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Operator: Good day, and thank you for standing by. Welcome to the Constellium Third Quarter 2025 Results Conference Call and webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Jason Hershiser, Director of Investor Relations at Constellium. Please go ahead. Jason Hershiser: Thank you, Razia. I would like to welcome everyone to our third quarter 2025 earnings call. On the call today, we have our Chief Executive Officer, Jean-Marc Germain; our Chief Operating Officer and CEO appointee, Ingrid Joerg; and our Chief Financial Officer, Jack Guo. After the presentation, we will have a Q&A session. A copy of the slide presentation for today's call is available on our website at constellium.com, and today's call is being recorded. Before we begin, I'd like to encourage everyone to visit the company's website and take a look at our recent filings. Today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include statements regarding the company's anticipated financial and operating performance, future events and expectations and may involve known and unknown risks and uncertainties. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the factors presented under the heading Risk Factors in our annual report on Form 10-K. All information in this presentation is as of the date of the presentation. We undertake no obligation to update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. In addition, today's presentation includes information regarding certain non-GAAP financial measures. Please see the reconciliations of non-GAAP financial measures attached in today's slide presentation, which supplement our GAAP disclosures. And with that, I would now like to hand the call over to Jean-Marc. Jean-Marc Germain: Thank you, Jason. Good morning, good afternoon, everyone, and thank you for your interest in Constellium. I want to begin by addressing our executive leadership change that was announced this morning. On December 31, I will be retiring from my role as Chief Executive Officer of Constellium, and I will also be stepping down from my position as a Director on the Board at the same time. I plan to continue to serve as a special adviser to Board and management in 2026. Ingrid Joerg will assume the role of Chief Executive Officer of Constellium, and the Board will appoint Ingrid as a Director for the remaining term of my directorship. This leadership change comes following a multiyear planning process, and I will continue to support the Board and the management for a seamless transition in 2026, as I just said. Since I joined the company almost 10 years ago, Ingrid and I have worked very closely together, including the last 2-plus years, during which Ingrid was in charge of the company's operations in our capacity as the Chief Operating Officer. With more than 25 years of experience in the aluminum industry, including the last 10 with Constellium, Ingrid possesses deep industry knowledge, proven operational expertise, a wide network across our industry and strong commitment to our stakeholders, including our customers, employees and our shareholders. Ingrid has also contributed significantly to the development of the company's strategy and its long-term objectives. As you can see, our results and our outlook are strong today, and I am confident that Ingrid will continue to build on this strong foundation and lead Constellium to what will be a bright future for our shareholders. Okay. Now turning to Slide 5 now. Let's discuss the highlights from our third quarter results. I would like to start with safety, our #1 priority. Our recordable case rate in the third quarter was 1.7 per million hours worked, and our year-to-date recordable case rate remains at 1.8 per million hours worked. While this performance remains best-in-class, we all need to constantly maintain our focus on safety to further improve. Turning to our financial results. Shipments were 373,000 tons or up 6% compared to the third quarter of 2024 due to higher shipments in each of our operating segments. Revenue of $2.2 billion increased 20% compared to the third quarter of 2024 due to higher shipments and higher revenue per ton, including higher metal prices. Remember, while our revenues are affected by changes in metal prices, we operate a pass-through business model, which minimizes our exposure to metal price risk. Our net income of $88 million in the quarter compares to net income of $8 million in the third quarter last year. The main driver of the increase was higher gross profit in the quarter versus last year. Compared to the third quarter last year, adjusted EBITDA increased 85% to $235 million in the third quarter this year, though this includes a positive noncash impact from metal price lag of $39 million. If we exclude the impact of metal price lag, which, as you know, is the way we view the real economic performance of the business, we achieved an adjusted EBITDA of $196 million in the quarter. This is a new third quarter record for us, and it is up 50% versus the $131 million in the third quarter last year. Moving now to free cash flow. Our free cash flow in the quarter was strong at $30 million. During the quarter, we returned $25 million to shareholders through the repurchase of 1.7 million shares. Our leverage at the end of the third quarter was 3.1x or down about 0.5 turn from the peak last quarter. We delivered strong results this quarter that were above our own expectations despite the uncertain economic environment and continued demand weakness across many of our end markets. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Overall, I am very pleased with our third quarter and year-to-date execution and performance. It is not on the slide here, but I wanted to quickly note that during the third quarter, we completed a small divestment of our Nanjing automotive structures plant to a local Chinese investment holding company. The terms of the transaction will remain confidential. Please turn now to Slide 6. Before turning the call over to Jack, I wanted to give you a quick update on the current tariff environment and how we see the potential impact to Constellium. As a reminder, we are mostly local for local in the regions where we operate. Today, our gross tariff exposure is mostly concentrated at our metal supply from Canada to our operations here in the U.S. We have made significant progress on pass-throughs and other actions to mitigate a large portion of our gross tariff exposure. At this stage, our direct tariff exposure remains manageable and is consistent with our prior expectations. Now the indirect positive impacts from tariffs are continuing to ramp up, including improved scrap spreads in the U.S., higher demand for domestically produced aluminum products and a more favorable pricing environment compared to expensive imports. Put it all together, we continue to believe that the current trade policies should be a net positive for us. Lastly, on tariffs, I want to reiterate