activity, and it's really healthy, as you suggest. It's not just power generation. Power generation is seeing more activity, but oil and gas has been really strong, too, because we're moving a lot of natural gas, and I think that trend is going to continue. So definitely a really positive outlook at Solar turbines. We're able to keep up with the orders that we're seeing right now. Lead times are starting to get a little more extended at Solar. They're not to the extent of those super large class turbines that more utility scale, but they are starting to get extended. And I would say the way we're thinking it's shaping up in our backlog, the larger turbines, the Titan 250, Titan 350 are longer lead times than the smaller ones where we're able to react a little faster and have a little more. As it comes to capacity and things, we are always evaluating capacity. That would be a great thing when we need it. We're prepared to act when we feel like we need it, but we're in -- we feel like we're able to meet the orders that are coming in right now. Operator: We'll move next to Angel Castillo at Morgan Stanley. Angel Castillo Malpica: Congrats on the strong quarter here. Just kind of following up on that E&T conversation. Obviously, growth here remains quite robust. I wanted to touch a little bit more on the kind of price realization and margins for the segment. Those have remained a little bit more stable, and I think you talked about 140 basis point kind of headwind from tariffs. And maybe just to kind of expand on that topic a little bit more, just two quick questions. One, is there anything else kind of capping prices and margins for E&T as a whole? I don't know if it's mix first-fit versus services or anything else that you would note? And then related to that, for Power Gen in particular, should we be assuming something kind of greater than the 30% type of incremental margins you typically see in E&T given the strong pricing and volume trends there for the next 2 years? Or how would you kind of characterize that contribution to margins from power gen? Joseph Creed: I'll make a comment and I'll let Andrew maybe talk about the margins. But we're definitely each of our businesses and segments in a little bit of a different position. In the machine part of the business, we're in an unconstrained environment. We were constrained before, and we returned to a much more normal competitive pricing environment. In E&T, as you know, we're putting capacity in. Demand is really strong. And so we've been able to take pretty regular price increases, and we expect that trend to continue. Tariffs as well are not evenly spread across there. So we're a very heavy North America footprint in E&T. And so when you look at the margins, they've hung in there a little bit better than maybe a couple of the other segments. So pricing across our businesses, we take into account many different things, and E&T is definitely in a better position just given where that business is in the cycle and where we are from a demand standpoint and the outlook moving forward. Andrew R. Bonfield: Yes. And on margins, I mean, if you look this quarter, I think it was very impressive that E&T was actually able to manage flat margins despite the impact of tariffs and actually would have grown substantially without that. And I think that gives you an idea of the strength of the pull-through that is occurring. Just to remind you that if you look at our margin targets as a whole, and we manage margins at the enterprise basis, obviously, our focus is always on our absolute OPACC dollars and growing OPACC. So if there's a volume opportunity, which may not be necessarily as margin accretive, that doesn't mean necessarily we will pass on it because absolute OPACC dollars actually drives total shareholder return in our mind. But if you look at our margin targets, that requires a pull-through over 30% across the whole of the range when you look at where they are. So that gives you an idea of what we would be expecting from all our businesses when we're looking at margin accretion. Operator: We'll go next to David Raso at Evercore ISI. David Raso: Yes, building on that, I mean, given the backlog, retail activity, lower rates, secular growth, I mean, the revenues, the expectations on the Street for '26 are going to go higher. The real debate is going to be the incremental margin. And building on what you just discussed, not looking for '26 guidance, but just some puts and takes thinking about 2026 at a high level. Obviously, I was intrigued by the price realization comment about being flat in the fourth quarter. Be curious, in particular, when you think about that going to '26, especially for construction. Also the capacity expansions out there, the efficiency of that capacity coming on? Should we think of some potential headwinds adding be a turbine or even more recip capacity or maybe you can do it more efficiently, the sales mix, geographic, let alone product? And maybe lastly, of course, Andrew, anything else to consider puts and takes that we're not thinking about incentive comp, even things below the line tax rate. It's just that's going to be the debate, right, the margins, the incremental. So anything you want to answer from those, I'd really appreciate it. Andrew R. Bonfield: Yes, David, I think you -- I think your question actually covers about the whole of 2026 guidance. So I think, as you know, we will talk a little bit more about that when we get to January when we update you. We're still in that planning process. So it's still very early. I mean, obviously, just stepping back, though, obviously, demand across the business is strong with the backlog that positions us well. Obviously, as you look out, we are now lapping the impact of price. That's why we don't expect price to have an impact on the fourth quarter. So that's obviously a positive, which we don't have that headwind. Tariffs will still obviously be a headwind as we move into 2026. And you asked about the tax rate. And as I indicated in my comments, this year, we did see an increase in the tax rate. That's just due to the changes in the way the legislation works from the capitalization of R&D in particular, to the immediate expensing. That obviously is cash benefit to us, but booked tax negative. That obviously goes away. And then you'll start seeing some of the benefits of some of the foreign tax adjustments that were made in the legislation, which will be a positive for the tax rate as we move forward. But we'll give you more details. And hopefully, we'll give you a little bit more color on our expectations as we talk in Investor Day as well next week. Operator: And we'll move next to Tami Zakaria at JPMorgan. Tami Zakaria: Curious about your thoughts on what drove the acceleration in sales to end users in the quarter in every segment in every region, except APAC. It seemed like some light switch got turned on. Did you anticipate this acceleration maybe because you had product launches or dealer incentives planned? So my question is, are you gaining share or the end markets have just been getting better on all sides? Joseph Creed: Thanks, Tami. We're definitely pleased with the momentum we have in all three of our segments and seeing positive SKUs and momentum continue. Definitely in E&T, as we mentioned in here, right, we're trying to get out as much product as we can, particularly on large engines. So we were able to get out a little more product in the third quarter through the factory, and I'm happy with the way the capacity expansion is coming on. Many of you were able to see that earlier this year in Lafayette. But as we're bringing that capacity online, we continue to work with our supply base and the team there to get out as many units as we can. So that's creating some positive momentum there. I think -- and when you get to RI, some timing in some of the SKUs as to when some of the things get commissioned. And just remember that we've got great momentum in orders and the way that business is going. But from quarter-to-quarter, things can move from one quarter to the next. And we continue to see just great pickup, particularly in North America on our merchandising programs with CI. So we mentioned the industry dynamics are a little softer, and we're continuing to perform and able to make strides. And I think what we have in place is working and generating great momentum. And that gives us -- obviously, the backlog going up as well gives us good momentum heading into the fourth quarter and into next year. So we're just really happy with the way the business is performing right now. Operator: We'll take our next question from Mig Dobre at Baird. Mircea Dobre: I'd like to go back to Construction, if we can. So it's interesting that sales to end users are accelerating. I am curious how much of this do you think is simply a function of the various incentives that you put through rather than just the end market getting better. It sounds like your dealers are looking to add more fleet to their rental operations. So maybe you can talk a little bit about that. But perhaps the bigger picture, as we think about '26, if demand does look to get better, this segment has been absorbing the brunt of these tariff headwinds. How do you think about the puts and takes next year? Do you think that you have the ability to manage these tariffs on the cost side? Or should we be thinking that trends here are solid enough to where you can actually start pushing some price to be able to offset some of these very real cost headwinds that you've experienced in '25? Joseph Creed: Well, there's a couple of different questions there. I'll start maybe on the demand side. I think the performance of the business has been better than the general industry, and I believe that's due to the strategy we have in place and the merchandising programs that are out there. As we finish the year this year, as you point out, I think we'll be in a great shape on dealer inventory. So heading into next year, we'll see what happens, but we've got great momentum, and we're hopeful that, that continues into next year, and we'll talk to you more about that in our fourth quarter earnings call. As it comes to pricing, keep in mind, the fourth quarter, we said is flat at the enterprise level. So we're lapping the impact of these programs that are put in place. the way we're thinking about pricing is sort of our normal annual process, and we're heading into that time period now. Each of our segments, as I mentioned before, E&T is in a much different place than RI and is a much different place than CI. And then different regions of the world are also in very different positions competitively. So we take a lot of factors into the consideration. Cost inflation is one of them, but also market conditions, competitive situation. As Andrew said, our goal is to grow OPACC dollars. So any volume impacts to these decisions, we'll obviously take that into account as well. When it comes to tariffs, we've been able to really put some mitigating actions in, I would say, on the margins. They're the no regrets actions, same thing we talked to you about last time, short-term cost reductions, more belt tightening type of things. We've made limited sourcing changes where we have the ability to move sources without investments in our supply chain, but that's fairly limited. We work on certifying more USMCA compliant products. But when it comes to longer-term actions, we've sort of talked about this before. We're a global business with a very complicated supply chain. We are heavily U.S.-based. It's our largest footprint here. We have over 50,000 employees, 65 locations in 25 states. We're a net exporter. We've increased exports 75% over the last 9 to 10 years. At the same time, our hourly workforce has grown 29%, but we have a broad and diverse portfolio that's very global and the supply chain is complicated. If we're going to make longer-term adjustments to really offset tariffs in that way, it will require investments to do that, and they will take time because we'll have to certify components. We have to buy tooling, we have to validate them and test them. And so for us to make those types of decisions, we really need to have a greater level of predictability and stability in the situation. As we know, trade deals are still being negotiated, and we're watching that very closely, and we have a lot of scenarios at play. We'll use everything in our toolkit when the time is right to react to the tariffs or to mitigate the tariffs. But I'm confident we'll manage it over time. It's just right now, if we do something that requires investment, I don't want to have to spend that money and then turn around and spend money to reverse it. So we're trying to take a measured approach. But we have great momentum heading into 2026 and as we finish this year, and we're really happy with the way the business is performing. So we'll continue to update you as we move forward. Operator: Next, we'll go to Rob Wertheimer at Melius Research. Robert Wertheimer: I wanted to ask, I guess, around the shape of demand in resources, which you've touched on a couple of times. And is the order strength largely in gold, which obviously is going nuts and copper? Or is it a little bit more broad-based? And then if you had any comments, we've seen a couple of industry, including Cat investments in technology, software autonomy. Is there any upshift or change in customer orders on autonomy and/or advanced powertrains or anything else notable changing there? Andrew R. Bonfield: Yes. So I mean, obviously, order rates have remained pretty strong. As you would expect, where order rates are principally is around large mining trucks. That is the area of strength. From a commodity perspective, I would say to you rather than any commodity is strong, obviously, gold prices and copper prices are high. It's coal, which is probably a little bit of the drag, as you would expect and particularly in Indonesia. With regards to autonomy, we continue to see greater acceptance by our customers of the need for autonomous solutions. And I think we'll be talking to you a little bit more about RPM and also about where we think the industry is headed next week, Rob. So if you don't mind, I'm sure Denise will be giving you guys an update, and you'll be able to ask more questions there about some of the things within RI in particular. Operator: And next, we'll go to Kristen Owen at Oppenheimer. Kristen Owen: Two that are related to the backlog. Just first, can you comment on the contribution of CI and RI to the sequential backlog growth? And you made some comments on the year-over-year, but if you could hit the sequential backlog growth. And then second, when you talk about backlog or even revenue growth in oil and gas, would that include any turbine sales used for those prime power data center applications? Or should we anticipate that those will be allocated to the power gen backlog commentary? Joseph Creed: Yes. Thanks, Kristen. So the consecutive sequential growth in the backlog primarily came from E&T, and that was largely power generation and oil and gas contributing to that. As you did mention, year-over-year, we saw RI and CI up. So we're following a little bit of a seasonal pattern in those while still growing the backlog order activity across all three segments has been really strong in the quarter, and we're really happy with the momentum we have. When it comes to Solar and where those sales go and where you see them in the backlog and sales to users, if it's a data center application, it goes in power generation. If it's traditional offshore oil platforms or gas transmission, then it would be in oil and gas. So that's how you should look at where those end up in the numbers. Operator: We'll move to our next question from Michael Feniger at Bank of America. Michael Feniger: Joe, just in 2010, there was a filing that CAT had out that put turbines at $3.3 billion of revenue. That was 15 years ago. Is that business closer to like $7 billion today? Is that $7 billion too low, too high? And just the fact that some areas of oil and gas CapEx like offshore has been weak, is that why you have some capacity to meet the orders on power gen? Does that change at all to meet this demand when you open the order book for Titan 350? When does that kind of plan happen? And does that change the equation at all as you guys kind of think about capacity going forward? Andrew R. Bonfield: So with regards to revenues, we are not going to disclose Solar revenues. Obviously, you are referring to a period a very long time ago. We split the business into oil and gas applications and power generation and where it's mixed up with reciprocating engines for obvious reasons. But Solar is a very strong business. It's a very good business for us, as you know, and one that we will continue to support very strongly. With regards to capacity, both actually, oil and gas applications are doing pretty well as well. So there's a lot of pipeline orders, particularly around gas transmission. And so that doesn't -- so there's not necessarily weakness, which allows us to continue to meet other demand. It's really about prioritization. And as Joe said, we will discuss and make capacity decisions when we're ready and when we see the need to do that, we'll notify you accordingly. Joseph Creed: Yes. Just I mean, as you're thinking about this a long time ago going back 15 years to 2010, the world in oil and gas is much different now as well, right? So you would have had a lot more offshore power in the Solar, oil and gas business. And now post shale, we are moving a lot of natural gas, and that's where we are very, very strong is in the gas transmission side. So I think the business is different now. We continue to grow services and services footprint. It's the first business where we really leaned in on the digital front with long-term service agreements. And that's obviously, with Jim's background, helped shaped our strategy that's made us successful here in the last few years. So we're excited about the business. We're seeing a lot more demand in power generation. We -- when we announced the Titan 350 and put that program through, we obviously had room to produce those units. So we're excited that we're getting good uptake on them even sooner than we had thought when we started the program a few years ago. Operator: We'll move next to Jamie Cook at Truist Securities. Jamie Cook: Congrats on a nice quarter. I guess two quick ones for me. Joe, I guess what struck me about the quarter is just the backlog growth that you saw. I mean, to what degree do you think the Street should continue to expect backlog to grow? Because on one side, you have these projects like Joule, there could be more of those coming online. The other side of it is you have the law of large numbers and potentially capacity coming online. So just the ability to grow the backlog because it just provides such earnings visibility, and my second follow-up is just understanding what you're saying on tariffs, by segment, et cetera. But should the Street expect the fourth quarter to be the peak of tariff cost headwinds? Can it get better from here as we think about 2026? Joseph Creed: Yes. So when we look at -- you want to take the last one first. Andrew R. Bonfield: Yes. So with regards to tariffs, I mean, obviously, it really does the timing of mitigation actions, as Joe mentioned, will really be determined by the greater degree of certainty that we get out there. Obviously, all factors are on the table, and that will include potential for price. But obviously, that will -- we'll make those decisions as we would normally do within our normal time frame. With regards to -- obviously, the $650 million to $800 million is based on most of the -- all the tariffs that will be in effect on November 1. So there is one month for some of the tariffs, the 232s. Obviously, the other factors which impact tariffs are the degree of imports in any quarter. But that would be the sort of run rate on an unmitigated basis that you would expect to see. Joseph Creed: Yes. And Jamie, it's a good question on the backlog. And I think you expressed it well, right? There's a nuance to it. We continue to see significant demand, particularly in E&T. We're seeing more. I think we're at the early stages of the prime power opportunities. So we're excited to have more of those come online. We talk to our large data center customers, both hyperscalers and colos, frequently, monthly, mostly even to manage that forecast. So we have great confidence in the pipeline that's out there, and that's why we're putting the capacity in, and we continue to raise the capacity. So I think it kind of depends on the circumstance. We like the fact that the backlog is going up. I'd like to maybe if the reason the backlog goes up a little less is that I'm able to get out more and more product and keep up, I think that's a good thing. So we think it's positive. I would expect us to continue to see momentum in there. But we are getting pretty extended on some of our products in E&T, and I'd like to try to at least get that stabilized or brought back in if we can. Alex Kapper: Audra, we have time for one more question. Operator: Today's final question comes from the line of Stephen Volkmann with Jefferies. Stephen Volkmann: Great. Joe, you mentioned services a few times with respect to Solar. And I know for most of Cat equipment, a lot of that services revenue accrues to the dealer, but I think Solar is a little bit different. Can you just talk about how that's different and how the services business kind of impacts Cat directly rather than the dealers? Joseph Creed: Yes. It's -- as you stated, Solar is a direct business model for us. So in Cat branded products, obviously, the dealers service the equipment in the field. We sell them parts and support them with some other ancillary services. But when it comes to Solar, we have our own field technicians, our own group. So those units, as you know, run continuously. And so we pride ourselves as having tremendous customer service here, and that's why customers like us. So as you point out, as Solar sales pick up, even in the power gen space, it's all prime power. That's a great services growth opportunity for us. And I would say even in the Caterpillar side, projects like Joule, and that will come in a few years' time, not as much in the early years, the more prime power opportunities we're able to satisfy with our customers, the greater service opportunity for us down the road in a few years' time. So we're continuing to build that momentum in services. And you'll get a little chance, those of you who are coming to Investor Day next week. If you're able to stick around and go to the Solar plant in DeSoto, you'll be able to ask a lot more questions and get a better understanding of that. So with that, I'd like to thank everyone for joining us today. We always appreciate your questions and the interest in our results. We've had a great quarter. I'm really proud of our team for the solid performance. And so we're really excited to see you all next week at Investor Day, and I look forward to sharing more about our bright future and the attractive growth opportunities ahead. With that, I'll turn it back over to Alex. Alex Kapper: Thank you, Joe, Andrew and everyone who joined us today. A replay of our call will be available online later this morning. We'll also post a transcript on our Investor Relations website as soon as it's available. You'll find a third quarter results video with our CFO and an SEC filing with our sales to users data. Visit investors.caterpillar.com and then click on Financials to view those materials. As Joe mentioned, we look forward to hosting you for our Investor Day on Tuesday, November 4. The webcast information is already available on investors.caterpillar.com, and we'll issue a press release with more details the morning of November 4. If you have any questions, please reach out to me or Rob Rengel. The Investor Relations general phone number is (309) 675-4549. Now let's turn the call back to Audra to conclude our call. Operator: Thank you. That concludes our call. Thank you for joining. You may all disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Advantage Energy Limited Q3 2025 Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, October 29, 2025. I would now like to turn the conference over to Brian Bagnell, Vice President. Please go ahead. Brian Bagnell: Thank you, Joanna, and welcome, everybody, to our conference call to discuss Advantage's third quarter 2025 results. Before we get started, I'd like to refer you to our advisories on forward-looking statements that are contained in the news release as well as advisories contained in Advantage's MD&A and annual information form, both of which are available on SEDAR and on our website. I'm here with Mike Belenkie, President and CEO; and Craig Blackwood, our CFO; as well as other members of our executive team. We'll start by speaking to some of our financial and operational results. Once Mike has finished speaking, we'll pass it back to the operator for questions. And as usual, we'd like to ask that if you have any detailed modeling questions that you follow up with us individually after the call, and finally, I'll note that we have posted an updated corporate presentation on our website. So with that, I'll turn it over to Mike Belenkie. Mike, please go ahead. Michael Belenkie: Thank you, Brian. And thanks, everyone, for joining us this morning. For Canadian gas producers, the third quarter was clouded by the lowest AECO prices in modern history. However, there were many silver lines for Advantage. We delivered steady results that demonstrated the resilience of our business and our ability to create shareholder value through all phases of the commodity cycle. The average AECO price for the quarter was only $0.60 per GJ, which includes a September average of just $0.24 per GJ with about 1 week of negative prices. Under -- even under these extreme conditions, we generated adjusted funds flow of $72 million or $0.43 per share, fully funding our $72 million capital spending program and keeping our debt level neutral. This is a solid demonstration of our ability to fund an annual capital program of about $300 million in any -- in virtually any price environment. Revenue for the quarter was dominated by liquid sales, which composed 17% of our BOEs, but accounted for 64% of our revenue. The Charlie Lake contributed approximately 40% of our total revenue and 31% of our total operating income on its own. Gas revenues for the quarter were 16% higher than the same quarter last year, despite much lower Canadian gas prices, thanks to a larger contribution from downstream market diversification profits, and our risk management program delivered $34 million in realized hedging gains in the third quarter. Production in the third quarter averaged 71,482 BOEs per day, down 4% year-over-year, and 8% versus the prior quarter. This was driven entirely by price-driven curtailments and maintenance. We curtailed an average of 60 million a day of dry natural gas in the quarter, and at times in September, this was over 300 million cubic feet per day that was shut in, while AECO prices were negative. We've been asked, why Advantage is one of the very few companies in the basin that actively curtailed production during periods of exceptionally weak prices, and we do this for multiple reasons. We refused to waste our precious resource by selling it for no value or worse, paying marketers to take it away. During the third quarter, we mitigated over $5 million of depletion expense, which is another way to say that we avoided wasting $5 million of capital investment. Since our strategy is centered on maximizing AFF per share or cash flow per share, we won't sacrifice cash flow to defend headline production growth numbers, that is simply put, if it isn't profitable to sell it, we shut it in. To manage our physical downstream delivery commitments, which we do have several of, we were able to improve our cash flow by $2 million this quarter by shutting off our own gas and purchasing in a way, third-party gas at negative prices and immediately reselling those volumes in the downstream markets for a tiny profit. Again, that is to say, while we preserved our own resource, somebody else paid us to take away their resource and flow it to downstream markets using our pipeline capacity. We also don't believe that having our volumes financially hedged as a justification for producing uneconomic physical volumes. They are separate and discrete revenue streams. Hedging and marketing gains, broadly speaking, are generated by financial agreements that don't require you to produce the gas. Our shut-in decisions are made based on operating income at the gas -- at the plant gate and everything downstream of that is accounted over separately. So to summarize, our curtailments in Q3 maximized adjusted funds flow, preserved our resource base, reduced our capital depletion and expected capital spending, all while allowing us to fully capture our hedging profits. Now with that behind us, and with AECO prices starting to recover as of earlier this month, production curtailments have ended, and corporate production has been restored to full capacity, positioning Advantage for a strong finish to the year. We expect fourth quarter production to average between 79,000 and 83,000 BOEs per day, resulting in a full year 2025 production of 78,100 to 79,100 BOEs per day. The new well results that we mentioned in the press release yesterday will certainly help our -- keep our production levels high, and it's worth unpacking that a little. Typically, we would not announce well results with less than an IP30, but at Glacier, the shorter well tests to reliably translate into longer-term production expectations, especially given our extensive experience and knowledge of the Montney in the area. In this case, the results of our newest pad in the Northwest corner of Glacier are truly exceptional. The first well produced at 32 million a day of gas over the last 7 days prior to print, and is tracking towards a full 30-day IP just under 30 million a day, although it hasn't had enough time to actually realize that. This is roughly 3x the productivity of the closest offset wells, only 1 kilometer away to the north. In fact, we believe this well to have the highest initial productivity of any well ever drilled in the Alberta, Montney. The second well on the pad produced at a restricted rate of 20 million cubic feet per day of raw gas over the last 7 days -- over the last -- same last 7 days, restricted as a result of the higher rates from the first well, which is already filling a gathering system. The third well on the pad, which targeted the Upper Montney has not been brought on production yet for the same reason, but its cleanup rates looked comparable. This is an outstanding result from our multidisciplinary technical team and a testament to their relentless drive for improvement. Looking ahead into the winter, we see natural gas fundamentals at a positive inflection point, with oversupply conditions easing as we move into winter and as LNG Canada is starting to export meaningful volumes. As gas prices recover, debt repayment -- our debt repayment is expected to accelerate in the coming months. We are -- so we are, therefore, keeping our debt target at $450 million, but introducing a range of plus or minus $50 million, which increases our flexibility around the timing of aggressive share buybacks as we enter 2026. As in the past, when our balance sheet is where we want it, we put everything we have into the buybacks. Our strategy remains focused on maximizing cash flow per share while maintaining balance sheet strength. Thanks to our highly efficient capital program and low-cost structure, Advantage is able to deliver shareholder returns in 2 ways, disciplined production growth and free cash flow generation. Over the next 2 years, production growth is expected to average about 9% per year. And at strip pricing, free cash flow yield is expected to average 10% per year for a total annual return tracking 19%. This outlook is difficult to match. So with that, I'd like to thank our employees for another great quarter with a lot of nimble reactions and high-quality outcomes. And I'd also like to thank our Board and shareholders for their support, and I'll pass it back to Brian for questions. Brian Bagnell: Thanks, Mike. I'll pass it back to Joanna for any questions on the phone line first. Operator: [Operator Instructions] And the first question on the phone comes from Amir Arif at ATB. Laique Ahmad Amir Arif: Just a couple of quick questions. First, on those new wells that you brought on, those are terrific rates on those 3-mile wells. Just -- I know it's early days, but just curious how you think this can improve the corporate capital efficiency for your drilling in Glacier and whether you plan to introduce more 3-mile laterals as you develop the Glacier, just given your land block in the area can allow for longer laterals? Michael Belenkie: Yes. I mean, obviously, good news story. These are not unusually designed wells for us. These are well executed, great rock and really capitalized on all the team's technical advancements over the years with a few new ones. So really, what does that mean? Well, it probably means if we drill in this area, and certainly we have other areas that we expect to have similar outcomes, that means we drill fewer wells and therefore, less capital. Now I think broadly speaking, our Glacier program is typically somewhere around a dozen wells per year, and those wells tend to cost, I'm going to say, $7 million to $9 million dependently. This probably allows us to reduce the number of wells per year, which means maybe you save a few wells per year, but the program is already so efficient that's not going to be a massive swing in total capital per year, just a nice little -- induces our ability to save a little extra cash and put more work on debt repayment and buybacks. So modest impact, but positive for sure. Laique Ahmad Amir Arif: That's helpful. But could you quantify it in terms of capital efficiency on a 3-miler versus your typical 2-milers? Michael Belenkie: So if I understand your question correctly, you're looking to understand how much more productivity per $1 million spent. And I think we're probably looking at a sort of a 15% increase in cost for the well versus the shorter well. And the productivity probably goes up by more like 25% to 30%. So you can see these are nice little juicers, but this is what we're talking about here is only a few million dollars of extra spending for a sizable increase. So it's all small adds to our program, small increases in efficiency, which -- and not in isolation either, just that in this case here, everything came together for the outlier result. The program itself won't change materially. I just get a little bit stronger. Laique Ahmad Amir Arif: Okay. No, I appreciate that color. And then the second question is just more on your net debt target range. As you pay down debt faster, if cash prices are strong, it sounds like you might be willing to start a structured buyback program sooner at the $500 million level versus $450 million. Just curious what would change that to the lower end of the range in terms of waiting for debt to get to $400 million instead of the $500 million? Michael Belenkie: You bet. So the way that we try to explain this is, the last thing we want to do is only be buying shares back at the top of the market and not be buying shares back at the bottom of the market. This is, of course, a volatile business. $100 million of elasticity in the system allows us to buy countercyclically. And, of course, if we're solving for Max cash flow per share, well at times where our share price is lowest gives us the best return. So what we're looking to do is forecast whether we buy earlier, like sooner or later, at lower or higher prices, and with our outlook currently based on AECO, which is in a strong contango environment, our cash flow is expected to rise quickly through the coming year or so. If you use that model, it says you probably want to get back to work earlier. Well, having more elasticity on the top end of the debt range as we delever allows us to get back to work more aggressively earlier, okay? So hopefully, that's enough. We won't tell people exactly when we're going to buy because that would, of course, not be very good trading strategy, but think of it as a useful guidance. Operator: [Operator Instructions] Next question comes from Luke Davis at Raymond James. Luke Davis: Just wanted to get some background on how you're thinking about shareholder returns and specifically buybacks in the context of sort of your looser debt policy? Michael Belenkie: Sure. So shareholder returns, of course, I did sort of refer to that in my -- in one of the last comments, which is we see shareholder returns in 2 ways, production growth and free cash flow. Now the use of that free cash flow is always up for debate, and everyone has a different perspective on the best use of free cash flow. For us, there's -- you have to start from all options, which are debt repayment, share buybacks, and dividends. Now dividends, of course, in our case, with high cost of equity and us being a growth company, dividends are the least efficient way for us to redeploy that free cash. We have stated that we want to get to the range of $400 million, $500 million on debt, and that's a priority. So there's almost a mathematical order of priorities, which is delever, and then once you get to a spot where you have material amounts of free cash to redeploy, there's a question. Do you spend that on drilling a well? Do you delever further? Or do you buy back shares? And every penny or every tranche of share buybacks is subject to that same test. And what we're looking to do is solve for Max cash flow per share in that as a quotient, and that can change over time. So we won't be too specific, but hopefully that helps you with the framework. Operator: No further questions on the phone. I will turn the call back over to Brian Bagnell. Brian Bagnell: Okay. Thank you, everybody, for joining our call, and I look forward to catching up with you individually. That concludes the call today. Michael Belenkie: Thanks, everybody. Operator: Ladies and gentlemen, that concludes today's conference call. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Clarivate Q3 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mark Donohue, Head of Investor Relations. Mark? Mark Donohue: Thank you, Greg. Good morning, everyone. Thank you for joining us for the Clarivate Third Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited and the accompanying earnings call presentation is available on the Investor Relations section of the company's website. During our call, we may make certain forward looking statements within the meaning of the applicable securities laws, such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the business or developments in Clarivate's industry to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward looking statements. Information about the factors that could cause actual results to differ materially from anticipated results or performance can be found in Clarivate's filings with the SEC and on the company's website. Our discussion will include non GAAP measures or adjusted numbers. Clarivate believes non GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are supplements to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliation of these measures to GAAP measures are available on our earnings release and supplemental presentation on our website. With me today are Matti Shem Tov, Chief Executive Officer; and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open the call to your questions. And with that, it's a pleasure to turn the call over to Matti. Matti Shem Tov: Good morning, everyone. Thank you for joining us today as we review Clarivate's performance for the third quarter 2025. On Slide 6, I'm pleased to share that our results this quarter reflect continued progress in our value creation plan, improve operational and financial results and strong commitment to deliver value for our shareholders. Our forward-looking metrics such as annual contract value continued to improve to 1.6%, making a 30 basis point sequential improvement, driven by 2% ACV growth across Academia & Government and Life Sciences & Health. Our renewal rate of 93%, an important indicator was up 100 basis points year-over-year. Our free cash flow generation continue to support our balanced capital allocation, including $115 million of opportunistic share repurchases year-to-date as well as $100 million of debt pay down. These results are a testament to our team's dedication and the ongoing progress of our value creation plan. Jonathan will cover the quarterly results in more detail shortly. Our VCP on the Slide 7, our VCP is driving improved focus, growth and innovation across the business. We are accelerating product and AI development by investing in proprietary assets and collaborating very closely with our customers. Over the past year, we have launched 12 products and AI-powered capabilities across our segments. We expect this R&D investment to result in higher organic growth and improved renewal rates in the future. Our sales execution has improved, supported stronger customer engagement and revenue retention and helping us achieve our organic growth outlook through the first 9 months of 2025. We remain committed to optimizing our business model with a focus on increasing our core subscription and reoccurring mix to improve predictability as evidenced by the 8% improvement this year compared to last year and our portfolio rationalization is enhancing our execution focus and capital allocation, which is expected to unlock greater value. Turning to A&G segment. Positive sales performance, including 2% ACV growth is contributed to predictable top line results driven by our transition from transactional sales of digital collection and books to subscription-based revenue streams. This transition has resulted in our A&G subscription mix now at 93% compared to 81% last year. I believe this was clearly the right decision and I want to acknowledge our teams for the great work in assisting our customers through this transition. We are pleased with the progress to date as we have secured more than 100 contracts for our new content subscription framework, driven by the new offerings such as progress data collection and progress e-books. We continue to see strong renewal patterns with 90% of global A&G subscription for the full year successfully renewed through October 27. We are also pleased to share with you that our complete -- we have completed a multimillion dollar renewals of Web of Science with the largest library consortium in the United States. Considering the increased constraint on high education research funding, especially in the U.S., these renewals underscore the continued value that our solutions deliver to major research institutions nationwide. Our global reach is unmatched, as evidenced by just some of the large international deals, we have shared with you this year, including the British Library, Canadian Research Knowledge Network and CAPES in Brazil. Recently, we finalized an agreement with the University of Melbourne, Australia's premier university. The deployment includes library workflow solution, which provides comprehensive support for library management, resource discovery, resource sharing and reading list creation. Moving to the Intellectual Property segment. For the first 9 months, the patent and trademark maintenance services reoccurring revenue was flat compared to the same period last year. We are encouraged by this as it represents 3% improvement in the organic growth rate relatively -- relative to the full year of 2024. While these results show improvement, we are committing to returning the segment to sustainable growth. With Maroun Mourad as our new President of IP, we are confident we will drive continued progress across the business by increasing agility and streamlining processes as well as market recovery. We continue to invest in AI-based products and service innovation while maintaining a leadership position in the global IP ecosystem. For instance, IPfolio introduced an AI-powered product taxonomy that automate product patent mapping. It enables companies to better identify which product correspond to their patent, a valuable tool for large patent holders making strategic portfolio decision. We continue to make improvement to the Derwent platform with cutting-edge AI innovation which is being integrated throughout the patent management workflow. An exciting addition in this -- an exciting addition is the Derwent patent monitor an AI threat rating feature, empowering clients to identify potentially high-risk competitor filings. This achievement allow users to proactively safeguard their intellectual property portfolio and help mitigate risks. During the third quarter, we were chosen to supply China petrochemical cooperation, mainly China's largest oil and petrochemical supplier with intellectual property solution and the Web of Science platform. This cross-sell collaboration is a testament to our ability to leverage expertise and provide customers with solutions that meet all IP and research needs. Moving to Life Science and Health segment. I am personally excited it has returned to 2% ACV growth this year. The business has demonstrated strong performance by introducing new products and advancing AI integration through improved offering and specialized expertise within our Life Science platform. We recently launched DRG Commercial Analytics 360, a data analytics tool aimed specifically at the medtech sector. We were pleased to partner with Bioventus, a global auto biologics leader to leverage this new offering. This comprehensive analytics platform will assist Bioventus in making more informed decisions to enhance product adoption, improve patient outcomes and strengthen its position as a global leader. In September, we introduced our AI-powered regulatory assistant in Cortellis Regulatory Intelligence to help professionals manage global requirements more efficiently, developed with customer feedback and tested by industry partner, it meets the needs of biopharma, medtech and clinical research organization. With new features such as conversational AI with referenced answers and multilingual capabilities, it allows users to search and interact in preferred languages. We also embedded additional -- we are also embedding additional AI agents across key existing life science offering as well as launching new AI native products. We expect this offering to help us expand ACV going forward. On the next slide, I am pleased with the significant progress we have made by executing our value creation plan across all 3 segments. We introduced AI-powered solutions, including Web of Science Research Intelligence, AI agent, trademark opposition assistant, RiskMark and search and regulatory functionality within Cortellis. We have also driven internal cost efficiency, scaled our customer success teams and improved sales execution. This action have optimized our business model and accelerated innovation across our portfolio. As we look ahead to 2026, our focus remains on executing our robust value creation plan while driving innovation and operational excellence across Clarivate. We will continue the rapid deployment of Agentic AI, embedding it across customer workflows and segments. Building on our momentum, we will release new AI native solutions and extending AI-powered capabilities across our flagship portfolio. Accelerating AI innovation at scale is a top priority as we're driving organic ACV and recurring revenue growth through focused sense execution. We will aim to continue to boost sales productivity by focusing on our people, processes and tool, leveraging AI insight, engaging customer to support ongoing account growth and improving commercial execution. We believe operational efficiency and margin expansion will be achieved by utilizing Agentic AI and embedding organization-wide AI adoption for cost efficiencies. Finally, we are streaming our business model and making focus -- and market focus by completing our exit from A&G transactional book sales and the life science real-world data resell market -- reselling market. Strategic alternatives early this year, we have highlighted that we are actively progressing through a comprehensive review and assessment of strategic alternatives as we communicated to you in July, we are making good progress and expect to share more details with you when we report our fourth quarter results in February 2026. In closing, our performance this year is starting to demonstrate clear and positive momentum across our core financial metrics. We remain on track to deliver our 2025 financial guidance. We have achieved sequential and year-over-year improvement in organic ACV to 1.6% and renewal rate to 93%. Recurring organic revenue growth has improved to 0.6% for the first 9 months of 2025 compared to 0.1% last year and organic revenue mix has risen to 88%, up from 80% in 2024. These results reflect our commitment to driving sustainable growth and operational excellence -- as we look forward, we are confident that our strong foundation and ongoing momentum position and ongoing momentum position us well to create shareholder value. Thank you for your continued support and interest in Clarivate. We look forward to updating you on our progress in the quarters to come. And I'd like to now to turn the call over to Jonathan for a review of our financial results. Thank you. Jonathan Collins: Thank you, Matti, and good morning, everyone. Slide 16 is an overview of our third quarter and year-to-date financial results compared with the same periods from the prior year. Q3 revenue was $623 million, essentially flat over the same period in the prior year, bringing the year-to-date to $1.84 billion. The third quarter net loss was $28 million. The improvement over Q3 of the prior year is driven by higher foreign exchange gains and the noncash impairment charge recorded last year that did not recur this year. Adjusted diluted EPS, which excludes items like the impairment, was flat sequentially at $0.18. The change over last year is entirely attributed to the divestiture of ScholarONE. Operating cash flow was $181 million in the quarter. The change compared to last year is driven by adjusted EBITDA and working capital. Please turn with me now to Page 17 for a closer look at the drivers of the third quarter top and bottom line changes from the prior year. The top line was essentially flat in the third quarter, yet margins were lower as expected as we continue to invest for future growth and remain on track to deliver our full year guidance. The changes were driven by 4 primary factors: First, while organic subscription revenues continued to grow at more than 1% following the continued acceleration in our ACV. Total organic revenue was essentially flat as the subs growth was offset by modest recurring and transactional declines. Operating expenses were higher in the third quarter as we continue to invest to drive growth and incurred higher incentive compensation expense as we remain on track to deliver our full year guidance. Second, during Q3, the businesses we are disposing actually increased slightly over the prior year due to multiple large onetime yet low-margin e-book sales, which more than offset continued declines in the other products. This is a meaningful contributor to the raising of our full year guidance range on revenue, which I'll come to in just a few moments. Third, as we've seen in the last couple of quarters, we continue to experience the inorganic impact of the ScholarOne divestiture. And fourth, the U.S. dollar remained relatively weaker against the basket of foreign currencies which caused a foreign exchange tailwind on the top and bottom lines. Please turn with me now to Page 18 to review how these same drivers impacted the top and bottom line changes on a year-to-date