that all known tariff impacts, both direct and indirect, and all of our mitigation efforts to offset the direct impacts are included in our guidance. With that, I will now hand the call over to Jack to further detail our financial performance. Jack? Jack Guo: Thank you, Jean-Marc. Congratulations, Ingrid, and thank you, everyone, for joining the call today. Before I get into the quarterly results, I wanted to point out that we had a revision of certain disclosures in previously issued financial statements. During the third quarter this year, we identified and corrected certain immaterial errors affecting metal price lag and the resulting segment adjusted EBITDA for the A&T segment for certain prior periods in 2025 and 2024. This revision resulted in slightly higher segment adjusted EBITDA as compared to prior disclosures in those periods. We included more details on this revision in both our earnings release and presentation today. Turning now to Slide 8, and let's focus on our A&T segment performance. Adjusted EBITDA of $90 million increased 67% compared to the third quarter last year. Volume was a tailwind of $6 million due to higher TID shipments, partially offset by lower aerospace shipments. TID shipments were up 16% versus last year. First, as commercial transportation and general industrial markets became more stable in the quarter, and we started to see some increased demand from onshoring in the U.S. And secondly, we also benefited from higher shipments in Valais following recovery from the flood last year. Aerospace shipments were down 9% in the quarter versus last year as commercial OEMs continue to work through excess inventory as a result of lingering supply chain challenges. Demand in space and military aircraft remained healthy. Price and mix was a tailwind of $11 million due to improved contractual and spot pricing in Aerospace and TID as well as improved aerospace mix in the quarter. Costs were a tailwind of $16 million, primarily as a result of lower operating costs. FX and other was also a tailwind of $3 million in the quarter due to the weaker U.S. dollar. As a reminder, the third quarter last year included an $8 million unfavorable impact from the Valais flood. Now turn to Slide 9, and let's focus on our Parts segment performance. Adjusted EBITDA of $82 million increased 14% compared to third quarter last year. Volume was a tailwind of $11 million as higher shipments in packaging were partially offset by lower shipments in automotive and specialty rolled products. Packaging shipments increased 11% in the quarter versus last year as demand remained healthy in both North America and Europe. In North America, we also benefited at Muscle Shoals from continued improvement of operational performance in the quarter. Automotive shipments decreased 13% in the quarter with weakness in both North America and Europe. Price and mix was a tailwind of $3 million, mainly as a result of improved pricing, partially offset by unfavorable mix in the quarter. Costs were a headwind of $7 million as a result of higher operating costs, including the impact from tariffs. FX and other was a tailwind of $3 million in the quarter. Now turn to Slide 10, and let's focus on the AS&I segment. Adjusted EBITDA of $33 million increased 371% compared to the third quarter of last year. Volume was a $9 million tailwind as a result of higher shipments in industry extruded products, partially offset by lower shipments in automotive. Industry shipments were up 40% in the quarter versus last year as we had higher shipments in Valais following recovery from the flood last year, while the industrial markets in Europe remained generally weak in the quarter. Automotive shipments were down 7% in the quarter with weakness in both North America and Europe. Price and mix was an $18 million tailwind in the quarter, mainly due to net customer compensation for the underperformance of an automotive program as previously discussed and better mix in the quarter. Costs were a headwind of $3 million, primarily due to the impact of tariffs. FX and other was a tailwind of $2 million in the quarter. As a reminder, the third quarter last year included a $10 million unfavorable impact from the Valais flood. It is not on the slide here, but our holdings and corporate expense was $9 million in the quarter. Holdings and corporate expense this quarter was up $7 million from last year, mainly due to higher accrued labor costs given our stronger performance this year, partially offset by lower head count. We now expect holdings and corporate expense to run at approximately $45 million in 2025, which is a slight increase compared to our view previously. It is also not on the slide here, but I wanted to summarize the current cost environment we're facing. As you know, we operate a pass-through business model, so we're not materially exposed to changes in the market price of aluminum, our largest cost input. Our other metal costs, we experienced a dramatic tightening of spot scrap spreads in North America in 2024. The tightness continued into the beginning of this year, though spreads have improved in the spot market as we move through the year. Given that a portion of our scrap purchases were negotiated previously, we did not benefit much from this dynamic during the period. However, we expect to benefit more in the fourth quarter this year. For energy, our 2025 costs are moderately more favorable compared to 2024, although energy prices remain above historical averages. Other inflationary pressures have eased to more normal levels. And as we said in previous quarters, given the weakness we're seeing in several of our markets, we have accelerated our Vision 25 cost improvement program. We have demonstrated strong cost performance in the past, and we're confident in our ability to maintain a right-sized cost structure for the current environment. Now let's turn to Slide 11 and discuss our free cash flow. We generated $30 million of free cash flow in the third quarter, bringing our year-to-date total to $68 million. The year-over-year increase in the first 9 months this year is a result of higher segment adjusted EBITDA, lower capital expenditures and lower cash taxes, partially offset by more cash used for working capital and higher cash interest. Looking at 2025, we still expect to generate free cash flow in excess of $120 million for the full year, which is unchanged from our prior guidance and from our guidance to start the year despite significantly higher working capital needs in the current environment. Working capital and other is now a larger use of cash compared to previous guidance, driven by higher activities as well as a significantly higher metal price environment in the U.S. compared to the start of the year. It also includes the working capital rebuild in Valais following the flood. So this was already embedded in our guidance to start the year. We continue to expect CapEx, cash interest and cash taxes to be around the same levels as per