basis compared to the same period in the prior year. Year-to-date, revenues have declined by more than $50 million. However, margins are within 30 bps of the same period in the prior year. Let's step through the major drivers of this change. As Matti noted in his remarks, year-to-date organic growth has improved by 160 basis points over where we ended last year. This modest top line growth over last year is offset by higher operating costs as we continue to invest to grow the business while offsetting some of the cost inflation with efficiencies. The combined impact of the disposals and divestitures lowered revenue by nearly $70 million and adjusted EBITDA by just over $30 million compared to the same period last year. Both the top and bottom lines benefited from foreign exchange translation so far this year as the U.S. dollar remains weaker than a basket of foreign currencies and the profit conversion on the change is high as a result of multiple transactional gains. Please turn with me now to Page 19 for a look at how the Q3 and year-to-date adjusted EBITDA converted to free cash flow and how we allocated the capital. Free cash flow was $115 million in the third quarter, bringing the year-to-date to $276 million. The change so far this year over the prior year is driven entirely by the adjusted EBITDA impact outlined on the last 2 pages as higher onetime costs are offset by lower capital spending. We incurred $13 million of onetime cost in Q3 and $55 million so far this year, largely driven by restructuring-related outflows associated with the implementation of the value creation plan. Capital spending was $11 million lower than last year in Q3 as we begin to recognize the savings associated with the disposals. We used a combination of free cash flow we generated in the third quarter and cash on hand to repurchase another 11.7 million shares, bringing the year-to-date buybacks to $150 million and we call the $100 million of the bonds that are due next year. The balanced capital deployment this year has allowed us to maintain net leverage of about 4 turns while retiring nearly $35 million or about 5% of our outstanding shares. We also took the opportunity during the third quarter to extend our interest rate protection on our floating rate debt by 4 years by entering into $500 million of interest rate swaps through 2030. Please turn with me now to Page 20 for a look at our full year financial guidance ranges for this year. Beginning at the top of the page, based on the continued acceleration of our organic annual contract value in the third quarter, we are raising the indication from the midpoint towards the higher end of our range as we expect continued acceleration in the fourth quarter. We continue to anticipate recurring organic growth in the upper half of our range. As a result of the better-than-planned organic performance, combined with a weaker U.S. dollar and slower-than-anticipated attrition in the business disposals. We are raising our revenue guidance by $50 million from our last indication near the upper end of the previous range to $2.44 billion at the midpoint of our new range. Due to the slower-than-expected decline in our revenue of the businesses we're disposing, we now anticipate recurring revenue mix will likely be towards the low end of the range. It's worth reiterating what Matti indicated earlier, our organic recurring revenue mix, which excludes the disposals, is already at 88% year-to-date, and we expect will remain at this level through the end of the year. Moving down the page, we now expect adjusted EBITDA at the high end of the range and our profit margin at approximately 41% due to higher revenues from the disposals and FX, which have lower profit conversions. We continue to anticipate diluted adjusted EPS and free cash flow near the midpoint of the ranges. Please turn with me now to Page 21 for more details on the full year top and bottom line changes we're expecting compared to last year. The full year guidance for the top and bottom lines is based on our expectation that Q4 revenue and adjusted EBITDA will be about $600 million and approach $250 million, respectively. The anticipated changes in revenue and to a large extent, adjusted EBITDA for the full year compared to last year are largely driven by the disposals targeted at optimizing our business model and the divestiture of noncore products and services. We continue to expect organic growth will be essentially flat as the growth in recurring revenues will offset the originally anticipated decline in our remaining transactional business. This represents about a $10 million improvement over our initial indication at the midpoint of the original revenue guidance range. We continue to expect a profit headwind in this area of about $20 million as cost efficiencies will not fully offset inflation and higher incentive compensation expense. The strategic disposals are now expected to lower revenue this year by approximately $90 million, and we are reducing operating expenses by $60 million, which yields a profit impact of about $30 million. We expect most of the remaining more than $100 million revenue reduction will take place next year. The divestitures of both Valipat and ScholarOne last year will lower revenue by about $40 million and profit by about $20 million. We continue to anticipate a modest foreign exchange translation benefit to the top and bottom lines of $10 million and $5 million, respectively, as the U.S. dollar has remained slightly weaker against other foreign currencies compared to the prior year. Please turn with now to Page 22 to step through the components that will lead to more than 1/3 of the adjusted EBITDA converting to free cash flow. As I mentioned, we continue to expect free cash flow near the midpoint of our range. Onetime costs are expected to be elevated over last year as we invest to execute the value creation plan. We expect cash interest to improve by about $10 million over the prior year as a result of the debt we prepaid last year. Cash taxes are expected to be in line with 2024. We anticipate the change in working capital this year will be negligible, which will represent an improvement over last year of about $25 million. And while we remain committed to investing in product innovation, the strategic disposals and cost efficiencies will improve capital spending by about $30 million. The net impact of these changes is free cash flow of $340 million at the midpoint of the range and will result in the same conversion on adjusted EBITDA last year at about 34%. From a capital allocation perspective, we continue to have the flexibility between share repurchases and deleveraging as we move into the fourth quarter. In closing, on Page 23, I'd like to draw your attention to the consistent free cash flow we've generated over the past 4 years. Delivering free cash flow at the midpoint of this year's guidance range will result in a 4-year cumulative average growth rate of 4%. During the same period, our free cash flow conversion on adjusted EBITDA will be about 35%. At the end of Q3, our stock was yielding a double-digit free cash flow return of 13%. By the end of the year, we'll have generated $1.5 billion of free cash flow over the past 4 years, which we've used to repay over $1 billion of debt, lowering our net leverage by a turn and to repurchase more than 0.5 billion of stock, lowering our share count by 10%. We believe that executing the value creation plan will lead to healthy sustainable organic revenue growth and further improve free cash flow, delivering meaningful value for shareholders moving forward. I'd like to finish by thanking all of you for listening in this morning, and I'm now going to turn the call back over to Greg so that we can take your questions. Greg, please go ahead. Operator: Great. Thanks, Jonathan. [Operator Instructions] All right. It looks like our first question today comes from the line of Toni Kaplan with Morgan Stanley. Gregory Parrish: This is Greg Parrish on for Tony. I thought maybe we could dive into the patent renewal business there. Obviously, it's been under a little bit of pressure over the last couple of years due to market volume headwinds. Hoping you could provide some color on the competitive landscape and where your product stacks up with some other products in the market like an aqua and how you're positioned? And then some of the more recent pressures, say, year-to-date, how would you characterize that in terms of market headwinds versus competitive headwinds? Jonathan Collins: Yes. Thank you for the question, Greg. I'll touch on the numbers a bit, and then Matti will probably want to add some color on the market positioning. So just as a highlight, the reoccurring order type for us is predominantly or almost entirely our patents and trademark renewal service that you highlight. Last year, that part of our business declined by about 3%. And on a year-to-date basis, we're about flat. So the trajectory is headed in the right direction. And we believe, in the coming years under Maroun's leadership and with the rest of the team, we can return that business to a healthy organic growth. And it's really a combination of 2 factors. It's the improvement of our competitive position. We continue to make meaningful investments in our workflow software that we deliver to the market, which is an important tool in driving this part of the business. But in addition to that, we expect the market to continue to recover and move in the right direction. So I think the message for us is we're moving in the right direction. Improved year-over-year change compared to what we saw last year, but there's still room to improve here as we move into 2026. Matti Shem Tov: Maybe coming back on the value creation plan. I mean we have the value creation plan in place for just about a year. We're making headways and progress on the A&G side and Life Science side. We are introducing also some changes into our IP segment with renewed sales structure and processes with some upcoming new products. Products that we have launched already like trademark RiskMark, Derwent patent monitor, IPfolio. And we are very confident that in the same way we've improved performance with Life Science and A&G with Maroun coming on, Maroun Mourad coming on. I think we have all the confidence we will turn IP into a growing segment as well. Operator: All right. Thanks, Greg. And our next question comes from the line of Scott Wurtzel with Wolfe Research. Scott Wurtzel: Just on the value creation plan and some of the updates there. I noticed that you added a couple of new innovations, whether it's on the Specto or the AuthX AI Research Assistant. Just wondering if you can talk a little bit about those products that you've sort of added to your road map here and what you sort of see those kind of creating for the business as a whole? Matti Shem Tov: Overall, I just refer to my background. I'm a product person by business. This is me. I am very, very upbeat about introducing product. So we have, when I joined, and part of a fundamental piece of our value creation plan is product innovation. So we went 2 ways in the 3 products. One is AI enablement of the existing product portfolio, both to protect the retention rate and to be more competitive in the market. This is evidenced by growing ACV and by a better retention rate. At the same time, we are also implementing changes or introducing products, which were native for like AI-born -- native AI-born. One example is a RiskMark product from trademarks on the IP segment. And other product is the Web of Science Research Intelligence which is an up-and-coming product. We have already closed about 20 contracts and the product was only going to be launched in the first quarter 2026. There's a lot of energy focus going into AI innovation, both existing and a new AI-native product. We are utilizing some of the processes that we have developed in the A&G being in my background being CEO of Ex Libris and ProQuest, a lot of collaboration with our customer base, which will help -- which are working well for us. So there are a lot of different product innovation all over the segments, renewed energy around product. This is the way we will continue to do -- to conduct our business in years to come. Thank you for the question. Operator: And our next question comes from the line of Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: I had one quick one for Jonathan. And then I want to ask you something Matti. Jonathan, it looks like there were some multiple large book transactions that occurred in advance of the company shutting down that area. Could you quantify for us the impact of those transactions versus what you were expecting, both for revenue and EBITDA? And then after that, Matti, maybe after a year on the job over here, could you just give us an idea as to what you think the potential of this business is after working on it, trying to put in your new plan, making some -- a lot of strategic changes in it. What do you think the potential is versus when you joined over here? And if you could just give us some thoughts about how we should think about this business longer term? Jonathan Collins: Yes. Happy to take the first part, Shlomo. So in the quarter, we've had multiple larger e-book type transactions without those in the quarter, we would have seen disposals be down over $20 million. So the impact was material in the quarter. We didn't have anything like that in Q3 of the prior year. We did have a pretty sizable deal in Q4 of last year that will lap, which is why when we indicated revenue in Q4 should be around $600 million. That will be down versus prior year. So -- these are ones that from a top line standpoint are material. Margin is not very high on those given the nature of the transaction, but that's a little bit of color on that. Matti Shem Tov: Thank you for the question, Shlomo. Again, I'm really enjoying the journey here. There's a lot to do, as you can imagine, this company has gone through a lot. And I think we've got it now all focused on the right direction. The more I learn about the company is the more I meet customers and know our people. We have some very great fundamentals, including the amazing assets we have in the different product line or the different segment, as well as great customer base, very supportive and great talent in-house. As opposed to where we are taking the company, I believe -- over time, we can take the company back to growth rate, back to market growth rate. If you ask me, A&G 3%, 4% over time. This is the market growth that we believe is in IP, 4%, 5%. This is the growth rate. And I think we should be there. And in Life Science it's slightly higher. But definitely, I believe we will be taking the company over 3 years into market. We have the people, we have the product and we have the customer base. So no reason why not to be -- to take the company to where it's belong in terms of growing the business over time. Any specifics we can... Operator: [Operator Instructions] Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. William Qi: This is Will Qi on for Ashish Sabadra. When you guys think about the ACV acceleration to 4Q, could you give a little bit of context maybe on which segments you guys would call out as the primary drivers? And also maybe just any commentary around where you think that kind of largest room for improvement might be as well. Jonathan Collins: Yes. Thanks for the question, Will. I think the encouraging sign for us as we've progressed through this year, we started the year at ACV less than 1%. We're now up over 1.5%. We've seen improvement in all of our segments. So each segment has made a contribution. The most notable improvement has been with the Life Sciences business where we saw a nice improvement in retention as we moved into this year and traction on new sales as we invest in those products. I think as we move into Q4, I think we think there's continued room there in Life Sciences and in the IP segment, which is where there's the most headroom. So we indicated we're growing at about 2% ACV in A&G and in Life Sciences, both at about that level, which means that our IP business is closer to flat. And we have made some meaningful investments over the past couple of years that we expect to start to benefit the IP business as we move forward. We launched the Derwent patent search this year in general release with AI-powered search and new functionality on our very strong data base of the Derwent World Patent Index. We have the Derwent Patent Monitor tool that will be coming into market later this year. And as Matti mentioned in his comments, continued investment in our IPMS software and IPfolio, namely IPfolio loss. So we think those investments in those products that are subscription products will help to drive ACV from about flat to being a growing business as we move forward. William Qi: Congrats on quarter. Operator: And our next question comes from the line of George Tong with Goldman Sachs. Keen Fai Tong: You mentioned you expect the IP market to recover and move in the right direction. Can you talk more about underlying trends you're seeing with new patents and trademarks and catalysts for a recovery in volumes? Jonathan Collins: Yes. Thanks for the question, George. Similar to what we had talked about last quarter, we believe that the overall patents in force in our core markets, continue to tick up for a few years coming out of COVID, they were essentially flat in '23, we started to see growth. We believe we saw growth last year as well, too. And it takes a couple of years for that patent in force growth to make its way into our renewal book because in some jurisdictions, your initial patent is good for a few years before it needs to be renewed. So that's one leading indicator that we continue to watch, and we are seeing a little bit of help on the volume side. There's work that we've done in our own business from a competitive standpoint to see some modest improvement. So those things are moving in the right direction. And we also draw attention to the fact as we look out in the coming years, -- we do believe we are in a bit of an innovation upswing with the advent of AI, and we think that's going to help lift patents in force in the next couple of years and put some wind in our sales a few years out in our renewal business. So we think the market trends are good. There can be some lumpiness quarter-to-quarter in our business depending on the customer base in the regions, but in principle, being flat this year compared to a 3% decline in that reoccurring renewal services business is a step in the right direction, and we're encouraged by that trajectory. Operator: And our next question comes from the line of Manav Patnaik with Barclays. Manav Patnaik: I just had a question broadly on AI, I guess. I think most of your initiatives that you've talked about have been more on the workflow side of the equation, where I guess I think people have a view that there's going to be a lot more competition there. But my question was more on the content side. Can you help us by a division? Just help us appreciate the content you have behind those workflows and how much of that is actually proprietary? Matti Shem Tov: No, I'm not sure -- thank you for the question. I think many -- a lot of our AI innovations go to our information services piece. I mean, the Web of Science, ProQuest One Academic, Primo, Derwent Innovation. So a lot of it is actually supporting the information services, the discovery piece of it. And yes, we do have quite a lot of sort of proprietary data that we collect from different sources that we acquire or lease from a lot of different people, and we massage them. We put them together. We index them and we kind of put them in front of our customer base. A lot of our AI innovations go to this product. We do have some AI automation around workflow solution as well, indeed, but the majority goes to the informational services offering that we have. Operator: And our final question today comes from the line of Surinder Thind with Jefferies. Colton Feldmann: This is Colton for Surinder. My question is kind of similar to Shlomo's earlier, just kind of around transactional revenues. And obviously, they were a bit better in the quarter. Just kind of a question around improvement it looks like in the guide from last quarter this quarter in terms of the inorganic disposals and not headwinds to the business broadly, like how that's kind of impacting results and the guide that you guys have for this year? And then also, I think you talked about some of like a slower roll-off of those transactional disposals as well. So I just kind of wanted to get an update in terms of like time line expectations of like next year, how much of a headwind that might be if there was a bit of a benefit this quarter, how much of that headwind is for next year? That's all for me. Jonathan Collins: Yes, you got it, Colton. I'll just kind of refer back to Page 21 in the remarks there. So we have improved our top line outlook from our last indication to our current indication by about $50 million. The majority of that is the disposals at trading at a slower rate than we expected and those couple of large transactions in Q3 that I mentioned were a contributor to that. That business will go to 0 and now where I would have expected that of that $200 million going away, most of it would go away this year. It's going to be closer to balance. So we've got about $90 million this year and then probably a little over $100 million next year that will go away. So just the timing of that business and how it's leaving is the primary impact there. The other factor I'll point to is just on the FX side. So we were a bit cautious on where the dollar had been. It's continued to stay a bit weaker compared to other currencies. So that's going to lift the top line a bit compared to what we were originally expecting. So the combination of those 2 are the primary drivers. And then, of course, the organic -- recurring organic growth at the higher end of the range in the upper half compared to where we were at the midpoint is also helping to lift that revenue number. So a combination of all of those are or what's baked into our raised full year guidance. Mark Donohue: Thank you very much. So that concludes our call for today. I want to thank you all for joining us, and we look forward to speaking to you soon. Matti Shem Tov: Thank you. Operator: And ladies and gentlemen, again, that concludes the call. You may now disconnect.
Unknown Executive: [Audio Gap] 9 months of 2025, client deposits totaled PLN 221 billion, and client funds including investment funds reached PLN 249 billion. The gross loan portfolio stood at PLN 165 billion and total assets amounted to PLN 317 billion. On Slide 8, we are presenting core financial results. Like I said, net profit PLN 4,892 million. Net interest income, PLN 9,549 million. Net fee and commission, PLN 2.2 billion, up 5%. Total income, PLN 12 billion, up 6% year-on-year. For Q3 alone, it was nearly PLN 4 billion. Our capital position remains solid. Return on equity, 21.6%, excellent liquidity, LCR of over 203%. On Slide 10 and 12, we'll present the new features we've introduced to our offering. Just yesterday, we became one of the first to offer the Samsung Pay digital wallet. We are continuously committed to providing a wide range of payment solutions, and we remain a leader in the area with 1.3 million active cards in digital wallets. So very impressive. Same applies to the number of transactions. For SMEs, we've enabled multicurrency support on business cards. We've also introduced improvements to the Smart Loan process. Let's move on to Slide 13. Business data for first quarter. In retail banking, 4.8 million personal accounts we maintain at the moment, that's up 2% year-on-year. In quarter 3 alone, we opened 113,000 accounts. In cash loans, we issued PLN 9.3 billion in cash loans. In Q3 alone, this amounted to PLN 3.3 billion, 9% more year-on-year. And this marks a record-breaking quarter for cash loans, which we're very pleased about. For mortgages, this has been the best period for 5 quarters. In Q3, sales was PLN 3.1 billion. So similarly to previous quarters, most bulk of sales was based on fixed interest rate and the share of those loans in the total PLN portfolio is 48.6%. In the SME segment, over the first 9 months of the year, we issued PLN 3.9 billion in loans with PLN 1.3 billion in Q3 alone. We're advancing digital processes and the volume of SME loans issued entirely online has increased to leading continuously good results, PLN 3.5 billion, a 17% increase year-on-year. In Q3, this amounted to PLN 1.2 billion. Our e-loan, ePozyczka product is selling increasingly well, and it is now available to start-ups, too. In Business and Corporate banking, loan volumes increased by 8% year-on-year, FX income by 11%. Client activity in remote channels is growing, digital plus mobile customers. Now Corporate and Investment banking, revenues from capital markets rose by 56% treasury transactions up 15% year-on-year. Now moving on. Slide 15, the activity I mentioned previously. This, of course, is driving the size of our balance sheet. As of the end of September, the gross loan book was PLN 165 billion. On Slide 25 in the appendix, we show the sustained strong level of new loan sales across segments. As you can see, we see significant growth. And again, we're very pleased about, especially in corporate banking, 8% year-on-year and quarter-to-quarter, up 2%. Slide 16, client funds, PLN 249.5 billion. Deposits, PLN 221 billion, slight decline in deposits from individual clients, but term deposits, on the other hand, an increase in balance. The drop in current accounts was triggered by the drop in savings accounts. Corporate deposits at 2% increase, term deposits up nearly 8%. Deposits from the public sector increased by as much as 5% this quarter, and term deposits and current account balance also increased. Investment funds reached 23% increase year-on-year and 8% quarter-on-quarter. Now profit and loss account. Net interest income and NIM, that's Slide 17. The net interest income was PLN 9.5 billion, which is 5% better year-on-year. In quarter 3 alone, the growth was by 0.5%. Year-on-year, interest income increased by 6%, while -- and let me highlight that net interest income in quarter 3 is the highest this year and it's nearly as high as the record high quarter in 2024. And that's despite the interest rate cuts. Our NIM was 4.88% on continued operations. So the decline was really marginal. And let me highlight that was despite the interest rate cut. Slide 18, that's net fees and commissions. On a year-to-date basis, they total PLN 2.2 billion, which is 5% up on the last year. In quarter 3 alone, net fees and commissions was 3% higher than a year ago. We saw really nice growth in asset management fees by 18%, insurance fees, FX fees and brokerage fees. Quarter-on-quarter, FX fees increased, insurance fees increased and the asset management fees. Just like in previous quarter, let me highlight that this is the follow-up on this bigger number of transactions done by our clients. We have not changed our prices at all. Slide 19 outlines income. Total income, PLN 12 billion, as I've already said, growing by 6% year-on-year. Let me highlight that in the first 3 quarters, the gains on financial operations were much better than a year ago. In quarter 2, let me remind you, thanks to conducive market landscape, we earned outstanding results under the trading and valuation. Of course, this was driven primarily by FX transactions and trading. In quarter 3, the gains and losses on financial operations position actually normalized. Slide 20, very important for us, operating costs. After 3 quarters, this is PLN 3.6 billion, growing by 8% year-on-year. As you might remember from previous presentations, this is driven by higher contribution to the banking guarantee fund. Excluding regulatory costs, total costs increased 5% compared to the previous year, of course, driven by inflation, pay increases and cost of services. Compared to the previous quarter, the cost in total increased by 2%. Administrative costs without the regulatory costs grew by 4% year-on-year, but compared to the previous quarter, they declined by 7%. Staff costs, they increased by 5% year-on-year and 7% compared to the previous quarter. But this is clearly impacted by accruals for performance-driven bonuses and the focus we have for our performance this year. So the pace of growth in cost year-on-year for 3 quarters remained low at 3%. So as you can see, the pace of growth in cost is close to the growth in inflation, and we keep it under strict control. Loan loss provisions, the net balance for -- of the loan loss provisions for expected credit losses was PLN 439.5 million, much lower than the last year, but this was driven, first of all, the high comparative base. Last year, you might remember, we expanded the criteria for classifying exposures to Stage 2 and the impact of that was PLN 125 million. But the other reason for that is the sound and stable quality of our loan book. The cost of credit risk, 33 basis points, is one of the lowest historical results in the bank. Other key risk indicators like the share of NPLs at 4% remain at a good level. We also can see the stable levels of past due payments and new entries to the NPL. In quarter 3, we did not record any one-off major events. And as you can see on the next slide, we sold nonperforming debt worth nearly PLN 400 million, while the gain on that was PLN 98 million. Slide 22, banking tax and regulatory costs. As I said, in quarter 3, the regulatory and tax levies totaled as much as PLN 730 million. After 3 quarters, our PBT was PLN 6.4 billion, while the tax and regulatory levies totaled PLN 2.5 billion. Summing up our performance after 3 quarters at Slide 23. You can see here all the key lines and figures. I will not repeat it. Let me just highlight the effective tax rate. In nominal terms, the corporate income tax is 19%. But we have many lines in our P&L without the tax shield. So the effective tax rate is now 23.2%. So summing up, I'm happy with business performance. We can see the -- how active our clients are. Sometimes, you can see even record high sales volumes. We have really good quality of our portfolio. We have a high number of transactions and the growing number of transactions made by our clients, mobile transactions in digital channels. So all of that bodes well. We are really looking forward here to the results of rankings by Newsweek and Forbes to be announced today. So we are always curious how we benchmark against other business. And Agnieszka, over to you to the questions-and-answers portion. Unknown Executive: We've got the questions ready. Thanks, Agnieszka. I tried to group the questions. So let's start from the question. It refers to the Polish government recently proposing changes to the bank's corporate income tax. What is your current estimated impact from these changes on the bottom line? What do you think about it? Do you have any strategies you could implement to alleviate this impact? Unknown Executive: Well, let me take this question. In reference to what I have already said, banks are the biggest CIT payers. Every [indiscernible] PLN is paid by banks. Last year, out of 10 top payers, the 10 top payers included 6 banks, and the top 3 payers are banks only, including ourselves. So in my opinion, banks significantly contribute to the state budget. It's slightly surprising to us to make this sector the only one to contribute more, the sector that is contributing most really. So there are many opinions about it, some lawyers say there is a significant constitutional concern. The additional CIT rate should not solely rely on one sector. We contribute to the defense and military expenses. Maybe we'll have a separate conference about it, but also other social initiatives, education. We pay our taxes in Poland. We don't do any optimization abroad, we pay taxes here. So it should be stressed out that we share our profit with the state and with the Polish investors, including the pension fund. Let me remind you that over 23% of bank shares are held by [ office ], that's over 40 million future retirees. And if you look at the stock data, that means return on assets or yield. The banking sector is not the most profitable. The Association of Polish Bank did a research on that. There are 12 more profitable industry compared to the banking sector. We are -- our sector ranks only 13th in terms of profitability. And yet, we already paid the highest taxes in the country. So something very important that the nominal tax rate versus the effective tax rate, there is a difference. We pay more in terms of the effective rate. The nominal rate is 19%. So that would be an increase of 60% [ EBITDA, ] what impact this would have on our P&L. That's the comment I have when it comes to CIT. Unknown Executive: Okay. We have a few questions regarding net interest income and the volumes. What is your current outlook on -- into 2025 and 2026? What is the sensitivity to rate cuts? Unknown Executive: So we assume, it will go down to 4% beginning of 2026. So there will be 2 cuts of 25 basis points. We don't quote cuts in November, but if it's cuts then, of course, well, we forecast it will go to 4% in total, the market prices it in deeper -- but we assume 2 cuts in total sensitivity, no major changes. I said the same thing last quarter. Without SCB [ 257 ] sensitivity, if we have a cut of 100 basis points in the 12-month horizon. We presented on Slide 20. You can look at our NII, rates went down 100 percentage points, and our income is higher. So the bigger size of balance sheet neutralizes those effects. And we are nearing the easing -- the end of the easing cycle. What else? Expectations with regards to the growth in loans. We are optimistic. And so our CEO said, we are growing retail mortgages. We expect the trend to continue also in the business segment. And growing the business segment was 9%. So we think that in 2026, we will see growth in investments and the growth in loans to businesses will be solid. Unknown Executive: And there's also question in English, when do we expect big cuts for loan volumes? Unknown Executive: Well, we started the pickup in 2024. So we are not complaining about the lack of growth. In quarter 3, we can see the effect. But this is a one-off seasonal development. Sometimes, we have things coming into the portfolio and getting out especially in CIB. But for CIB, all other segments show solid growth. That's about -- referring to this section of questions. In referring to costs, there are 2 questions. A general one and a detailed one. Wojciech, the outlook for the growth in cost in 2026. Wojciech Skalski: Just to remind you, and by way of a disclaimer, our bank does not publish official forecast. We can just treat it as some guidance. And as we follow the strict cost discipline, and nothing changes here. We know how to keep it in place. When it comes to our fixed cost overhead, we can say that if we take a look at the inflation outlook for the next year, that will be the indicator of the growth, the band of changes, but we shouldn't forget that there will be costs related to the change of the owner, but we are not ready yet to give any result figures. But I think that our next meeting, we will be able to tell you more. But that will be a separate category of cost for us because there will be nonrecurring. Looking at the detailed questions, let's read it out. What part of cost represented the cost of IT employees. But that depends how you define it, IT people. I try to take a look at that, and people who deal with technology in the common understanding, who works in the unit called the digital transformation division. But there are also people supporting operations in the bank, and we wouldn't treat that as IT. That's roughly 15% of our staff costs. But at the same time, we should remember about 2 things. People with IT skills work not only in this division, but also in others. So we are not capturing that so that we could give you a detailed analysis. But the other thing is also that the bank supported itself when we need short-term or especially support by contractors, IT specialists. When spending on this type of technological solution is that the total development is capitalized and then it's amortized totally, so its impact on cost -- so of those costs are quite wide ranging. But roughly, we can say, 15%. These are the people who work in the IT division. Unknown Executive: Thank you, Wojciech. And the section about foreign currency mortgages. But we can actually boil down the answer to answering future risks and the expectations of provisions. Now once again, we have Michal Gajewski. Michal Gajewski: Let me answer that. First of all, we believe that our provisions are adequate. The coverage ratio is 154% on average. We are reviewing parameters in our models, and we will have such a review in quarter 4. All the time, we keep supporting the settlement program. At the end of September, we signed more than 11,000 settlements because we think that this solution is the best for clients and for us as a bank. And that will be my comment to it. Unknown Executive: A couple of credit risk. What do you think will be the normalized cost? Unknown Executive: I don't know what you mean in terms of normalized, in what horizon. But we can -- but to give you some guidance for the future, we do not expect major changes here, either in the profile of cost of risk, and that's been mentioned in the presentation. And in the months to come, it should stabilize. You might remember that in our strategy, we had KPIs and the cost of credit risk across the cycle was from 70 to 90 bps, and that was given for consolidated data with SCB. And on Slide 24, as I said last quarter, the difference was in the order of 10, 15 bps. So you should really adjust that bank by this. But at the moment, we are at this point of the cycle with such macro outlook now and for the next year that we cannot see any dangerous signals. So when it comes to credit risk, we are optimistic and we expect stabilization. Unknown Executive: There are a few detailed questions about deposits, hedges and NII. Let me start with a few questions referring to a decline in current deposits, that 4% in retail. What is the reason, the outflow? Is there any impact on that triggered by the owners change? But when it comes to the decline in current deposits, our CEO mentioned that, and it is stated directly in the presentation and in our report. And you have the figures there, current deposits in Poland include savings account and the decline in current deposits in quarter 3 was driven by the decline in balances and savings accounts because in quarter 2, we have special offers. When it comes to the current account just for daily banking, we can see positive transfer. So this was a one-off driven by savings accounts. And the explanation of that is on the presentation and the report. Corporate deposits, they increase. And there is a question about it, while interest expense declined at the same time on those deposit, how does it happen? The deposits are growing because the good relationships we have with our clients, and the interest expense declines because our -- because interest rates are cut because the beta, that is the percentage to -- but the extent of percentage share, we reflect the interest rate cut. So we reflect this interest rate cut in repricing our term deposits. So that's several percent, so that's beta. And that is the reason for the decline in our interest expense on deposits. And moving on to the next question about strategy. We will continue the strategy for term deposits, where for current deposits including savings accounts, we assume they will be growing. So our deposit strategy remains unchanged. So just one more detailed question about hedges. Is there anything exceptional happening in quarter 3? Not really. And I think, maybe as I do not understand the question. So if you have any doubts, please contact Agnieszka to discuss, and we will get that clarified. But our strategy assumes that at this point, some hedging positions for swapping the floating to fixed rates, and we are renewing them and rolling at lower rates. But otherwise, our strategy remains unchanged. And each quarter, the share of fixed rate loans and total loans keeps growing, which is the effect on the one hand of our hedging strategy, and on the other hand, this is the follow-up of the percentage of loans represented by fixed rate loans in the total sales. So we haven't changed our approach. More questions. I think we've got 3 left. Will there be a wider marketing campaign in the fourth quarter to support the loan volumes? No, the volumes are going up. They're beating the market. So I don't think we need any action to boost production. All right. Now legal risks linked to unauthorized transactions. There is a similar question whether the bank will take action to verify whether the potential change in terms of the CIT rate is not in breach of the constitution. Well, here, we're talking to the Association of Polish Banks about it. That's the forum where we discuss it. No decisions have been taken yet in that respect. Unauthorized transaction, maybe let's take that separately. We're not -- we don't have provisions in the third quarter for lawsuit, potential lawsuit in that respect. Nothing like this happened. We don't have any development in that respect to change our perspective regarding the legal risk versus the previous quarter. That's the end of this question. Lower credit fees, what was it driven by? The line includes the brokerage costs. We have a higher retail lending book, and it stimulated also the -- our network of brokers. And those costs, of course, encumber that line in our financials, hence, generating the drop. Any other questions, Agnieszka? Agnieszka Dowzycka: No, we've exhausted the list. Unknown Executive: If you have any questions after this call, of course, we'll be happy to take them. Send them to my office. Thank you very much. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, greetings, and welcome to the Horizon Technology Finance Corporation Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Megan Bacon. Please go ahead. Megan Bacon: Thank you, and welcome to Horizon Technology Finance Corporation's Third Quarter 2025 Conference Call. Representing the company today are Mike Balkin, Chief Executive Officer; Paul Seitz, Chief Investment Officer; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q3 earnings press release and Form 10-Q are available on the company's website at horizontechfinance.com. Before we begin our formal remarks, I need to remind everyone that during this conference call, the company will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believes, expects, anticipates, intends or similar expressions are used to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements. And some of these factors are detailed in the risk factor discussion in the company's filings with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2024. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Mike Balkin. Michael Balkin: Thanks, Megan, and welcome, everyone, and thank you for your interest in Horizon. Today, we will update you on our quarterly performance in the current operating environment. Paul Seitz will take us through recent business and portfolio developments as well as the current status of the venture lending market, and Dan Trolio will detail our operating performance and financial condition. We will then take questions. Well, it has been a very active several months since I assumed the CEO role in June. I spent countless hours with our team together thinking about the next chapter of Horizon and how best to expand the Horizon platform moving forward. The first part of that strategy came to fruition when we announced in August, that MRCC and HRZN will be merging in a NAV-for-NAV share exchange, subject to shareholder approval and customary closing conditions. The merger is progressing. But due to the federal government shutdown, we now expect to complete it in early 2026. Upon closing, Horizon will significantly increase their assets under management, while MRCC shareholders will have the opportunity to participate in what we expect to be a rapidly growing BDC that will be able to take advantage of greater economies of scale in the combined vehicle. Importantly, Monroe Capital, which is the parent company of Horizon Technology Finance Management, will provide additional and ongoing support to the post-merger company. As a result, you will see a much more coordinated and synergistic effort in 2026 as we expect to take significant advantage of having such a premier asset manager and expert private credit lender providing us with stalwart backing. To that end, we added several new originators in the third quarter, who are hitting the ground running. With our reinforced team combined with Monroe's support, we expect to compete to originate larger venture loans to top early stage of late-stage cutting-edge companies and return to the growth trajectory that we've historically experienced. I could not be more excited for Horizon's future. And while there is still plenty of work to be done, we have the right team in place to bring the Horizon platform to the next level. Turning to our specific results for the quarter, we generated net investment income of $0.32 per share. As we look to grow our portfolio in future quarters, it remains our goal to deliver NII at or above our declared distributions over time. Thanks in part to our accretive acquisition of venture debt portfolio of a former co-lender as well as achieving favorable outcomes with two of our challenged portfolio companies, our NAV per share grew 5% to $7.12. Based on our outlook and our undistributed spillover income, our Board declared regular monthly distributions of $0.11 per share through March 2026. Once again, we achieved a portfolio yield on debt investments at or near the top of the BDC industry. We also further strengthened our balance sheet in the quarter by accretively raising equity from our at-the-market program and successfully raised $40 million through the issuance of our 5.5% unsecured convertible notes due 2030. And through our more active relationship with Monroe Capital, our pipeline of larger potential venture debt transactions is growing, while we maintain a solid base of additional opportunities to grow our portfolio over time. Before handing the call over to Paul, we are very excited for the new Horizon's long-term future and believe we have the right building blocks in place to execute, namely our portfolio yield remains among the industry's highest, which we expect will lead to increased NII over time. Our liquidity and balance sheet continue to remain strong and will further strengthen the post-merger. We maintain a strong committed backlog, a robust pipeline, and we believe that the vacuum Monroe Capital that we are in a great position to compete for even larger, higher-quality opportunities to invest in new companies. We are already seeing the aperture widening as more private and public companies express interest in our venture lending solutions. And finally, the demand for venture debt capital remains high. We look forward to being a key supplier of such capital. Again, we appreciate your continued interest and support in the Horizon Technology Finance platform. I will now turn the call over to our Chief Investment Officer, Paul Seitz, to give you the details of our third quarter results and progress. Paul? Paul Seitz: Thanks, Mike, and good morning to everyone. I'm happy to join today's call and look forward to speaking to you all in the quarters to come. It's an exciting time here at Horizon. While we continue to work closely with all of our current portfolio companies to optimize returns and create further opportunities for additional value creation, we are very enthusiastic about our future. As Mike mentioned, we believe the combined company will provide us with the size and scale needed to originate larger venture loans to growing public and private small companies. At the end of the quarter, our current portfolio stood at $603 million as the loans we originated and acquired during the quarter were offset by prepayments and amortization in our existing portfolio. In the third quarter, we funded 3 debt investments totaling $15 million. Positively, we are making strong progress on building up our pipeline with larger venture loan opportunities in our target sectors, and we are positioning ourselves well to return to growing our portfolio. Looking ahead to Q4, we expect to grow our portfolio in the quarter driven by our pipeline. Thus far in October, we have already funded a $10 million venture loan transaction and have been awarded 3 new venture loan transactions representing $50 million in total commitments, with much of that total to potentially fund in Q4. That said, we will always be disciplined in our approach to originating loans. During the third quarter, we experienced 6 loan prepayments totaling $50 million in prepaid principal and also collected over $3 million in equity and warrant proceeds. We currently expect more limited prepayment activity in Q4. Our onboarding debt investment yield of 12.2% during the third quarter remained consistent with our historic levels. We expect to continue to generate strong onboarding yields with our current pipeline of opportunities, which we believe will generate strong net investment income over time. Our debt portfolio yield of 18.6% for the quarter was, once again, one of the highest yielding debt portfolios in the BDC industry. Our ability to generate these industry-leading yields continues to be a testament to our venture lending strategy and our execution of such strategy across various market cycles and interest rate environments. As of September 30, we held more equity positions in 95 portfolio companies with a fair value of $40 million. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value. We ended the third quarter with a committed and approved backlog of $119 million compared to $149 million at the end of the second quarter. We believe our pipeline, combined with our committed backlog, with most of our funding commitments subject to companies achieving certain key milestones; provides a solid base to prudently grow our portfolio over time. As of quarter end, 87% of the fair value of our debt portfolio consisted of 3 and 4 rated debt investments, while 13% of the fair value of our portfolio was rated 2 or 1. While we continue to collaborate with all of our portfolio companies to optimize returns, we are pleased in the quarter to achieve two strong outcomes on stress investments, namely Soli and Hound Labs. These had a positive impact on both NII and NAV. This is a demonstration of our proven ability to utilize a variety of strategies to seek to optimize returns and create opportunities for potential future value. Turning to the venture capital environment, according to PitchBook, the market is warming up with approximately $81 billion invested in VC-backed companies in the third quarter, driven in significant part by continued large investments in AI. On the positive side, we saw exit markets further open in the third quarter with approximately $75 billion of exit value, driven primarily by tech IPOs. Along with acquisitions by VC-backed companies, the IPO market is once again opened and investors clearly are eager to put their money to work. In life sciences, while there is optimism, there remain valuation disconnects and compression, which is keeping a relative lid on potential IPOs in that sector. Meanwhile, on the tech side, there is considerable optimism and we are being very thoughtful about taking a deeper dive into the various subsectors, particularly in AI and defense technology, to determine the best path for future investments. Looking ahead, venture debt remains a significant option for companies to access capital as they continue to grow and prepare for exits. This provides opportunity for Horizon to seek high-quality, well-sponsored tech and life science companies to add to its portfolio. To sum up, as we close out 2025, we are increasingly excited for our long-term future as we prepare to merge with MRCC. Our alignment with Monroe is increasing, and we are truly beginning to tap into Monroe as an incredible resource, which should significantly benefit us as we target larger venture loan opportunities for both public and private companies. Additionally, we will continue to work diligently on optimizing outcomes with respect to our current portfolio. We are confident that we are taking the right steps to continue to be a leader in the venture lending space. These steps will enable us to originate larger venture loans to high-quality, fast-growing public and private companies and expand our portfolio over the longer term. This should lead to increased NII over time and ultimately, additional value for shareholders. With that, I will now turn the call over to our Chief Financial Officer, Dan Trolio. Daniel Trolio: Thanks, Paul, and good morning, everyone, Along with the hard work being accomplished to get the merger across the finish line as well as build up our originations pipeline, we further strengthened our balance sheet during the quarter. As Mike mentioned, we successfully raised $40 million through the issuance of our 5.5% convertible notes due 2030 and used the proceeds to retire our Horizon funding trust, asset-backed notes, which had an interest rate of just over 7.5%. Additionally, we continue to utilize our ATM program to successfully and accretively sell over 1.5 million shares in the quarter, raising an additional $10 million of equity. These actions demonstrate our continued ability to opportunistically access the debt and equity markets. In addition, we continue to diligently work with all of our portfolio companies to optimize outcomes for our investments and improve our credit quality. As such, we believe we remain well positioned to grow our portfolio in the coming quarters and create additional value for our shareholders moving forward. As of September 30, we had $151 million in available liquidity, consisting of $130 million in cash and $21 million in funds available to be drawn under our existing credit facilities. We currently have no borrowings outstanding under our $150 million KeyBanc credit facility, $181 million outstanding on our $250 million New York Life credit facility and $90 million outstanding on our $200 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments. Our net equity ratio stood at 1.36:1 as of September 30. And and netting out cash on our balance sheet, our net leverage was 0.94:1, below our target leverage. Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity as of September 30 was $460 million. Turning to our operating results. For the third quarter, we earned investment income of $26 million compared to $25 million in the prior-year period, primarily due to higher interest income and fee income on our debt investment portfolio. Our net investment portfolio on a net cost basis stood at $585 million as of September 30 compared to $636 million as of June 30, 2025. For the third quarter of 2025, we achieved onboarding yields of 12.2% compared to 12% achieved in the second quarter of 2025. Our loan portfolio yield was 18.6% for the third quarter compared to 15.9% for last year's third quarter. Total expenses for the quarter were $12 million, compared to $12.4 million in the third quarter of '24. Our interest expense of $7.9 million was comparable to last year's third quarter, while our base management fee was $2.7 million, $0.2 million lower than our prior-year period due to a smaller portfolio. We received no performance-based incentive fees in the third quarter as we continue to experience the deferral of incentive fees otherwise earned by our adviser under our incentive fee cap and deferral mechanism. While we expect that the adviser will return to earning incentive fees, as we previously mentioned, the adviser has agreed to waive a portion of any incentive fee in a quarter where we do not earn our distributions in 2025. Net investment income for the third quarter of '25 was $0.32 per share compared to $0.28 per share in the second quarter of '25 and $0.32 per share for the third quarter of 24%. The company's undistributed spillover income as of September 30 was $0.93 per share. Based upon our outlook and undistributed spillover income, our Board declared monthly distributions of $0.11 per share for January, February and March 2026. To summarize our portfolio activities for the quarter, new originations totaled $15 million, and we also purchased for $23 million additional investments via the acquisition of the venture debt portfolio of a former co-lender. These were offset by $14 million in scheduled principal payments and $61 million in principal prepayments and partial paydowns. We ended the quarter with a total investment portfolio of $603 million. As of September 30, the portfolio consisted of debt investments and 39 companies with a negative fair value of $560 million in a portfolio of warrant, equity and other investments in 102 companies with an aggregate fair value of $43 million. Our NAV as of September 30 was $7.12 per share compared to $6.75 as of June 30, 2025 and $9.06 as of September 30, 2024. The $0.37 increase in NAV on a quarterly basis was primarily due to net investment income and positive adjustments to fair value, partially offset by our paid distributions. As we've consistently noted, nearly 100% of our outstanding principal amount of our debt investments bear interest at floating rates. Of those investments, almost 60% are already at their interest rate floors, which should mitigate the impact of decreasing interest rates. This concludes our opening remarks. We'll be happy to take questions you may have at this time. Operator: [Operator Instructions] The first question comes from Douglas Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug Harter. So it sounds like the VC market is heating up and there are more exits out there in the market. And early payoffs have been strong for the last 2 quarters, but I believe you mentioned that for 4Q, that those payoffs might be a little bit more limited. I guess, what do you expect that trend to be going forward maybe into 2026? And is it related to the government shutdown where we think that perhaps the 4Q payouts might be a little bit more limited? Paul Seitz: Yes, this is Paul Seitz. I don't think that the government shutdown necessarily is going to impact any payoffs or prepayments or anything like that. I would say that it was a little bit higher this quarter, but we expect probably our payoffs and early prepayments to revert to any sort of historical standard. The exit markets are heating up, which is a good thing. But I think it's, right now, in just sort of a little bit of a wait-and-see period. Cory Johnson: Got it. And during the quarter, the net leverage -- your net leverage came down. Curious, are you seeing -- I know you mentioned that you think your portfolio will grow next quarter, and you're starting to see more deals come across your table. But I was just sort of curious in terms of like now that you are seeing more deals, what is sort of the credit quality behind them? Are there names that you like? Or are you just more name that you seem to be -- you're looking to pass on? And then obviously, it's a little bit difficult to exactly figure out the trajectory of your -- where the leverage will go. But how long do you think it might be before you perhaps reach your target leverage again? Daniel Trolio: Yes. So as we say every quarter, our target leverage is around 1.2 to 1.3x net of cash. This quarter, it did come down a bit, where we're at 0.94:1. So as we talked where -- in our prepared remarks that the pipeline is growing in originations, we expect originations to exceed prepayments going forward. And so I think when we look at the leverage, we should be getting back to that 1.2, 1.3x over the next quarter or 2. Operator: [Operator Instructions] Our next question comes from Paul Johnson with KBW. Paul Johnson: Just on the portfolio yield or just the portfolio yield in general, it sounds like you're pretty confident about the onboarding yields coming in. But obviously, the income has been running higher, some onetime items just running higher with prepayments. I mean the 18.9% yield, I mean, how should we be thinking about that? Is that sustainable going forward? Or what's kind of like the longer-term sort of target, I guess, based on the same pipeline? Daniel Trolio: Yes. So I would point you to our historical portfolio yield, which we've averaged around 14.5% to 15%. That's a more normalized yield. And then I'll just point out, that is a portfolio yield after prepayments and onetime events. And as we mentioned, the onboarding yield has been about 12%, 12.5% for the past few quarters and probably most likely be around that going forward. Paul Johnson: Got it. Okay. That's helpful. And then maybe you could just take us through the debt portfolio that you acquired during the quarter, kind of what transpired there? It looks like you were able to buy at a potentially a discount to where, I guess, had previously been marked. But anything -- any color on that would be helpful to hear. Daniel Trolio: Yes, correct. We were able to acquire a venture debt portfolio from one of our co-lenders that we had created a [ sidecar ] fund, SMA back in 2021 with a $300 million total commitment. We were able to invest that completely. And so it was in runoff. And then over the past year or so when there are fewer names remaining, we were working with that co-lender, names that, obviously, we've already invested in and negotiated a price. They were co-lender in venture debt, was their only venture debt portfolio and they were looking just to exit the market. And obviously, we're the natural buyer. Paul Johnson: Got it. Okay. Interesting. And then maybe just it would be helpful here kind of what is -- as we get into next year and get beyond the fee waivers, like what is kind of the idea with spillover? It still looks like there's a decent amount of $0.93. But I mean, would you like to just continue to work that down potentially further before evaluating the distribution? Or is that something you'd like to kind of maintain? Daniel Trolio: Yes. So I'll just remind you, every quarter, we discussed the distribution and take into account the current income level and the future level of the Horizon platform and look at the spillover, and we'll determine the amount of distribution on a quarterly basis. Operator: Our next question comes from Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Assuming the deal with MRCC closes, is the focus going to be on larger credits going forward? And what does that do to the yield? Daniel Trolio: That will be one of the benefits with a larger balance sheet. You can hold larger position and stay diversified as we focus on our top 1, top 5, top 10 diversification. But there will still be venture debt deals in the market that we have played in, we'll just be able to hold larger pieces of it. And so we don't expect the yields to change dramatically. Christopher Nolan: Great. Given the stock price is trading below book now, what's the plan on using the common stock ATM going forward? Daniel Trolio: Same plan as usual. We look at our originations pipeline, we look at our liquidity and our capacity and look to pull as many levers as possible to originate and grow the portfolio where we can. Obviously, we're trading below book. We won't be able to utilize the ATM. Christopher Nolan: Okay. And then given -- assuming the Monroe deal closes, you are going to have a much larger balance sheet, any consideration in terms of revisiting the base management fee? I know it is 2% for the first $250 million in assets. And then there's a breakpoint to 160 bps above $250 million. And even at 160 bps, you're sort of at the high end of the range for BDCs in general stay. Any comment on that? Daniel Trolio: Yes. So we have our normal 15-C process that we do on an annual basis, and we review all of our competitors. And when everybody calculates it different, has different hurdles and different percentages on a blended effective cost percentage; we are within the average of our peers. We look at it every year through that 15-C process, and we'll continue to do that going forward and make sure we're within market. Christopher Nolan: Great. And then any target ROE for the new assets coming on from Monroe? Daniel Trolio: We don't have any targeted new assets right now that are coming on. The Monroe platform will help us get access to larger assets and potentially some additional assets, but nothing specific today. Christopher Nolan: Yes. No, actually, I phrased it poorly. For the new capital coming in from the Monroe deal, what is the target ROE or return hurdle that you're looking for to get from that new capital? Daniel Trolio: It's basically stick to what we do, the venture debt model that has a high-yielding portfolio, and that will drive the ROE. We don't have a specific targeted ROE on that capital. Operator: Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mike Balkin for the closing comments. Michael Balkin: Thank you all for joining us this morning. We appreciate your continued interest and support in Horizon, and we look forward to speaking with you again soon. This will conclude our call. Operator: Thank you. Ladies and gentlemen, the conference of Horizon Technology Finance Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, and welcome to Verizon's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Brady Connor, Senior Vice President, Investor Relations. Brady Connor: Thanks, Brad. Good morning, and welcome to our third quarter 2025 earnings call. I'm Brady Connor, and on the call with me this morning is our new Chief Executive Officer, Dan Schulman; and Tony Skiadas, our CFO. Before we begin, I'd like to point you to our safe harbor statement, which can be found in the earnings presentation on our Investor Relations website. Our comments this morning may include forward-looking statements, which are subject to risks and uncertainties. Factors that may affect future results are discussed in our SEC filings. This presentation also contains non-GAAP financial measures, and you can find reconciliations of these measures in the materials on our website. With that, I'll turn the call over to Dan. Daniel Schulman: Thanks, Brady, and good morning, everyone. On behalf of the Board and everyone at the company, I want to start off by thanking Hans for his leadership and passion and his many contributions to Verizon over the past 8 years. Hans executed a series of technology-related investments that have positioned Verizon for success. By building an enviable network and a strong foundation we can leverage going forward. Hans has been a friend for many years, and I appreciate your support as we enter this new chapter. Personally, I could not be more excited about the future of Verizon, and I am honored to be its next CEO. As most of you know, I come to this role with extensive experience in the technology, telecommunications and wireless industries. In fact, I began my career as an assistant account executive at New Jersey Bell and then spent 18 years at AT&T eventually becoming the President of its consumer division. So I have deep roots in the telecom sector and in many ways, this is like coming home for me. In the years since I've had the privilege to help lead and grow some of the most iconic consumer brands in the world, including AT&T, priceline.com, Virgin Mobile, American Express, PayPal and now Verizon. Those experiences have provided me with a strong perspective on customer-centric growth. And of course, I've served on the Board of Verizon for the past 7 years. So while I am only a few weeks into my tenure as the company's CEO, I've had a front row seat into the company's evolution since 2018, and therefore, come into this role with a rich perspective of where Verizon is coming from and what the opportunities are. For many years, Verizon has led the industry with our reliable and scalable network, and we will continue to advance our network leadership. As you know, we're significantly investing in cyber and in the power of convergence with our acquisition of Frontier, which we expect to close early next year. Verizon has deep strength and incredible potential, but the blunt truth is we haven't captured the customer growth opportunities this strong foundation enables. Verizon is at a critical inflection point. For years, our priority was clear: build the best and most reliable network. With that foundation firmly in place, our next chapter is about serving and delighting customers by building the industry's best overall value proposition and the best customer experience on top of it. We must shift to a customer-first focus and redefine our trajectory. This is not a course correction. It is a fundamental change in our strategic approach to customers. The only way we can drive sustainable value for our shareholders is by significantly raising our game and winning responsibly in the market. This is about financially disciplined growth, winning with the right customers at the right economics. Volume growth and profitability growth can go and will go hand-in-hand. We are fully committed to achieving both simultaneously. Before I elaborate on my vision for a revitalized Verizon, I'm going to hand it over to Tony to cover our third quarter performance. Anthony Skiadas: Great. Thanks, Dan, and good morning. Before I begin, I just want to take a moment to congratulate Dan on his appointment as CEO of Verizon. The leadership team and I are excited to work with him in creating this new chapter for our company. First and foremost, we remain on track to deliver our full year financial guidance, which includes our previously raised expectations for adjusted EBITDA growth adjusted EPS growth and free cash flow. In Consumer Mobility, we delivered strong postpaid phone gross adds up 8.4% from the prior year. However, gross add growth was offset by churn of 0.91%, which resulted in postpaid phone net losses of 7,000 in the quarter. We continue to see healthy retention benefits from our converged customers. At the end of the quarter, more than 18% of our consumer postpaid phone base took a converged offering more than 200 basis points above last year. We see significant opportunities to increase convergence in the Frontier footprint after we close the transaction. Importantly, converged customers on fiber have a mobility churn rate that's nearly 40% lower than our overall mobility base. We also saw a 16% year-over-year increase in consumer upgrades in the third quarter tied to our best value guarantee, which is resonating with customers. Moving to core prepaid, we delivered 47,000 net adds, our fifth consecutive quarter of positive subscriber growth. The strength of our key brands as well as the continued expansion of total wireless distribution positions us to continue to grow our prepaid business. Verizon business delivered 51,000 phone net adds. As expected, we continue to see disconnect pressure in the public sector, in part from ongoing government efficiency efforts. This was more than offset by strong demand from small and medium businesses and large enterprise customers as we continue to be the provider of choice for businesses. Shifting to broadband. We once again delivered solid results with 306,000 net adds. Our broadband base is up 1.3 million subscribers from a year ago and is now over 13.2 million subscribers. Fios internet delivered 61,000 net adds, our best quarterly result in 2 years. Given the demand for Fios, we're working to bring it to more and more premises within our footprint. In addition, we recently announced an initiative with Tillman that will enable us to bring our best-in-class Fios broadband offerings to even more households and businesses. The agreement combines Tillman's network design, build and operations capabilities with Verizon scale, distribution strength and brand power. We will focus on markets outside of the Verizon and Frontier footprint, expanding our Fios business to new places across the country and driving more convergence in these markets. Fixed Wireless Access net adds were 261,000 for the quarter. With approximately 5.4 million FWA subscribers, our annualized revenue has surpassed $3 billion and continues to grow. We believe FWA can be a long-term sustainable business. In addition, we recently announced an agreement to acquire Starry, which will enhance our MDU capabilities, combining our scale and resources with Starry's technical and go-to-market expertise. Moving to financials. Our third quarter performance keeps us on track to deliver on our financial guidance for the year. Third quarter consolidated revenue was $33.8 billion, up 1.5% from the prior year period. We delivered over $400 million of year-over-year wireless service revenue growth in the quarter. Wireless equipment revenue was 5.2% higher than the prior year, driven by higher gross adds and upgrade rates. Wireless service revenue was up 2.1% from the prior year, driven by continued ARPU growth from targeted pricing actions and further adoption of fixed wireless access and add-on services. Perks continued to provide a high-margin revenue stream, and we look forward to offering additional benefits for our customers. Additionally, prepaid revenue grew year-over-year for the first time since the TracFone acquisition. As expected, we faced the promo amortization headwind in the quarter, and we expect this headwind to continue. However, our underlying customer economics remain healthy. On the expense side, we have work to do to further reduce our cost of services and SG&A. As Dan will outline, we will be looking at cost with the new lens and will be focused on driving significant cost savings across all aspects of our business. Consolidated adjusted EBITDA was $12.8 billion, up 2.3% year-over-year. Year-to-date, we have generated almost $1.3 billion more in adjusted EBITDA compared to 2024, driven by a combination of pricing actions and cost reduction. Our adjusted EBITDA growth of 3.5% through the end of the third quarter is at the top end of our guided range. Adjusted EPS was $1.21 in the quarter, up 1.7% year-over-year, driven by growth in adjusted EBITDA. The cash generation of the business continues to be strong. Cash flow from operating activities was $28 billion for the first 9 months of the year, up over $1.5 billion or 5.8% compared to the same period a year ago. CapEx through the end of the third quarter totaled $12.3 billion compared to $12 billion in the prior year period. We're on track to meet all of our investment goals for the year and deliver within our guided range or better. The combination of our continued CapEx efficiency and our ability to drive profits to the bottom line resulted in third quarter free cash flow of $7 billion. This represents a nearly 17% improvement year-over-year and the highest reported in our industry by nearly $2 billion for the period. For the first 3 quarters of the year, we have generated $15.8 billion in free cash flow, an increase of 9% compared to the same period a year ago. In September, we raised the dividend for the 19th consecutive year reflecting our continued commitment to shareholder returns. Net unsecured debt at the end of the quarter was $112 billion, a $9.4 billion improvement year-over-year. We continue to make meaningful reductions to our debt throughout the year, resulting in our net unsecured debt to consolidated adjusted EBITDA ratio dropping to 2.2x as of the end of the third quarter. This puts us inside of our target leverage ahead of schedule and before the Frontier closing. We're focused on generating strong cash flow and committed to paying down our debt. We also remain committed to our long-term net unsecured leverage target range of 2.0 to 2.25x. This is not going to change. Looking ahead, we remain on track to close the Frontier deal in the first quarter of 2026. We have received approvals from 11 of 13 states and are making good progress in the remaining jurisdictions. Integration planning is on track. And through the third quarter, based on their public disclosures, Frontier is performing extremely well across both their fiber build and customer growth. While we continue to execute within the parameters of our financial guidance, we recognize there is significant opportunity ahead. And with that, I will turn the call over to Dan. Daniel Schulman: Thank you, Tony. When I look at our performance objectively, Verizon is clearly falling short of our potential. And as a result, we are not delivering the shareholder returns our investors expect. Despite investing significantly in network leadership, we have not been able to translate that into winning in the market. And consequently, we are not generating the financial profile necessary for share price appreciation. Our stock performance reflects this reality. My mandate from the Board is clear: unlock the growth potential of our platform while delivering strong financial results. Today, I intend to discuss my priorities and areas of focus. Our plan will not be about incremental change. We intend to aggressively transform the culture and financial profile of our company operating under the principles of being bold, customer-centric and executing with financial discipline with a focus on shareholder value. For the past few years, our financial growth has relied too heavily on price increases, a strategic approach that relies too much on price without subscriber growth is not a sustainable strategy. Every year, it gets harder to grow as we lap past price increases and experience higher churn. This cannot continue, and there is no question that meaningful change is needed. As we shift to a customer-first culture, we will simultaneously drive a much more efficient cost structure, that fully supports our incremental investments in delighting our customers. I reject the premise that delighting customers and winning in the market means that margins will decrease. I think this industry and clearly, Verizon are only scratching the surface of increased bottom line performance. My top strategic imperative for Verizon is to grow our customer base profitably across our mobility and broadband subscription businesses. I strongly believe that growing volumes is essential to drive sustainable long-term revenue and adjusted EPS growth. We are going to compete and grow responsibly across all market segments. And over time, meaningfully increase our share of net adds, particularly in postpaid. We aim to win fairly by having the best overall value proposition and delighting our customers across all elements of the marketing mix. This is not going to be about promotional activities that can be quickly imitated. It is about true innovation, not easily replicated by our competitors. We will leverage our network excellence to drive growth, but we cannot rely on it exclusively. Network quality is now foundational. Winning in the marketplace demands a revamped and superior customer value proposition and requires full attention to the entire customer experience. We will significantly elevate our game across multiple dimensions. We will work relentlessly to serve our customers, ensuring that every customer is fully satisfied with their Verizon experience. We must make it much easier to do business with us. You should expect bold execution powered by sophisticated and smart marketing, actions that strengthen loyalty and the elimination of practices and processes that detract from the customer experience. Raising rates without corresponding value rarely, if ever, delights customers. Our primary objective is to build loyalty and drive significant improvements in retention to optimize the lifetime value of our customer base. Verizon will no longer be the hunting ground for competitors looking to gain share. We are reinventing how we operate to make Verizon more agile and efficient. You should expect disciplined execution across marketing, operations and service. We will invest significantly across all elements of our marketing mix and customer experience to drive mobility and broadband growth, and we will fund these investments by aggressively reducing our entire cost base. We will be a simpler, leaner and scrappier business. This work is overdue and will be multi-year and an ongoing way of life for us. In addition, as some of you know, I am a strong believer in the growing power and resulting opportunities created by AI. We have barely scratched the surface of how AI-powered innovation can transform our customer experience. I intend to use AI as a key tool to simplify offers, improve the customer experience and reduce churn through smart, consistent and more personalized marketing and offers. And we will leverage AI throughout the company to make it easier for our employees to delight our customers and to dramatically improve service of reducing cost and complexity across the vast majority of our business processes. While we narrow our focus to invest in key growth areas, we will also aggressively sunset or exit legacy businesses where we don't see a clear path, profitable market leadership. We have a large opportunity to unleash meaningful margin improvement by doing so. And we will talk about this in more detail in January. Convergence is one of our most significant near-term growth opportunities. The pending acquisition of Frontier will enable us to serve approximately 29 million fiber passings, creating a massive cross-sell opportunity. Our wireless share significantly under-indexes in Frontier's territory, and we intend to address this on day 1. This will create a significant runway to capture mobility volume from our broadband customers and cross-sell broadband to our existing mobility base, driving meaningful revenue synergies. I recently met with the Frontier senior leadership team. Their focus and performance is impressive. The results are trending above the expectations when we signed the deal, and I am looking forward to having them join the Verizon team. We will continue to expand our fiber footprint through our own build and with strategic partnerships. I expect the actions we are taking will enable us to generate higher free cash flow in 2026 and 2025, even when we include Frontier. Our business is generating strong cash flow today, but I believe it can be even stronger. I am committed to prioritizing the customer experience, while maximizing returns for our shareholders and doing both in a fiscally responsible manner. I am closely examining not just our operating expenses, but also our capital spend, and our capital allocation framework. I believe that elements within our framework can change to optimize our capital structure and shareholder returns. This includes an ironclad commitment to our dividend, continued debt repayment and value-creating capital return. In short, we will be much more deliberate in how we allocate our spend to execute our strategy. Of course, we'll continue to invest in the business and we will do so with a critical eye towards growth areas. You can expect our capital envelope to support the completion of our C-band build-out and our long-term objectives for fiber expansion, while preserving our financial capacity and flexibility for strategic investments as the landscape evolves. To summarize, we understand changes needed, and we are aggressively making those changes. Our goals and our priorities are clear. First, delighting our customers to meaningfully increase our share of industry net adds. Second, cost transformation, fundamentally restructuring our expense base. Third, capital efficiency, optimizing how and where we invest and fourth, accelerating shareholder returns by increasing our bottom line growth, and a steadfast commitment to our dividend. You can expect to see a tangible difference in the way Verizon competes. Going forward, we will aggressively compete and fundamentally redefine what it means to be a Verizon customer. I'm confident in our strategy, our assets and the team's ability to execute. We have the network, the scale, the brand and now the strategic clarity and commitment to drive sustainable growth. We are planning to win, and this will be a different Verizon than the market is used to. This will not happen overnight, and there's no one silver bullet. It will require hard work, strategic focus and thoughtful execution. Importantly, much of the critical planning and evaluation is already well underway. We will provide 2026 guidance during our January earnings call and we will report progress against these objectives quarterly. Our shareholders and our customers have been patient. It is now time for us to deliver. Thank you, and Tony and I look forward to your questions and comments. Brady Connor: Brad, we're ready for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question will come from John Hodulik of UBS. John Hodulik: Great. And good to talk to you again, Dan. Dan, can you expand on your vision of the company and what you expect to accomplish, say, over the first 100 days? And specifically, if possible, can you touch on or provide more details in terms of how you expect to turn consumer volumes? Daniel Schulman: Nice to hear from you, John, and good to work with you again. Look, let me take just a quick step back. I'm extremely excited about Verizon's potential. We are building off tremendous assets. We've got an excellent network. We have got an iconic brand. You've got tens and tens of millions of loyal customers. We have a really talented team, but it's clear we need to enter a new chapter. The existing status quo is not acceptable for us. And I wouldn't be here if I wasn't fully confident in our ability to pivot. The vision has 3 pillars basically to it. The first pillar is about shifting from being a technology centric to being a customer-centric company. This is about delighting our customers. This is about growing through retention basically. My aspiration is I want us to have the lowest churn rate in the industry. And when you talk about growing through retention, it is about creating the best value propositions segmented by the various segments in the market looking at all elements of our marketing mix quite thoughtfully and looking at creating the best customer experience possible. This is the full reboot of what Verizon means in the marketplace. And this is not about onetime noneconomic promotional activities. That's not how you're going to win over the medium and long term in this marketplace. It's about being thoughtful across all elements of the value proposition and marketing mix and winning responsibly. And that's kind of what we intend to do, and we are well underway throughout the organization in making that shift. But I don't want to underestimate or underplay how big a shift that is for us, but it is the way that we win over the long term. Second pillar that happens simultaneously with delighting customers because we want to drive shareholder return simultaneously. I want to deliver sustainable revenue growth, accelerated bottom line adjusted EPS growth. And as I mentioned in my script, the dividend is sacrosanct to us. We are going to examine every element of our OpEx and our CapEx, and we are going to fully fund all of our initiatives with OpEx savings and drop them to the bottom line so that we can accelerate EPS growth as well. And finally, the third pillar kind of supports all of this is a full review of our CapEx spend and our capital allocation. You can expect us to continue to invest heavily in growth areas with the path to profitability, whether that be completing our network, expanding our network, fiber aspirations, other opportunities as they become available to us in the ecosystem. We have a tremendous amount of financial flexibility on the balance sheet. We're going to do a hard look at portfolio rationalization and divest and exit legacy businesses where we don't see a clear path to profitability. As Tony mentioned, we'll continue to pay down debt. We'll continue to be steadfastly committed to our dividend. And we will review, frankly, other opportunities to return capital to shareholders. And so I think just to summarize, we want to win responsibly in the market. We're going to do that through, let's call it, kind of growth through retention, looking at all elements of how we delight customers and at the same time drive shareholder returns. We think we can do both, and we're committed to that. Operator: The next question comes from Ben Swinburne of Morgan Stanley. Benjamin Swinburne: Dan, thanks for all the helpful commentary in your prepared remarks. I had 2 questions sort of tied back to your comments. You made the point, Dan, that you think the reliance on price increases has been misguided or were not productive and not sustainable, I think it was your phrase. I think there's a view in the market that Verizon's back book is overpriced relative to sort of where the consumer is. And I'm curious if you agree with that probably oversimplified generalization? And more specifically, how do you drive share for Verizon higher in -- particularly in consumer without going through sort of a painful kind of back book repricing exercise, which I'm hearing from your financial commentary about accelerating earnings growth and free cash flow that you're not expecting. And then I just was curious, you guys were very clear on your balance sheet and leverage targets. But would you be open to flexing the leverage higher if the right opportunities presented themselves. There's a lot of spectrum in the market, more coming from the FCC down the road, you have this Tillman agreement. So just curious if you could talk a little bit about the potential to take leverage higher, at least temporarily if the opportunities were there. Daniel Schulman: Ben, thank you for all of your questions. I hope I remember a couple of them at least. Look, I think my view on our approach into the market is to be quite thoughtful and financially disciplined. I think that we need to look at the reasons why customers are leaving us. And there are basically 4 that customers there are more, but these are the top 4 are price increases that we've done that customers run into some friction in the experience with us and we need to fix that. There's a value perception. I think I call it a value perception, not pricing. Because the value is all about price to value. And I feel we offer good value and -- but there's a value perception. And then there's obviously competitive intensity. There are a lot of offers in the industry. Our game plan is going to address all of those pain points for our customers. We want to have the best-in-class experience. I want to leverage things like convergence. I want to create segmented and targeted value props and offers. I want to think carefully across all of the marketing mix. The are marketing 4 Ps. I always throw a fifth one in there, which is [ prayer ]. But I think like pricing is the last refuge of the marketing desperate. It is what you pull when you have nothing else in your quiver. And frankly, we have a ton of things to pull in terms of creating incremental value for our Verizon customers. And so although I won't go into specifics on how we're thinking about this because it's still early days and I'm actually never going to go into specifics because I don't want to tip off our competitors on what we're trying to do in the marketplace. But I think that we can begin to take our fair share of the new to the industry, postpaid adds, we're going to start off by increasing it because today, we take somewhere between 0% and some very low percent of the new-to-industry postpaids. We're clearly losing share, and that's not a sustainable path for Verizon. So we'll win eventually, our fair share of industry net adds going to reduce our churn to being the industry best. I want to responsibly win in a fiscally prudent manner. So hopefully, I hit a couple of your questions, at least there, Ben, anything else that you want me to hit on? Tony? Benjamin Swinburne: No, that was really helpful, Dan. I appreciate it. Just I was curious on the balance sheet, any openness to flexing up if you had the opportunities? Anthony Skiadas: Sure. Hi, Ben, it's Tony, good morning. So a couple of things there, very comfortable with the long-term leverage target. And as you know, we've had a long and demonstrated track record of execution with the balance sheet. The target is very appropriate for the company of our size, and the way we expect it to perform in the future. And I think you heard Dan talk about that. We have strong cash flows, as you've seen, we reiterated our guidance for the year at $19.5 billion to $20.5 billion for 2025. And as you heard Dan in his prepared remarks, we expect to have higher cash flows in '26 versus 2025. And that leverage target gives us the ability to invest for growth. And it also gives us a lot of flexibility and balance sheet capacity to be opportunistic should the need arise from a strategic standpoint. As we talked about, the deleveraging is on track. We're now inside of our long-term leverage target at 2.2x. We have Frontier coming in, as we said previously, that will add about 0.25 turn to the metric and that will be for a short period of time. So we are going to operate outside of it for a period of time. But the overall goal is not going to change. The focus is generating strong cash flows and execute across the entire capital allocation framework, and that includes continuing to pay down debt. Operator: The next question will come from Michael Ng of Goldman Sachs. Michael Ng: Good to be reconnected with you, Dan. I just have 2. First, are there any parallels between Verizon and PayPal that informs your view of the opportunity for improvement? Where in the Verizon business, do you see the biggest need for a change agent. And then second, Verizon's Perks and MIPlan seems like a strategy where it puts it closer to a super app strategy relative to peers. Is this something that is important to your strategic blueprint? Any opportunities or key benefits that you would call out? Daniel Schulman: Nice to hear your voice again, Mike. I look forward to seeing you again as well. I think when I think about kind of when I first started at PayPal and now first starting here with Verizon, there are definitely some similarities. One of the big things that we did at PayPal when I first came on was declare that we were going to be a customer champion. And declaring you're going to be a customer champion kind of easy words. But if you're really going to be a customer champion, it takes hard work and it takes challenging your business model as well. It means doing what customers expect and addressing all of their pain points and then figuring out how to delight and surprise them going forward. At PayPal, that was giving customers full choice on how they could pay, not by forcing them to pay with what was the highest margin funding instrument that they had in their wallet for us. And that unleashed a huge amount of growth for the company. And I think the same thing can happen here. We're going to invest heavily in our value proposition. We're going to fund all of that cuts in our cost structure. We have a tremendous amount of opportunity to be more efficient to be scrappier. In many ways, this is a turnaround for us and making sure that, culturally, we're ready to make that move from being technology-centric to being customer-centric. It takes some time, but there is no question that what I saw on PayPal, I see here in Verizon too. The team here wants to reclaim their market leadership. And they will do anything that they can. Big companies are extraordinarily good at responding to a crisis. They're not necessarily good at day-to-day, but responding to a crisis, they're amazing. And this is really a clarion call to the company to refocus, regain our leadership by focusing on customers, delivering what they want, not doing things that don't delight customers. And so there are a lot of similarities, obviously, very different industries, different ways of thinking about it. And when you talk about the value prop and things like super app versus how we might think about that. Just give us a little bit of time to develop our thoughts more from where we are at a full effort underway right now, and you'll hear more about that as we go into January and beyond. Operator: The next question comes from Mike Rollins of Citigroup. Michael Rollins: Dan, welcome back, and congratulations on taking over as CEO. You mentioned a few times the importance of convergence. I'm curious to get your perspective on where you would like convergence to go over time in terms of the physical fiber footprint, how many passings you want to see that get to and the path potentially to get there as well as how you're looking at fixed wireless and whether it's time to incrementally invest in fixed wireless as also a way to drive more broadband business for the company. And then just secondly, following on your comments about accentuating the growth side of the business and deemphasizing or exiting legacy businesses. Curious if you could put more context around that as -- when you look at the Verizon portfolio in totality, how much of Verizon do you view today as strategic and growing versus legacy. And what are the ways you're trying to better frame that internally as well as externally for shareholders? Daniel Schulman: Yes. Mike, it's great to hear from you again. You've been around this industry for a long time, and I appreciate your thoughts and your questions. I'm a very big believer in conversions. I think it is extremely powerful. I think it offers not just meaningful revenue synergies, but as Tony mentioned and as we see, when you combine mobility with fiber, you see churn rates that are almost 40% less than what we see with our traditional mobility. And I think thinking innovatively about how we bundle together broadband writ large, and that includes both fixed wireless and fiber with our mobility to drive both incremental broadband revenues as well as incremental mobility revenues will definitely be on the plate. So expect us to continue to invest in our broadband footprint and our fiber footprint as well as our fixed wireless as well, but also expect us to think about that innovatively as I mentioned, because I think there's a ton of opportunity in that. And as I mentioned in my opening remarks, we'll continue to invest appropriately and aggressively in that expansion. In terms of kind of portfolio optimization, I think that's what you were talking about, kind of legacy versus broadband and mobility. Clearly, we're focusing on broadband and mobility. There are other areas, by the way, that I think we can focus that are maybe potentially large opportunity areas. Clearly, AI infrastructure is booming, and we can be a part of that and should be a part of that. But we have parts of our business that are costing us billions of dollars of margin. And I think we can think much more clearly about how do we invest in growth areas and divest or exit those that are not that for us and are actually hemorrhaging margins for us. We'll spend more time on that in January and lay that out for you in more detail, but you can probably imagine what we're thinking about and talking about on that. But I'll be more specific about that, and Tony and I will both be more specific about that as we get into early next year. Operator: The next question comes from Sebastiano Petti of JPMorgan. Sebastiano Petti: Dan, congratulations on the role. I look forward to working together. Just maybe following up on the 2026 free cash flow. I mean, we're -- I understand the cost efforts will help -- basically help fund a lot of the growth initiatives that you're discussing here today and the pivot and your vision for the company. But relatedly and basically to Mike's question, and it's about the longer-term fiber footprint. How do we square 2026 free cash flow growth? I mean it sounds like CapEx is coming down this year, implication would be free cash flow probably trends towards the higher end of the range. And as you -- and Frontier is burning $1 billion of cash today. And so just trying to help understand that, the question we've been getting incoming from investors this morning. And then secondarily, I guess, just maybe thinking about the accounts growth in the -- accounts decline in the quarter on the consumer as well as on the total wireless segment. Anything to help square there? It was the highest losses we've seen since the first quarter of 2020, rather, the pandemic quarter. So just helping us understand the trajectory there, and how we should be thinking about that trend over time as you kind of focus in on convergent. Anthony Skiadas: Sebastiano, just on your question on free cash flow. So look, in the prepared remarks, we said we expect free cash flow growth to 2026 year-over-year. And that's all in, including Frontier. So some points on that, but that gives us confidence in that statement. So first, we have a very good starting point. The cash flow generation of the business continues to be very strong, and we have the strongest free cash flow in the industry. So we start there. And then in terms of actions, and I think Dan covered this multiple times, you should expect to see significant cost transformation. Dan talked about running leaner. Those plans are already underway. In terms of the portfolio, we're looking at everything and everything is on the table for us. So -- and it also entails being very efficient with our capital spend. And what we said in the prepared remarks that we expect 2025 to get all our initiatives completed and will be likely at the lower end of the range or better, and that's the goal. And then as we look ahead, we said prioritizing investments focused on both mobility and broadband and being very efficient with our capital spend. We know how to do this, and that includes maintaining network excellence and also making sure we deliver on the promise for customers. And as Dan said, areas not aligned to growth will be deemphasized. And those actions are underway, and we're acting with a sense of urgency. So we'll be back in January with the full view of that, Dan? Daniel Schulman: Yes. Look, on account growth, I mean it just plays basically into what I was talking about before. The status quo doesn't work for us. We're going to be much more aggressive in delighting customers, and that has to happen. Look, it's a competitive industry, and all attractive and great industries are competitive. That's why people come into them because they're super important industries and most industries follow the rule of 3, and wireless is no different in that. I think about competition, a little bit how I think about gravity. When I get out of bed in the morning, I don't think, oh my gosh, gravity is pulling me down, it wasn't around, I could jump 20 feet high in the air, same way about competition. If it wasn't around, I'd have 100% share, but it is. And both AT&T and T-Mobile are excellent companies. And with strong leaders with John and Srini, I have a ton of respect for both of them and their companies. But I feel like there's still plenty of room for growth in this industry. And on how you count it, somewhere between 5 million and 8 million new postpaid subs that enter into the industry every year. There's obviously switcher pools that are available. There's new and growing services, whether that be convergence or AI-powered infrastructure that can come in. So there's a lot of opportunity in the industry. The key here for us is to win smart and responsibly, focus on what our customers want, not on our competitors. I feel like we can win this fight the right way. We earn it every single day. There's no need to ratchet up high promotional spend. We want to be competitive. Obviously, we want to be consistent, but there's no reason for us to be rationally aggressive to win our fair share out there. So we'll focus heavily and you'll see that on creating the best value propositions, they'll be very different than what you see today, make sure