the previous guidance. As Jean-Marc mentioned previously, we continued our share buyback activities in the quarter. During the quarter, we repurchased 1.7 million shares for $25 million, bringing our year-to-date total to 6.5 million shares for $75 million. We have approximately $146 million remaining on our existing share repurchase program, and we still intend to use a large portion of the free cash flow generated this year for the program. Now let's turn to Slide 12 and discuss our balance sheet and liquidity position. At the end of the third quarter, our net debt of $1.9 billion was up approximately $115 million compared to the end of 2024, with the largest driver being the translation impact from the weaker U.S. dollar at the end of the quarter. As indicated previously, we expected leverage from last quarter to represent [ a peak ] and that leverage will trend down in the second half of this year. We have made good progress on that front, and our leverage decreased by almost 0.5 turn to 3.1x at the end of the third quarter, and we're on track to be below 3x by the end of the year. We remain committed to bringing our leverage back down into our target leverage range of 1.5 to 2.5x and maintaining this range over time. As you can see in our debt summary, we have no bond maturities until 2028. Our liquidity increased by over $100 million from the end of 2024 and remains very strong at $831 million as of the end of the third quarter. With that, I will now hand the call over to Ingrid. Ingrid Joerg: Thank you very much, Jack, and thank you, Jean-Marc, for your kind words. I'm honored by the trust placed in me by the Board, and I'm very excited to lead Constellium into its next chapter. Over the past years, we have developed and executed on a value creation strategy at Constellium through the focus on high value-added products, enhancing customer connectivity, optimizing margins and utilizations, focusing on cost and continuous improvement and showing strong commitment to our stakeholders, all of which I'm committed to carry forward. Together with the support of our talented teams, we will continue to strengthen our partnerships with our customers, deliver innovative, sustainable solutions and create value for our shareholders. With that, let's turn to Slide 14 and discuss our current end market outlook. The majority of our portfolio today is serving end markets benefiting from durable sustainability-driven secular growth in which aluminum, a light and infinitely recyclable material plays a critical role. Turning first to the aerospace market. Commercial aircraft backlogs are at record levels today and continue to grow. Major aerospace OEMs remain focused on increasing build rates for both narrow and wide-body aircraft as evidenced by higher plane deliveries this year compared to last year. Also, supply chain challenges have continued to slow deliveries below what OEMs were expecting for several years in a row now, we are beginning to see signs that these challenges are easing. Demand has stabilized for the most part, and we remain confident that the long-term fundamentals driving aerospace demand remain intact, including growing passenger traffic and greater demand for new, more fuel-efficient aircraft. Demand remains stable in the business and regional jet market and demand for space and military aircraft is strengthening. Looking across our entire aerospace business, we believe our product portfolio is unmatched in the industry, and we have industry-leading R&D capabilities for aluminum aerospace solutions. Turning now to packaging. Demand remains healthy in both North America and Europe. As Jack mentioned earlier, we continue to benefit from improved performance at Muscle Shoals, which has set numerous operational records this year. The long-term outlook for packaging continues to be favorable as evidenced by the growing consumer preference for the sustainable aluminum beverage can, capacity growth plans from the can makers in both regions and the greenfield investments ongoing here in the U.S. Longer term, we continue to expect packaging markets to grow low to mid-single digits in both North America and Europe. Let's now turn to automotive, which is a bit of a different story in Europe versus North America. Automotive production of light vehicles in Europe remains well below pre-COVID levels. Demand in Europe remains weak, particularly in the luxury and premium vehicle and electric vehicle segments where we have greater exposure. Automotive production in Europe is also expected to feel the impact of the current Section 232 auto tariffs given the number of vehicles the U.S. imports from Europe. In North America, automotive production is also below pre-COVID levels. So demand has remained relatively stable. During the quarter, one of our competitors had a very unfortunate fire at one of their facilities in the U.S., which has created an interruption in the aluminum rolled product supply chain in North America. The entire industry is mobilizing to ensure we limit the impact on our customers. We currently expect a modest benefit from this, so more so in 2026 than this year. In the longer term, we believe electric and hybrid vehicles will continue to grow, but at a lower rate than previously expected. Secular trends such as lightweighting and increased fuel efficiency will continue to drive the demand for aluminum products. As a result, we remain positive on this market over the longer term in both regions despite the weakness we are seeing today. As you can see on the page, these 3 core end markets represent over 80% of our last 12 months revenue. Turning lastly to other specialties. Industrial market conditions in North America and Europe became more stable in the second half of this year and overall demand appears to have stabilized, also at low levels. We have experienced weakness across most specialties markets for 3 years now. As a reminder, these specialty markets are typically dependent upon the health of the industrial economies in each region, including drivers like the interest rate environment, industrial production levels and consumer spending patterns. We continue to work hard to adjust our cost structure to the current demand environment, which will put the businesses in an even better position when the industrial economies begin to recover. We do believe TID markets in North America can provide us with some opportunities today given the current tariffs make imports less competitive compared to domestic production, and we are already seeing positive momentum on this front. To conclude on the end markets, we like the fundamentals in each of the markets we serve, and we strongly believe that the diversification of our end markets is an asset for the company in any environment. With that, I turn it back over to Jean-Marc. Jean-Marc Germain: Thank you, Ingrid. Turning lastly to Slide 16, we detail our key messages and financial guidance. Our team delivered very strong results that were ahead of our expectations in the third quarter this year, including record third quarter adjusted EBITDA and we returned $25 million to shareholders in the quarter with a repurchase of 1.7 million shares, which led us to reduced leverage of 3.1x. While tariffs are creating broader macro uncertainty and impacting end markets like automotive, we are proactively managing our business to the current environment. We remain focused on strong cost control, free cash flow generation and commercial and capital discipline. Given our strong performance in the first 9 months of this year and based on our current outlook, including the current end market conditions that Ingrid just described, we are raising our guidance for 2025. We are now targeting adjusted EBITDA, excluding the noncash impact of metal price lag in the range of $670 million to $690 million and free cash flow in excess of $120 million. Our guidance assumes an improvement in the second half this year compared to the first half, including our strong performance in the third quarter. The second half improvement includes the timing of certain tariff mitigations and customer compensations as well as more favorable scrap purchasing, the ramp-up in the Valais and favorable foreign exchange translation. Our guidance also assumes modest benefit from the recent aluminum supply chain interruptions in automotive and includes a revision in our A&T segment that Jack mentioned previously. Looking to the future, we also want to reiterate our long-term targets of adjusted EBITDA, excluding the noncash impact of metal price lag of $900 million and free cash flow of $300 million in 2028. To conclude, while we continue to face challenging conditions in many of our markets today, some of these challenges are starting to ease compared to the start of this year. We're extremely well positioned for long-term success and remain focused on executing our strategy and shareholder value creation. Before we move to Q&A, I just want to say that it has been an extraordinary honor to lead Constellium and to work alongside such talented colleagues across the globe. Together, we have built a stronger company, and I am deeply proud of what we have accomplished. Ingrid is an exceptional leader with a vision and experience to guide Constellium forward, and I am confident she will take the company to even greater heights. With that, operator, we will now open the Q&A question, please. Operator: [Operator Instructions] And our first questions come from the line of Katja Jancic from BMO Capital Markets. Katja Jancic: First, I want to congratulate both Ingrid and Jean-Marc. And then I want to start on the scrap spread. I know you mentioned it was a small impact this quarter. It's going to be a bigger impact next quarter. Can you maybe provide a little bit more color on what that impact specifically was and will be? And then how we should think about looking into next year, given that I think some of your contracts are being negotiated now. Jean-Marc Germain: Thank you for your kind words and encouragement and talking now about scrap spreads. So if you remember, in the past, we are saying in any given quarter, scrap spreads can move plus or minus $5 million, right? That was the past. Then obviously, in '24 and in '25, we had unprecedented changes of scrap spreads, very much tightening in '24 and now widening in '25. And we said the full impact in any given quarter can be $15 million to $20 million. However, plus or minus, right? In this case, last year, it was minus. This year, it's a plus. However, as you know, we buy our scrap in staggered installments and some of them are bought over spot market, some of them are quarterly, some of them are yearly. So you've got some kind of a tail in terms of how these scrap spreads flow to our bottom line. In Q3, we were still buying scrap at spot prices, but also higher prices from earlier in the year. And Q4, that has significantly gone down. And we're seeing the scrap spreads also widening as a consequence of the unfortunate fire we saw at one of our competitors. Looking into next year, to your question about next year, if we remain in the same environment, we believe that there will be some further help from tailwind from scrap spreads. We still maintain the $15 million to $20 million a quarter, but it wouldn't be -- we would be realizing all of it next year, and we've already realized some of it this year. Jack, do you want to add anything? Jack Guo: Yes. I think the only thing I want to add, Katja, is that in Q3, we actually didn't see much benefit relative to last year given the dynamic that Jean-Marc mentioned. And year-to-date, it's actually been a headwind for us. Jean-Marc Germain: Yes, that's an important precision. Katja Jancic: Okay. And just because I'm thinking -- I think the $15 million to $20 million was in '24, right, on a quarterly basis when the scrap spreads really compressed. But when we look at the Midwest premium where it is today, which is an all-time high, why -- I'm just trying to understand why the spreads as we see them right now wouldn't contribute more than the $15 million to $20 million. Jean-Marc Germain: And I think that's what -- I mean, it's always part of what reference are you taking, right? Back in '24, we benefited from good scrap spreads that were bought in '23 and bad scrap spreads that were spot purchased, right? So that diminished the impact. This year, the same phenomenon happens the other way around. And you're absolutely right that with LME and -- well, mostly the Midwest rising, that is widening even more the spreads in dollar terms. And we'll see most of that. We'll see some of that in Q4. We'll see most of that next year if the current environment continues. Katja Jancic: Maybe just. Jean-Marc Germain: And maybe, just on the 15 and 20, maybe trending closer to the 20 than the 15 given the Midwest price. Katja Jancic: Okay. And on the -- I know there was a quick mention on the Novelis fire would have a small benefit in '26. Can you quantify how big of a benefit it could potentially be? Jean-Marc Germain: It's enough that we talk about it, but not enough that we would put a number just yet. It will depend on a number of factors. As you know, following this fire, the whole industry rallied to support our common customers, right? But it was very hard to deliver in quantities in the -- just in the wake of the fire because products need to come a little bit from the U.S., which is actually quite tapped out in terms of capacity. So a lot of it needs to come from overseas. That takes time. You need qualification time even if it's accelerated. So we think we're going to see some benefit in '26, more in '26 than we're seeing in '24 -- in '25, sorry, and that should continue through the first half of '26. Precise number is too early to tell. Operator: We are now going to proceed with our next question. And the questions come from the line of Corinne Blanchard from Deutsche Bank. Corinne Blanchard: Congratulations on the strong