that we have the very best customer experience, and we are going to do everything in our power to make sure we delight customers. And again, thoughtful around all elements of the marketing mix. Look, we want to be so good that prospects want to come to Verizon, and our Verizon customers never want to leave us in. So a lot of work to do underway with that, but we feel good that we've got a head start on that, and we know what we want to go do. Operator: The next question comes from Michael Funk of Bank of America. Michael Funk: Dan, welcome back and congratulations to you. So Dan, I heard you loud and clear on growing through retention. So curious to hear from you, what strategies or tools you think best for reducing churn? And then how we should think about these as being proactive versus reactive when you think a subscriber might be on the verge of churning. And a couple more, if I could. So curious to hear if you think about utilizing AI to address the efficiency offers you laid out for us in retention as well. And then you threw in your comments about AI infrastructure is booming and love to know what that means for Verizon as an opportunity? Daniel Schulman: Bunch of good questions on the -- as I mentioned, we have a pretty good idea of what's driving churn. And so we have a pretty good idea on how to address all of those. In many ways, this is a multipart complicated business. And otherwise, it's pretty straightforward, honestly. And so we just need to hit these things one by one to reduce churn, continue to grow by retention, but also we'll have the right offers in the marketplace. We'll be competitive. And I think -- you'll start to see evidence of that even beginning this quarter. But as I mentioned, this will take some time as well. When you want to turn around your entire offering to the marketplace, when you want to redefine the culture, financial profile of a large company like Verizon, we need to do it in a very thoughtful, prudent manner, but with a nod to urgency and moving as fast as we can. We're going to be a much scrappier company than we've been before. We have a lot to do, and we're going to go out and do that. On AI, I have spent a lot of time before I got here within the AI community help advise some of the CEOs in the AI community. So I haven't really keen understanding of where it's going. I think AI is the only technology I've seen in my lifetime where it does a step function improvement every 2 to 3 months the models that we have today are by far and away the worst models we're ever going to have. You can see anywhere between 300% and 600% improvement in those models over the next year. And obviously, they are becoming more and more powerful, and they are able to do more and more things. The other thing that AI is doing is clearly shifting the way the internet operates on its head. The internet is much more of a wide cast broadcasting and AI is much more narrow cast, much more individualized to you. I think that, as I mentioned, we are just scratching the surface of how we use AI inside Verizon. AI can obviously be used to be more efficient to do things and satisfy customers in ways that we can't do today and do so at a much lower cost, and that goes for across multiple functions inside any organization, including Verizon. But really importantly, AI can be used to dramatically improve the value proposition that we put in front of customers. To your point, we can anticipate when customers want to upgrade when they have an issue, what that might be proactively address it before it happens, tailor and customize offers at micro segment levels that can radically change kind of where Verizon is today and frankly, where our industry is as well. And so I think that AI is today, a very large opportunity. And as the years go on, will be an increasingly large opportunity for not just Verizon, but American industry. Brady Connor: Great. Thanks, Mike. Brad, we have time for one more question. Operator: Your last question will come from Peter Supino of Wolfe Research. Peter Supino: Dan, nice to meet you in this way. I wanted to ask you 2 questions. One about costs and the other about fiber. On costs, I wonder if you could discuss the nature of the cost opportunities you see if there are some common threads or themes through them. Verizon looks productive on a headline sort of benchmark to peers level? And then on fiber, Verizon is on course this year to pass about 650,000 homes incrementally with fiber organically. And at the same time, it's laying out $10 billion to buy Frontier. And the 2 seem somewhat inconsistent in the sense that it's a rather slow organic fiber expansion in a rather aggressive external fiber expansion. I wonder if you could sort of reconcile those and let us know what you think an ideal organic expansion rate for Verizon's ILEC footprint for the organic fiber extension might be over time? Anthony Skiadas: Yes. So Peter, on fiber, I'll start there, and I'll hand it to Dan on the cost. So on few things here. So number one, I mean, fiber is not new for us. I mean we've been at it for 20 years, and there's plenty of room out there in our combined -- outside of the fiber footprint that we have today and with Frontier to be first on fiber. And as you saw recently, we signed a deal with Tillman to further expand our broadband build and maybe just some aspects of that deal. It's a capital-light partnership and it gives us the opportunity to go outside -- in markets outside of the pro forma footprint that we have and Frontier has and to increase the convergence opportunity. And look, in this case, the fiber is going to be built to our standards, leveraging the Verizon brand and bringing Fios to more and more locations. It's a long-term deal, and it gives us a lot of optionality in the footprint to go in the future and really to go outside the footprint with good economics, and we did not have that ability before. And to your point, we're on track with our 650 (sic) [ 650,000 ] in terms of premise passed and Frontier, as you saw the results last night. We're also pacing to their fiber build. So we're not stopping. So -- and I think you see that in the results in the quarter and where we're heading and with the deal with Tillman, we have a lot of runway ahead with fiber. And then I'll hand it to Dan on the cost. Daniel Schulman: Yes, thanks for the question. First of all, our goal is to reclaim our market leadership. It's as simple as that. And we need to invest to be the best in the marketplace. And that's going to take significant investment to go and do that, and we're fully committed to that, and we're fully committed to covering all of those investments through cost reductions, and redeployment of those cost reductions into our value proposition. Cost reductions will be a way of life for us here. Honestly, I'm not that interested in comparing our productivity ratios to others and looking at how productive can we be as a company? What is the right place for us to invest, where are the right places for us to be leaner than we have, how do we use technology to do so. This is all about satisfying our customers, but there's tremendous opportunity for us to be a more nimble and agile organization. Thank you, everybody inside the company knows that we need to invest in our value proposition, that we need to be customer champions, and that there's a lot of area for us to find efficiencies. We'll talk more details about that as we're working through our plans, but we see plenty of opportunity to be the most efficient company in the industry. Again, we're looking at every element of our OpEx and our CapEx spend to make sure that we invest wisely that we capture the growth areas in front of us and that we drive bottom line performance for our shareholders. Brady Connor: Yes. Great. Thanks, Peter. Brad, that's all the time we have today. Operator: This concludes the conference call for today. Thank you for your participation and for using Verizon Conference Services. You may now disconnect.
Operator: Good morning, and welcome to the Evercore Third Quarter 2025 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Evercore management and the question-and-answer session. [Operator Instructions] I will now turn the call over to Katy Haber, Head of Investor Relations at Evercore. Please go ahead. Katy Haber: Thank you, operator. Good morning, and thank you for joining us today for Evercore's Third Quarter 2025 Financial Results Conference Call. I'm Katy Haber, Evercore's Head of Investor Relations. Joining me on the call today is John Weinberg, our Chairman and CEO; and Tim LaLonde, our CFO. After our prepared remarks, we'll open up the call for questions. Earlier today, we issued a press release announcing Evercore's third quarter 2025 financial results. Our discussion of our results today is complementary to the press release, which is available at our website at evercore.com. This conference call is being webcast live in the For Investors section of our website, and an archive of it will be available for 30 days beginning approximately 1 hour after the conclusion of this call. During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we have noted previously, our results for any particular quarter are influenced by the timing of transaction closing. I will now turn the call over to John. John Weinberg: Thank you, Katy. Evercore delivered record third quarter results following a record first half with momentum across all business areas. We generated over $1 billion in adjusted net revenues, up 42% year-over-year, marking our best third quarter ever and the second best quarter in our history, behind the fourth quarter of 2021. Our quarterly and year-to-date results reflect the strength of our diversified revenue streams, the impact of our Senior Managing Director hiring and promotions over the past several years and the benefit of a steadily improving market environment. We remain committed to delivering for our clients and shareholders by executing our long-term strategy, which includes focusing on areas of sector and geographic white space broadening our client coverage and expanding and deepening our product capabilities. We are working at closing out 2025 on a strong note and positioning ourselves for a successful 2026. Throughout the third quarter and in October, market conditions and investment banking activity have continued to strengthen, supporting a more conducive environment to deal making. Announced M&A activity has advanced at a healthy pace, led by larger strategic transactions, while capital markets activity has accelerated. Transactions that were impacted by market volatility earlier this year are now returning to the market. In line with the momentum that we've experienced over the last several months, our backlog continued to increase in the quarter and client activity across the firm remains robust. We expect these trends to carry through year-end and into 2026. It's worth noting that in many years, we've experienced significant positive seasonality in our business in the fourth quarter. This seasonality is likely to be less pronounced this year versus prior years given the strength of our year-to-date results, the timing of some transactions closings that may have been impacted by the market volatility earlier in the year and a possible timing impact from the government shutdown, which we are continuing to monitor closely. That said, we expect continued strengthening in the market and our business. Overall, we continue to believe we are in the early stages of an investment banking recovery driven by a combination of cyclical and structural factors. Global announced M&A as a percentage of global market cap remains well below historical averages and pent-up demand from both corporates and sponsors, together with broader secular shifts such as accelerating impact of AI and other long-term trends is driving new opportunities across sectors. Turning to talent. We continue to make strong progress on our recruiting efforts. We successfully closed the Robey Warshaw transaction on October 1, which has been an important addition to our build-out in Europe and significantly enhances our ability to serve clients across the regions and around the world. Along with the 5 new investment banking SMDs from Robey Warshaw, 4 additional SMDs have committed to join our global investment banking practice. 2 in the U.S. with 1 focused on financial sponsors and the other on health care and 2 in Europe with 1 covering financial sponsors and another advising Nordic clients. So far, 2025 has been our strongest recruiting year-to-date. With our most recent joiners and commits, we now have 168 investment banking SMDs, up nearly 50% from the year-end 2021, positioning us well as the market strengthens. We continue to see a healthy pipeline of external candidates and attracting and developing exceptional talent remains core to our strategy and future success. Now let me turn to the businesses. We experienced broad-based strength across our diversified platform, both sequentially and year-over-year. In the third quarter and over the last 12 months, approximately 45% and 50% of total revenues, respectively, were from non-M&A sources. Our U.S. M&A advisory practice continued to gain momentum across sectors, including tech, infrastructure and health care. Financial sponsor activity is steadily picking up, and we expect this positive trend to continue into next year. Evercore is well positioned to benefit as we have meaningfully built out our sponsor coverage effort in recent years. Our European Advisory business delivered its best quarter on record with strong performance across sectors, products and geographies. We are very pleased with our progress across the region and are seeing high-quality engagements with both corporates and sponsors. We expect this to continue as we welcome the Robey Warshaw team and expand our presence in Europe. As of the end of the quarter, we advised on 4 of the 11 largest global M&A transactions. We've continued to experience strong activity in October, including advising Carlyle on a EUR 7.7 billion acquisition of BASF coatings and Huntington Bancshares on its acquisition of Cadence Bank for $7.4 billion, representing our second transaction advising Huntington this year. Next, our strategic defense and Shareholder Advisory group remains busy as the number of activist campaigns in the U.S. is at record levels. The Liability Management and Restructuring business continued to see robust activity in the quarter, generally tracking in line with trends experienced earlier this year. We are seeing an increase in larger traditional restructuring assignments and our backlog in this area remains strong as highly levered companies face ongoing challenges. Our private capital markets and debt advisory team continues to be active as the credit markets remain open and transaction activity picks up. Consistent with the strength we saw in the first 2 quarters of the year, our Private Capital Advisory business delivered a record third quarter, driven in large part by GP-led continuation fund transactions. In fact, through the first 9 months of 2025, PCA revenues have already exceeded full year 2024, which was our best year on record. We continue to see strong momentum in all areas of the business, including GP-led continuation funds, LP secondaries and securitization. Similarly, our Private Funds Group generated a record third quarter, while the overall fundraising market remains challenging, our team continues to be active, operating at a very high level. Equity Capital Markets saw a resurgence in activity in the third quarter, particularly with IPOs supported by lower levels of market volatility. Our underwriting business remained active throughout the quarter as we continue to focus on our sector and product diversification efforts. We saw particular strength in tech and industrials with Evercore serving as an active book runner on Karman's $1 billion follow-on offering. We also experienced a significant increase in convertible issuance, an area where we have been investing and expanding our capabilities. Our equities business, Evercore ISI has achieved the #1 ranking in Extel's All-American Research survey for the fourth straight year. Additionally, the business had its best quarter since the fourth quarter of 2016 reflecting healthy levels of volatility and broad-based activity across products and services. Strong client engagement, combined with a constructive market backdrop and healthy client performance all contributed to the quarter's results. Lastly, Wealth Management achieved record quarter-end AUM of approximately $15.4 billion driven by both market appreciation and strong new net client inflows. Before I turn it over to Tim, I'd like to make a final comment. The strength of our third quarter and year-to-date results reflects the power of our diversified platform, the continued execution of our strategy and our commitment to our clients. As we look ahead, we are confident in our ability to continue delivering value for our clients, shareholders and people. With that, let me turn it over to Tim. Timothy LaLonde: Thank you, John. Evercore's third quarter results reflect an environment which has continued to strengthen across all our businesses. For the third quarter of 2025, net revenues, operating income and EPS on a GAAP basis were $1 billion, $216 million and $3.41 per share, respectively. My comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results. Our standard GAAP reporting and reconciliation of GAAP to adjusted results can be found in our press release, which is on our website. Our third quarter adjusted net revenues of $1 billion increased 42% versus the third quarter of 2024. Third quarter adjusted operating income of $228 million increased 69% versus the third quarter of 2024. Adjusted earnings per share of $3.48 increased 71% versus the third quarter of last year. Our adjusted operating margin was 21.8%, up from 18.2% in the prior year period, an improvement of nearly 360 basis points. Turning to the businesses. Third quarter adjusted advisory fees of $884 million increased 49% year-over-year, which is a record for the third quarter and reflects continued market share gains. While we recently have experienced a strong uptick in activity and expect that momentum to continue in the fourth quarter, the seasonality we typically see in our fourth quarter advisory revenues is likely to be less pronounced this year versus prior years. This reflects the record results we've achieved year-to-date as well as the impact of the market volatility in March and April, which may have influenced the timing of certain transactions and related revenues and possible timing impacts from the government shutdown. Our third quarter underwriting revenues were $44 million, down 1% from a year ago, but up 36% sequentially. Commissions and related revenue of $63 million in the quarter increased 15% year-over-year and was a record third quarter and the highest quarter in nearly a decade. The strength in the quarter was primarily related to higher revenues from trading commissions on stronger trading volumes as well as higher subscription fees and good activity in convertibles and derivative products. Third quarter adjusted asset management and administration fees of $24 million rose 10% year-over-year, driven by market appreciation and net inflows. Third quarter adjusted other revenue net was approximately $33 million, which compares to $26 million a year ago. Nearly 2/3 of the gain is related to interest income in the quarter with most of the balance of other revenue related to gains in our DCCP hedge portfolio, which is correlated to the performance of the broader equity market. Turning to expenses. The adjusted compensation ratio for the third quarter is 65%, down nearly 100 basis points from the prior year period and down 40 basis points from last quarter. Our compensation ratio for the quarter reflects the continued steady improvement we have seen in the investment banking environment and in our revenues. We remain committed to investing in our business and executing on our strategic growth plan as reflected in the record SMD recruiting we've achieved so far this year. As we have mentioned on past calls, we are balancing our investments in growth. We're striving to make further improvement in our compensation ratio over time. And based on our current visibility, we expect our full year ratio to be generally in line with current levels. Adjusted noncompensation expenses in the quarter were $139 million, which is 13.2% of net revenue. This is an improvement of 260 basis points from a year ago and nearly 270 basis points compared to last quarter. The adjusted noncomp expenses of $139 million is up 18% from the third quarter a year ago. As a reminder, the noncomp expense line consists of a mix of fixed and variable expenses. So some of the related line items are going to increase as client activity increases and some of those are client billable expenses and are recouped over time. An example of this would be travel and related expenses, which increased due to higher levels of client travel as well as spend for conferences and client events. Other noncomp expenses increased as we build our business and execution capacity like occupancy and equipment expenses which reflected the acquisition of additional floors in our New York locations and new leases in Dubai, Paris and London. Some of our noncomp expenses occur as we are investing in what we hope will provide improved efficiencies or competitive advantage in the near to medium term, such as increased technology spend which includes investment in the development and implementation of newer technologies as well as spend on licensing and consulting fees. Accordingly, we would expect our non-comp expenses for the full year to be up year-over-year on a percentage basis, generally consistent with what you have seen for the first 9 months. As I've mentioned in the past, we continue to maintain a disciplined focus on our noncomp expenses while investing in areas that are necessary to support our growth. Our adjusted tax rate for the quarter was 28.7% down modestly from the third quarter of last year. Turning to our balance sheet. As of September 30, our cash and investment securities totaled over $2.4 billion. In the third quarter, we repurchased approximately 170,000 shares at an average price of $326.62 and our share repurchase activity continued into the early part of the fourth quarter. Through the end of the third quarter, we have returned approximately $624 million of capital to shareholders through the repurchase of shares at an average purchase price of $264.72 and the payment of dividends. We have more than fully offset the dilution associated with RSU grants from our 2024 bonus cycle. And additionally, we have repurchased a number of shares that exceeds those issued for the initial payment related to the Robey Warshaw transaction. Our second quarter adjusted diluted share count was 44.6 billion shares. As we have mentioned previously, our shares outstanding are impacted by the changes in our share price due to the accounting for unvested RSUs as our average share price increased 42% in the third quarter. We continue to maintain a strong cash position and take into consideration our regulatory requirements, the current economic and business environment, cash needs for the implementation of our strategic initiatives, including hiring plans and preserving a solid financial footing. While various geopolitical and macroeconomic uncertainties remain present, we enter the fourth quarter, optimistic about the environment and are encouraged by the momentum we are experiencing across the firm. We believe we are well positioned and are confident in our ability to deliver strong results. With that, we will now open the line for questions. Operator: [Operator Instructions] Our first question will come from Devin Ryan with Citizens Bank. Devin Ryan: Congrats on the strong quarter. I wanted to just ask a question about the current environment and kind of the trajectory, obviously, really good trends in the quarter and you talked about kind of some larger strategic transactions leading the recovery, but now sponsors are steadily picking up. So can you maybe just explain kind of what you're seeing in terms of the breadth of activity, how that's evolved over the last few months and just expectations here as we exit the year relative to maybe where we were in the earlier where it seems like you guys maybe disproportionately benefited but now things are broadening out and that's helping you as well. So love to get some color there. John Weinberg: Sure. Thanks, Devin. We are seeing a continued strengthening in the market generally. And we're seeing it really across the board, really almost every sector that we cover seems to have real activity. The larger deals started earlier, we're seeing midsized deals really build. And frankly, across the board in terms of the industry sectors, large and small deals are being considered. The engagement level with Boards and management teams is very high. Our backlogs right now are as high as they've ever been. And clearly, as you look at the measurements, the CEO confidence index is building and quite high. And on sponsors, we're in many conversations more than we've been in a long time. And we are actually in many bake-offs also. The bake-off levels has really picked up. So generally, it's quite complete and quite thorough in terms of the activity level. And we see this continuing to build through the end of the year, and we also have -- we anticipate that this will continue to build into 2026. Operator: Our next question will come from Brendan O'Brien with Wolfe Research. Brendan O'Brien: So I just want to ask on comp leverage and the top line results have been very impressive year-to-date. However, despite the strong revenue growth, you've only been able to lower the comp ratio by about 70 bps, implying an incremental comp margin of about 63% versus historically in the low 50s. I understand that you've been leaning into recruiting quite a lot this year and have had a lot of success adding talent to the platform. But I just want to get a sense as to how you're thinking about the incremental comp margins in the coming years and whether you expect to see any improvements from the current levels if the pace of hiring slows relative to this year's record level? Timothy LaLonde: Yes. Brendan, thanks for the question. As you pointed out, we have made comp leverage. I was just trying to make that clear first point. 2 years ago, our comp ratio was 67.6% so we're down 260 basis points from 2 years ago. Last year, our comp ratio was 66% in the relevant quarter. And so we're down 100 basis points from that. That's in the context of having added 18 partners and 1 senior adviser, which is our biggest partner hiring year ever. And so what we're trying to focus on here is not micromanaging or suboptimizing the comp ratio, but optimizing the overall value creation and strength of our platform and our ability to serve our clients and create value for the shareholders in the medium and long term. And so honestly, I actually feel pretty good about where we landed relative to adding 18 partners and 1 senior adviser this year. Now having said that, that doesn't mean that we're not still striving to make improvement. And as I mentioned, we've made 260 basis points in the last 2 years, 100 so far quarter versus quarter last year. And I think I mentioned in our comments, we would expect to end this year somewhat similar to where we were this quarter. Now in order to accomplish that because we're down 40 basis points from last quarter and down 70 basis points from the first quarter mathematically that would require us to be a little bit lower in the fourth quarter than we are this quarter in order to accomplish that. And then as we look at long term, we're striving to make additional progress, although we don't want to do it at the expense of building long-term profitability and value. Operator: Our next question will come from Brennan Hawken with BMO Capital Markets. Brennan Hawken: I'd love to drill into those comments, Tim, because I hear you that you're adding -- I hear you that the level of competition for talent is intense. And you've made reference to the fact that it falls about recruiting and retention given the caliber of bankers that you have. So it's clearly the environment is challenging. I doubt that's going to change. I mean, you guys have spoken regardless of 4Q and timing and all that other ones. The environment is getting better, and it seems like the bulge brackets are punching back in a really sort of strong way. So that doesn't seem like it's going to fade. But do we need to give up the ghost on the low 60s right? Because you did 40% revenue year-over-year comp leverage 100 bps. Yes, it's improved from the really bad levels of 2023. But like in order for us to be thinking about -- the really investments you're talking about it is like where are we going to get to in 2027. And most of that underwrites low 60s comp ratios. Given what you noted, is that realistic? Or do we need to re-underwrite things in a more meaningful way? Timothy LaLonde: Thanks, Brennan, for your question. Look, it's -- the way to think about this is there will not be a quick return to those kinds of levels, okay? Not a quick return. What we've talked about is making gradual progress over time. And I'd reiterate that the comp ratio you saw it's down 260 basis points. We've talked about in my last response that we think the fourth quarter will be better on a comp ratio perspective than the third quarter because mathematically, that's what's required to get us to this type of level for the full year. And so that's the first point. Second point would be we're focused on max, first and foremost, serving our clients and providing excellent services to them. But with respect to the shareholders, we're focused on creating value. In the medium and longer term one of the ways we do that is increasing our earnings per share and our cash flow per share over time. And if 1 models it out, what you'd see is that there's this trade-off between investment and growth. And that the way to create the most value is to grow and then to improve or provide some improved margins as we progress. That's what we're focused on. And so the short answer to your question is there's certainly is not a quick return. What I talked about in the past is each year trying to make progress. And when we can make additional progress then I would invite you to raise that question again, and we'll see what the art of the possible is at that point. But not -- it's not a quick return to those levels. Operator: Our next question will come from James Yaro with Goldman Sachs. James Yaro: John, you touched on this a bit, but perhaps could you expand a little bit on the impact of the government shutdown on your business in terms of time line and whether any of the effects will be permanent? And then could you differentiate between the impacts on the equity capital markets and M&A. John Weinberg: Sure. Thanks, James. We think that we don't really know exactly what the impact of the government shutdown is going to be clearly. If it gets settled in the near term, we think it will be just a temporary blip, and we will move forward with dispatch on all the things that are coming in and being looked at. If it goes a lot longer, you could see it having some impact. Although I think our view is with the things that we're working on that may be slowed down, we don't think any of them right now are going to be sidelined. We just think that they're kind of moving slowly and that none of them are being pulled apart. So our view is that the government slowdown is going to become more of an impact if it goes longer, but we don't think it's a permanent impact. And we think that there would be a rapid recovery as soon as things start to open up again. In terms of ECM and M&A, both of those are moving forward slowly. I think that the staffing levels, the SEC, the FCC at the Justice Department clearly are going to slow things down on some of these deals. ECM has a workaround that can be done but we do think it will be slowed. And on the M&A side, with respect to Justice, it's going to go slower there, too. So I think, generally, I think my comments are consistent that it just depends, and it depends how long this goes. We don't anticipate that this is going to have a meaningful impact as we finish out this year. So we think it's going to -- it will resolve itself. And we think that when it does resolve itself, we think that the deals that are being contemplated will be rapidly brought to the market. Operator: Our next question comes from Ryan Kenny with Morgan Stanley. Ryan Kenny: I have another government-related question, which is on regulatory environment. Can you update us on what you're seeing there, especially on time to close deals? And are you seeing an improved environment across the board? Or are there some industries where scrutiny is higher. John Weinberg: What we're seeing is that the way the government is looking at this is consistent. And obviously, people have said that Big Tech has been focused on by government, we're seeing that the deals that we're working on seem to be moving through the system quite well. We think that the regulatory environment, many people expect, and I think we would expect that there continues to be a loosening of the regulatory overlay. But that's going to be somewhat specific in terms of how that's addressed. In general, we think that it's a more benign environment, and we think that the art of the possible is quite broad right now. And so we'll -- I think we will see as things go. And as these different deals that are being contemplated are brought but we feel quite optimistic. Operator: Our next question will come from Nathan Stein with Deutsche Bank. Nathan Stein: I wanted to ask about potential impacts related to some unexpected losses at, let's say, traditional banks and private funds in recent weeks, call it, tricolor first brands, et cetera. I guess just combined with the government shutdown, you started -- you sounded like that was more transitional, but are these headlines making clients in general, more hesitant to transact? John Weinberg: I think that people are looking at these losses right now, and I think there's a broad narrative that these losses are fairly isolated. In our experience, and we've really -- we've talked to a lot of our bankers, and I certainly have been in some boardrooms since these situations. I think people are looking at this as being something that is a possibility but it's not broadly impacting the market. And people aren't thinking that this is going to shut down the credit markets or it's going to limit the credit markets. I think people think that this is just something that happens in all markets, there are always going to be some trips, but this is not a system-wide issue. And for the most part, I think people are forging ahead. Operator: [Operator Instructions] And our next question will come from Alex Bond with KBW. Alexander Bond: Wondering if you could just share your outlook for DCM business more broadly here for the fourth quarter. The IPO market is obviously still heating up, but you mentioned some of the impact or I guess, the still unknown impact of the government shutdown here. So yes, maybe if you could just share how you're thinking about how your pipeline is shaping up for the back end of the year here. John Weinberg: We are seeing a strengthening pipeline. We are seeing that there are significant deals kind of lining up in the market. And we are quite optimistic that these deals will see their way through. As we've said, there will -- if the government stays shut, there will be some slowdown there. In many cases, there is a workaround that can be done but this will slow down. Having said that, the backlog is building, and there is quite a broad optimism that these will get done. In addition, I think there's a growing appetite of investors that they really like the IPO market right now with respect to what it offers in terms of investment opportunities. And so I think we think that it's -- we have this cloud of the slowdown of the government shutdown, but we think that this will lift and that the market will go well. And in fact -- and we do have really quite a strong backlog that it has built. Operator: Our next question will come from Jim Mitchell with Seaport Global Securities. James Mitchell: Maybe you could talk a little bit about Europe. You had a record year and a record quarter in the third quarter. Obviously, that doesn't include Robey Warshaw yet. So can you, I guess, number one, give us a lay of the land of Europe and the environment? And secondly, even after Robey Warshaw, how much white space in terms of investment do you see? John Weinberg: Thanks, Jim. We've been really focused on Europe. And we have built out Europe significantly. As you know, a couple of years ago, we brought in a Spanish team, and we built that. We have really built out our France team. More recently, we've brought in Scandinavia, and we also have an Italy team. And so we've really, really tried to address the market. And then, obviously, there's Robey Warshaw, who have not -- we closed that deal the beginning of October. And it's just now kind of getting really geared in. We're feeling very optimistic about Europe. In terms of the activity level, they did have a record quarter. It was broadly across sectors. We're seeing a growing strength. I think in some ways, adding the throw weight of all of these different professionals who we think are really outstanding is really helping our momentum generally around Europe and not just in the U.K. but through the continent, and we see this continuing. In terms of white space, there's a tremendous amount of white space. As we fill out countries, there's just many, many companies, which we've never covered before that we're now able to cover and cover quite well. We obviously aren't going to be the biggest but we think that the quality of the people that we've hired, we're going to be able to really serve some very, very strong companies that we've really never had relationships before with and that will really continue to build the momentum. So I think that in terms of -- as we think of our growth worldwide, we really do anticipate that Europe is going to be quite a constructive part of really what we're able to offer in terms of growth for shareholders. Operator: Our next question will come from Brennan Hawken with BMO Capital Markets. Brennan Hawken: You guys have spoken to the non-M&A piece reaching half on a TTM basis, which is great and very encouraging to see. As M&A turns back on, where would you expect that share of non-M&A revenue to drift to? Is it reasonable to think it will go from like half to about 40%? Or are you more thinking maybe it's more like 1/3. What's the right way to think about that? John Weinberg: Well, it's really hard to say. I mean, as you know, that if you look at our full year year-to-date, non-M&A was 50% as we've gotten into the third quarter and M&As continued to pick up, it's now -- it was at 45% for the quarter. As M&A continues to strengthen that, will go down some, although I would say that our non-M&A businesses are firing on all cylinders. If you look at our PCA business, which is the secondaries business and continuation vehicles or you look at the PFG business, which is our fundraising business or you look at the restructuring business, all of those businesses are running full out. And each of them is looking at record quarters and doing very well. And so I think that the M&A business is a powerful part of our overall offering to clients, and it probably will overpower some of the other places as it gets stronger and stronger. But having said that, I think we've got a formidable diverse set of businesses that are going to continue to be quite influential in terms of the percentage of our M&A and non-M&A offerings. And so I think that you will see M&A start as it really picks up. And if it gets really, really strong, it will continue. You've asked is it going to be 40% or 30%, Hard to know but I don't see it getting a lot below 40%. But no, we'll just have to see. And a lot of it has to do with does M&A really pick up. We are so well conditioned and ready for the continuing growth and strength of M&A, we may have seen a lot of activity coming through there. Operator: There are no further questions in the queue at this time. So I would like to conclude today's Evercore Third Quarter 2025 Earnings Conference Call. You may now disconnect.
Operator: Thank you for standing by. Welcome to Flex's Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I'll now turn the call over to Ms. Michelle Simmons. You may begin. Michelle Simmons: Thank you, Kevin. Good morning, and thank you for joining us today for Flex's Second Quarter Fiscal 2026 Earnings Conference Call. With me today is our Chief Executive Officer, Revathi Advaithi; and Chief Financial Officer, Kevin Krumm. We'll give brief remarks followed by Q&A. Slides for today's call as well as a copy of the earnings press release are available on the Investor Relations section at flex.com. This call is being recorded and will be available for replay on our corporate website. Today's call contains forward-looking statements, which are based on our current expectations and assumptions. These statements involve risks and uncertainties that could cause actual results to differ materially. For a full discussion of these risks and uncertainties, please see the cautionary statements in our presentation, press release or in the Risk Factors section of our most recent filings with the SEC. Note, this information is subject to change, and we undertake no obligation to update these forward-looking statements. Please note, all growth metrics will be on a year-over-year basis unless stated otherwise. Additionally, all results will be on a non-GAAP basis, unless we specifically state it's a GAAP result. The full non-GAAP to GAAP reconciliations can be found in the appendix slides of today's presentation as well as in the summary financials posted on the Investor Relations website. Now I'd like to turn the call over to our CEO. Revathi? Revathi Advaithi: Thanks, Michelle. Good morning, and thank you for joining us today. Before we get into the results, I want to start by thanking our Flex team around the world for their disciplined execution and commitment to delivering for our customers. In particular, I want to acknowledge our colleagues in Ukraine. As we shared in August, our Mukachevo facility was damaged during a missile strike. But thanks to our emergency protocols, all team members were safely evacuated. Their strength and resilience in the face of unthinkable circumstances reflect the best of our team in Ukraine and our company as a whole. We remain committed to our colleagues in Ukraine as we focus on rebuilding our operations. Starting on Slide 4. We had an exceptional quarter, delivering great results on all metrics. Revenue came in at $6.8 billion, growing 4% over last year. Operating margin was an impressive 6%, the fourth quarter in a row that we remained at or above this level, and we delivered adjusted EPS of $0.79, up 23% over last year, another record for Flex. This performance reflects the strength of our model, anchored in disciplined execution and a continued shift towards higher-value technology-driven businesses. Now turning to Slide 5. Our data center business continues to deliver outstanding results across both cloud and power. With proprietary products, deep systems expertise and global manufacturing scale, we provide fully integrated power and IT solutions that help hyperscale colocation and silicon customers deploy faster, operate more efficiently while strengthening our margin profile. We remain bullish in our outlook and continue to expect our data center revenue to grow at least 35% this year. Sustaining this level of growth at our scale validates the value we are delivering to the world's leading technology companies and the strength of our execution in a dynamic market. We are outperforming industry growth rates and continuing to strategically shift our portfolio towards higher-margin critical technology-driven businesses, shaping today's market evolution. As we all know, AI is driving one of the largest infrastructure build-outs in modern history, and Flex is at the forefront of this transformation. We are partnering directly with the world's leading technology companies to design, build and deliver the power, cooling and systems infrastructure that enables faster, more reliable data center deployments at scale. Our data center offerings span from the grid to chip, combining our product portfolio with advanced manufacturing capabilities and global scale to meet unprecedented demand for performance and efficiency. Some of this activity is already reflected in our current results, while other programs will ramp over the coming quarters and years. The broader trend is clear. AI is shaping industries for the long term, and Flex is positioned to be a driving force in its continuing infrastructure build-out. A couple of weeks ago at the OCP Global Summit, we unveiled Flex's new AI infrastructure platform, a unified approach that brings together power, cooling and compute in pre-engineered scalable designs. The platform helps data center operators deploy up to 30% faster, reduce execution risk and scale reliably to meet the pace of AI demand. We partnered with NVIDIA as part of their ecosystem on next-gen 800-volt DC AI factories. These systems improve energy efficiency, lower cooling costs and eliminate points of failure as data centers grow in size and complexity. Looking ahead, I could not be more excited. The data center opportunity continues to expand, and we are executing remarkably well as we support our customers through this next wave of growth. Beyond our strength in cloud and power, the rest of our diversified portfolio is performing well. In Health Solutions, we see steady medical device demand and anticipate improvement in medical equipment later this year. In communications and enterprise, we see strength in optical switches and SATCOM devices supporting next-generation connectivity requirements. And in automotive, we see the market stabilizing compared to prior quarters. In the first half of FY '26, we added compute deals with new logos, validating our continued investment and focus on software-defined vehicles. As we look back over the first half, we are proud of our teams for their execution and persistence. We started the year with volatility from tariffs and the uncertainty that continues to this day. Despite this backdrop, we've been able to exceed our expectations and raise our guidance. Our customers depend on us for our scale, our technical depth and our global footprint. That foundation positions us to keep delivering for our customers in any market environment. Now I'll turn the call over to Kevin to walk through the details of our financials. Kevin? Kevin Krumm: Thank you, Revathi, and good morning, everyone. I'll start with our key financials on Slide 8. Second quarter revenue came in at $6.8 billion, up 4%, driven by strong data center growth across both Power and cloud. Gross profit totaled $632 million and gross margin improved to 9.3%, up 80 basis points. Operating profit was $409 million, with operating margins at 6%, up 55 basis points. Finally, earnings per share for the quarter increased 23% to $0.79 per share. Turning to our quarterly segment results on the next slide. In Reliability, revenue was $3 billion, up 3% year-over-year as strong growth in Power and moderate growth in Health Solutions and Core Industrial was slightly offset by continued pressure in auto. Operating income improved to $197 million and segment margin expanded by 105 basis points to 6.5%, driven by favorable mix impacts from Power and strong execution and cost management across the entire segment. Agility revenue totaled $3.8 billion, an increase of 4% year-over-year, driven by robust cloud demand that more than offset softness in communications and consumer end markets. Operating income was $227 million, with operating margin down 5 basis points to 6%. This is comparing against a very strong quarter last year. Moving to cash flow on Slide 10. Free cash flow in the quarter increased to $305 million despite sequential investments in CapEx to support organic growth. Net inventory was up 1% sequentially and down 4% year-over-year. Inventory, net of working capital advances was 55 days, a reduction of 3 days versus the prior year. Net CapEx totaled $148 million or approximately 2% of revenue, and we repurchased $297 million of stock, which was approximately 5.6 million shares. Our capital allocation priorities remain unchanged. We're committed to maintaining our investment-grade balance sheet, funding strategic investments to support organic growth and pursuing accretive M&A opportunities while returning capital to shareholders through opportunistic share repurchases. Looking at full year guidance on Slide 11. As our customers navigate a dynamic tariff landscape, our teams are partnering closely with them to deliver resilient forward-looking solutions. Our global scale and capacity enables their regionalization strategies, bringing manufacturing closer to end markets to improve agility, reduce risk and meet the evolving trade requirements. As of last quarter, we incorporated the direct impact of tariffs into our revenue guidance and are doing the same this quarter. The situation remains fluid, but as a reminder, tariffs are largely a pass-through for us. We will continue to monitor and adjust as needed. As we conclude our first half of the year with 4% revenue growth, we are confident in our ability to continue our strong top line momentum in the second half of FY '26 with an acceleration in Q4 driven by demand in Power and cloud. This confidence in revenue, coupled with our favorable mix and disciplined cost execution, has allowed us to improve our full year expectations across all key metrics while overcoming headwinds in Lifestyle due to our facility shutdown in Ukraine and unfavorable FX impacts across the business versus our Q1 guide. Despite these challenges, we are raising our FY '26 expectations to the following: revenue between $26.7 billion and $27.3 billion, a $500 million improvement from the midpoint of our prior guide. Adjusted operating margin between 6.2% and 6.3%, demonstrating consistency above 6%; adjusted EPS between $3.09 and $3.17 per share, increasing our midpoint by $0.17 per share, and we continue to expect strong cash generation and maintain our 80% plus free cash flow conversion target for FY '26. Moving on to our segment outlook for the year. For Reliability Solutions, we expect revenue to be up low to mid-single digits, driven by strong demand in data center power and medical devices, offset by a soft but stabilizing environment in renewables and auto. For Agility Solutions, we expect revenue to be up mid- to high single digits, driven by continued strength in cloud, offset by a weakening trend in consumer devices and lifestyle and a temporary loss of operations at our Mukachevo facility in Ukraine. Finishing off with our guidance for the third quarter. We expect Reliability Solutions revenue to be up mid- to high single digits, driven by continued robust power demand and increased growth in Medical Devices. We expect Agility Solutions revenue to be down to up low single digits as cloud growth is offset by weakening trends in consumer devices and reduced expectations in Lifestyle for the reasons previously mentioned. For Total Flex, we expect revenue in the range of $6.65 billion to $6.95 billion, with adjusted operating income between $405 million and $435 million. We expect an adjusted tax rate of $0.21 or 21%. And lastly, we anticipate adjusted EPS to be between $0.74 and $0.80 per share based on approximately 377 million weighted average shares outstanding. As Revathi mentioned, we remain a partner of choice for our customers as they