quarter. Jean-Marc, I'm sure you will be missed, and welcome to Ingrid, and I'm sure people will be looking forward to hear more in the coming weeks. Maybe 2 questions. I mean, on the aerospace, I mean, you guys have had an amazing margin profile if you look back in the last 4 to 6 quarters, and I think we're only seeing an increase. Can you help us understand how do we model it out in 4Q and in 2026? And then maybe the second question would be now you're about $200 million away from that $900 million of EBITDA by 2028. Can you just help me again bridge the gap over the next 2 years and how to think about it from a volume and pricing perspective? Jean-Marc Germain: I'll ask my colleagues, both Ingrid and Jack to help me in answering your 2 questions. So -- but I'll take a crack at it first. So the -- if you take the midpoint of the range, we are 220 million away from our 2028 target. So there's still quite a bit of wood to chop, but I think it's fair to say we are ahead of our plan, and we feel more confident now. We felt very confident, but we feel even more confident with our 2028 target. If you remember the bridge to '28, we had a number of actions, but a lot of them were under our control. We have some specific investments that are in the plan. They are actually -- some of them are already operating like our recycle center in Neuf-Brisach. Others, we are digging furiously. Others, we're building furiously. And I'm thinking of the casting center in Muscle Shoals and the Airware, the aerospace-focused products in [indiscernible]. And then we have some that are still on the drawing board, even though we are starting to build -- to buy some long lead time items like the modernization and extension of our Cast House in Ravenswood. And when I say these are under our control, they are under our control from 2 standpoints. One is it's CapEx, right? So we build stuff and then we'll make products out of it. The other one is we don't need customers for these to be profitable. And certainly, as you know, most of these investments are geared towards recycling more products. And obviously, in the current environment, these investments are going to be more exciting and more profitable. The Airware investment is a little bit of a different story, even though it is casting, you need customers for that. And I think what we're seeing with the aerospace ramp-up getting a little bit easier and especially the development in space applications where we have a very strong position. I think that bodes very well for this investment. So overall, it's a long answer to one part of the bridge, right, the CapEx side, we feel very comfortable with our execution on CapEx and our ability to make money and maybe more money than what we had initially planned with those investments. Now there are other aspects to the bridge. Some of it was our outlook on scrap spreads. The scrap spreads we have in the bridge to 2028 are lower. I mean, are narrower just to be precise and what is currently the case, much narrower. We'll see whether the current spreads continue. And if they are, that would be a tailwind to us. Now on the headwind side, I think it's fair to say that we're disappointed with automotive, the end market, right, the SAARs, the number of vehicles built in Europe, especially, but also a little bit in the U.S. So that would be a headwind. And we are seeing overall weak conditions in Europe. Now by 2028, I think Europe will have gotten their act together and things will be better. But at the moment, if I look honestly at it, I think we're running behind on that front. So that's kind of the puts and takes to the 2028 target. And obviously, on the cost side, we've done a very good progress with our cost management with Vision 25, more to come. I'm sure Ingrid will have a new plan for us, for the company in the future. So I think we're in pretty good shape on this. And then you had a question also on Aerospace, I think Ingrid knows aerospace inside out. So it is best she answers it. And obviously, you've got your own views on the 2028 long term. So please go ahead. Ingrid Joerg: Thank you very much, Jean-Marc. And thank you, Corinne, for your nice words. I think with respect to aerospace, I think what makes us very different from some of our competitors is that we have a very, very wide product portfolio, including aluminum lithium technology, which is really a great material for a lot of niche markets where we play. So we are really focused on more value-add per product that we sell versus some of our competitors are maybe more dependent on volume ramp-ups of aerospace OEMs. And this is really driving our margin that is very, very different to some of our peers. And that's really a multiyear journey that we have developed with our R&D capabilities. So we have a lot of innovation material in the pipeline that is driving this differentiated margin, and we will continue to work on this. You also know military jets are good. Space has been actually quite good for us in terms of development. And overall, the supply chain in aerospace seems to improve, particularly on the side of Airbus. With respect to 2028, I think Jean-Marc has already mentioned almost all of it. I would just maybe add one little point around commercial discipline and operational execution. I think you have seen now that [ TARP ] has much better financial performance driven in part by the Muscle Shoals better operational performance. So that remains a huge focus for us. We have worked very hard already on this on the cost side and operational excellence, but we still have potential to improve, and this will also be part of our journey to the $900 million for 2028. Jean-Marc Germain: I will just add, I mean, Ingrid doesn't brag about it, but you guys have followed us for quite a while. You see our aerospace margin, which you hinted at being exceptional this quarter, Corinne. We say we're at more than $1,500, $1,600 year-to-date. When Ingrid took over the A&T segment, that's 2015, right, 10 years ago, we're running at less than $500 per ton. So the focus on value-added cannot be understated -- overstated, sorry. We have really an excellent commercial and capital discipline to make sure we -- an innovation drive to make sure we get the best out of our assets so that we get the best returns for our shareholders. Operator: We are now going to proceed with our next question. The questions come from the line of Bill Peterson from JPMorgan. William Peterson: I also would like to congratulate Ingrid on the new appointment and also John-Marc, it's been a pleasure working with you. I wanted to first ask about the bridge, just basically to understand the drivers for the 2025 guidance, if you can quantify or stack rank things like the onetime customer payment, any benefit or if there is any benefit from the restatement you spoke to, maybe the potential tariff headwind, which may not be as much of a headwind or where you maybe found some success versus what you've been able to mitigate. And then, of course, scrap spreads, just to try to really define how much, I guess, of a benefit we should think about in the fourth quarter or if there's anything else to raise as part of why you raised your guidance for this year? Jean-Marc Germain: Thank you, and I'll turn it to Jack for this difficult question. Jack Guo: Yes. I'll start and Jean-Marc can help me. So you mentioned a few elements, Bill. I think you have -- there's a reference point. You have to be careful about whether it's versus our prior expectation or kind of versus prior year, if you will. and the expectation there. But for customer compensation, for example, AS&I, that was already embedded in our prior guidance. Now we did realize the benefits this quarter, which is great. And specifically in terms of the amount, we're not going to be very kind of explicit, Bill. But if you were to refer to the bridge in the price and mix bucket, mix was a little bit more favorable, if you will. But then the vast majority of the price is driven by this customer compensation for the underperformance of automotive program. So that's kind of one piece. And then in terms of raising the guidance, obviously, we had a very strong third quarter, which has led us -- give us more conviction into Q4 and to finish off the year. And Q3 was -- came in better than what we had expected. On top of it, you alluded to this accounting adjustment and the magnitude there, we can be very explicit because it's been disclosed. It for the first half of the year, it's in the neighborhood of $10 million -- $12 million to be exact, $12 million of benefits, a good guide for A&T segment adjusted EBITDA. And then in terms of the scrap piece, I think Jean-Marc already talked a lot about the dynamics there. We didn't see as much benefit as maybe you would have imagined based on where the spot markets are today year-to-date, but we do expect to see more benefits in the fourth quarter given our kind of more open positions and some modest benefits coming in from the unfortunate fire that happened at one of our competitors' plants. And obviously, we'll continue to focus on cost control and Vision 25. On the flip side, and here, I'm going to a little bit of kind of puts and takes, right? On the other side, when you look at the guidance for Q4 with relation to the view on the full year, we had very strong performance in A&T. We're able to benefit from favorable mix in aerospace due to a good volume of high-margin products, which could help compensate for a weaker mix in the fourth quarter due to timing reasons. And then Europe continues to be quite weak across many different markets. And by the way, yes, we should see some modest benefit from the fire at our competitors' [ plants ]. But on the other hand, it also it's creating a little bit of uncertainty or volatility with order patterns with the domestic OEMs. So you got to take that into consideration. Jean-Marc Germain: And maybe more specifically to this point, Bill, we'll sell more rolled products, but not enough, obviously, to compensate for the shortfall that is created by this fire. You've heard [ Ford reduce ] their projections for build rates. And obviously, we also supply out of auto structures and industry products to different customers, including this one. So if you don't build the cars, we don't sell the product. So there's all kinds of puts and takes to our -- to this guidance here. But fundamentally, we have momentum [ which ] I think, the main message. William Peterson: Yes. No, a lot there. I appreciate the color. I wanted to ask a bit more on aerospace. It sounds incrementally more positive that the aerospace destocking is easing. I guess how should we view the recovery? Is this still kind of maybe in your mind, more of a 2027 story? Or is this -- can this actually revert and turn positive in '26? Just trying to get a sense for the trajectory of coming out of this destocking cycle. Ingrid Joerg: Thanks for the question, Bill. I believe that -- I mean, it's very hard to predict because there is new issues for [indiscernible] as they ramp up. But clearly, we see, particularly on the European side that now it's only 2% of the supply chain that is holding back the rest of the supply chain. So it's a very small number today. And I'm sure with the different task forces that exist to overcome those industry challenges, this is going to ease throughout the year of 2026. Now whether it's going to come towards the end of '26 or '27, I think, still remains to be seen. But clearly, there is an improvement that we feel across the supply chain. And you have heard also that Boeing is going to raise the build rates. They got approval from FAA for the 737 MAX, even though it's small, but it's the first path to the trajectory of growth that they have been painting to their suppliers. So I feel that things are starting to come together. And in a few quarters from now, we should see a potentially much better picture than we see today. Jean-Marc Germain: Bill, I think it's fair to say that we are more optimistic about faster path to recovery for the supply chain than we were 3 months ago. Ingrid Joerg: Yes, definitely. Jean-Marc Germain: It's difficult to put a date to it. We'll let you know as soon as we see. Operator: [Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Timna Tanners from [indiscernible]. Unknown Analyst: Congrats to Ingrid. Best wishes to Jean-Marc. I wanted to follow up with the same kind of question that Bill asked on aerospace, but on the broader European market. I know for a while now we've been waiting for that market to kind of bottom out broadly. Any things that we should watch for just interest rates, any sentiment, anything that you can guide us to, to get confidence in a turnaround in Europe and timing there? Jean-Marc Germain: You're talking the broad European market beyond aerospace, right? Unknown Analyst: Yes. Ingrid Joerg: Timna, thank you for the question. Yes, I think it feels that the markets have been really weak for 3 years now. And we see some markets to really bottom out. It's very, very difficult to predict. As you know, we have strong markets in Europe, like packaging is very strong for can sheet, but also other packaging markets like flexible packaging. So these are running very, very well and very stable. Automotive, of course, is impacted by everything that's happening from the tariffs to the transition to electric vehicles. So I think there's a lot of questions right now on what is the best powertrain for the future and how is regulation going to change. So I think a lot of our automotive customers are really reviewing what their strategy medium to long term is really going to be. And then I think on industrial markets, we see mixed pictures. I mean some of our operations are well loaded. Some operations are really struggling. Rail business is good and continues to grow. So I would say it's a very, very diversified picture, but it's clear that the more commodity-based markets like building