navigate a rapidly evolving business environment shaped by AI acceleration and dynamic supply chains. We're constantly exploring new ways to collaborate with our partners to meet their evolving needs and see strong opportunities to support their growth as we exit FY '26 and move towards FY 2027. With that, I'll now turn the call back over to the operator to begin Q&A. Operator: [Operator Instructions] Our first question today is coming from Ruplu Bhattacharya from Bank of America. Ruplu Bhattacharya: Revathi, you took up revenues for the full year by $500 million at the midpoint. You beat 2Q by $150 million. So there is about $350 million upside in the second half. But interestingly, you didn't raise the guide for data center revenues, although the commentary seemed like there's still a lot of strength in cloud and power. So just curious why there was no upside to that part of the business? And I have a follow-up. Revathi Advaithi: Yes, Ruplu, I'll start by saying that we said that we are going to do our -- give a full year guide for data centers. We said that at the beginning of the year and not update that through the quarter. I'll just remind you, data center is not a reporting segment for us. We've given you extra information at the beginning of the year, considering that it's meaningful growth for us. And so we're just not updating the quarterly guidance, but it is obvious that it's at least 35%. I will remind you that 35% is a very strong number compared to the industry and the end market itself. So we feel very good about that. So your math is directionally correct. So there's at least 35%. Obviously, we'll be better than that, and we'll update that in our full year guide when we do it at the end of the year. Kevin, anything to add? Kevin Krumm: No, nothing to add on that. Revathi Advaithi: Okay. Ruplu Bhattacharya: Okay. That makes sense. Revathi, can I also ask you for the cloud business. Can you comment on the mix as it relates to custom silicon versus merchant silicon? I'm curious because AMD is going to launch a whole set of new GPUs, GPU racks next year, would that be a business that Flex would bid for? And how do you see this mix of custom versus merchant silicon evolving as things like OpenAI Broadcom, OpenAI AMD, OpenAI NVIDIA, all of these big projects are coming up. So how do you see your data center business benefiting from these large projects? Revathi Advaithi: Yes. So Ruplu, I'll start by saying you, obviously, considering the fact that we're growing at least 35% year-over-year, we are benefiting pretty significantly from not only hyperscale growth, but from kind of the new cloud players, as you have talked about, that is adding to our overall growth rate. I would say that as we update our forward-looking guidance for cloud that we will do in May during our Investor Day, that should reflect all these new projects that are getting announced that will be built out over the next kind of 2, 3, 5 years. So you should wait for our updated guide. In terms of custom versus merchant silicon, I would say that anywhere there is -- in custom silicon where there is more specialization involved, typically, Flex tends to do really, really well because it requires customization for the requested hyperscaler we're working with and drives more complex products, and we tend to do really better in that in general. But in terms of custom versus merchant, we obviously participate in both. And I would say that we lean one way more than the other, but we are prevalent in the market in both the spaces. I think the real benefit at the end of the day is if you look at all the announcements that are coming in, if you look at our forward-looking pipeline for cloud, we feel very strongly and very good about kind of participation in this space at the growth rates we're delivering this year, and we're really looking forward to give you guys updated guidance in May that we will see you, and we feel like you'll see very strong growth rate -- continue to see very strong growth rate in our cloud business, driven by all the investments you're hearing from. Operator: Next question today is coming from Tim Long from Barclays. Timothy Long: Appreciate the questions here. Two for me as well. First one, maybe on the op margin front. It looks like some good increases coming in the second half. Maybe if you could just talk at a high level at what's driving some of the second half over first half op margin improvements? And then second, back to the cloud data center piece. If you could -- understanding the 35% number, just curious if you can talk a little bit about kind of how you see the economics of that business evolving for you? Are you seeing opportunities, as you mentioned, some more specialization? Are you seeing that business evolve to where it could be newer programs with -- that are a little bit more margin accretive. So anything on kind of how you view that -- your play in that ecosystem changing from a value standpoint? Kevin Krumm: Tim, this is Kevin. I'll take the first question on margins in the back half of the year. As we said, Q2 was another quarter at or above 6%. So 4 quarters there at or above 6%. We feel good about that. As we move from Q2 to Q3 and Q4 in the back half of the year, we do expect continued margin improvement. And you see that when you look at the midpoint of our guide for Q3 and obviously, sort of do your own math to get to where we think Q4 is going to be to get to our full year guide. The primary drivers there are going to be mix. We have 2 businesses that continue to grow and grow well as we move through the year, and that's our products and services business. We're expecting both those businesses to perform well from a top line standpoint. And we've talked in the past about the margin performance of those businesses, both those businesses perform above the Flex average. So really, it's just the continued growth in those businesses, Q2 to Q3, Q4 becoming a bigger piece of revenue and pulling margins up with them as we move forward here. Revathi Advaithi: Yes. I'll say, Tim, on the second part of your question on the economics of the cloud and Power business for us, as you can see from the second half guide on margins, and generally, it's a very accretive business to us. How I see the economics evolve is super positive for us, and that's based on a couple of things. Just a quick reminder, we're one of the few players who actually integrate compute, power and cooling in this space. And our compute business, which not only does contract manufacturing and assembling of compute products, also does vertical integration in terms of manufacturing racks and all the metal enclosures that goes in terms of compute products. So very positive in terms of margins for us. In the cooling and in the power play, we have our own products. So we have our own IP and design. And obviously, those are also margin positive for us because it runs more like an OEM play overall. So I see in terms of evolving as you see the mix shift for us between -- in the cloud power -- in the cloud and data center space between compute and power and power continues to grow, I see that the margin progression for that business being fairly significant. And we expect that to work and behave like a products business overall, the whole space. So I'll step back and say, feel very good about kind of the 35% growth rate we have talked about, which we said is at least that much for the year. But I feel even strongly about the updated forward-looking guide, we'll come back and give you in May in terms of growth rate of that business and then the margin improvement of that business driven by the mix of compute and power and cooling within that space. So feel really good about the economics of the business and how it's evolving. Operator: Next question is coming from Samik Chatterjee from JPMorgan. Samik Chatterjee: Maybe for the first one, if I can sort of go back to the question on guidance and just tackle it more on the end market front. You're raising your guidance for the full year by about $500 million or so. I mean, it seems like from an end market perspective, data center is doing better, but also maybe medical is a bit better. Can you just parse out if most of the increase in the guide is because of the data center market? Or are there other end markets that are tracking better than you expected at this time? And how much of a headwind is the Ukraine facility shutdown to the sort of raise in the guide that you're issuing today? And I have a follow-up. Revathi Advaithi: Yes. I would say, Samik, is that, obviously, you guys have done the math. You can tell, right? Full year, we have raised the guide by $500 million. We've beat 2Q. And so you can see that second half is going to be strong the way we have raised our guide. It will come from the spaces you have talked about, which is data center and health solutions. And we have been very clear about both of those spaces being directionally good for us. We also have said that there is stabilizing trends in areas like automotive, which also is a good thing for us. So if you look at the forward-looking guide, while we're not updating our data center growth rates, it's obvious that it's going to be better in the second half, and you will see that reflected in our full year number. Kevin Krumm: Yes. Samik, I'll just add on your question on the Ukraine. When we had the issue in August, we issued a release that identified the business being approximately 1% of Flex revenue. And I think that's how you should think about the impact of that in the back half of the year. So going from basically where it was to 0%. You can -- it's slightly north of $100 million impact to us from a revenue headwind standpoint in the back half of the year. Revathi Advaithi: Yes. So overall, raising our guide with the impact of that, I think we think is very strong results. Samik Chatterjee: And for my follow-up, I wanted to see if you can give us some sense of what to expect from the Amazon partnership that you have now to the extent that you can talk about and you're sort of sounding positive about what you will announce in terms of the cloud data center business. But is that -- is the Amazon partnership part of that optimism that you have as you think about what you would sort of talk about in the May Investor Day as well? Revathi Advaithi: Yes. Samik, I will just step back and say that I feel very bullish about kind of where things are in the data center cloud space for us. Combination of the partnership that we announced with Amazon, but continued growth in other hyperscalers and colo businesses and Neo clouds that we mentioned earlier in the call. So I think it's important to reflect on the fact that a lot of these announcements and CapEx announcements that you're seeing from our customers are all going to play out in the next 1, 2, 3, 5-year cycle. So I think that's really important to reflect on that, that these are all kind of long-term plays, whether it's our partnership with Amazon or the growth rate that we're seeing with all our other customers. You'll see that reflected as we move forward in our CapEx numbers and the investments we continue to make in this space. So as you wait for our updated guide coming out in May and you see our long-term growth rates, you would see the bullishness reflected in that coming from the growth rate in this space. So I view this as a long-term play, feel very good about kind of what we're delivering this year and the investments we are making for forward-looking growth, and we'll give you an updated kind of long-term guide when we see you in May, and that will reflect these partnerships and other investments we are making. Operator: [Operator Instructions] Our next question is coming from Steven Fox with Fox Advisors. Steven Fox: I had a couple of questions as well. First off, looking at the guidance, it's like some people have mentioned, it seems to imply some accelerating growth into the fourth quarter of the fiscal year. Is that something -- without getting into numbers for next year, is that something that we can think about sort of continuing and use that as a base for some new and different growth for the next fiscal year? And if so, what would you sort of say is driving it? And then I had a follow-up. Kevin Krumm: Thanks, Steven, this is Kevin. I'll take the first part of the question. So you are right. As you look at our guide for the full year, we gave you Q3, you can start to back into an accelerating Q4 or Q3 to Q4 environment and expectation from us. The drivers of that are going to be some of the things we've talked about already on the call. Obviously, data center underlying, we've talked about our power business this year with data center being made up of cloud and power. Our power business, especially in the back half of the year, we expect that to grow above the data center average. So that's driving some of the margin performance we talked about, but also our overall top line expectations. Also seeing good growth in the back half of the year as we exit the year in medical device and some other areas like capital equipment. So yes, that growth rate in the back half of the year that we're exiting with, we feel good about it, and we expect that momentum to continue into the first half of FY 2027. Steven Fox: Great. That's super helpful. And then Revathi, it wasn't that long ago where the auto markets were a pretty attractive growth market for you guys. You mentioned some new compute wins and the business and, I guess, production kind of stabilizing. So do you see a path now for like that segment returning to growth? And if there's any color you can provide on the new compute wins, that would be helpful, too. Revathi Advaithi: Yes. I would say, Steve, is that we're being very thoughtful in terms of giving the right projections for our automotive business. We feel good about kind of stabilizing what we're hearing from our customers on which platforms they're going to grow with. I have mentioned this before that we're being platform agnostic is helpful for us because even as you shift powertrains within automotive and there's a shift from EV to ICE vehicles, it still helps us because even in ICE vehicles, we are seeing continued investment in terms of power electronics. So being agnostic to the platform is really important to us. So as I look moving forward, compute wins happen in ICE, hybrid and EV in all platforms. So that is the good part about it is that we continue to win agnostic to the platform, and that is helpful in terms of how we think about growth rates. All that being said, I would say is that our view on kind of continuing to grow in the automotive space is that it has to show the returns that we expect. And if it shows the returns we expect, then we will continue to invest and grow in that business. As you can tell, we have enough growth coming from other vectors, and it's a balance in terms of the decision we make. So we look for good growth, healthy growth, long-term commitments. And if that works for us, we'll take that business and grow with it. Operator: Next question is coming from Steve Barger from KeyBanc Capital Markets. Jacob Moore: This is Jacob Moore on for Steve Barger. First, I just wanted to ask about the value add from engineering and services in terms of penetration and margin impact. I think you've emphasized those as margin levers outside of data center and power. Could you share the revenue size of those programs? And what do you see the broader opportunity size to be? And then maybe could you frame up the margin they contribute compared to the overall portfolio and if there are any barriers to further penetration? Revathi Advaithi: Yes. I'll say, Jacob, is that in the past, we have kind of shared a number that's in the range of kind of $1 billion for this space. We haven't updated that in a while. So my overall take will be that value-added services, which includes kind of vertical integration and all the end markets we play in, is important to us because that does drive margin improvement for us overall. So it is a very important focus for us and our teams across the businesses. It's even more important in the data center space because we do have products we deploy. And so that is really important. So because you have to be able to service those products. I would say, overall, we are happy with the growth rates, but I don't have specifics I can give you, Jacob, because those are not numbers that we give out. So -- but we like what we do in value-added services, super important to us, both in data center and outside of data centers, and we feel good about kind of how it's growing and the margin it's providing. Jacob Moore: Understood. That's helpful. And then second one for me is on op margin, but maybe a little more specifically on the fiscal fourth quarter. The math suggested a pretty decent sized step-up from Q3 to Q4. Could you just walk us through the puts and takes assumed in that sequential step-up? And then similar to the question on the growth acceleration in the back half, is the sort of mid- to high 6% margin level sustainable moving forward from 4Q? Kevin Krumm: Jacob, this is Kevin. I'll take that question. So first, we talked about the growth rate in 4Q and our expectation there and what was driving it. And in that, we talked about our products business and our services businesses growing in the back half and accelerating into Q4. That acceleration of those businesses and as we've talked about, they're higher-margin businesses for us, both accrue to the P&L at margins north of the Flex average are what's driving our expectation for margins. It sounds like your math is directionally correct there. And so as we move into next year, as we said, we expect that growth momentum in those businesses to carry forward into early FY '27 and our margin expectation would be similar. Revathi Advaithi: And then I'd say that I think that it was only a year ago where you guys were pressing me on a 6% sustainable. And when are you going to update that guide because we're a year ahead of the long-term guide we gave you. So I can see you're already taking it north of that, Jacob. And as long as we continue to change our mix, which we're doing and continuing to have growth rates in the right end markets where we have products and services and margin-accretive business, we feel good about continued growth rates and margin performance of what you'll see moving forward. Operator: Our final question today is coming from Mark Delaney from Goldman Sachs. Mark Delaney: I was hoping to better understand where Flex stands with its capacity and ability to support the data center opportunity and if there are any supply constraints that you're starting to encounter in that business given the growth you're seeing? And as you think about that business over the longer term, do you envision needing to make meaningful increases in your CapEx levels in order to support the growth? Revathi Advaithi: Yes. I would say, Mark, first is I'll parse this out by region, right? I feel very good about our capacity and capability in the EMEA region. We announced a new asset acquisition in Poland, and we feel really strongly about kind of overall capability on compute power and cooling in EMEA. In North America, which is where you're seeing the largest amount of growth being deployed and CapEx being deployed by our customers, we have incrementally invested pretty significantly in our compute operations in Guadalajara and in U.S. We have continued to invest pretty significantly in cooling and ramping up that manufacturing capability as we got through the acquisition of JetCool. And then we announced new facilities in Dallas, and we continue to expand our facilities in Fontana, in Colombia in those regions to add to kind of power capability in the U.S. All that being said, I would say that we have a lot more investment to do because you are seeing those big announcements coming from our customers, and you see a meaningful shift within Flex in terms of how we're deploying our CapEx towards those end markets. So as I look towards the next kind of cycle, 2, 3, 5 years, I would say, yes, you will see meaningful deployment in terms of CapEx and growth and investments required and OpEx, both R&D and support required for those businesses that will shift towards those businesses. I think what's important is that despite all those moves we're making, you're seeing kind of overall cash flow improving and you're seeing our overall operating margin improving. So obviously, we're making the right choices as we deploy this, Mark. Mark Delaney: Very helpful context. My other question was around Flex's own operations. You've spoken in the past about utilizing AI and automation to be efficient. Yesterday, you had some news around a pilot with NVIDIA to maybe even try and get better there. And of course, there's a lot of innovation happening with AI and robotics. So as you think about some of the things you're working on to tie to those areas, including with what you announced yesterday, anything meaningful you could point to and what we could expect for where Flex may take its own operating and logistics in the future? Revathi Advaithi: Yes. Mark, I'll step back and say that the announcement we had with NVIDIA yesterday is a really exciting announcement. It is more around deploying ready-to-use modular infrastructure for data centers, which is inclusive of compute power and cooling like we showed in the OCP. So if you're ramping up a data center and you need a modular, scalable architecture and solution, then that's the partnership that we showed with NVIDIA yesterday, and we showed in OCP that we'd be deploying in large scale as you see these data center investments come out. So that is more around data center infrastructure investment from our customers. So super exciting, right? So if you want to take out -- if you want to reduce lead time to deploy these infrastructure, you'll be able to do that with this partnership we've announced. So that's one thing. I'd say the second internally to our own factories, I'd say there's a significant amount of work to be done within our own factories in terms of deploying AI and robotics. You have seen that in the past, we have really delivered a lot of productivity within our factories. That being said, I'm super excited about kind of what the future holds because obviously, there's a lot to be done, not just in terms of hardware robotics, but in terms of software capabilities using AI that will really drive productivities in our factory and drive efficiency in everything from our back office to how we operate. So whether it's projects that are in processes and functions or whether it's projects that is how we do planning or scheduling or any part of that in our factories, AI is going to really accelerate kind of the productivity we deploy and the efficiency we deploy in how we work with our customers. So a lot to do there, Mark, but really exciting times, I would say, for the manufacturing space and how we use these tools and capabilities. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to our CEO for the closing remarks. Revathi Advaithi: Thank you. So we look forward to speaking to you again next quarter. On behalf of the entire leadership team, I want to sincerely thank our customers for their trust, our shareholders for your continued support and the Flex team around the world for your dedication and your contributions. Thank you, everyone. Operator: Thank you. This now concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Element Solutions Third Quarter 2025 Financial Results Conference Call. I will now turn the call over to Varun Gokarn, Vice President of Strategy and Integration. Varun Gokarn: Good morning, and thank you for participating in our third quarter 2025 results conference call. Joining me today are CFO, Carey Dorman. In accordance with Regulation G, web conference call. A replay will be available in the Investors section of company's website. During today's call, we will make forward-looking statements that current views of the company's pro forma financial results. These statements are based on assumptions and expectations of future events, which are subject to risks and uncertainties. Please refer to the earnings release, supplemental most recent on our website for a discussion of the material risk factors that could cause our actual results to differ from our expectations and predictions. Today's materials also include financial information that has not been prepared in accordance with U.S. GAAP. Please refer to the earnings release and supplemental slides for definitions and reconciliations of these non-GAAP measures to comparable GAAP financial measures. It is now my pleasure to introduce our CEO, Ben Gliklich. Benjamin Gliklich: Thank you, Varun, and good morning, everybody. Thank you for joining. This is an exciting morning for us. When we launched ESI, we talked about a value creation model, marrying operational excellence and prudent capital allocation. Today is a solid proof point showcasing our ability to do both. In addition to reporting record results yesterday, we're also announcing the acquisition of Micromax, a highly accretive strategic transaction and a value-enhancing addition to our electronics portfolio. Before we get into that, though, I want to give proper view to our operating results. This was an outstanding quarter. We set multiple records. Despite selling our graphics business, this was our highest quarterly adjusted EBITDA since the inception of Element Solutions. Our Electronics segment posted its sixth consecutive quarter of high single-digit organic growth and achieved a record level of revenue. Excluding the impact of graphics, adjusted EBITDA growth would have been 10% despite some of our legacy end markets remaining below prior peak volume levels, a weaker EV outlook and a soft macroeconomic backdrop in Western industrial markets. Our teams are executing well on their strategies. In our industrial segment, portfolio optimization, productivity initiatives and high-margin wins in both verticals drove strong profit growth despite a flat top line. The segment saw meaningful margin improvement. And excluding the impact of our graphics divestiture, adjusted EBITDA growth would have been almost 30%. On the electronics side, we've built a unified platform of technologies to solve emerging customer pain points just as burgeoning investment in data centers and their associated infrastructure accelerates demand for innovative material solutions. Our portfolio is uniquely positioned to provide those solutions from metallization chemistries for high layer count printed circuit boards to specialized thermal management materials used in assembly to advanced packaging chip scale chemistries. Micromax will add to those solutions, its portfolio in electronics inks and paste with a specialization in the highest performance, most technically challenging applications such as aerospace, defense and health care is a great fit for Element Solutions. The acquisition broadens our offerings to our supply chain and enhances our value proposition to OEMs and specifiers. In 2019, our electronics business was just over $1 billion. And with this transaction, it will exceed $2 billion. Like our business, Micromax is a leader in niche electronics markets reliant on innovation that is co-developed with customers and requires high levels of applications expertise. Its products are known for durability and performance in harsh environments and provide mission-critical solutions in highly specialized end markets. Micromax sits at the intersection of our assembly and circuitry businesses. Its metals-based manufacturing resembles assembly solutions, but its products are used more in circuit pathway applications like our Circuitry Solutions business. These products also fit our core competencies in formulation and our high-touch low capital intensity operating model. The business has a proven team of experienced, highly technical leaders who add depth and expertise to our electronics business, McDermott Alpha Electronics Solutions. The transaction meets our robust acquisition criteria and is consistent with our strategy of disciplined investment in markets we understand and in growth businesses that we believe are better under our ownership. We expect the Micromax transaction to be more than 5% accretive to adjusted earnings per share. And based on its projected 2025 results, contribute approximately $40 million of adjusted EBITDA on a full year basis at accretive metals adjusted EBITDA margins. Subject to regulatory approvals and customary closing conditions, we expect to close in the first quarter of 2026, and we're looking forward to welcoming the Micromax team into the Element Solutions family and to capitalizing on the unique value opportunities associated with this combination. Shortly, you'll hear more from Carey on our results. But to me, the most exciting thing about the quarter is what it means for our future. We've been able to generate great organic outcomes while ramping up investment in future internal and inorganic opportunities. While growing nicely in 2025, we're simultaneously building levers to accelerate that growth going forward. Those include several new product introductions in high-value categories in 2026, the accretive, highly strategic acquisition of Micromax underway and substantial remaining balance sheet capacity to put to work should the right opportunities present themselves. The outlook is quite positive. Carey? Carey Dorman: Thanks, Ben. Good morning, everyone. On Slide 4, you can see a summary of our third quarter financial results. Organic sales grew 5%, and adjusted EBITDA would have increased 10% when adjusting the graphics business out of both the 2024 and 2025 periods to account for that divestiture. Adjusted EBITDA was a record $147 million and exceeded our initial guidance for the quarter of $140 million to $145 million. Electronics organic growth of 7% was driven by solid performance in semi and assembly and exceptional volume growth in Circuitry Solutions. Through economic and industry investment cycles, we benefit from diversification within the electronics supply chain. This quarter, our circuitry business was a primary beneficiary of AI-related investment as our market-leading pulse plating products are used to support fabrication of high layer count server boards. This demand, along with the sequential ramp in smartphones, allowed us to deliver high single-digit organic growth for the segment even as customer-related volume weakness weighed on power electronics growth in our semiconductor business. The addition of Micromax should further enhance end market diversification and increased opportunities to deliver on customer-led growth across the broader manufacturing landscape. Our core industrial surface treatment business has demonstrated stable or growing adjusted EBITDA for several quarters, even as volume has been under pressure. This quarter, underlying volumes improved as a result of strong growth in Asia and new business wins ramping in the Americas. At the same time, margins benefited from improved fixed cost absorption, portfolio optimization and ancillary business lines and favorable product mix. ESI's adjusted EBITDA margin improved roughly 20 basis points year-over-year in constant currency terms and was negatively impacted by higher pass-through metal prices. Excluding the impact of roughly $125 million of pass-through metal sales in Assembly Solutions, our adjusted EBITDA margin would have been 28%, a 100 basis point improvement year-over-year. Foreign exchange provided modest favorability of about $3 million in the quarter, and at current rates should provide a similar level of year-on-year benefit in the coming quarter as well. On Slide 5, we share additional detail on the drivers of organic net sales growth. Starting with electronics. In assembly, the third quarter saw an increase in China volumes associated with smartphone activity as well as continued growth from customers serving the high-performance computing and telecom infrastructure markets. Advanced solder paste volumes for various computing applications continue to grow as well. Circuitry Solutions sales grew 13% organically. This was driven by continued demand for data center applications, a seasonal ramp in mobile phone activity, and circuit board demand in the Asian EV market. Data center growth is also increasing demand for data storage, which drove sequential acceleration in our memory disk business that should continue through year-end. Semiconductor Solutions organic net sales grew 5% as continued double-digit growth in wafer-level plating was offset by lower power electronics sales from a softer EV market. Copper plating products for foundry and Tier 1 OSAT customers continue to see sustained demand. We also saw a rise in products with high precious metals content such as gold and palladium in our semi business, which drove a negative mix impact to margins overall. While we saw a year-on-year decline in power electronics from EV demand dynamics, we continue to win business with new customers, and the outlook for this business remains compelling. Industrial and Specialty organic net sales were flat year-over-year. Underlying chemistry volumes for the Industrial Solutions vertical were up mid-single digits as we saw strength in Asia, modest improvement in Europe, and a roughly flat end market in the Americas, which grew due to the contribution of new account wins. Reported revenue growth in this business was impacted by a large customer equipment deal in the third quarter of last year, which is tied to a high-value multiyear chemistry contract. Excluding this impact, organic sales would have been up 4% year-over-year. And finally, the offshore business continues to grow nicely on the back of market strength pricing and competitive with. Slide 6 covers cash flow and the balance sheet. We generated $84 million of adjusted free cash flow in Q3. This included a $22 million investment in working capital, primarily driven by accounts receivable on the back of sequential revenue growth and slightly higher inventory values driven by metal inflation. Our days of inventory continued to improve, reflecting progress we have made to drive efficiencies in inventory management after several years of supply chain disruption. CapEx in the quarter was $17 million, primarily going towards compelling growth investments such as our first manufacturing site for Kuprion. We expect to invest roughly $65 million on a full year basis, in line with our prior forecast. Now turning to the balance sheet. Our net leverage ratio at the end of the quarter was 1.9x, and our capital structure remains fully fixed at an effective interest rate of roughly 4%. We expect to fund the Micromax transaction with a combination of cash on hand and modest incremental debt. Assuming no further capital deployment this year, pro forma net leverage at year-end would be roughly 2.5x. This is comfortably below our 3.5x long-term target ceiling and leaves us with plenty of further financial flexibility to continue deploying capital should the right opportunities appear. And with that, I will turn the call back to Ben. Benjamin Gliklich: Thank you, Carey. As you've heard, our strategy and execution are driving record results at Element Solutions, and we're nicely ahead of our plan for the year despite real end market volatility over the course of the year. We now expect full year 2025 adjusted EBITDA to be between $545 million and $550 million, at the high end of the guidance range we provided last quarter. This translates to fourth quarter adjusted EBITDA of roughly $135 million to $140 million. This quarterly expectation incorporates lower EV volume, the end of the seasonal smartphone ramp and targeted incremental OpEx investment in support of high-growth initiatives like Kuprion. We expect leading-edge electronics driven by high-performance computing and data center to remain robust and have assumed stable industrial demand through year-end. We're pleased to have found a solid outlet for some of the balance sheet capacity we've been building. Micromax meets our high bar for acquisitions. It's a growing business that matches our asset-light customer intimate people-intensive attributes. It will be a great addition to our portfolio and reinforces our conviction that we can continue to find high-value inorganic opportunities to accelerate per share earnings growth. We have capacity for more, but we'll continue to be disciplined about quality and fit. I'll close, as always, by thanking all of our stakeholders for their continued support of Element Solutions. Most importantly, let me express my deep gratitude for our people around the world for their effort and commitment. Our combination of strong positioning, thoughtful strategy and solid execution is entirely a product of our team and our exceptional people continue to deliver for us. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Bhavesh Lodaya from BMO Capital Markets. Bhavesh Lodaya: Congrats on multiple fronts. On Micromax, could you share some thoughts on how you expect this platform to perform under the ESI umbrella just compared to your prior ownership, maybe opportunities with your existing customers? And how should we expect the growth and synergies starting from that $40 million EBITDA mark? Benjamin Gliklich: Yes. Thanks for the question, Bhavesh. We're really excited by the opportunity to bring Micromax into the ESI family of businesses and make it a part of our Electronics segment, McDermott Alpha Electronics Solutions. This is a business with a market growth algorithm in the mid-single digits. And just like with all of our other electronics businesses, we think we can outperform the market. The benefit of having this business inside of Element as opposed to where it's been most recently, is the depth of our connectivity in the supply chain, in particular, in the circuit board supply chain. This is a product category that really fits right in between our assembly and circuitry capabilities. There's a modest amount of customer overlap and there's a great deal of OEM and specifier overlap, and our relationships can help accelerate that growth. From a cost synergy perspective, we would expect those to be modest because we're going to run it from a functional perspective and a supply chain perspective separately. But we do believe we can accelerate the growth here and the value proposition to our supply chains, which should translate into value creation from a margin perspective and profit perspective for the company. Bhavesh Lodaya: And then maybe stepping to Kuprion, can you give us an update around the commercialization activities there? Are we on track for -- I believe the start-up was planned for this quarter. And any initial thoughts around earnings or EBITDA contribution next year from that? Benjamin Gliklich: Yes. So Kuprion, there are 2 major thrusts, I would say, commercialization and supply chain. Our mid-scale site, where we ramped up investment meaningfully in the third quarter is on track to be operational at the end of the year, which will provide more product to both qualify and sell. And so we should have some meaningful sales and profits into next year. Commercialization is really qualifying this product with our customers and the specifiers. And that also continues at pace. I would say that there's a handful of very compelling commercial opportunities that are working their way through the different layers of approval required to sell something into this high-value, high-performance supply chain. And so we should be getting some qualification milestones here in the fourth quarter. Operator: Our next question comes from Josh Spector from UBS. Joshua Spector: Congrats on the Micromax deal. I just wanted to ask on that one first. Just I don't know if you could provide any more color around the growth of that business from a top and bottom line perspective over the last couple of years, I guess, would that have been accretive to ESI's growth over that time? And then also, as you think about the stability of that growth. Does it provide -- I mean, basically, does it improve the stability of overall ESI growth in your view? Or is it slightly more volatile? Just any characterization there would be helpful. Benjamin Gliklich: Yes. So the way to think about top line here is ex metals. So of the roughly $300 million of revenue here, about 2/3 of that is metal value. And so there's been quite a bit of metal volatility, and that's been impacting the, we'll call it, SEC or GAAP revenue here, but the profits have been very stable. I would say that there was a pretty significant drawdown in the electronic ecosystem in 2022 and into 2023. This business fared better than our electronics business did through that period. It's a very sticky product portfolio. And so it didn't have the same drawdown. And they have a price lever as well that has been flex reasonably well, and we see opportunity associated with. On the way back from that drawdown, I would say the growth has been roughly in line with our assembly business, maybe a little bit faster over the past couple of years. So this business enhances stability for sure, certainly, ex metal and on the profit line. And we see an opportunity to accelerate growth going forward. There's -- the products that this company sells are really specialized for the most demanding applications. So they've got a concentration in aerospace and defense, low earth orbit satellites health care applications, and we're just starting to see the pull into the data center complex. So that as a market vector and also as a virtue of -- as a product of being inside of Element and our access to that market should lead to an acceleration in earnings growth here. Joshua Spector: That's helpful. And just as a quick follow-up. I mean, you made comments in the release about still having capital flexibility. So I mean I think your 2.5x is pro forma for the deal closing. I guess, at first blush when that closes without those numbers, that leverage will go higher. So can you just talk about your ability, I guess, over the next 6 to 9 months to deploy cash to the extent that there's maybe a bigger opportunity in your stock and a drawdown or otherwise, how high would you be willing to bring leverage in that scenario? Benjamin Gliklich: Yes. So we think about things on a pro forma basis. And so the 2.5 we have is pro forma for the contribution of the expected contribution of Micromax and taking into consideration the full purchase price of Micromax. So 2.5 would be the number at year-end. Given the cash flow characteristics of our business and the growth opportunity we see into 2026, that number will be closer to 2 again by the end of 2026, barring any further capital deployment. We've always said that our long-term target ceiling for leverage is about 3.5x. So we see plenty of capacity even in the near term should something interesting become available to deploy incremental capital. Operator: Our next question comes from Chris Parkinson from Wolfe Research. Christopher Parkinson: Great. Ben, given Micromax's history as part of DuPont, what would you say to somebody who perhaps would cortege the business and say, well, why did they get rid of it in the first place? And essentially, what would make -- what's evolved over the last 5 to 10 years? And what ultimately makes Element Solutions the best owner or best home for the platform as it stands today? Benjamin Gliklich: Yes. Thanks for the question, Chris. Look, we can't speak to DuPont's decision-making as we really weren't a party to it. But if I had to speculate, I'd probably say 2 things. The first is the SEC or the GAAP margins of this business on the face of them are lower than some of our other businesses and some of DuPont's other businesses. And DuPont doesn't have other metals-related businesses where they would make an ex metals adjustment like we do. right? To that point, on an ex metals basis, the margins of this business are in excess of 40%, which really speaks to how highly valued these materials are to their supply chain. This is a business that is highly specified by its customer base with substantial switching costs, very long qualification cycles. It's a very sticky business. It's a very high-value business even if the margins on the face of them, again, on a GAAP basis, appear lower. The other reason may be that when DuPont chose to divest this business, this -- the recent surge in innovation in the printed circuit board market, which has been away from the chip, right? Innovation in the integrated circuit has moved back into packaging and onto the circuit board that hadn't really started at that point. And so as we sit here today, there's a huge amount of innovation and technology moving back from the chip to the circuit board, and these materials are an important part of that. Finally, I think it's worth noting that in the, whatever, 12, 16 hours since we announced this transaction, I've had many messages from DuPont and ex-DuPont people congratulating us on the acquisition and lamenting frankly, that they no longer own it. So this is a really good business as a market leader in a high-value market with strong technology, solid growth outlook, great cash flows. And we've got several avenues to make it better as part of Element Solutions, it fits within this really cogent portfolio of technologies that we have to support high-value electronics. Christopher Parkinson: That's great color. And just as a quick follow-up, Ben, as we start thinking about on a preliminary basis about '26, how should we think about the semiconductor growth side of it and the comments in the PowerPoint about softer power electronics, was that a singular customer that caused an issue? I mean, how should we think about the momentum into year-end and ultimately over the next 12 to 18 months? Benjamin Gliklich: Yes, absolutely. So within the semi business, there's really 2 prongs, their semi assembly and our wafer-level packaging business. The semi assembly business has a strong capability in power electronics, and we've all seen what's happened in the EV market and certainly, with some of the larger participants in that market, and that's what weighed on the Semi business in the third quarter. The wafer-level packaging business continued to grow in the teens and has a pretty compelling growth runway ahead from here. And in the power electronics business, even with a weaker EV market, we see substantial customer wins as we gain share with our material over competitive, more legacy technology materials for power semis and power modules. And so there's a growth vector there as well. The semi business will continue to grow certainly above market and healthily as we get into 2026. Operator: Our next question comes from Frank Mitsch from Fermium Research. Frank Mitsch: Congrats on Micromax. I'm assuming that given the quick time to complete the deal, looking at the first quarter of '26 that you're not anticipating any antitrust issues in terms of government approvals? Benjamin Gliklich: Yes. So as we've said, this is a complementary capability. While there's some customer overlap, there really isn't a technology or market share overlap. And so we don't anticipate substantial regulatory hurdles going forward. Frank Mitsch: And nice job on the third quarter upside. What most positively surprised you relative to the guidance? And how is that trending so far here in the fourth quarter? Benjamin Gliklich: Yes. So the Industrial Solutions business had a really strong third quarter even if you don't necessarily see it in the organic sales. But we were lapping a period where we sold a big piece of equipment in Q3 of 2024. And so when you adjust that out, which was a low-margin sale, when you adjust that out, we actually had volume growth and organic growth in that business which was mix favorable and positive. I think entering the third quarter, our expectations for Industrial were probably weaker than what we ultimately delivered. So if I had to call out one surprise, it would be that. And as we sit here in the fourth quarter, right, we're almost through October, the momentum in the electronics side of the business has been a positive surprise thus far. And so we're seeing real strong continued momentum in electronics. And that's a positive indicator as we move into 2026. Operator: Our next question comes from Aleksey Yefremov from KeyBanc Capital Markets. Aleksey Yefremov: Ben, I realize you already talked a lot about Micromax, but I was hoping to give you an opportunity to talk about growth synergies here, either on the commercial side or technology or anything else? Benjamin Gliklich: Yes. No, I appreciate it. Look, our -- 70% of our business and correspondingly 70% of our people wake up every day thinking about the electronic supply chain and how they can add value to their customers and the specifiers, right? And so now we've got a new capability that's highly strategic. It's a market leader in a high-value market that we can add to the quiver of capabilities that we bring to bear to those suppliers. We're doing tech days with the largest OEMs with the largest participants in the supply chain, bringing all of our capabilities to bear. And Micromax will be one of those capabilities. That's not something that they had in their prior ownership. And so I believe that we will drive greater commercial traction through that. At the same time, the technologies they have are becoming increasingly important as the demands that are being placed on the printed circuit board versus the semiconductor versus the chip are changing and growing. And so that is a market growth vector that will support this technology leader and we'll be able to get them into the right rooms and provide them with greater access than they would have had previously. And so this is -- that allows for -- that should allow for this business to grow faster than its market has already got a solid growth outlook. Aleksey Yefremov: Thanks, Ben. And then hopefully, I was hoping to look a little bit into '26. On your electronics side, how do you feel about just volumes in general, given there's been some destocking that occurred this year across sort of several key products. Do you see generally volume growth accelerating next year about the same or slower? Benjamin Gliklich: Yes. So we think about units and we have conviction that the growth we're seeing in high-end electronics will continue into 2026. And the growth that we've delivered in high-end electronics year-to-date has been really strong. And, I would say, clearly above market, so we should continue to deliver that. The outlook for automotive units, in particular, EVs is really hard -- is hard to predict at this point, we'd simply be speculating. But we've got, especially on the Power Electronics side, plenty of market share to go after that should allow for us to outgrow that market. And so the question mark as we entered the third quarter was smartphones. We're seeing a healthy smartphone environment as we sit here today, probably better than we would have expected. We'll see what the pull-through on that is into 2026. It's hard to call that right now. All told, next year has promised to be another solid year of organic growth, and we've just added a strong impact from inorganic opportunities. So we're very optimistic about 2026 and beyond. Operator: Our next question comes from Pete Osterland from Truist. Peter Osterland: First, just following up on Micromax. Do you view these assets as historically underinvested in? I mean do you see the need for any elevated capital spending initially in order for the business to reach the full potential you're looking for? And could you share what you're expecting in terms of onetime costs to stand up and integrate the business? Benjamin Gliklich: Sure, Pete. So this business is just like our businesses. It's a people-intensive technical applications-oriented employee base, customer-facing type of business and correspondingly, it's asset-light formulation. And so I would think this is about a 2% of sales capital business just like ours, and it's got the capacity it needs to support substantial incremental growth. So we don't see this driving an uptick in CapEx across Element and nor requiring significant investment in physical assets. There is a stand-alone cost dynamic, which is burdened, which is in the approximately $40 million that we've communicated as the full year contribution for this business of a few million dollars. We'll see synergies could come from that over a 12- to 18-month period, driving the earnings here higher. Peter Osterland: Very helpful. And then switching gears. On the IMS business, the margin performance in the third quarter was very strong despite kind of continued challenges in the overall industrial operating environment. So my question is, where can margins go in this business? I mean in a more normalized demand environment, is there room to move margins meaningfully higher from the almost 24% that you put up in the third quarter? Benjamin Gliklich: Yes is the short answer, Pete. The industrial business, while it had modest volume growth is still very far dislocated from its prior peak volumes. And so the productivity and procurement we're driving to drive those margins higher will contribute, I would say, a very strong incremental as and when volume growth recovers, we get better absorption through our sites. The offshore business also continues to be strong, and that's mix positive. So there's room for further margin expansion. And I'd note that when you look across the ESI complex, our ex metal margins were 28% in the quarter. That's only 100 basis points off of our prior peak. And we're continuing to invest in OpEx in anticipation of and in support of pretty significant margin accretive future growth. So across all of Element, we see material opportunity for incremental margin expansion from here. Operator: Our next question comes from John Tanwanteng from CJS Securities. Jonathan Tanwanteng: Congrats on a nice quarter on the Micromax deal. I was wondering if we could drill down to the offshore business a little bit. How sustainable is the strength there? I think you mentioned that there are some good tailwinds, but I'm wondering were there any first fill programs there that might tail off and kind of what the demand outlook is as we go off into next year? Benjamin Gliklich: Yes. The offshore business is a longer cycle business. And so what drives that is a solid, stable energy price which drives drilling activity, which subsequently translates into new producing wells and we get a large sale when you see a fill. And so when a drill is completed and then ongoing more annuity recurring like monthly orders for each well on which our fluids are being used. Drilling rates are pretty good right now. I think that there is an expected lull to some extent in drilling activity into 2026. I wouldn't count on -- you wouldn't have expected in a 70% electronics business, we're the fastest-growing vertical to be offshore drilling. But -- and I wouldn't expect that to continue into 2026. But it's a healthy market. It's a healthy business. We've got a pricing lever there as well that's pretty compelling. And so we see sustained growth into 2026. We're probably not at these rates. Jonathan Tanwanteng: Got it. And then maybe a similar question, but focused on just the margins in the electronics side and the EV specifically. Do you expect that headwind from, I guess, the larger customer there to continue for the foreseeable future? Or is that something you expect to reverse out at some point? And kind of how do you think about that market overall? Benjamin Gliklich: Look, I think it's safe to say EV volumes are likely to be down again year-over-year in Q4 globally. I think that the worst of it is passed and I see opportunity for, again, this power electronics business to continue to grow. We see a compelling growth opportunity in power electronics going forward into 2026. And it's not just actually for EV applications. We're starting to see pull for these materials, these high thermal materials into other applications, network infrastructure and data center applications as well. We see a very strong pipeline for Argomax into 2026 and beyond. Operator: Our next question comes from John Roberts from Mizuho. John Ezekiel Roberts: MKS has decided to exit the Atotech industrial metal plating business as the main competitor, was part of your volume pickup share gain opportunities as they go through that process? Benjamin Gliklich: Really can't speak to that, John. I would say that our industrial business has been growing really nicely, executing very well. And we've outgrown our market for sure. So there has been some share gain, but I don't think it's appropriate to speak about any specific competitors we've got great capability there and a really good value proposition of the supply chain, and the team has been executing really, really well. John Ezekiel Roberts: Okay. And then maybe I missed this, but you described Micromax as fitting between assembly and circuitry. Will it be reported in either of those 2 subsegments? Or will it be reported standalone? Benjamin Gliklich: I don't expect it to be reported in either of the segments. I think it will be standalone. And I would note that we will report this business ex metals to give a better picture on organic volume and appropriate margin. Operator: That concludes the question-and-answer session. I would like to turn the call over back to Ben Gliklich for further remarks. Benjamin Gliklich: All right. Great. Thank you very much. Thanks to everybody again for joining, and we're looking forward to seeing many of you in the days and weeks to come on the road. Have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Mar Martinez: Hello. Good morning to all the people connected. Welcome to the 9 months 2025 results presentation, which will be hosted by Endesa's CEO, Jose Bogas; and the CFO, Marco Palermo. Before we start, let me remind you that after the presentation, we will have the usual Q&A session. Thank you. And now let me hand over to our CEO, Jose Bogas. José Gálvez: Okay. Thank you, Mar, and welcome to everybody. Let me open this presentation by highlighting the strong economic and financial performance of the period, which, as we will see, hopefully, resulted in a remarkable cash generation. This clearly proves the resilience of our business model, which enable us to meet our commitments, maintaining predictable results and consistently creating value despite a complex and uncertain market context. Regarding shareholder remuneration policies, we are making a steady progress in the implementation of our share buyback program, as we will detail later on. And finally, when it comes to the distribution remuneration framework, the current proposal clearly does not provide adequate support and incentives for the investment effort required by the National Energy Plan. Let's now have a look at the key financial and operational highlights of the period. On Slide #4, we can see the solid financial results achieved in this 9 months of 2025. EBITDA reached EUR 4.2 billion, marking a 9% increase year-on-year, while net income came in at EUR 1.7 billion, up by a sound 22% versus last year. Cash generation remains strong with an FFO rising to EUR 3.4 billion, a 29% increase year-on-year. These results allow us to confirm that we are well on track to reach the upper range of our forecast, both in terms of EBITDA and net income. We continue to progress on our capital allocation strategy, as you can see on Slide #5. We acquired the remaining 62.5% stake in Cetasa, enabling full consolidation of this wind asset portfolio. In September, we entered into a strategic agreement with MasOrange to provide combined energy and telecom offers. As part of the deal, which will be completed in the coming months, we will acquire Energía Colectiva, bringing over 350,000 energy customers to our portfolio and gaining access to more than 1 million potential clients. This will reinforce our commercial strategy and opens new opportunities to foster customer loyalty through an integrated service offering. Furthermore, the strategic partnership with Masdar, which we announced last March was successfully concluded in early October. And lastly, as already commented on, we are progressing on the implementation of our share buyback program. After completing the second tranche, we launched a third one with a target of up to EUR 500 million to be executed no later than February 28th next year. Slide #6 provides a brief overview of the progress achieved on the capital allocation strategy and the execution of main industrial KPIs. We invested around EUR 1.4 billion during the period with nearly half allocated to networks. As shown in the slide, industrial KPIs confirm our progress starting with grid, our efforts are reflected in the improvement of the interruption time index, while total losses remained stable at around 10%, still significantly impacted by nonmanageable losses due to localized fraud. In renewables, the consolidation of new renewable capacity allowed us to achieve a 79% emission-free output. And lastly, in the customer segment, it is important to keep in mind that we are pursuing a strategy focused on higher-value customer, reshaping our customer mix profile with a focus on long-term loyalty. From a market perspective, on Slide #7, commodity prices shown signs of normalization throughout the period, gradually stabilizing after the volatility seen in the early 2025. In the Spanish electricity market, final prices were mostly affected by the post-blackout measures to prevent future incident and the resulting notable rise in ancillary services costs, while daily electricity price averaged EUR 63 per megawatt hour, that is a 21% increase year-on-year. It remains unclear how long the system operator will maintain its special anti-blackout measures, which poses a significant cost to the system. Besides, we must consider the lesson learned from the incident. Our electrical system is secure, but we must update the system operation that has undergone structural changes now dominated by renewable technologies. In this scenario, we believe it is critical to reconsider the nuclear phaseout schedule, starting with Almaraz. This facility has become key, as its location helps to strengthen the grid security in an area with vast renewable generation. In addition to rolling out all the measures to boost electrification, there are other steps we must take to ensure system security of supply such as implementation -- implementing a flexible control model. Slide #8. shows how Mainland demand continues to consolidate sustained growth, recording a 2.4% year-on-year increase that is 1.8% adjusted. When it comes to Endesa's area, demand rose by 4.2% and 2.5%, respectively. Deep diving into the analysis by segment, residential consumption expanded significantly, largely influenced by the rise in temperatures. The rebound of industrial and services demand is part of a broader sector-wide increase in energy usage. This clearly aligns with the market rise in connection requests seen in recent years, which are now starting to materialize into actual consumptions. In this regard, it is worth highlighting the growth of the service sector demand, particularly in the Aragon area, which has seen a 9% year-on-year demand increase, mainly associated with the incorporation of data center activity. The strong performance achieved since last year is a clear sign of turning point of trend, not only in terms of the consolidation of the recovery in demand, but more importantly, in the materialization of a new industrial demand. On the next slide, we review -- that is Slide #9, we review the more significant highlight of the distribution regulatory framework. Although the new remuneration proposal introduced certain improvement, it still falls significantly short on meeting the ambitious and urgent require to achieve Spanish decarbonization and electrification goals. In subcontract, the contact evolves in a different direction and reflects very different dynamic and challenges. Grid connection requests continue to steadily rise and some demand growth scenarios such as one of those considered in the 2025 to 2030 transmission network development proposal even exceeds 2030 PNIEC assumption. Grid availability was only 17% at the beginning of September, being virtually 0 in Endesa's area as of today. Due to this capacity constraints, we have been forced to reject most of the new demand connection requests for 2025. It is crystal clear that investment in distribution network must be accelerated to meet electrification goals. The ministry's proposal being a step forward in raising the strategic investment limit by 62% for the 2026 to 2030 period. However, a fair and forward-looking regulatory framework that incentivize investment is essential. Moreover, the pending rate of return update must urgently resolve asymmetric with other European countries as well as addressing inconsistences with other regulated sectors. In conclusion, we urge the CMC to recognize this reality and to respond accordingly by approving a remuneration framework that rises to the challenge. And let me now hand over to Marco for the financial results. Marco Palermo: Thank you, Pepe, and good morning, everybody. Let's start with the analysis of the financial results. I'm now on Slide 11. As we have just mentioned, EBITDA rose to around EUR 4.2 billion, up 9% from the previous year. This solid performance was driven by several key factors. First, the removal of the 1.2% extraordinary levy, which negatively impacted last year's results by around EUR 200 million. And second, the 8% increase in generation and supply EBITDA more than offsets the lower contribution from distribution affected by one-off capital gains that we booked in 2024. Moving to Slide 12 for a closer look at Generation and Supply segment. EBITDA expansion was primarily driven by the 8% gross margin increase, while fixed costs rose slightly impacted by negative one-offs in the O&M. The moving parts of the margin evolution were as follows: Conventional Generation delivered a 16% increase, driven by strong results in gas management, supported by positive prior hedging position, more than offsetting the lower results from short position management with less opportunities in the current price context and a nuclear margin decline, mainly explained by higher variable cost due to taxes, basically the full Enresa tax and the 7% tax on generation. Supply business also contributed positively, mostly due to stronger gas retail margin, while the power supply was stable year-on-year. Finally, the renewable business remained flat overall. Higher hydro volumes were offset by lower wind and solar output and lower capture price. Moving to Slide 13 now. The free power margin evolution reflects all these dynamics normalizing compared to the record high attained last year. The integrated unitary margin stood at EUR 53 megawatt hour with a power supply margin of EUR 18 megawatt hour. This supply margin remained nearly flat, underscoring the effectiveness of our strategy focused on customer value over volume and mostly offsetting the impact of rising ancillary services and peak costs. For the full year, we expect the integrated unitary margin to remain at the current level of around EUR 53 megawatt hour. On Slide 14 now, we analyze the gas business from an integrated perspective. The gas margin showed a strong improvement supported by favorable previous hedging positions and resilient pricing in the B2C segment. The unitary margin reached EUR 10 megawatt hour with expectation of ending the year at around EUR 9 megawatt hour. Moving now to Slide 15 in the below EBITDA. D&A slightly increased compared to the previous year, mainly due to higher amortization from investment in distribution and increased depreciation in renewables, which included the consolidation of the hydro asset incorporated since February. Financial results showed a notable improvement driven by a reduction in average gross debt and lower cost of debt. Finally, the effective tax rate stood at approximately 24.5%, no longer impacted by the nondeductibility of the 1.2% temporary levy that penalized last year's results. Net income rose by a solid 22% with net ordinary income to EBITDA conversion ratio reaching 41% in the period. Turning to the next slide, Page 16. Cash generation continued to be strong with an FFO standing at EUR 3.4 billion, improving on the previous year's levels, mainly due to the robust EBITDA growth and the positive working capital evolution versus previous year, which was impacted. You probably remember by the EUR 530 million Qatar arbitration payment. On the other hand, the higher corporate income tax payment made in this third quarter reflects the exceptional results achieved in 2024 compared to 2023. On Slide 17 now, net financial debt came in at around EUR 10 billion, with cash generated in the period more than covering the deployment of CapEx, including EUR 1 billion of inorganic CapEx. In addition, the change in net debt reflects dividend payments totaling EUR 1.5 billion and the completion of the second tranche of the share buyback program, which resulted in a cash outflow of approximately EUR 450 million. Gross financial debt remained unchanged with the average cost declining to 3.3%. And now I hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. As we mentioned throughout the presentation, the solid delivery across all business areas reaffirm our confidence in achieving the top end of the full year guidance. This confirms the successful execution of our strategy and the resilience of our integrated business model. The soundness of our results is reflected in our commitment to shareholders with a solid dividend policy further supported by the share buyback program that will drive sound and long-term returns to our investors. Lastly, we firmly believe that capital allocation must rely on fair and forward-looking regulation, a stable regulatory framework that incentivize necessary investment is essential to unlock the full potential of our capacity to accelerate the energy transition. Thank you for your attention, and let's now move to the Q&A session. Operator: [Operator Instructions]. Mar Martinez: Okay. We start now with a round of different questions. And the first one comes from Peter Bisztyga from Bank of America. Peter Bisztyga: So 3, if I may. First one, just on numbers. Just looking at your strong 9-month performance, it looks like you need only EUR 300 million of net income to hit your full year guidance at the top end of the range. That would be down quite a lot versus the sort of EUR 600 million that you did in Q4 last year. So I was wondering if you could just explain what the year-on-year negative moving parts are going to be in the fourth quarter. Then next question is on ancillary services. I was just wondering what was the positive impact of higher ancillary services charges on your generation business in the 9 months? And despite your flat retail margin, do you think that you can pass on those higher ancillary services costs to your customers in 2026? So should we expect your supply margin to actually increase above 18% next year on that basis? And then finally, you lost another 130,000 regulated customers in Q3. I know you've said that you focus on high-value customers. But just wondering what proportion of your remaining 6.3 million liberalized customers you see as low value and are willing to lose? So at which point do you sort of have to start focusing on customer numbers rather than margins again? José Gálvez: Okay. Thank you, Peter. I will try just to give some color to the first question and the last one, and then Marco will add whatever. With regard to the guidance, well, as we have said, we can confirm that we expect to reach the top end of the Capital Market Day guidance for the full year 2025. That is clear, and we feel very, very, very comfortable. But we don't use to change our guidance, but believe us, we feel very, very comfortable. Regarding the customer that we have lost in the last quarter, how much customer we are thinking that could be in a vulnerable, let's say, that position. Well, it is clear for us that the competitiveness in the Spanish sector is a good thing, and it's improving the way in which we offer and supply services to our customers. But it is clear also that just because of the more than 25% churn rate that we have at the level of the system and also at the level of Endesa, there are many switchers that it's very difficult just to obtain any profitability from this. As you could see, we have reduced our customers and -- but our margins in supply even with the increase in the ancillary costs continue -- being the same at the last year, more or less. So that means that these customers that we have lost are not a value customers. So as we have said, we are trying to put first the value over the number of customers that we have. On the other hand, I would like just to add that this movement that we have done with MasOrange is trying just to really change a little bit our offer to our customer, trying to offer bundled services of telecoms and energy and given a better service just to increase the fidelity of this customer. So well, we will continue on that, and we will see if this strategy really reduced the losses and even more increase the customer in our customer base. And now Marco will add to whatever and talk about the ancillary services. Marco Palermo: Okay. Peter, thank you for your questions. Again, let me add something also on question number one. Yes, guys, I mean, it's like there is no secret here. It's EUR 0.3 billion as a net income for fourth quarter. Generally, the fourth quarter is a strong quarter. So I mean, that's why we are saying that we are very, very comfortably in the higher part of the range. Regarding question number 2, ancillary services. So there were 2 questions, I guess, there. But basically, first one, just to give you a few numbers, in order to have an idea on quarters for us, the penalization of the increase of ancillary services this year weighs approximately as a gross penalization, EUR 75 million per quarter, okay? So basically, 9 months is approximately EUR 200 million. On the other side, this is the gross penalization because you have some recovered this on the generation side. So around EUR 25 million per quarter. So if you sum up, it's like basically the impact -- the negative impact in 9 months should be approximately EUR 120 million, something like that. So that's why we say that we believe that for year-end, we will probably be around EUR 150 million net negative impact from ancillary services on our accounts. That, of course, if you see it, gross is a higher number. And in terms of supply margin, I mean, the supply margin stays where it stays because we have done -- we have managed our portfolio, but all those -- I would say that all those management was we were thinking to do that. So -- I mean, it's now what we have to do is working on absorbing somehow this higher cost on ancillaries. So that's why we have to continue to work this year, but also next year on recovering these costs. And on the loss of customers, I guess that the job that we're basically doing there, I would say, is almost done. And part of this is probably also related to the fact that on one side, we've been losing those clients that made no sense in terms of acquisition from the push channels. On the other side, I mean, we're -- somehow we decided just to go through with the acquisition of the clients our clients from MasOrange that somehow showed a different trend in terms of churn and so on that I guess is mostly related to the fact that they have a bundle -- they buy bundled products and probably in these offers, it's easier to see the value that you give to the customer. Thank you, Peter. Mar Martinez: Thank you, Peter. And now we have Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: Also 3 questions. I want to bypass a bit questions on regulation. I'm sure you get some more later. But can I ask you, if you were to receive a decent outcome, it's quite binary here, right? Either returns are good or they are just not quite good. So if you have a decent outcome, how much RAB growth do you think Endesa can deliver over the coming 5 years? The second question is, can you place a share buyback somewhere in your capital allocation priorities? Do you think this is going to be an ongoing -- not just a tool, but an ongoing feature, meaning like a base case until December '27? And could we see this continuing to '28? I'm thinking in case returns, for instance, are not particularly good in distribution. So should we look at your share buyback almost as a safety net -- as a silver lining here on capital allocation? Or is it more central? And the last question, you have been -- I think we need to give you credit. You've been the first company to talk about an inflection in power demand. You've been the first company to talk about particularly for Iberia, for Spain. Can I ask you -- it seems to me there's like 35 gigawatt of connection request to the grid when it comes to data centers in Spain. Obviously, we cannot imagine that 35 gigawatts will come online because it's the entire demand of Spain. But can I ask you 2 points on this 35 gigawatts. How much is from hyperscalers, therefore third-party data center specialized companies vis-a-vis entrepreneurs that are trying to make money out of this early-stage development? And secondly, how much of the 35 gigawatts do you think it's realistic to assume will become operational by 2030 or '35 in Spain? Is it 5%, 10%, 20%? Just trying to gauge here what we should expect for this very important driver. José Gálvez: Okay. Thank you, Alberto. Let me say you something in relation with the 2 first questions. Well, we are an under-leveraged company. That means that -- and we have strong potential just to invest or just to -- in general, just to give value to our shareholders. If we could give this value through investment in the system, we will do it. If we are not able yet because of the regulation or yes, because anything, we will look for ways just to return this value to our shareholders, as we have done with the share buyback that we have launched. So it is very clear for us that we want to give value to our shareholders. If it is possible just to do it through investment in the system, we will do it through the investment in the system. If not, we will do things like the shareholder buyback that we have done or similar thing. So that is clear, absolutely for us. With regard to the decent outcome in the distribution regulation, well, what I could tell you is that our last plan that is the plan from the year 2025 to the year '27, we invest around EUR 4 billion in gross investment in distribution. And we increased something around EUR 0.7 billion, EUR 0.8 billion in the RAB in the year 2027. What we said in that context is that we have further firepower, let's say, that has to invest even more. But if -- so if we obtain a decent remuneration, we will try to increase this investment in the future. With regard to the power demand, you're right, the 35 gigawatt of data center. Well, we will see how many will be materialized up to the year 2030 because, well, it would depend in many things. Let me say to you something. The government of Spain has increased the cap, the limit from the 100 to the 162, that will give us an increase that don't reach the one previously forecasted in the PNIEC. So we are short on that. So in that way, what I think is that we will be able just to reach the increase in demand that it was forecasted in the PNIEC and even perhaps a little bit more. And I'm talking around 3% each year up to the year 2030. But all these demand increase will be beyond the year 2030. We will have a huge increase in this year up to the year 2030, as I have said. But unfortunately, the investment that we are going to do like the Spanish sector in the distribution and transmission networks is not going to be the total amount forecasted in the PNIEC. Marco? Marco Palermo: So thank you, Alberto. And sorry if I go long on the question. I don't know why I feel that I would like to talk today. So on question number one, on the RAB increase, in the last plan that we presented -- I mean, I remember that we had approximately EUR 3 billion of net CapEx along the plan and that we were giving us an increase in RAB that was lower than EUR 1 billion. But was a previous -- the current plan, it's not the new one, and it was based on other kind of assumption. Now we have to see what is the regulation that comes out finally also in terms of level of investment and what are the kind of investments that are allowed, but it looks like this figure can somehow improve. Second question, share buyback. Is it a priority? Well, of course -- I mean, I guess that the answer is basically in the number. If you look at our net debt, and our gross debt now, I mean, despite the fact that we've been, of course, doing CapEx, we have been doing M&A. And despite the fact that we have been completing the first tranche of the share buyback, so EUR 450 million, we are still at 1.8x net debt to EBITDA. So I mean, whatever we do, we are still there. So that's why we decided just to launch -- to stop with the previous tranche and launch a new one because we do see that there is space here for a lot. Just to give you some numbers, I always said that probably this company should run at a net debt to EBITDA that is between 2.5x and 3x. So if you take the numbers of today, the EUR 5.6 billion EBITDA, I mean, you multiply there is space at least for another EUR 5 billion. And of course, as you can see, probably, you can understand that despite whatever we can assume on distribution, there is still ample margin for share buyback, and that's why we launched the third tranche. And on the third question on the power demand, we are -- it's in the make, Alberto. The answer to this question is in the make. In the sense that, that's exactly what we are discussing right now for the new business plan. And what we can say is that in this request for data centers, in terms of numbers, of course, there are many little entrepreneurs. But those little entrepreneurs, generally speaking, that they ask for small quantities of capacity. While the big guys, the one with the brand on top of the hat they go for the big numbers. So I mean, their presence is relevant when it comes to the proportion of big guys somehow requesting capacity for their data centers. Mar Martinez: Okay. We move now to Manuel Palomo from Exane BNP. Manuel Palomo: I will ask just a couple. And sorry to insist on the buyback and on the regulation. But I was wondering whether -- well, continuing with the buyback at the current share price levels, which with the stock yielding below 5% makes still a lot of sense or whether it would make much more sense to invest as much as possible in electricity distribution business, even if the 6.46% return is not changed. So it's not improved that we expect it will be. So my question is whether you will do as much as you can even if the regulation does not improve? And my second question is on the margins. I'd like you to please help me to understand what will happen with the margins for the next year because we've got one very positive driver, which is hopefully the pass-through of the ancillary services to final clients. But on the other side, I guess that we are all expecting some normalization in the hydro results. So my question is whether you could help us to understand where you expect the integrated margin for electricity to land in 2026? José Gálvez: Okay. Thank you, Manuel. Let me try to say something about the first question. You are right that, let me say, perhaps the Spanish regulation with regard to the distribution remuneration is one of the more complex of Europe and could be all over the world. What I really think is that we need certainty. And what we are obtaining is uncertainty just because of this very, very complex regulation that really you need to -- or we need to understand when we have -- when we will have the final and full picture of this, then we will take our decision about this. But let me say that it is a little bit confused. I would prefer more clear, transparent, direct regulation. And if you allow me, I would tell you something about Paracelsus. Paracelsus was 16th century alchemist that said that the difference between medicine and poison was the dose. This sets of regulation can become poison for the network. So I ask the regulator just to simplify and just to give more clear regulation. Having said that, we need to have the full picture, and we will evaluate what to do. Marco Palermo: Okay. So given that also Pepe is very inspired today, I will try to make answer short because otherwise, it would take too long here. So yes, CapEx is a priority. Let's see the final results, and then we will check. Regulation. On regulation -- sorry, on margins, what we do expect for 2026 integrated margin in line with this year. You were saying correctly, maybe the hydro next year will not be exactly the one that we have this year, not very sure about it. But if that is the case, I hope that also solar and wind will not be next year, the one that has been this year because actually, there was not so much sanction and even less wind until now in the year 2025. And I would say that's it. So basically, integrated margin 2026, in line with the margin of 2025. Thank you, Manuel -- sorry, here, they are saying buyback and versus CapEx. So CapEx, of course, again, we will do -- we want to grow. So if there are a condition, we will grow. Of course, they should be profitable -- this should be a profitable growth. And in terms of buyback, I guess that there is -- as I said, there is space in the debt, basically, frankly, for both. Then I mean, buyback, it's a way of giving back to our shareholders. That could be also a dividend policy. But all this stuff will be somehow managed and addressed in our Capital Market Day end of February next year because they are all in the make. Thank you. Mar Martinez: The next question comes from Pedro Alves from CaixaBank. Pedro Alves: Just one question, please, on -- just to understand how you frame your thoughts in terms of capital allocation besides the potential investments in distribution networks. So basically on potential M&A opportunities because given your balance sheet flexibility and the fact that valuations for renewables pipeline in Spain have sort of come down over the past year. Do you see this perhaps as the moment to buy, for instance, a renewable developer being, for instance, a smart hedge given the uncertain state of nuclear in Spain. I mean if nuclear does close, you reduce your share position in inframarginal generation and benefit from higher power prices without nuclear. And well, if it's extended, you obviously still capture the upside from your nuclear fleet. Just to understand if you can really hit the pedal now on M&A. Marco Palermo: Thank you, Pedro. So on your question, do we have space for M&A in our balance sheet? Yes. And that's exactly what we have been doing with the acquisition of the assets of Acciona, with the majority of the wind assets in Acciona, with the acquisition of clients from MasOrange. So I mean, that's -- if we see an opportunity, of course, we do it. Now does this brings us to buy renewable developers? I don't think so because, I mean, we have plenty of projects in wind, in solar, in BESS, I mean, plenty of that. What we will love eventually is something that is up and running. So if there are things there that are up and running -- but again, probably not on solar but on the other technologies. And those kind of things are not easy to find or not cheap to buy. Mar Martinez: We have now Javier Garrido from JPMorgan. Javier Garrido: I think most of them have been addressed, to be honest. So I will focus on 2 on results. Firstly, on your financial costs. Do you think that the Q3 numbers give a good outlook for the steady rate of financial costs going forward, given that your gross debt has now stabilized? And regardless of what decisions you make then on extra shareholder remuneration, you plan to keep a similar structure of financing in terms of the balance between fixed and variable costs and short and long-term debt profile? And then the second question is on the regulation and Fred. So if I understand correctly, your priority when you think about the potential improvements that might come in the final determinations of the regulator would be to get more visibility and predictability about the inclusion of assets into the RAB and lose the risk of having stranded assets. Is that correct? Or is there any other top priority in your mind about what should improve in the regulation for you to be more aggressive in your distribution CapEx profile? José Gálvez: Let me try to answer the last one in terms of the regulation. And well, it is a whole all the remuneration of the distribution. As I have said, it is complex -- very complex. We need just to understand clear. But the most important thing for me is to have the guarantee that all the investment that we are going just to go ahead with will be remunerated. That is something that in the last drop, and we are waiting for the next drop really create some kind of uncertainties. And there are many levers just to improve the remuneration in this regulation that we should understand clearly just to take the decision, but we prefer just to go ahead with investment in the system, in the network and to give the enough profitability just to give value to our shareholders. That is what we want. That is why we are working now. If we don't have the opportunity, we will look for another ways just to give value to our shareholders. Marco Palermo: Thank you, Javier. So let me answer the questions on the financial structure and financial costs. So can we assume that the financial costs that you're seeing right now are the stable financing costs? I would say, yes, in terms of price, so in terms of rate, even though I still expect that maybe we can do slightly better than that. And in terms of quantity, I mean, let's hope that we will have the opportunity to increase our debt. So I mean on the proportion fixed versus variable, we are now approximately 60% fixed and 40% variable. And I guess that probably this is close to what we want to have vis-a-vis the future in terms of structure. Thank you. Mar Martinez: The next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions from me as well. The first one is on the electricity demand dynamics in Slide #8. You have mentioned that there is a sharp increase on electricity demand. There has been a mention of some impact on new data centers in the area of Aragon. So could you be a little bit -- give us more granularity on the underlying dynamics for electricity demand increase affecting the industry services and residential activities. That would be very helpful. Then on the regulation, again, back to the need for a different proposal. Can you help us to understand which could be, in your view, the implication on some optimal regulatory outcome? And if you see the necessity for the government to intervene maybe calling a committee of collaboration between the sector, the regulator and them as well? And then the third comment is on the supply activity and the decrease on number of clients by minus 6% year-to-date. So can you help us to understand why do you see that the client base is going to remain sticky in an environment that you have defined of a significantly higher competition? José Gálvez: Okay. Thank you, Javier. Trying to be short in the answer, I will pass the question to -- just not to repeat. Marco? Marco Palermo: I mean, here things becoming hot, the climate here. So I mean, on question number one, regarding electricity demand, I mean, here, probably the nice -- the only comment that I would add, if you go back to Page #6, I guess it was, sorry -- yes, when we had the split of the -- only to comment that data centers are in the service cluster. So on industry, you start to see a recovery of industry, and that's what was easy to see for us because we were seeing our clients somehow switching from gas to power. So I mean, we were seeing this somehow or asking for more capacity. So we were seeing this starting to happen. On services is where you find the chapter of data centers that I mean, here, it looks like if you look at our area, strong increase. I mean, we believe that still much has to be seen here. And on residential, I mean, it's what has always been somehow sustaining the consumption for the time being, and it's even more related then to weather and these kind of things. On question #2, on regulation and what could be the effect of a suboptimal regulation, well, I mean, on one side, if maintained, I mean, if there is really a decision on that, of course, it means much longer time for developing the network that the country needs to have and the country deserves. So basically, it's somehow unfortunately losing an opportunity. Then does this mean that in the process things can change? I mean, I don't know. I mean, for the time being, I still want to hope that, I mean, the fundamentals will somehow will somehow be there because it's too of a good opportunity for the country. On question number three, regarding the supply decrease. I mean, frankly, the churn level that we are seeing right now, we don't think it's a sustainable level for any market, for any country. I mean -- it's over 25%, I mean, in that range. I mean we believe that it's because of many things. There are a lot of components there. I'm not so sure that all the clients are so happy just to switch so much in some cases. I can tell you that it's a level of fraud that is terrific. So we think that sooner or later, this will be somehow -- this will decrease. And in a way of somehow -- I mean, of course, fighting the fraud and so on, and it's not only in our hands. But for what we can do, of course, it's in our hands just to give a compelling proposal to clients. So that's why we decided just to acquire the clients coming from MasOrange that somehow they come with the bundled proposal. And on the other side, also try to have an agreement with them in order to offer also to the other clients of our base, other services and other offers that they can find somehow attractive. All of this in order to decrease the churn level that, as I said, is not sustainable. Mar Martinez: Okay. The next question comes from Fernando Lafuente from Alantra. Fernando Lafuente: Hopefully, the last one on regulation, just about the timing in which you expect the new drafts or new steps from the CNMC, both on the model and on the WACC. And also on networks, in this case, I would like to have your view on what would be a recurrent EBITDA for this year? And under the current circumstances, how do you see that EBITDA evolving ahead of 2026? And lastly, on the capital allocation, it's very good to hear you being more active on capital allocation and especially this message regarding shareholders' returns. My question is on the dividend policy, Marco. You basically commented that a little bit, and I know you said the Capital Markets Day. But my question is basically if under this strategy of increased value for shareholders, you could consider a new dividend policy with, let's say, more visibility or less volatility than what we've seen in the past and obviously, without wanting to give you a specific answer on what's going to be the new policy. But what are your views on that side? José Gálvez: Fernando, talking about the timing in the regulation and the CMC, who knows? But let me say, having said who knows, it's going to be before the year-end. The real thing is that we are waiting in the next days just to have another draft, that hopefully will take into account at least some of our comments on this regulation. And we hopefully think that it will improve the picture that we have today. It could be enough just to take a decision or not, I don't know. But we will see in a short period of time, the first results and movement. But the last draft or the last or the final picture could be before the end of the year. Marco Palermo: Fernando, thanks for the questions. Number two, on network. I guess that the recurrent EBITDA, the one that we were seeing for this 2025 is approximately EUR 2 billion. In 2026, we were seeing this going up in the previous plan, EUR 100 million in 2026. So then, I mean, let's see what happens, what is the final regulation and what are the decisions that we take on CapEx. And on number three, dividend policy, I mean, that's another thing that is in the make. We are having this kind of discussion right now. And yes, I guess that there are 2 parts here. On one side, CFO claiming for having somehow some flexibility in order then to fix the dividend. And on the other side, somehow giving confidence to our investors about the profile for the future. So I mean, those 2 things, I guess, that not necessarily are not compatible. That's the way we are starting to work. Having said that, your answer -- your question was very elegant. I don't know if my answer was at your level. Sorry for that. Mar Martinez: Next question comes from Rob Pulleyn from Morgan Stanley. Robert Pulleyn: The first one, if I can just revisit something from earlier. Could you confirm for the network CapEx, what is the upside to your current guidance, given the investment caps increased and appreciating it's contingent on the regulatory package. I believe that the 3-year guidance you've given to '27 is that the regulatory CapEx on networks would be EUR 1.2 billion. It'd be interesting to hear what upside potential there could be for that if the stars aligned and the regulator gives you what you ask for. And secondly, apologies if this has been answered, but I hadn't heard it. Could you give us a steer as to how the repricing of your supply contracts is going to pass on this ancillary service costs you spoke to earlier and how that will look for '26 and '27 in terms of passing that through to your retail base? Marco Palermo: Thanks, Rob. So on network CapEx level, again, it's difficult to say without having the details, and it's difficult to say because we are in the makeup of the new business plan. What I can tell you is that if the outcome is positive, we believe that the previous -- the current business plan that actually was envisaging approximately EUR 3 billion of net CapEx along the 3 years could be substantially increased. I don't want to give numbers on that. Regarding question number two on the supply, I mean, as I said, the supply margin you have seen, it's basically constant, is EUR 18, and it's because of the management of the portfolio that we did along the year. And that was what we thought doing before the increase of ancillary services came into the play. Now in order to somehow digest this increase in ancillary services, that I was estimating, is approximately something in the region of EUR 150 million, could be a bit more probably at the year-end 2025, we need time. And part of it has been done because there are contracts that somehow foresee that, but part of it cannot be done immediately. So it will -- something that will take us busy along 2026 and maybe a bit longer than that. Mar Martinez: We move now to Fernando Garcia from RBC. Fernando Garcia: I have just 2 left. So coming back to the data center topic, are you having any conversations to do PPAs with data centers? And second question, for the EUR 5 billion potential leverage optionality that you commented before, specifically related to share buyback, is there any financial limitation to do that, like, for example, EPS accretion? Marco Palermo: So on data centers, are we having a conversation on PPAs? Yes, of course, and it's mostly related with the big guys, I would say. Question number two, that is on the leverage optionality. I guess that there -- I mean, frankly, the only thing we are checking and seeing in the share buyback use is not reducing the -- structurally the liquidity of our shares, okay? That is the only real limitation and the only thing that we are carefully look for the use of the share buyback mechanism for the time being. Mar Martinez: Okay. This was the last question from the conference call. And now I will read just one pending question that comes from Philippe Ourpatian from ODDO. And the question is regarding the Portuguese statement from the rate of return and if this could be a good proxy for Spain. He mentioned the increase of 170 basis points in the write-off return. Please, Pepe. José Gálvez: Thank you. Let me say that increase of 170 basis points will give us something around 7.1%, 7.2%. Well, it is better than the one that we have today. I think it would have more sense. Also, if we take into account what the CMC are doing with other regulated sector in Spain, that will give us something around 7.2% that is very closer to the one in Portugal. Well, the other thing is that the financial remuneration rate all over Europe is something between 7% to 8%, let's say that. So well, it would be in the lower range that we see in other countries but -- well, I think it would be better than the one that we have today, of course. Mar Martinez: Okay. Now yes, this was the very last question of the conference call. Thank you for your participation. And as always, IR team will be available in case you need any further questions. Thank you very much.