and construction, where we don't really have a footprint continue to be weak. So I would say there is positives and negatives. Jean-Marc Germain: But it feels to Ingrid's point about 3 years and counting, Germany seems to go into a mode of stimulating a little bit more its economy. So that's a positive, should be a positive. And then you've got defense spending, which should ramp up as well, where we are well positioned. So I think the way to think of Europe is a tale of many different niches, right? There's one big market, can sheet, which is great. Actually, it's undersupplied. We're sold out for many, many years. And then you've got plenty of different niches that are some good, some bad. And automotive, I think the jury is still out. Unknown Analyst: Okay. My other question is just trying to dig in a little bit on the impact of the rise in aluminum and Midwest premium price in particular. So I know you exclude the noncash impact of the metal price lag, but the higher EBITDA guidance and no change in free cash flow implies an increase in working capital that makes sense. Can you talk us through any -- or quantify any benefits of the price run-up in the quarter for your higher EBITDA? Or is that at all an impact? And if you could also address the way to think about the cash impact as well. Jean-Marc Germain: So Jack will help me. But on the EBITDA side, the only benefit from the rise in LME and Midwest is actually through scrap spreads, right, which follow supply-demand balance situation, and it's favorable to the buyers today. So -- but that's an impact we have, right? Recycling becomes more profitable when the material is more expensive, primary is more expensive and recycling scrap becomes more profitable. But on the other aspects, it's a pass-through business. So you may have a little bit of a timing-related impact one month to the next, but that's nothing really to write home about. And on the cash impact, obviously, rising metal prices means we need to replenish our inventories constantly, and we replenish them with more expensive metals. So that is a drag on our cash flow. That's a one-off drag on our cash flow this year. Jack Guo: Yes. And I think -- I mean, it's a type of question, Timna, that we can go into a lot more details afterwards, right? But maybe one way to think about it is to take a look at the changes in working capital over the first 9 months, and you see it's a large negative. Now there's an element related to higher activities, right? We're doing more business, higher volume. But then there is a big piece that related to the metal price increase. But all in all, on a net basis, that's why we have maintained our free cash flow guidance of over $120 million even though -- even though adjusted EBITDA, excluding that lag, the guidance there was great. Jean-Marc Germain: And Timna, just to build on that, if you look at our initial guidance and now our guidance today, the EBITDA has increased, the cash flow hasn't. And the delta here can approximate the drag we get because of the LME Midwest going up, right? So that gives you an idea, are we in the $60 million, $70 million, $80 million, $90 million. I mean that's kind of a broad range of drag we have. So what it means is the cash flow generation, if everything holds exactly the same next year [ that ] $120 million is vastly understated. Unknown Analyst: Right. And just to finally clarify, so the guidance does reflect the fact that the aluminum price is even higher today's spot price than where it was average for the third quarter. Is that reflective in your guidance? Jean-Marc Germain: Absolutely. Operator: Thank you. We have no further questions at this time. So I'll hand back to Jean-Marc Germain, CEO of Constellium for closing remarks. Jean-Marc Germain: Thank you. Thank you, everybody. So as you can see, we are ahead of our plan. We are building momentum, and our new CEO, Ingrid, is ideally suited to lead the company towards its 28 objectives and beyond. I leave as CEO at the end of the year, but I remain as a shareholder as an adviser to the Board, very excited about what's ahead, and I very much look forward to hearing about our prospects for 2026 from Jack and Ingrid when they update us on our progress in February of next year. Thank you, everybody, and have a good day. Bye-bye. Ingrid. Ingrid Joerg: Thank you very much, Jean-Marc, for your kind words. Well, thanks, everybody, for your interest in Constellium. We are happy with the progress we made, as Jean-Marc just said, and we look forward to an exciting end of the year. We also look forward to updating you on our progress in February, and thank you very much in the meantime. Bye-bye. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.
Operator: Good day, and welcome to the Oatly's Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brian Kearney. Please go ahead. Brian Kearney: Good morning. Thanks for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David. Please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please also refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause the actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue, and free cash flow. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Jean-Christophe. Jean-Christophe Flatin: Thank you, Brian, and good morning, everyone. Slide 4 has the key messages I want you to take away. First, I am proud to report that for the first time since our IPO, we drove profitable growth in the quarter with solid constant currency revenue growth and positive adjusted EBITDA. Second, we are seeing clear signs that our refreshed growth playbook is working, and we are driving positive category momentum in every market where we have fully deployed it. And finally, we are reaffirming our 2025 guidance. Turning to Slide 5. This quarter marks an important milestone for Oatly as we achieved our first quarter of profitable growth. Achieving profitability reflects the disciplined strategic actions we have taken over the past 3 years to strengthen the foundation of our business. Since Daniel and I joined the company in mid-2022, our sales have increased by over 20% and both our COGS per liter and total SG&A each have been reduced by over 25%. These results are the outcome of a company-wide effort to operate smarter, serve customers better, and position the company for sustained success as we execute our company's mission. A turnaround like this is not the making of just a few people. It has taken everyone throughout the company to deliver these results. And I therefore want to thank our entire team for their trust, dedication, and effort. To be clear, profitability is not our finish line. It's a marker of progress, a crucial credibility milestone, and even more important, a ramp-up for future profitable growth. On my first earnings call as this company's CEO, I spoke to the importance of balancing performance and purpose. I believe achieving profitable growth is validation that we can achieve our dual mandate of