Operator: Good morning. My name is Carrie, and I will be your conference operator today. Welcome to the New Gold Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions] Please be advised that today's conference call and webcast is being recorded. [Operator Instructions] I would now like to hand the conference over to Ankit Shah, Executive Vice President and Chief Strategy Officer. Please go ahead. Ankit Shah: Thank you, operator, and good morning, everyone. We appreciate you joining us today for New Gold's Third Quarter 2025 Earnings Conference Call and Webcast. On the line today, we have Patrick Godin, President and CEO; Keith Murphy, CFO; Travis Murphy, Vice President, Operations; and Jean-Francois Ravenelle, Vice President, Geology. In addition, we have Luke Buchanan, Vice President, Technical Services, available to assist during the Q&A portion of the call. Should you wish to follow along with the webcast, please sign in from our homepage at newgold.com. Before we begin the presentation, I'd like to direct your attention to our cautionary language related to forward-looking statements found on Slide 2 of the presentation. Today's commentary includes forward-looking statements relating to New Gold. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in the presentation. You are cautioned that actual results and future events could differ materially from those expressed or implied in forward-looking statements. Slide 2 provides additional information and should be reviewed. We also refer you to the section entitled Risk Factors in New Gold's latest AIF, MD&A and other filings available on SEDAR+, which set out certain material factors that could cause actual results to differ. In addition, at the conclusion of the presentation, there are a number of end notes that provide important information and should be reviewed in conjunction with the material presented. The third quarter was an impressive one for New Gold, and Slide 4 highlights some of the key quarterly accomplishments. We had an excellent quarter operationally with both production and costs making big improvements compared to the second quarter. This was highlighted by Rainy River's record quarterly production of over 100,000 ounces of gold, a 63% increase over the second quarter. At New Afton, B3 continued to overperform during the third quarter, while C-Zone remains on track to ramp up to full production in 2026. We remain well positioned to deliver on our 2025 guidance objectives we outlined at the start of the year. Importantly, these impressive quarterly results were achieved while maintaining focus on safe production with a low total recordable injury frequency rate of 0.61, down from 0.82 in the second quarter and continuing the downward trend over the last 3 years. During the quarter, New Afton surpassed 1 million hours and Rainy River surpassed 1.5 million hours worked without a lost time injury, marking a significant safety milestone at both sites. On a consolidated basis, the company produced approximately 115,200 ounces of gold and 12 million pounds of copper in the quarter. All-in sustaining costs reduced from the second quarter by $425 an ounce to $966 per ounce. With an average realized gold price of $3,458 per ounce, this represents an impressive all-in sustaining cost margin of $2,492 per ounce. We expect all-in sustaining costs to reduce further through the fourth quarter. The company generated more than $300 million in cash flow from operations and achieved a record quarterly free cash flow of $205 million, highlighted by Rainy River's quarterly record of $183 million in free cash flow. The balance sheet was further strengthened in the quarter as we repaid a total of $260 million in debt, including the $150 million drawn on the credit facility earlier this year as part of the New Afton buyback, and this was repaid 1 quarter ahead of plan. The company continued to advance initiatives aligned with our 3-year production growth and accomplished several key milestones during the quarter. At New Afton, C-Zone cave construction is approximately 79% complete, supporting the progressive increase in processing rates towards the target of 16,000 tonnes per day by early 2026. At Rainy River, the focus remained on increasing underground development and production rates, which Travis will speak to shortly. Lastly, our exploration initiatives made significant progress as outlined in our September news release, highlighted by the significant growth in New Afton's K-Zone and the ongoing exploration activities at Rainy River to offset mining depletion. In summary, we had a strong quarter, and we built on the results from the first half of the year, all on maintaining focus on generating meaningful value for our shareholders. With that, I will now turn the call over to Travis. Travis Murphy: Thank you, Ankit. I'm on Slide 6, which has our operating highlights. As Ankit noted, Q3 delivered strong production and costs. Production totaled approximately 115,200 gold ounces and 12 million pounds of copper. This increase in gold production compared to Q3 2024 was driven by planned higher feed grade at Rainy River, partially offset by lower planned feed grade at New Afton. Consolidated all-in sustaining costs for the quarter were $966 per gold ounce on a byproduct basis, 19% lower than Q3 2024 and a substantial improvement over the first 2 quarters of 2025. Costs are expected to continue to trend down in the fourth quarter. At New Afton, the B3 cave continued to overdeliver compared to the plan set out at the beginning of the year. As a result, New Afton achieved an all-in sustaining cost of negative $595 per ounce after considering copper credits. Rainy River delivered a strong quarter, a record quarter as the mill processed higher-grade open pit ore. All-in sustaining costs were $143 per ounce in the quarter, a substantial 39% improvement compared to the second quarter. Costs should continue to trend lower in the fourth quarter with lower sustaining capital. Our total capital expenditures for the quarter were approximately $76 million with $19 million spent on sustaining capital and $56 million on growth capital. At New Afton, sustaining capital is primarily related to mobile equipment, while growth capital is primarily related to construction and growth mine development, tailings and machinery and equipment. At Rainy River, sustaining capital is primarily related to open pit stripping and the tailings dam raise, while growth capital is related to underground development and machinery and equipment. Turning to the assets, starting with New Afton on Slide 7. New Afton delivered another quarter on plan. B3 contributed approximately 4,300 tonnes per day during the quarter. The additional tonnage from B3 above and beyond the previously planned April exhaustion continues to provide excellent shareholder value as it comes with no additional capital. We expect the B3 cave will now exhaust in the middle of the fourth quarter as the current contribution has reduced down to around 1,500 tonnes per day. Annual copper and gold production is expected to be in line with the guidance profile previously provided. During the third quarter, New Afton generated over $30 million in free cash flow while continuing to complete the construction of the C-Zone block cave. Through the first 9 months of 2025, New Afton has generated $115 million in free cash flow. In terms of development, C-Zone cave construction continues to advance on schedule with cave construction progress at 79% complete as of the end of September. C-Zone remains on track to ramp up to full processing capacity of approximately 16,000 tonnes per day beginning in 2026. Now turning to Rainy River on Slide 8. Gold production in the third quarter was 100,300 ounces of gold at an all-in sustaining cost of $1,043 per gold ounce sold, an increase -- a 63% increase in gold production and a 39% decrease in AISC compared to the second quarter. This excellent performance was driven by processing higher grade open pit material in addition to processing and pouring the 5,900 ounces of gold in circuit as discussed at the end of the second quarter. The mill continued to perform well with quarterly throughput averaging over 25,100 tonnes per day. Following the impressive third quarter results, Rainy River gold production is now expected to be above the midpoint of guidance of 265,000 to 295,000 ounces of gold. As a result of the strong Q3 results, Rainy River generated a quarterly record $183 million in free cash flow. As Ankit mentioned, progress was made during the quarter in advancing underground operations with a focus on increasing underground development and production rates. We undertook a number of key initiatives during the quarter, specifically designed to improve recruitment and retention of our people and contractors. These include camp facility upgrades and travel improvements. They also included contract modifications to incentivize and reward optimized development rates. While this has led to an increase in cash costs and certain growth capital items related to the underground, it is a significant step forward in securing the production growth expected in the coming years. We are seeing improvements in the continued ramp-up in daily underground development rates, which we expect to build on through the fourth quarter. To sum up, we made excellent progress in the third quarter and remain on track to deliver our 2025 production and cost goals as well as longer-term objectives. And with that, I'll turn it over to Keith. Keith? Keith Murphy: Thanks, Travis. The financial results can be found on Slide 10. Third quarter revenue was $463 million, higher than the prior year quarter due to higher gold and copper prices and sales volumes. Cash generated from operations before working capital adjustments was $296 million or $0.37 per share for the quarter, higher than the prior year period, primarily due to higher revenues. New Gold generated record quarterly free cash flow of $205 million as higher revenue was only partially offset by higher capital expenditures as key growth projects were advanced. The company recorded net earnings of approximately $142 million or $0.18 per share during the third quarter. The increase in earnings for the quarter and year-to-date is primarily due to increase in revenues, partially offset by higher share-based payments due to the increase in the company's share price. Year-to-date, this has also impacted our consolidated all-in sustaining costs by approximately $75 per gold ounce. After adjusting for certain other charges, net earnings was $199 million or $0.25 per share in Q3. Our Q3 adjusted earnings include adjustments related to other gains and losses and nonrecurring items. Turning to our balance sheet on Slide 11. At the end of Q3, we had cash on hand of $123 million and a liquidity position of $500 million. In July, we redeemed the remaining $111 million of the 2027 senior notes paid for with cash on hand. During the quarter, we also repaid the full $150 million, which was drawn on the credit facility to fund the New Afton buyback transaction announced back in April. This was 1 quarter ahead of plan. To sum up, we remain in a very healthy financial position with a significant free cash flow profile ahead of us. With that, I'll turn the call to Jean-Francois to discuss exploration. Jean-Francois Ravenelle: Thanks, Keith. I'd like to touch on our exploration successes that were released during the quarter. Exploration at New Afton continues to be at an all-time high. We currently have 9 drills turning at K-Zone as we work to define and grow the deposit. We recently increased our exploration budget by $5 million, as previously announced, bringing us to a full year budget of $22 million for approximately 63,000 meters of drilling. We also reported 2 significant exploration highlights at New Afton. First, in addition to confirming the width and the continuity of previously reported mineralization at K-Zone, we have discovered additional mineralization in the footwall of the zone, which has more than doubled the known extent of the system. The system now reaches an impressive 600 meters in strike length and 900 meters in vertical extent with the horizontal thickness locally reaching up to 180 meters. Secondly, exploration drilling conducted from surface intersected C-Zone grade copper gold mineralization located 550 meters to the east of the current K-Zone footprint. As shown on Slide 13, Borehole 596E intersected 1.1% copper equivalent over 55 meters of core length, demonstrating the high potential for further growth in the eastern sector of the mine. We are continuing to work towards the maiden resource at K-Zone for end of year. Following that, we will work towards completing a feasibility study for the first half of 2027. Moving on to Rainy River on Slide 14. The exploration strategy at Rainy River remains focused on sustaining the recent success in mineral reserve replacement. At the Northwest Trend open pit zone, which is located immediately west of the Phase 5 pushback, our drilling programs are expected to grow and upgrade the existing pit-constrained resource to the indicated category. Engineering studies are currently underway to evaluate potential mineral reserves. At Underground Main, exploration drilling focused on converting inferred resources to indicated resources while growing the existing ore zones down plunge and along strike, targeting the highest grade ore zones that can provide additional mining flexibility and further improve the production profile. Concurrently, engineering studies are advancing to support conversion of underground resources to mineral reserves. Looking forward, the next phases of drilling to be conducted in 2026 and 2027 will benefit from future underground platforms, which are expected to accelerate resource and reserve development over that period and beyond. In addition to growing the surface and underground footprints, we own a significant land package that has remained largely underexplored. This year, we plan to invest approximately $2 million to initiate the identification of additional exploration opportunities over our 31,000 hectare land package. With that, I'll turn the call to Pat for closing remarks. Patrick Godin: Thank you, Jean-Francois. As I have said previously, we expect continued and significant growth in gold and copper production over the next 2 years. Third quarter performance was an excellent indication of our potential production and free cash flow generation in the years ahead. As production volume increase, the unit cost per ounces of gold is projected to decrease subsequently. As a result, we continue to expect to generate significant free cash flow over the next 2 years. We have left the pricing for this figure unchanged since the start of the year. It shows that we generate approximately $1.8 billion of free cash flow over that period. For 2025, we expect to beat the high end of this projection and with rising production and current spot price, the 2026 and 2027 free cash flow generation substantially above those outlined in this figure. In closing, the third quarter was really positive for New Gold as we continue to deliver on our stated strategic goals. We will continue to build on these goals from here. This includes delivering on 2025 production and cost guidance with the same attention to health and safety. Our continuous improvement with our total reportable incident frequency rate performance is a direct indicator of the support from all my teammates from the courage -- for the courage to care culture. At New Afton, we will ramp up C-Zone and continue our aggressive exploration program at K-Zone with the goal of releasing a maiden resources in early '26. At Rainy River, we will continue to ramp up the underground mine and advance Phase 5 open pit development, and we will continue our exploration efforts targeting offsetting mining depletion. New Gold offers a compelling investment opportunity with increasing production and significant free cash flow generation combined with our safe, well-established mining jurisdiction, increasingly compelling exploration upside and exposure to what we view our preferred metal in gold and copper. We are confident in our ability to deliver additional upside from here. We'll continue to build from here, both operationally as well as with project and exploration catalysts, which are expected to create meaningful value for our shareholders and provide increased financial flexibility and optionality for New Gold moving forward. This completes our presentation. I will now turn it back to the operator for the Q&A portion of the call. Operator: [Operator Instructions] Your first question will come from Anita Soni with CIBC. Anita Soni: A couple of questions. So firstly, on the New Afton C-Zone and B-Zone. Can you give us a breakout of how much came from the C and the B in terms of tonnes? Patrick Godin: From tonnage, the B-Zone contributed 4,300 tonnes per day over the quarter and C-Zone contributed the remainder of the tonnage there, Anita. Anita Soni: Okay. All right. And would it be possible to also find out what the grades were for those? Patrick Godin: What are the grade for each... Travis Murphy: Yes. The grade for each... Patrick Godin: So can we get back to you on this? What we have is the combined rate. Anita Soni: Yes. Okay. I would appreciate a call back on that one. And then just secondly, I wanted to say, so that's an impressive free cash flow generation this quarter. And I think on Slide 16, you have $2.2 billion for 2025 to 2027 and using a conservative gold price at $3,250 considering we're somewhat over that at spot. I think the question would be beyond paying down debt, what are your plans from a capital allocation standpoint with that free cash flow? Ankit Shah: Anita, it's Ankit. I think we've previously said we take a very disciplined approach on capital allocation. You're right, we generated good free cash flow this quarter and paid down debt. We also increased our exploration budget on the strong results on the back end of our September release. I think we -- from a capital allocation perspective, we have a pretty clear methodology. We want to maintain a strong balance sheet. Beyond that, we want to invest in exploration and also on organic opportunities because we see that adds the most value. And then after that, we'll evaluate capital return to shareholders, all while balancing our evaluation on inorganic opportunities. Anita Soni: And then... Ankit Shah: Right now, we're -- sorry, continue. I can say on the capital return front, we're currently evaluating options with our Board right now. We want to ensure we maintain financial flexibility and capitalize on the right opportunity as they come up. And from an M&A perspective, I think we've shown a very prudent and disciplined approach. We think we've done -- we did our best deal of the year so far with consolidating New Afton. But we'll continue to take a measured approach on M&A with the goal of increasing value on a per share basis. Anita Soni: Okay. So yes, so my follow-up was going to be on would a special dividend, share buyback or a more structured dividend be the preferred route, and it sounds like it's something that's more flexible, so probably one of the former 2 options. Ankit Shah: Yes. So we're actually -- as I just said, we're reviewing options with our Board right now as we go through our budget process this quarter, and we'll be able to provide a better update as we roll out our plans for 2026. Anita Soni: Okay. And then finally, just on exploration. So on the K-Zone, could you just -- so this extension looks pretty good. Could you just sort of remind me like what that would translate to once diluted like on -- I know you're going to be putting out a resource update early in the new year, but I just wanted to try to get an idea in context of what C-Zone grades. Are you seeing them going to end up being similar or end up being higher than the current C-Zone grades that you have? Jeff LaMarsh: Anita, Jeff here. So yes. So on the K-Zone, it still have a lot of drilling to do this year, about 10,000 to 15,000 meters. And like you say, we still have to do our work, update our models to really know the total size and grade of that will be and placement of concerning shapes as well. So it's still early to say. Anita Soni: Okay. Congratulations on a solid quarter all around from exploration to paying down debt and to delivering on the ops. Operator: Your next question will come from Jeremy Hoy with Canaccord Genuity. Jeremy Hoy: I need to address the first one on capital allocation. So maybe I'll focus a little bit more on some of the upside opportunities in existing operations. K-Zone, I think, pretty excited about what we could see there. Good to hear we've got a study coming early 2027. Rainy River definitely looks like we're going to see more gold there. But just wondering the tailings management was a key part of potentially extending mine life there rather than just displacing the stockpiles in the production plan. Can you give us an update on how you're thinking about that and what the likely solutions to tailings management are there? Patrick Godin: So thank you, Jeremy. First, you're clearly -- by your question, you explained why we are prudent in terms of returning capital to shareholders. It's our intent to return capital to shareholders. The question is not if we're going to do, the question is what we're going to return. And for that, we need to assess exactly first, what is going to be our long-term plan. So we are drilling. So we invest drastically in exploration during the last 2 years. We -- it's our intent to continue to invest because we create a lot of value for shareholders, and we believe in our 2 assets, and we see a potential in our 2 assets. So -- and for that, I think we need to assess the full potential of K-Zone. We're not there. So it's a nice problem. So we did not fix the boundaries of K-Zone no matter if we drill a significant amount of meters this year. And it's -- and also, we have Northwest trend -- and we're looking to the possibilities. We have to do a pushback. It's going to be another pit extension or a pit satellite. So -- and we want to size our investment before to determine what we're going to return. So that's the first approach. In terms of the tailings storage facility, again, if we have a satellite pit like Northwest trend, it's becoming not only a source of ore, but it's an opportunity to store tailings storage. So it's in our game plan here, we try as much as we can to stay away because the TMA actually, we still have room to play in this, but we are close to the full capacity in the current design that we have. And with Northwest trend, I think for now, we're not seeing a need to have further significant investment in the TMA. So it's improving the return of the mining of the satellite pit. So -- so for now, we're not seeing additional investment in the TMA with the plan that was presented to you and to the shareholders in February last year. And with the addition of Northwest trend, we're not seeing additional investment in the TMA too. Jeremy Hoy: That's really helpful. Also on Rainy River, you mentioned some of the things you've done to, I guess, probably improve retention rates, the flights camp, incentivization, et cetera. Can you give us an idea of what turnover is now and what you're targeting with these improvements? Patrick Godin: Yes. Maybe I can help Travis on this. In Ontario, actually, we have a shortfall of miners. So as you know, mainly of [ red sees, ] trade person, so mechanics or quality miners. And so we have more people who are getting retired and people who are joining our industry. So we want to make sure to be attractive to support our development. So for that, we have -- we plan to attract more local people. We're not in a region where we are -- it's not a mining camp Rainy River. So we maximize as much as we can in the hiring of local people because it's where we're creating value for the local communities. But we have a certain limit. And so we had to increase our -- increase and improve our capacity and the quality of the infrastructure. So we did that. It represents -- it's a pro because it's helping us to be -- to attract. Also, we have to improve our facility at site to retain people. And also, we work really hard with the contractor to provide an attractive incentives to retain high-quality performer to achieve the plan that we want to do. So it's mainly what we did. So we capitalize in infrastructures. We improved the quality of our infrastructures. And also we implement incentives in the contract to retain quality miners. Jeremy Hoy: Really nice to see the free cash flow thesis playing out. Operator: Your next question will come from Eric Winmill with Scotiabank. Eric Winmill: Nice to see the free cash flow in the Q3. I think some of my questions have already been answered, but maybe just one here on Rainy River. You're into the higher grade now. I'm just wondering what we should expect for the balance of this year. And based on the photos, it looks like that secondary open pit egress has been completed. So yes, just wondering any guidance for the -- for Q4 would be helpful. Travis Murphy: Sure. It's Travis here. Thanks, Eric. Yes, generally, we're seeing a continued trend in Rainy River open pit Phase 4 from what Q3 is, and it's going to continue on into Q4. So we're not seeing any real changes in our trajectory there. Phase 4 is working out very well for us. Eric Winmill: Okay. Great. Appreciate it. And then just on New Afton here in terms of K-Zone. So you're drilling, I think you said about 66,000 meters this year. Wondering if all that will make its way into the resource for next year. And I know still early days, but any thoughts in terms of development here? Are you thinking about this as more of a traditional underground as opposed to a block cave or sublevel cave? Any detail would be appreciated. Patrick Godin: I think here is it's preliminary. So first, we'll -- the problem that we have with K-Zone is to determine the size of the animal, if I can say that because we're still open and we still have drilling to do. And so for sure, what we like is we can when Luke needs with Jean-Francois to complete the feasibility study with the team, we have multiple factors that will determine if it's a cave shape or not. And also, we have to deal with how deep is the ore body, too. So I can say to you that it's premature at this stage to confirm that it's going to be a cave or a more selective mining method. But we are -- for that, we need to size it. And I can say to you, Eric, that next year, we'll need to continue to drill to determine what we have on hand because the limits are not -- and we have 2 objectives. It's always the 2 objectives that Jean-Francois is having, is to advance the resource to produce reserves and also to look what's next. We at New Gold, we were not necessarily good to develop this arrow of projects to get to reserves because we were limited in our capacity to invest in exploration. Now that we are and we demonstrate to shareholders that we're creating value with this, we want to be one step forward in advance. So we -- our objective and our dream was as a team to bring New Afton beyond 2040. I think it was trending well, but we need -- we have work to do to confirm the feasibility of that. But we are already thinking beyond 2040, can we push that to 2050. And it's what we're looking now. But it's premature for now to say what mining method we're going to have here. Eric Winmill: Okay. Great. I really appreciate that. And obviously, the second part, you do expect all of the drilling for this year will make its way into the resource? Or are you seeing a lot of backlogs on the labs and getting the assays back? Jean-Francois Ravenelle: Yes, that's right. We will drill all the way to the holidays basically in December. And we will include all of the drilling and the assays that we can in January when we update our models and define the resource. Operator: [Operator Instructions] Your next question will come from [ Mohammed Sasaidi ] with National Bank Capital Markets. Unknown Analyst: Congrats on a great quarter and the free cash flow -- positive free cash flow in the quarter. So most of my questions have been answered, but just maybe on New Afton, given the good performance from the B3 cave as it exhausted, how should we think about the grades coming into 2026? Could we see maybe a little bit lower grade on the tech report there? Or could you help me maybe provide some color on that one? Jean-Francois Ravenelle: Yes. I think in 2026, as we add that great performance from B3 throughout the year. We are now focusing on transitioning across to continuing that ramp-up of C-Zone. As we have previously disclosed, the grades at the start of the cave will be a little bit lower as you continue to advance that healthy cave growth. So we should see that transitioning up in line with our plan. Unknown Analyst: Right. And then still, you asked with the positive progress at K-Zone and the additional exploration efforts that will continue to do in 2026, how should we think about the CapEx there versus the tech report? Patrick Godin: I think we're done on the CapEx for the tech report. We'll get back -- we can get back to you on this. But actually, we're not -- we're seeing not some extras. I think we're trending in the same. Operator: And there are no further questions at this time. I'll turn the call back over to Ankit for any closing remarks. Ankit Shah: Great. Thank you very much, and thank you to everybody who joined today. As always, should you have any additional questions, please do not hesitate to reach out to us by phone or e-mail. Have a great day. Operator: Thank you for your participation. This does conclude today's conference. You may now disconnect.
Massimo Reynaudo: Hello, everyone. Welcome to UPM Quarter 3 2025 Results Webcast. I'm Massimo Reynaudo. I'm the CEO of UPM. And here with me today is Tapio Korpeinen, the CFO. The third quarter brought some temporary clarity to the terms of the international trade, but significant uncertainty remained, and the consumer demand stayed subdued. Our businesses in Advanced Materials and in the Decarbonization Solutions segment improved their third quarter performance compared to the previous year. On the other hand, the Renewable Fibres, and Communication Paper businesses were impacted by the unusual volatility in their operating environment. In quarter 3, comparable EBIT was EUR 153 million, up 21% compared to the previous quarter, but down 47% compared to the last year's corresponding period. The EBIT margin was 6.7%. During the quarter, we continued to take decisive actions to further strengthen our competitiveness. Our focus has been and is on improving performance, cash flow generation and the strength of our balance sheet. I will come back and tell you more about these actions during the presentation. But first, let's look at the macroeconomic environment we operated in quarter 3. And let's look at Renewable Fibres to start with. As you may remember, the pulp market prices decreased during the peak of the trade uncertainty in quarter 2 and starting from China. In quarter 3, pulp sales prices remained low, impacting our quarter 3 earnings. As a positive sign though, during the quarter, the pulp demand normalized in China and hardwood pulp prices increased somewhat from the bottom. In Finland, wood costs reached their highest level in quarter 3 when then wood market prices started eventually to show the first signs of decline. Communication Paper markets remained weak in Europe and in North America. The demand in Europe in quarter 3 was 7% lower compared to 1 year before. In the U.S., the new import tariff levels were finally set during the quarter, bringing some clarity and allowing the customers to properly plan their needs again and for us, restoring the possibility to properly plan and optimize production and shipments. Having said that, the general uncertainty continued to weigh on the business sentiment and ultimately, on the level of the demand. Turning the page. In the advanced materials segment, the demand of labeling materials remained relatively resilient. In the adhesive materials, specifically, the demand was seasonally low, lower than quarter 2. But when we look at the full year base, the market continued to grow, even though some signs of a slowdown were visible in the U.S. The demand for plywood was stable, and I will tell you some more about this business shortly. In Decarbonization Solutions, the market situation in general improved. When it comes to the energy business, in fact, the electricity consumption in Finland continued to be robust, and the electricity prices increased from the comparison quarters. In the same way, the prices of renewable fuels continue to recover, supported also by an improving demand. At this point, I will hand it over to Tapio for some more analysis on our results. Tapio Korpeinen: Thank you, Massimo. So let's start here with our results by the business area. Fibres and Communication Papers were the business areas that reported a lower EBIT compared to last year, whereas Adhesive Materials, Specialty Papers, Plywood, Energy and Biofuels, all improved their EBIT year-on-year. First, on Fibres. As Massimo said, pulp prices were very low in the third quarter, decreasing 11% sequentially from the second quarter or 23% from last year's third quarter. Price development resulted in a significantly lower EBIT than last year, and slightly lower EBIT compared to the second quarter. At the cycle low prices, Fibres South, the competitive pulp platform of ours in Uruguay, reported an EBIT of EUR 80 million, which is equal to an EBIT margin of 22%. Fibres North, that is the pulp and timber operations in Finland, reported an EBIT loss of EUR 37 million in the third quarter, during which the Kaukas pulp mill was down for maintenance and for extended production curtailment and the impact of this was approximately EUR 30 million on the quarter. This means that at cycle low pulp prices and peak level of wood costs, UPM Fibres North was slightly negative in EBIT and positive in EBITDA, excluding the Kaukas shutdown. Communication Papers deliveries were stable from the second quarter, but 13% lower than last year in the third quarter. The average paper price in euros decreased by 1% compared to the second quarter and 6% year-on-year. Fixed costs decreased in Communication Papers. EBIT decreased from last year, but improved slightly from the second quarter sequentially. Adhesive Materials and Specialty Papers achieved increased deliveries and lower costs compared to last year. Both increased their EBIT year-on-year and showed resilient performance from the previous quarter. Plywood reported solid results with normal production now and increased deliveries. Energy had a good quarter, benefiting from increased electricity market prices and from successful production optimization in the volatile electricity market. Our average sales price for electricity increased 17% from last year or 12% from the second quarter. And on this page, then you see our EBIT development by earnings driver. And as you can see here, the main headwind in the third quarter were the sales prices. On the left-hand side, lower sales prices impacted the third quarter results by about EUR 190 million compared with last year. Sales prices decreased most notably in Fibres and Communication Papers. Lower variable costs had a significantly smaller positive impact. Changes in delivery volumes were neutral on group level, while deliveries increased for Pulp, Adhesive Materials, Specialty Papers, Plywood and Biofuels, there was a decrease in deliveries in Communication Papers. Fixed costs increased mainly due to the maintenance shutdown at the Kaukas mill. On the right-hand side, sales prices had a negative impact also compared with the second quarter, mainly due to the low pulp prices. Variable costs decreased for most categories compared to the second quarter, but wood costs still increased, however, following the earlier wood market price development with the usual lag. Fixed costs decreased from the second quarter due to lower maintenance activity and also due to seasonal factors. Then our operating cash flow was EUR 218 million in the third quarter, and our net debt decreased by EUR 92 million from the second quarter and was EUR 3.218 billion in total at the end of the quarter. Net debt-to-EBITDA ratio was 2.36x. While we see our financial standing as solid, this is somewhat above our policy limit of 2x net debt to EBITDA. And therefore, obviously, we aim to bring the net debt-to-EBITDA back to below 2x level in a timely manner. Massimo will shortly discuss the various actions we are taking to improve our profitability. In addition, we are pursuing working capital release and improving our cash conversion, working capital efficiencies to support our cash flow. Our outlook is unchanged from the previous quarter. We expect our second half 2025 comparable EBIT to land in the range of EUR 425 million to EUR 650 million. Our fourth quarter performance is supported by the timing of the annual Energy refunds. In Communication Papers, the amount of refunds is likely to be similar or slightly smaller than last year. It is also likely that there would be a forest fair value increase in the fourth quarter, which could be of a similar magnitude or smaller than what we had last year. Fibres performance in the short term continues to be impacted by pulp prices. In the fourth quarter, we have actually already completed in the month of October, the planned maintenance shutdown at our Fray Bentos mill in Uruguay, which will have an impact on the quarter result of similar magnitude or scale as was the case in Kaukas, about EUR 30 million. In Advanced Materials businesses and Energy, we expect resilient performance to continue. And now I'll hand back over to Massimo for some comments on our actions and direction from here. Massimo Reynaudo: Good. Thank you, Tapio. Well, we continue to take decisive actions to improve our competitiveness and performance, as I said earlier. Most of our businesses have a significant organic growth potential that can be captured with targeted limited and CapEx-efficient investments. That's what we will be looking into. But finally, or in parallel, we continue to develop a portfolio of world-class businesses. Let me illustrate now the most characterizing initiatives we are implementing segment by segment, and let's start with Communication Paper. In this business, efficient capacity utilization is critical. And in a weaker market, we plan to close down paper production at the Kaukas mill in Finland and at the Ettringen mill in Germany by the end of the year. Together, these two closures will reduce our paper capacity by 570,000 tonnes or 13% of our current capacity. This initiative will lead to a combined reduction in annual fixed cost of EUR 70 million. With these measures, we will maintain our competitiveness and the future performance. In October, we also sold the earlier closed down Plattling paper mill site in Germany, and this will contribute to Communication Paper cash flow in quarter 4. Let's move to UPM Fibres now. Tapio has anticipated it, but given the significance of the UPM Fibres business and the distinct characteristic of the business in Finland and in Uruguay, we have decided to provide some additional transparency here. So we introduce today the notion of Fibres South to refer to our Fibres platform in South America, and Fibres North, to refer to the Fibres platform in the Nordics. As a first step, today, we indicated the EBIT level for the two parts. Next, we will start providing additional financial information for the two parts on a regular basis starting in quarter 1 next year. But meanwhile, when it comes to Fibres South, 2025 is the first full year of production at nominal capacity for the Paso de los Toros pulp mill, and also the first full year of operating at full capacity for the supporting logistics network. The pulp prices are very low, as Tapio mentioned earlier. But despite that, Fibres South reported an EBIT of EUR 80 million during the quarter and a margin of 22%, which is indicative of the competitiveness of this platform despite the weak market conditions. For years on, improvements will continue. By 2027, the expanded plantation areas we have in Uruguay will increasingly reach harvesting maturity, enabling us to optimize the wood sourcing and the inbound logistics. Further, self-sufficiency will increase, and inbound transportation distance will decrease, therefore, reducing cost. To give it a scale, in the beginning of this year, 2025, we envisioned a cost reduction of some $25 to $30 per tonne compared to 2024 in Uruguay. We are well on track to achieve this this year. But we believe that, thanks to this further and ongoing optimization, we will be able to provide roughly a similar improvement by 2027, of course, all the rest remaining equal. Besides that, we will continue to pursue growth in a CapEx-efficient way through further debottlenecking. When it comes to the other platform and in Finland, Fibres North was in a slightly negative EBIT territory in quarter 3, excluding the Kaukas shutdown. Wood costs reached their highest level in the summer before starting to decrease. Pulpwood market prices on average decreased some 5% in quarter 3 compared to quarter 2. In this situation, we took measures to adjust the Finnish pulp operations to the market situation. We took 2 months of downtime at the Kaukas mill during quarter 3. And we will take 2 weeks of downtime at the Pietarsaari mill in quarter 4. These measures will allow us to optimize our wood sourcing and avoid the most expensive wood. The benefits of these actions will be fully visible in the P&L when the purchased wood volumes will be consumed, which means during quarter 4 or the early part of next year. Another significant action we implemented in this space is the long-term strategic partnership we agreed with Versowood, and that we've announced in September. Versowood is the largest private producer and processor of sawn timber in Finland. The deal is beneficial for both parties. For us, it will strengthen the supply of pulpwood and chips, and improve the cost efficiency of our wood sourcing. Moving to another segment. In Advanced Materials, as we have characterized it before, our performance has been resilient. During 2025, Adhesive Materials has reduced fixed cost and streamlined its product portfolio significantly. Earlier, we announced the closure of the Kaltenkirchen factory in Germany and the relocation of the production to lower-cost locations. In quarter 3, we announced plans to discontinue the production in Nancy, in France, in order to increase further production efficiencies and competitiveness. At the same time, and in line with the strategy communicated earlier on, we -- the business continues to seek focused growth in higher margin and higher growth areas. In this direction, go the investments announced in the U.S., in Malaysia and in Vietnam. In parallel, the business continues to build its positions on the graphic space following the recent acquisitions. When it comes to Specialty Papers, there two efficiency measures have been implemented, aimed to reducing costs in China, and protecting the competitiveness in that area. From a commercial standpoint, the business continued to develop solutions being paper-based and alternative to plastics for the growing segment of flexible packaging end users. And in Plywood, we initiated a strategic review to assess options for maximizing the long-term potential of the business. The review includes a range of alternative outcomes -- possible outcomes, including potential separation from UPM through a divestment, a partial demerger or an initial public offering. The aim is to determine the best path forward for the business and for the value creation for UPM shareholders. But let me spend a couple of minutes to tell you a bit more about this business. First of all, Plywood is a very good business. It has a strong market position in the mid- to high-end market segments where it operates in Europe. And in the liquid natural gas segment, it holds a market-leading position globally. The business success is built on a number of specific strengths: A competitive premium offering generated through or from 4 spruce mills and 3 birch mills, the top-tier quality of the products manufactured there; a strong and reliable customer base; a strong brand, WISA, extensively recognized in the industry; and unmatched service capabilities, thanks to 6 warehouse hubs and some more. Thanks to that, the Plywood business has successfully provided good profitability and cash flow in all the different economic cycles of the past. On the other hand -- and despite all of this and despite the fact the UPM Plywood business is the scale of a midsized company in Finland, it is the smallest of the UPM businesses. And as such, it competes for focus and resources with much larger businesses. For these reasons, we want to assess whether on a different setup, acting on a stand-alone base or being part of another entity, will enable even better results. Therefore, this is the rationale for the strategic review, and this review is expected to be conducted or concluded by the end of 2026. Finally, we come to the Decarbonization Solutions. And here, we have unique solutions, all offering our customers ways to decarbonize their businesses. In Energy, we have 12 terawatt hours of CO2-free electricity, which make us the second biggest producer in Finland, consisting of reliable baseload of nuclear power and flexible supply of hydropower. This mix allow us to maximize the value on a highly volatile weather-dependent electricity market. On the other dimension of growth there, we have the capability to supply CO2-free electricity to a market where the demand is growing due to the electrification of the industrial production, heating moving away from biomass use and numerous data center-related projects and road transportation. In Biofuels, our short-term focus has been on improving performance and getting it back to profit after a challenging 2024. Here, we have made good progresses this year. In terms of growth, we are planning CapEx-efficient debottlenecking at the Lappeenranta refinery. Simultaneously, we are proceeding with the qualification of process -- sorry, with the qualification of sustainable aviation fuels. Last but not least, the start-up of our groundbreaking biochemical refinery in Leuna, in Germany, is proceeding. It's -- in the first of its three core processes, we have successfully achieved stability after having started production during the summer, and the production levels are now on an industrial scale. The sale of the first commercial products, which are industrial sugars and lignin-based products are expected to start during quarter 4, followed by glycol sales in the first half of 2026. In line with earlier indications, full production and positive EBIT is expected during 2027. So -- and to sum up, the market environment during the third quarter has proved to be challenging. But in this environment, our differentiated business portfolio has ensured resilient performance. Our Advanced Materials and Decarbonization Solutions improved their performance compared to 1 year before. Fibres and Communication Papers were impacted by the unusual volatility in their business environment. Most of the businesses have a growth profile and significant growth potential that can be captured with targeted investment and limited extra CapEx needs. This includes but does not limit to the entry in the new promising biochemicals business. So while we work to capture this potential, we continue to work on actions to improve profitability, cash flow and the strength of our balance sheet. This ends the prepared part of the presentation, and we are ready for your questions. Operator: [Operator Instructions] The next question comes from Ioannis Masvoulas from Morgan Stanley. Ioannis Masvoulas: Two questions from my side. The first on UPM Fibres. You talked about the Nordic mills being EBIT negative in the quarter, even if we adjust for the Kaukas maintenance. Given this weak profitability and market backdrop, would you consider more drastic measures that could perhaps include permanent curtailments? Or are you looking to wait for a recovery in the cycle especially now that pulpwood costs have started to come down? And then the second question related to the above. Can you give us an indication on the tailwind you expect from the lower pulpwood prices in Q4 this year and Q1 next year? And if you can also remind us on earnings sensitivities around wood price changes, that would be much appreciated. Massimo Reynaudo: Okay. Well, I'll pick the first part of your question, Ioannis, and leave the other part to Tapio. But let's say, as it was commented during the earlier part of this call, we had a negative EBIT in the quarter 3 in Finland. But there are a few elements to be considered there or three main elements. One is the impact of the maintenance shut, and then the additional shut we had on top of that. The other element is that wood prices were at their peak, and pulp prices were very low. Time will tell if it's a bottom, but they were surely very low. So there was a very specific coincidence of elements, all impacting the profitability. As we have commented a number of occasions before, our Finnish operations have always been profit positive so far. And well, time will tell in the future, but we run very efficient assets. And the actions we have taken during the quarter, namely prolonging the stop of the -- in Kaukas to, let's say, avoid to buy more expensive wood, but also to improve wood availability into the next quarter, is definitely going to be benefiting the performance going forward. The same way the agreement reached with Versowood will aim to improve on another of the critical elements about wood in Finland, which is availability. So as part of the deal, we will be providing Versowood logs and sawing capacity that is what they are interested to. We're going to be receiving more pulpwood and chips, which is what we are in demand of. So on the base of this, we are working to maintain and improve the profitability of the current platform. And the current platform has always been delivering, let's say, performance across the cycle. So on such base, any stop or discontinuation of capacity will just have a negative impact on results. So that's why that's the plan we have been working upon. Of course, then in the future -- situation will depend by the circumstances in the future, but we are working hard on the circumstances we control through what I said. Tapio Korpeinen: Maybe if I'll comment on your sort of second question. So as Massimo already pointed out, we saw pulpwood prices peaking during the summer and notable drop in the market price taking place. Having said that, it's good to note that there is a certain sort of seasonality in the sort of market prices typically for wood in Finland. So it's perhaps early to directly sort of extrapolate too much from this sort of shorter-term movement here. But then again, I would say that against the backdrop of what is happening in the Nordic markets in general, it is perhaps an indication in a sense that we have seen the kind of a peak in the trend, so to speak. There is a lag given the sort of cycle in our sourcing of wood -- the mix of wood, including pulpwood that we need for our operations in Finland. So therefore, would not expect any material impact yet of these kinds of movements in the fourth quarter, nor really yet in the first quarter of any big way yet. Typically, there is about 6 months' time period before the sort of market price changes start to materialize in the cost of wood consumed in the pulp mills in a bigger way. Ioannis Masvoulas: That's very clear. And sorry, just to follow up, anything you could provide on sensitivities for EBIT or EBITDA on, let's say, 10% change in wood prices? Tapio Korpeinen: That sensitivity, we don't have. Operator: The next question comes from Lewis Merrick from BNP Paribas. Lewis Merrick: With the Leuna project concluding, do you expect CapEx to be lower in 2026? And can you give a rough indication of what you expect at this stage? I've just got one more follow-up. Massimo Reynaudo: Yes, definitely, CapEx will be lower in 2026, maybe in 2027 as well. We have commented also in the past that after a big investment cycle, now it is the time to focus on extracting the value from these investments, whether it is Paso de los Toros or Leuna. So at this point in time, we do not have any other significant project that will require CapEx on a large scale for the next couple of years. Then when it comes to the CapEx needs for next year, we have not defined them yet. But just to give you a broad indication, our, let's say, maintenance CapEx level in normal condition is in the EUR 250 million per annum level. And then you can put a few tens of millions for potentially, let's say, efficiency improvement, margin enhancement initiatives on top of that. That would be broadly speaking, the scale going forward. But for more accurate indications, you need to wait, the beginning of next year. Lewis Merrick: No, that's crystal clear. And just on bridging items into Q4 to sort of reach or surpass your H2 guidance. You mentioned the forestry rebounds similar to prior. Can you just put some numbers to that? And then similarly on the Energy refunds and any other sort of moving parts from Q3 into Q4? Tapio Korpeinen: Well, if I take that, so as mentioned, basically, this forest value change for assets here in Finland, primarily then last year, we had a bit more than EUR 100 million. And as I said, we obviously then we'll see the exact figure as we sort of run the numbers during the remaining months of the year, remaining quarter. But anyway, at the scale or below what we had last year would be likely outcome from that. And well, Energy refunds, again, a bit similar, let's say, comparison there that we have had this Energy refunds in the fourth quarter of the Communication Papers as we did last year as well and this year, likely to land slightly below of the level of last year. Lewis Merrick: And just any other items to call out? Tapio Korpeinen: Nothing else other than I pointed out that we have the maintenance shutdown that was planned and actually has been completed as planned in our Fray Bentos mill in Uruguay, and that was done in the month of October now. Operator: The next question comes from Linus Larsson from SEB. Linus Larsson: Maybe a follow-up on the previous question on the Q4. Q3 bridge on Fibres specifically, what's the aggregate impact of maintenance and market-related downtime in the fourth compared to the third quarter? Is that pretty much the same? Is it easing? Or is it worsening in your opinion? Tapio Korpeinen: Well, as I said, similar in a sense that the Fray Bentos shutdown is about, let's say, same scale, EUR 30 million as what we had from the Kaukas shutdown in the third quarter. Linus Larsson: Sure. But if you add to that, the market-related downtime at Kaukas and [ Bentos ], respectively, is it pretty much the same, Q4 as in Q3 altogether? Tapio Korpeinen: Nothing to add. Linus Larsson: Okay. And then moving on to Biofuels. I didn't see you disclosing the split of other operations. Maybe you did, and I missed it. But could you maybe help us pinpointing Biofuels EBIT in the third quarter? And maybe if you have any guidance on the fourth quarter as to where Biofuels may end up? Tapio Korpeinen: Well, let's say, what we did point out when commenting on the second quarter result was that we had a breakeven result. As far as Biofuels is concerned during the quarter, from our own kind of actions from the cost and efficiency volumes side and, let's say, modest support from the market, and we continued at the same level of profitability now in the third quarter, breakeven. And let's say, again, working on our own efficiencies and, let's say, as you perhaps have seen market prices recovering in the biofuels market and, let's say, short-term sort of market situation tightening. So we would expect some support from there. Obviously, then not happy at that level as such. So look to improve further into next year. And again, one factor that will impact demand, especially for the kind of advanced biofuels that we are producing is the country-level implementation of the RED III directive. Linus Larsson: Excellent. That's very helpful. And then maybe one final question, and we touched upon it already in the call. But when it comes to Fibres operations in Finland, you made a loss of EUR 37 million. To what extent did you have support, help included in that negative EUR 37 million from positive revaluations? Tapio Korpeinen: There are no revaluations in the Fibres North because as perhaps you remember, the Finnish forests are included in our other segment in terms of our reporting segments. Operator: The next question comes from Robin Santavirta from DNB Carnegie. Robin Santavirta: Two a bit more technical questions from me. First of all, in terms of the revaluation of the Finnish forest assets, which you booked in the other operations, it looks like they will be quite sizable again this year. I guess the gross impact will be more than EUR 150 million on an annual basis in 2025. And I understand there's three components here: there's interest rates, there's net growth and then the price of wood raw material. And the key point now probably is the higher wood raw material prices that is supporting materially the adjusted EBIT and the forest revaluation '25 as it did in '24. And going into '26, a bit color would be appreciated to understand how you look at the forest revaluation of the Finnish because now we have the pricing coming down quite clearly. So could the -- should we expect the revaluation gain to be much smaller? A bit smaller? Same level? Any color on that would be appreciated. Tapio Korpeinen: Yes. Well, of course, let's say, time will tell. And of course, also you have to kind of remember in a sense that on one hand, the result and the value of our forest has been supported by the price increase here in Finland. But obviously, it has been a headwind for our pulp mills and sawmills here in Finland. Now if that kind of tide turns, it will work the other way around. So perhaps then the result, obviously, because everything is done in a market price basis for the forest operation, then will be impacted if market price is lower for wood, but then it's for the benefit of the sawmills and the pulp mills here in Finland. So obviously, that's how it works in our business model. On the price impact, of course, again, it is correct to consider in a sense what is happening in the wood market in the short term when setting the price expectations in the valuation model. But then, of course, what we have in there, to begin with, is a sort of management view on kind of the longer-term trend since we are running the valuation model for multiple decades here. So in that sense, there is a kind of level change as such, but the assumption in terms of what is the direction of sort of wood price in our model then otherwise, is kind of assessed separately, meaning that if wood price goes up, it doesn't mean that we assume that it goes up from here to eternity and vice versa. So there will be some change, obviously, then if this trend sort of starts to go to the other direction, but perhaps not as dramatic as one might think. Then as you said, the sort of other factors, the growth in the forest vis-a-vis harvest levels, interest rates will sort of play a role as well and early to sort of anticipate anything there. Robin Santavirta: Yes, the reason -- I obviously understand that what you lose there on price of wood, you gain in the industrial operations that I appreciate. It's just that it's quite sizable, more than EUR 150 million positive. And then if it would only be, say, EUR 50 million positive or EUR 25 million positive in 2026, it's a quite big delta. So -- but perhaps we get a bit more color as well when you guide then for next year. And the other question I have is related to Leuna. And again, a technical question. So I'm just -- I keep pushing on the depreciation estimate because it's still EUR 1 billion investment, so quite sizable depreciation. I can only see in the other segments, low depreciations, even lower than last year. So is this something that we should expect now as of Q4? Or is it as of next year? And any color on the size of those? Tapio Korpeinen: Well, basically, when we start -- I mean, whether it's this plant or pulp or otherwise, when we have finished an investment project, we start commissioning and eventually, when we start to have deliveries to customers, then the depreciation starts. So not meaningful this year yet, but we will then start in the beginning of next year when -- now the customer deliveries are starting to take place. Robin Santavirta: Tapio, can I just try? Is it EUR 40 million a year or something in lines of that -- the line depreciation? Tapio Korpeinen: In that scale, yes. Operator: The next question comes from Andreas Castanos Möller from Berenberg. Andreas Möller: My first question is on the strategic partnership with Versowood. It sounds very promising because you're putting together the largest pulpwood consumer with one of the largest solo consumers. So financially, what do you expect to get in terms of synergies? What do you think is a reasonable assumption here? And then also operationally, can you help me visualize how and why the synergies are generated? Massimo Reynaudo: Well, I risk here to repeat myself a little bit. But when it comes to the financials, we don't disclose them. But when it comes to how the benefits will materialize, is in this exchange of things which, one is in excess, and the other is in need of. It's what I was saying before, thanks to this deal, which, by the way, is subject to merger control authorities and still needs approval just to line things properly down. But should that happen, we will be having access to more wood chips and pulpwood. And to remember the importance of that, we have quoted it a number of times, the situation in Finland to be made challenging for pulp making. Because of wood prices, but also prices don't solve the problem of insufficient wood available. So through this deal, we will have more access to something which is key and critical for our operations. So that is the value that comes from this deal. Yes. So beyond the numbers, I don't know if I have answered your question. Andreas Möller: It is helpful. Can I ask a couple of more clarifications, please? Did you say that the time for the end of the review -- strategic review for plywood was '26, end of '26. Did I get that right? And also... Massimo Reynaudo: Yes. Andreas Möller: Okay, clear. And then the other one is for Leuna, right? You mentioned industrial sugars. And I was wondering if industrial sugars is a product that you would aim to sell in the future? Or this is something that you're just selling temporarily as you are not finalized the whole process to generate [ alcohols ]? Massimo Reynaudo: Yes. It's a very good question, and it's a very good observation as well. This is most of an intermediate product that we are getting, which has some market value. But the full value capture, imagine in the business case, will come when the plant will be in full operation, and these intermediate products will be turned into [ Finnish ] products being either functional fillers or glycols or products in this family. So there is some value in this, but the full value capture -- and we'll start to capture it, to be clear, by the end of this year, but the full value capture will start with the plant in full operation. Operator: The next question comes from Cole Hathorn from Jefferies. Cole Hathorn: I'd just like to start with Communication Paper and Specialty Paper. I'd just like to understand the key deltas into 2026. If you were to talk about what could be the positives into 2026, could you talk me through the moving parts of how you see it? If I think about Communication Papers, it's the EUR 70 million fixed cost savings from capacity closures. In Specialty Paper, I'm just wondering how you see that market considering Asia fine paper is quite challenging. And the release liner and labels businesses, there seems to be some smaller players out there are challenging. So I'm just wondering what are the moving parts into 2026 that you see? Massimo Reynaudo: Okay. Well, let me try to answer the question, but let me separate it in two because the two businesses are pretty different profiles. So if we start with Communication Paper first. Well, one element is represented by the market. And we don't know what will be the level of the market demand next year. Nobody knows it. But in this market demand has declined for the last 20 years. So we can expect the decline continuing next year. That, as a negative, if you want. At the same time, the market this year or in the first part of this year has been heavily disrupted by the uncertainty that came as a consequence of the trade war. Let's not forget, there's been significant uncertainty, for example, in the U.S. around whether there were tariffs, who was hit by the tariffs, the amount of the tariffs, when they would apply and so on. That has made extremely difficult for the players there to proper plan ahead and that had impact across the entire value chain. And last but not least, again, in quarter 2, the demand of certain type of grades in the U.S. dropped down significantly during the period of the strongest sanctions between U.S. and China because imports from China were basically stopped and catalogs were not printed and so on and so forth. So what I'm just trying to say is that if we want to compare 2026 to 2025, which I believe is what you are kind of trying to get some color about, it's probably fair to assume a demand decline, but it's also probably fair to assume, at least if things stay as they are right now, some stabilization of the flow of the products, which will allow the industry to operate in a better way because operational efficiency here is important. This is about talking about the market. When we talk about ourselves, yes, you pointed it up. The actions we are taking and reducing capacity significantly, 13% of our capacity will deliver direct fixed cost, saving improvement, but also indirect benefit from improved operating rate. So -- so yes, those are some elements to consider for Com Paper. When it comes to Specialty Paper, yes, the situation in China is -- I wouldn't know how to characterize it, but surely, the demand for those products not being as strong leads to some pressure. As for how this will play into next year, it is way too soon to try to extrapolate. A lot will depend by the downstream of businesses and ultimately, how consumer demand will evolve. It has been pretty muted during quarter 3, as we have indicated. But let's see and maybe let's also see in quarter 4, which is typically a seasonality quarter for that business that will give us a better sense and feel about the trend we will enter into next year with. Cole Hathorn: And then just on the Specialty, kind of the release liners and the label side, there have been some smaller players that have been under pressure. I'm just wondering how your business is positioned into 2026 as a larger producer. Massimo Reynaudo: Well, I think I commented on the fact of the muted demand during quarter 3, and that clearly create a pressure, then the rest depends on your competitiveness. We run large assets, well maintained. And I would say that also through the results that you can see, we have been performing pretty well in a challenging market. So then 2026, we will see later on. But in the current situation, I think we are holding up pretty well with the pressure. Cole Hathorn: And then just one final clarification. You mentioned some reduction in the Uruguay platform on the cost as you continue to ramp up the efficiencies. I think you gave a number. I just misheard that earlier. I wonder if you could just repeat that. Massimo Reynaudo: Sure, sure. I'll give you the precise number, but basically, the scale I gave for the savings is still to be captured. Let's say, directionally in the next couple of years, is probably USD 25 million to USD 30 million -- sorry, sorry, USD 25 to USD 30 per tonne. Okay. USD 25 to USD 30 per tonne, which is the same scale of the savings we are capturing this year, 2025 versus 2024. Operator: The next question comes from Joni Sandvall from Nordea. Joni Sandvall: A couple of quick questions. Tapio, you mentioned the working capital release, or you are aiming to release working capital. So what should we expect in Q4? And does Leuna ramp-up has any impact here? Tapio Korpeinen: Well, yes, of course, the ramp-up of new production does have some impact or has had some impact, I would say, already during the year as we have been preparing. But still, let's say, typically, we do release cash from working capital at the end of the year. Don't have a number to give guidance on that, but I would expect that we will see that this year kind of seasonally as well. And on top of that, we are obviously looking to improve our efficiencies otherwise. Joni Sandvall: Okay. And second question relates to Biofuels. It has been some while when you put the SAF application in. So can you give any update on that when you are expecting to receive the approval for the SAF? Massimo Reynaudo: Well, actually, it's a long process, and it's not under our control. That is what makes difficult to make a prediction about that. But we filed it last year. So let's see what happens next year. I wouldn't go any further than that because of what I said, it's outside our control. Joni Sandvall: Okay. Okay. But your product has been tested, so any early indications of those? Massimo Reynaudo: Absolutely, absolutely. It has been tested, has been even utilized in a pilot case, not blended, but pure. So we have all the confidence that the product will go through the process. But then there are a number of, I don't know what to call them, administrative steps that need to go through before that the process is concluded. But we -- you can imagine this is a priority for us. This will open up beside the biofuel or fuel for ground transportation will open up the sustainable aviation market, which is not only getting bigger in the future, but will give further opportunity to diversify and maximize profitability. So it's surely something which we treat with the highest priority. Okay. Very good. We have also used the time planned for this call. So I take the opportunity again to thank everybody for your participation and in the case for your questions. And see you sometime during the next quarterly call, if not before. Cheers, have a nice day.
Operator: Good day, and welcome to AerCap's Q3 2025 Financial Results. Today's conference is being recorded, and a transcript will be available following the call on the company's website. At this time, I would like to turn the conference over to Joseph McGinley, Head of Investor Relations. Please go ahead, sir. Joseph McGinley: Thank you, operator, and hello, everyone. Welcome to our third quarter 2025 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Peter Juhas. Before we begin today's call, I would like to remind you that some statements made during this conference call, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. AerCap undertakes no obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated October 29, 2025. A copy of the earnings release and conference call presentation are available on our website at aercap.com. This call is open to the public and is being webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A. As a reminder, I would ask that must limit themselves to one question and one follow-up. I will now turn the call over to Aengus Kelly. Aengus Kelly: Thank you for joining us for our third quarter 2025 earnings call. We are pleased to report another exceptional quarter for AerCap's shareholders. In Q3, we generated GAAP net income of $1.2 billion and earnings per share of $6.98, driven by strong gains on sale and further insurance recoveries. Our core business continues to perform extremely well, with adjusted net income of $865 million and a record adjusted EPS of $4.97. Given these solid results, and our positive outlook for the remainder of the year, we have increased our 2025 full year EPS guidance to $13.70. On the aircraft side, we continue to see strong demand from our customers around the world, and the environment remains supportive for both margins and returns. Once again, utilization rates topped 99%. And on that note, I am delighted that we delivered our first converted 777-300ER Freighter in September, which should help to sustain the historically high utilization rates we are seeing as those aircraft deliver to customers. We also had yet another healthy extension rate in the quarter with approximately 85% of our 33 used aircraft transactions extending on very attractive terms. Encouragingly, the extension rate for widebodies was 100%, and including 9 787s, 3 777-300ERs and 2 A330s in the period. One thing that seems to be overlooked in the focus on MAX production rates and narrow-body engine issues is how far the OEMs are behind in the widebody production side as well. As an example, both OEMs produced more wide-body aircraft in 2008 than they did last year and I do not expect them to surpass the peak of 2016 this decade. As a result, wide-body aircraft will remain in high demand for the foreseeable future. The picture is similarly robust on the narrow-body side with strong demand across the board. This is particularly helpful at the moment given we're taking back 27 aircraft from Spirit Airlines. We will, of course, have downtime and engine shop business costs associated with this process. The majority of the engine shop visit costs will be incurred in the fourth quarter. These engine costs are included in our increased guidance for the year. We will also benefit from the acquisition of Spirit's 52 Airbus A320neo family order book. as well as a further 45 options that we negotiated with Airbus. We believe that the timing and pricing of these units is far superior to what we could have negotiated with Airbus directly. In fact, the order and options mean we have now agreed to purchase over 200 aircraft in bilateral deals since 2021 without placing a direct OEM order. Turning to the engine business. We continue to focus on deepening our relationships with our OEM, airline and MRO partners. This was evidenced most recently with our latest announcement with GE Aerospace where we signed a 7-year agreement to provide lease pool management services for the GE9X. This agreement also extended AerCap's ongoing lease pool support for GEnx, GE90, CF6 and CF34 engines and follows on from our separate partnership with Air France KLM, which we announced at the Paris Air Show. The provision of spare engine support has become a key part of AerCap's overall customer proposition, particularly at the moment, given the global engine shortages. Our portfolio of 1,200 spare engines, 90% of which are the latest technology is another key differentiator between AerCap and any of our competitors. Since closing the GECAS transaction, we have committed approximately $10 billion to engines to our 2 engine divisions, AerCap engines and SES. Turning to Milestone Aviation Group, our helicopter leasing business. Fleet utilization also remains high. During the quarter, we extended a large percentage of helicopter leases with existing customers across a broad array of mission profiles and operators. From a fleet perspective, we adopt a balanced portfolio management strategy in our helicopter business. Similar to our barbell approach on the commercial aircraft side. We continue to invest in new technology, medium and super medium helicopters at accretive returns, while divesting out of midlife are out of production types. During the quarter, we delivered new technology equipment to customers operating across a full spectrum of mission-critical segments, including offshore oil and gas, emergency medical services and search and rescue, including an AW139 to Bristow configured for use in the U.K. search and rescue operations. Now on capital allocation. We continue to see the durable demand for our assets reflected in very strong sales volumes and margins. As you will recall, last quarter, we increased our sales volume guidance for the year by 25% to $2.5 billion. Despite the lower number of sales closing, we had good line of sight to what was ahead of us and it has been great to see this materialize. In fact, both the sales volumes of $1.5 billion and the gain of $332 million were records in themselves. The timing of closing each deal is always variable, but there is no doubt we are seeing a positive environment overall. Further, while we will not be selling $1.5 billion every quarter, you can see the gain on sale has been an important, repeatable and profitable aspect of our earnings over a very long period of time. We have generated gains on sale in every quarter for the last 40-plus quarters are more than 10 years in a row. Our average unlevered margin is over 15% are more than 1.5x booked equity value over the course of the last 40-plus quarters. This is despite various challenges the industry has faced and includes all of the quarters during COVID. Those returns have been further enhanced by highly disciplined capital deployment into accretive opportunities in M&A, asset acquisitions and share repurchases. Recently, we have been asked whether the long-established arbitrage between where our assets price in the private markets and the level of those assets trade in the public markets still exist, given the improvement in valuation of the stock above 1x book equity value. The truth, as you will see from the chart on the left-hand side is that it is not the absolute level of either sales or repurchases that matters more, but the delta between the two. So while AerCap shares are trading at a higher price to book multiple, the increases in sales margins have actually been greater. This is why we continue to find share repurchases to be extremely attractive. As you can see from the chart on the right-hand side, in the third quarter alone, we bought 5% of the market cap for $1 billion, a quarterly record for open market purchases for AerCap. We simply cannot demonstrate our conviction any clearer than that. So in summary, this was another great quarter for AerCap with earnings and cash flows remaining strong throughout the business and the addition of up to 97 A320 Family aircraft to our order book. The favorable market environment continues, and this is reflected in the results across the group as a whole. We continue to deploy capital effectively with the purchase of approximately $1 billion of stock and $1.4 billion of new equipment in the quarter. This shows the remarkable cash generation and optionality we have for capital deployment at AerCap, a theme we expect to continue for the long term. With that, I'll now hand the call over to Pete to review the financials and the outlook for the remainder of 2025. Thank you. Peter Juhas: Thanks, Gus. Good morning, everyone. Our GAAP net income for the third quarter was $1.216 billion or $6.98 per share. The impact of purchase accounting adjustments was $62 million for the quarter or $0.36 a share. We had net recoveries related to the Ukraine conflict of $475 million or $2.73 a share. That includes cash insurance settlements of $238 million as well as an award of $234 million of interest on the favorable decision by the London Commercial Court in June, along with some other smaller settlements. That brings our total recoveries to approximately $2.9 billion since 2023. The net tax effect of the purchase accounting adjustments and the Ukraine recoveries taken together was $62 million or $0.36 a share. As a result, our adjusted net income for the third quarter was $865 million or $4.97 per share. We had a record quarter in terms of both the volume of assets sold as well as gains on sale. We sold 32 of our owned assets for total sales revenue of $1.5 billion. That resulted in gain on sale of $332 million and an unlevered gain on sale margin of 28%, which is twice our book value. The large sales volume was driven by the continued strong sales environment as well as closing sales that had been signed up earlier in the year. As of September 30, we had $562 million worth of assets held for sale at this point, I'd expect our sales for the full year to be over $3 billion. Besides the gains on sale and Ukraine conflict recoveries, there were 2 other main items that affected our results for the third quarter. First, we had a strong net maintenance contribution, that is maintenance revenue, less leasing expenses on an adjusted basis of $148 million. That was driven by the release of maintenance reserves upon lease terminations, settlements we received from airlines and a provision release as the Azul restructuring agreement became effective. We're expecting higher leasing expenses in the fourth quarter related to the Spirit Airlines restructuring, and that's reflected in our updated guidance. The other major driver this quarter was a significant increase in the lease trends, which in turn, resulted in a higher lease yield and a net spread of 8%, which is the highest we've had in 5 years. The increase this quarter was driven in part by some large transactions involving a number of older aircraft. We've also started to deliver our 777-300ERs which were converted from passenger aircraft to freighters and are now earning revenue. Turning to liquidity. Our liquidity position continues to be very strong. As of September 30, our total sources of liquidity were approximately $22 billion. That includes $1.8 billion of cash and over $12 million of revolvers and other committed facilities. Our sources to usage coverage ratio at the end of the quarter was 2.1x, which amounts to excess cash coverage of around $12 billion. Given our higher net income this quarter, including the net recoveries related to the Ukraine conflict, we generated significant excess capital, resulting in a leverage ratio of 2.1:1 at the end of September. Our operating cash flow was slightly higher than normal this quarter at approximately $1.5 billion. We deployed a significant amount of excess capital this quarter and returned $981 million to shareholders through the repurchase of 8.2 million shares at an average price of just under $120. Including the share repurchases we've completed so far in the fourth quarter, that takes us to over $2 billion of buybacks so far this year. Turning now to guidance. On our last earnings call, given the strong performance for the first half of the year, we raised our full year 2025 EPS guidance to approximately $11.60. As Gus mentioned, today, we are again raising our full year 2025 adjusted EPS guidance to $13.70. That includes approximately $2.70 of gains on sale for the first 3 quarters, but it does not include any gains on sale for the fourth quarter. As I mentioned last quarter, our outperformance relative to guidance has been driven primarily by higher lease revenue, other income and gains on sale. We've also incorporated the expected impact of the Spirit Airlines Chapter 11 bankruptcy into this updated guidance. In closing, we're coming off another record quarter for AerCap. As you can see, the environment for aircraft leasing and aircraft sales continues to be strong. We've continued to make progress in our Ukraine recoveries and we continue to be in a position of strength with a strong balance sheet, low leverage, strong liquidity and disciplined capital deployment. We remain confident about the outlook for the business as you can see from the increase in our full year guidance and our repurchases of over $2 billion of stock so far this year. And with that, operator, we'll open up the call for Q&A. Operator: [Operator Instructions]. We will take our first question from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Great. I was hoping that, Gus, you could talk a little bit about how you're thinking about the industry in the U.S. kind of over the next couple of years. Is this something where you're likely to see more significant consolidation or maybe broaden it out a little bit? And what -- are there areas in the world where you would kind of see the opportunities given the substantial amount of capital that you've got to deploy? Aengus Kelly: Thanks, Moshe. I'll start with the U.S. market. There's been a very significant amount of consolidation in the U.S. market over the last decade, as you know. I think there is room for some more limited consolidation plays in the U.S., but I'd say it's reasonably limited. There are not that many platforms left in the United States. So to get your hands on one to be a rare enough asset. From our perspective, as we look forward, though we continue to see very strong demand coming out of the U.S. market that can be driven by longer-term demand for new technology aircraft as the older aircraft have to be retired at some point in the coming 5 or 6 years. And in the shorter term, of course, we see very strong demand for used aircraft to remain at airlines. That's a trend that we see around the globe as well. And we don't see any sign of that letting up. The desire of airlines to transition as quickly as they can into the new tech asset simplify their fleet, create operating leverage in their business model. However, that's just not feasible because of the lack of supply of new aircraft, the amount of time these assets are spending in the repair shop and that is continuing to drive the demand for serviceable used assets, be they 20 years old or 15 years old or 22 years old. So as we look out, we see a pretty strong demand picture globally for some time to come. Moshe Orenbuch: Great. Pete, maybe just to kind of dig in a little bit on the margin discussion. You talked about kind of yield improving, your cost of funds improved. I would assume that some of that will actually be even better in Q4. There might be some impacts that offset some of that from some of the maintenance benefits you have this quarter. But could you kind of just generally kind of talk about how we should be thinking about that progression of the elements of your spread as you go forward over the next couple of quarters? Peter Juhas: Sure, Moshe. So as you mentioned, net spread went up significantly in the third quarter by about 50 basis points to 8%. So that's the highest we've seen since 2019, and that was very positive. As we look out going forward, I think we will see some positive impact from the 777 freighters continuing to deliver COVID leases rolling off, although that takes a while, but that will be a positive. But in the coming quarters, the offsetting effect we'll see will be from Spirit because we will have downtime on those aircraft that we've taken back because they have to get shopped -- the engines have to get shopped. And so I think that as we look out over the next several quarters, we should see that spread about where it is today. Operator: We will take our next question from Jamie Baker with JPMorgan. Jamie Baker: So Gus, Mark Streeter and I have obviously port over the air lease proxy, and it's pretty clear that AerCap is referenced as strategic bidder with a $55 all-stock offer. And we're curious for your thoughts on that bid and what you were thinking at the time. And now that this info is public, perhaps you would want to comment on the deal that ultimately was struck and any implications of industry consolidation for AerCap. Aengus Kelly: Well, let me start with the second bit first. Consolidation is a very -- is a significant positive for the industry, and we would encourage to continue and that is all positive for AerCap and our shareholders. As it relates to our participation in the process, what I assume my shareholders want is for AerCap to be present in any significant M&A discussion that's ongoing around the world at any time. And you can rest assured that we are, that was evidenced in this case because it's a public company, so it's clear that we were there. That being said, what you also want to see is discipline being exercised by AerCap. We are fully aware of the return on equity that we generate and we will continue to generate and we're aware of the return on equity that Air Lease generated and is likely to continue to generate. And there is only so much we would be willing to pay for that business. We could not enter into a situation nor have we ever in any of these other M&A discussions we have, where we pursue a transaction at a price that will dilute our existing shareholders. So when it became apparent that our bid was not going to be enough to win, of course, we pivoted then to where I believe the best value aircraft in the world are because I am selling AerCap aircraft in the private markets at 200% of book equity, and I'm able to buy them back on the New York Stock Exchange at 110% of book equity. Jamie Baker: Excellent. I appreciate that color. And then you're also on record as believing that the favorable aircraft supply demand imbalance is going to last through the end of the decade. But with Boeing and Airbus starting to get their act together, increasing production rates and then, of course, some of the bankruptcy driven returns, Azul, Spirit and so forth. Is your outlook still bullish through the end of the decade? Or do you think that, I don't know, some sort of equilibrium might happen a little bit earlier? Aengus Kelly: Well, short answer is I am, but let me explain that because you're right, of course, Boeing are slowly increasing the ramp in their production. But let me give you one example that I referenced in my prepared comments. On the wide-body markers, more wide-body aircraft were produced by both OEMs in 2008 than were in 2024. Just think about that. The aircraft that were probably manufactured in around 2005, 2006, 2007 that are being retired today. Their replacement aircraft isn't even being manufactured by the OEMs at the moment. So the wide-body market is extraordinarily acute and you saw that in our commentary around our extension rate, which is at 100% for widebodies. As it pertains to narrow bodies, even though we are slowly, and it is a very modest increase, bear in mind, Boeing is hoping to get to 42 deliveries a month, which is miles below where they want to be. Even when those aircraft come into service, they are not lasting as long in service as was envisaged. That's because different components of the aircraft, be it engine or landing gears are not lasting as long a wing and are going into the shop for repair. That's chewing up the available parts that are available to make new aircraft, new engines or overhaul engines. Therefore, based on that, I know that narrow-body production rates are not going to hit the levels that the OEMs want. And even if they did to be candid, the amount of time that these assets are spending in the shop mean that, for example, if you had 10 NGs or 10 A320s flying a particular route as an airline, I suspect you're going to need 11 today of the new type. Now so when I look out, wide narrow, I see a very constrained situation. Of course, you're right. There'll be the odd bankruptcy here and there that will put a bit of capacity in the sector for a few months or maybe a quarter or 2. But that will always get eaten up. And then furthermore, as it pertains to AerCap in that environment that I just spoke about with the engine shortage. We are the biggest owner of spare engines in the world. We have unique relationships with airline and OEM that enhance our position it adds to the power of the AerCap platform and enables us to get assets in the air faster than anyone else. Operator: We will take our next question from Hillary Cacanando with Deutsche Bank. Hillary Cacanando: Great. You said Spirit exposure is included in your fourth quarter guidance? Do you think there could be any further exposure in 2026 as well? And does your fourth quarter guidance reflect any potential idleness of the rejected aircraft? And if you could kind of just detail the exposure, whether they're -- are they all due to maintenance or are there any like unpaid rental fees that are included? If you could kind of detail that. Peter Juhas: Sure, Hillary. So the impact of Spirit really is in 2 parts. First, you have the downtime on the aircraft, and that's likely -- we'll see that in the fourth quarter. We'll see that pretty much throughout next year, we would expect and then in addition to that, you've got -- and that's really because the engines need to be shopped. There's plenty of demand for those aircraft, but the engines need to be overhauled. That's the driver. The second impact is the cost of overhauling those engines, so those engine expenses and we have factored in. So I expect that we will take the majority of those in the fourth quarter of this year. We're still negotiating that. That's still under commercial discussions. So I can't comment more on that. But I would expect the majority to be in the fourth quarter, and that's what we factored in. But it's possible some of that could slip into next year out of fourth quarter and into next year. So that's what we based our guidance on. Aengus Kelly: The one thing you also have to -- sorry, Hillary, the one thing to mention there, of course, as Pete referenced, we will incur those engine shop visit costs, which is in our guidance, the anticipated ones. We'll have downtime. But against that, we were able to negotiate up to 97 aircraft, A320, A321 aircraft in timing and pricing that would not be available from the manufacturers. That once again speaks to the unique capability and power of the AerCap platform. Hillary Cacanando: Yes. No, that's great. And I saw that you're getting 45 options for 45 aircraft. And in the bankruptcy filing, it had originally said 10. So it looks like you negotiated to get more option aircraft at this rate. So that was great to see. I do have another question. I know 12 of those aircraft were already grounded so we've heard that those 12 aircraft to come back sooner than expected because they were already grounded? If you could -- could you just provide a little more color? Do you expect those 12 aircraft to come back soon? Or are they going to be grounded for a while? Aengus Kelly: What's happening here Hillary, as was set out in the court case is that we're taking back 27 aircraft. They're on the way back to us now in various stages. And then 10 aircraft remain with the airline and they paid the arrears, rents on those and they continue to pay current trends. Operator: We will take our next question from Catherine O'Brien with Goldman Sachs. Catherine O'Brien: So last quarter, you talked about seeing more opportunistic sale leasebacks coming to market. In the quarter, you obviously executed on those acquiring the 52 firm orders and 10 options from Spirit in addition to the other 32 options, which I'd be interested in hearing how those came about Airbus as well. Just as a quick follow-up to Hillary's question. But I guess, bigger picture, are these the kind of transactions you're referring to? Or do you think size of transaction you are able to do means that you're likely to see growth opportunities with airlines outside of distressed situations as well. Just any thoughts on like what the size of these opportunities could be over the next couple of years? Aengus Kelly: Mean you never know. But of course, it generally, when I say something, I'm looking at something. And we had -- it's various sale-leaseback opportunities we're pursuing. We're hoping to close one of them we did in this instance. But again, the way that came together, is in a manner that no other leasing company in the world could have executed or could have even contemplated to be quite candid. And when those opportunities present themselves, once again, my shareholders would expect me to be present and in those negotiations, and that's our objective here as well. We won't close all of them, of course, because as you saw in the -- as we discussed earlier on, we're not going to close transactions that are going to dilute our own returns. But as we look forward, there are definitely opportunities out there, but that's where discipline comes in. We're here to make money for the shareholders we're not here to grow the business for the sake of growth. But it should be noted that since 2021, we have negotiated 200 aircraft acquisitions, including those options on bilateral deals. So we're getting them sooner and a better pricing than would be available and going to the OEMs. Furthermore, I might add, in the last 2 years or 9 months, we've returned $6.4 billion to our shareholders, which is equivalent to buying over $18 billion of assets at well below market rates. Catherine O'Brien: No, all very impressive. Maybe just one last one and relatedly, despite a very active quarter, you just mentioned on the buybacks and the incremental acquisitions, your leverage ended the quarter at 2.1x. Can you just help us think about the guardrails between 27 target leaving dry powder to be opportunistic perhaps on some of the other deals that are out there that you were dispreference and where you ended the third quarter. Just how do we think about the moving pieces over the next quarter or 2? Peter Juhas: Sure, Catie. So one of the things that has driven the leverage down over the last couple of quarters has been the significant insurance proceeds that we received. So about $1 billion in the second quarter of $475 million in the third quarter. So that has really contributed to that lower leverage, taking it down. I'd say, look, obviously, having room relative to our target gives us a lot of optionality in terms of the opportunities that we can pursue. But we are deploying that capital pretty rapidly as well. And so you look at $1 billion of buybacks in the third quarter alone. That's the most we've ever done in the open market. And I expect we will continue to deploy capital like that. And so -- so over time, I would think that our leverage ratio starts to get more normal and get closer to the target level, maybe not up to the target level, but somewhat closer to it than today. Operator: We will take our next question from Ron Epstein with Bank of America. Ronald Epstein: Gus can you talk a little bit about -- we've covered a lot of ground so far, but can you talk a little bit about the market for the A220? What do you see there? And what's going on there? Aengus Kelly: The A220 is one of a more kind of niche aircraft. Of course, we have some of them. And I think there's a -- every passenger that gets on that aircraft loves us, great past experience, spacious cabin, I'd encourage anyone to fly on us. That being said, the challenge around the aircraft has been around the engine time on wing. And we would hope that in the coming year or 2, because it is a bigger aircraft relative to the E2-195 where the aircraft is a bit smaller, but the engine is the same. So the engine, we believe doesn't come under as much strain on the E2 as it comes under on the 220. So we would hope that as Pratt improves the time on wing and the durability of the parts in that engine that we'll see that aircraft become more durable in service. And if that can happen then, I think there's a solid future for us. Ronald Epstein: Got it. Got it. And then in your engine business, is there an opportunity to do more with Pratt? I mean, you're one of the larger CFM lessors, if not the largest, was there anything to do with Pratt? Aengus Kelly: I think, look, we, of course, we talk to pros, et cetera, what have you. So we wouldn't rule anything out. But of course, we are in partnership with both GE and CFM and providing their spares network around the world and managing the logistics of all those engines, the records the shop visits of their spares fleet, which is a very significant task and requires a lot of unique intellectual property that I think we'd be reluctant to share. Ronald Epstein: Got it. Got it. Got it. And then maybe just one last one. This one's a little bit out there, but maybe not. We're starting to see the emergence of more players and electric aircraft and hybrid aircraft. How would you expect that those aircraft could get financed? Would you guys have any interest in financing sort of this next generation of smaller stuff, some of the ED tall stuff and urban air mobility stuff? Or would you kind of leave that to somebody else? Aengus Kelly: I have to wait and see. We did look at that several years ago when it was at its inception, and we felt it was better to be an intelligent follower than the initial innovator in that space. I think that still holds true. Operator: We will take our next question from Terry Ma with Barclays. Terry Ma: I just wanted to touch on capital allocation. It's nice to see the buyback accelerate this quarter and also the Spirit deal. But last quarter, you also highlighted additional kind of sale-leaseback opportunities in engine deals. Maybe just update us on those and maybe rank order to relative attractiveness of each of those options. Aengus Kelly: Sure. Well, as you saw, we did execute there with the Spirit transaction. And Terry, as I noted, we've done now 200 aircraft and 10 billion of engine buys on bilateral basis since the last 4 years. So I mean those opportunities are out there. But again, they must be ones that are accretive to our earnings. And there are plenty of opportunities to grow the business, but it must grow profitably. And that's where when we come to capital allocation, our job here is to make a return for the shareholders. That's our only job. It's not to make a return for the shareholders of Airbus. It's not to make a return for the shareholders of Boeing. It's not to make a return for the shareholders of airlines. It's for our shareholders. It's why we're here. They pay our wages. And so when we see transactions that are accretive, of course, we will execute on those. Clearly, at the moment, we are selling assets in the private markets in the last quarter at 200% of the book equity value. We're buying the very same assets every day down on the NYSE at about 110% of book value. So if I can sell something for 200% and someone will keep selling me that at 110% when you do it the next day, that's a good use of shareholders' money. Terry Ma: Got it. That's helpful. I guess outside the Spirit deal, how does the opportunity for sale leaseback kind of look from a kind of returns basis? Aengus Kelly: I mean well, we haven't executed any in the last quarter than that. Of course, we're pursuing them. There are other ones you pass on, much like on the M&A stuff, there's ones we've passed on, of course, over the last 3 or 4 years. So we're we will look at all of these transactions, but they do have to hit the hurdles that we want or else we won't do it. Terry Ma: Got it. Helpful. Maybe one last one for me and for Pete. Like you guys delivered the first freighter in September. What's the cadence for kind of additional kind of deliveries going forward? Peter Juhas: Well, we delivered the first few in September and then we've delivered some more this quarter, and those will just roll out over the course of the next year or 2. Aengus Kelly: Yes. 5 are delivered now at this point, and they probably deliver another couple before Christmas and then the 5 or 6 next year. But they're approximate because, as you have seen, deliveries are moving targets. Operator: We will take our next question from Chris Stathoulopoulos with Susquehanna International Group. Christopher Stathoulopoulos: Aengus, on the extension rates. Curious on your thoughts on '26 next year, I realize it's still early, but there's still degree of uncertainty out there geopolitical economy tariffs. Just your thoughts on that, whether you see any sort of, I guess, change from what you've been able to achieve thus far year-to-date? Aengus Kelly: We don't. And I don't think that's going to change. You've got to remember, of course, that when airlines are looking at their fleet, they're not looking at the next quarter the next half year, the next year. They're looking on older aircraft, the minimum duration is 3 years, but more around 5 to 7, on new aircraft are looking at 20-plus years. So their fleet plans are not going to be significantly altered by short-term issues geopolitically. That's what we're seeing. And as we look out in the new year, I'd expect to see more of the same because I don't see, as I referenced earlier on, the levels of production, the time on wing that these assets are achieving. I don't see those factors changing. Christopher Stathoulopoulos: Okay. And as the second -- I realized you've spoken at length on the gains on sales, strong secondary market. But if you could perhaps give a bit more color on the type of transactions, aircraft types, curious how that has evolved and whether you -- you see that changing going into '26? Aengus Kelly: We never -- and as I noticed, since we were -- we became a public company in 2006, every year, we've sold assets, we sold them at a gain. Indeed, for the last -- since -- as you look at the chart on Page 5, since the beginning of 2023, the assets we've sold have traditionally been old mid-life assets out of production, but we still managed to generate a gain of book equity of 190%. The reason we sold those assets is not for the game. The reason we sold those assets is that we know at some point in the future, airlines will have to leave the older assets. It's a few years away. I think it will be the end of the decade. That being said, I want to position our fleet for the future always. So that's how we think about asset sales, the one exception to that really is we have sold a handful of newer technology assets as part of our ongoing reduction in our Chinese exposure, which continues and -- because China is mainly a new aircraft market, that's been the case there. But the reason we sell assets is to improve the quality of the portfolio. The power and capability of the platform has meant that for the last 2-odd years and particularly in the last several years as the capabilities of the GECAS platform that we purchased, particularly as it pertains to engine cost shop visit management and the ability to manage the ongoing life of engines has enabled us to accelerate those gains. And that's a structural capability that we have that no one else has in our business. Operator: There are no further questions at this time. I will turn the conference back to Aengus Kelly for any additional or closing remarks. Aengus Kelly: Thank you, operator, and thank you very much for joining us for today's call and we look forward to speaking to you again with the full year results. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.