driving both purpose and performance. We see further potential ahead, and we are confident that the steps we have taken have set us on a path for durable, scalable, and profitable growth. This quarter's performance is a proof point of what this team can accomplish, and this is only the beginning of what's possible. Turning to Slide 6. Here, you can see the results of the deliberate and disciplined execution of our refreshed growth playbook. Put simply, our refreshed growth playbook is working. Our European and International segments started to roll out this playbook last year, and it grew revenue by over 12% in the third quarter. And the North American segment has started to see early progress, especially in the foodservice channel, which is where execution of these playbooks begins. Daniel will go deeper on the topic, but we are pleased with the progress we are seeing so far, and we are doubling down on the execution of our strategy. On Slide 7, we are reaffirming our 2025 guidance, and we remain on track to deliver our first full year of profitable growth. We continue to expect constant currency revenue growth of approximately flat to 1%, adjusted EBITDA in the range of $5 million to $15 million and CapEx of approximately $20 million. We will continue to deploy our playbook while maintaining strong cost discipline. We believe this is a winning recipe for our company, and we believe we remain on the right path. Finally, Slide 8, gives an update on our Greater China segment and the ongoing strategic review. Our Greater China business and our Greater China team continue to perform well, and it drove strong profitable growth in the quarter. The strategic review is ongoing, and we continue to evaluate a range of options, including a potential carve-out with the goal of accelerating growth and maximizing the value of this business. We continue to believe in the future potential of this business. As we mentioned last quarter, we continue to operate in the region, including our Ma'anshan facility, and we remain committed to our customers, our consumers, and our employees while maintaining the safety and continuity of our operations. We will update the market on our progress as is necessary and appropriate. Daniel, over to you. Daniel Ordonez: Thank you, JC. Good morning, everyone. Slide 10 shows how the Europe and International segment has performed. Revenue grew 12% in the quarter, driven by strong 8% volume growth. This growth is a direct result of the rollout of the refreshed growth playbook. As we're driving the top line, we're also expanding margins. The segment delivered another quarter of strong profitability with an EBITDA margin of 18%, which is 700 basis points higher than last year's third quarter. I am enormously thankful to this team who are really hitting its stride. As we move forward, we expect this segment to drive profit growth primarily through generating incremental consumer demand as we continue to execute against our growth playbook. Slide 11 shows why we believe we are on the right track with our new growth strategy. Recall that the pillars of our playbook are to drive relevance, to attack barriers to conversion, and to increase availability. To do so, we're partnering with our customers to make their menus and shelves much more relevant for the taste and flavor obsessed Gen Z generation. We start with our iconic Barista market developers to renovate foodservice menus to be ahead of the trend curve with drinks that use Oatly as a default experience canvas, not just as cow's milk substitute any longer. As these drinks generate vast awareness, consumer engagement and trial, our growth naturally shows up first in the foodservice channel with retail following. Here you can see that exact dynamic occurring in our E&I segment. Foodservice growth started to accelerate as we rolled out the playbook late last year, driving 28% year-on-year growth in quarter 3. The retail business has started to accelerate, moving from 4% growth in the last few quarters to 11% growth in quarter 3. On Slide 12, you see this dynamic playing out in a specific market. The takeaway of this slide is that Germany is our success story and an example of how this strategy can and will drive repeatable, consistent results. We rolled out this strategy in Germany late last year with relevant messaging that directly attacks the primary barrier to conversion, taste. We then launched the Lookbook to inspire foodservice customers to renovate their menus with much more interesting and Gen Z-friendly offerings. These actions have driven foodservice growth over 45% for 5 straight quarters. As consumers engage with our products in the foodservice channel, they naturally look for our products in retail. So that outstanding foodservice growth has led to strong growth in retail, accelerating over 14% year-on-year growth in the last 12 weeks. This strong performance has driven 70 basis points increase in our retail market share of the plant-based milk market and 280 basis points increase in the oat-milk market when compared to full year 2024. And it's not just Germany, Slide 13 shows that we are seeing similar trends across our largest European markets like U.K. and Sweden. Retail sales growth in these markets was about 4% in the last 12 weeks and have accelerated those growth rates in the last 4 weeks. In the U.K., we have gained 70 basis points of plant-based market share since 2024. And in Sweden, we have gained 40 basis points. In a nutshell, we see that our experience and taste-driven strategy hits the bull's eye of what young and not so young generations are expecting. Oatly is creating relevance and generating category demand again. We see this strategy working not only in the big established markets, but also in our expansion markets, where we grew nearly 50% year-on-year in quarter 3 as we continue to create the category. When Oatly enters a new market, we consistently see that it goes all oats. We believe these markets have a long runway for growth, and we're excited to continue bringing the Oatly magic to more people in more places around the world. We are convinced that making our customer menus and shelves more relevant by sharing the future trends from around the world is no doubt the way to continue to drive excitement and create the next wave of all drinks category momentum. While each market will have its unique execution and timeline, we're confident that there is still more runway for expansion everywhere. That is why we're taking this strategy to the next stage. Slide 15 shows the latest steps in capitalizing on the Gen Z-driven flavor bonanza that is going on across the globe. We have seen an explosion in popularity in Matcha-based drinks. And so we fast track the launch of the Oatly take on Matcha, an incredible product at the center of taste and flavor paradigm, tailor-made for Gen Z to shake, open, and pour. We then execute our unique foodservice-led and experience-based model. As always, we are at our best when we drive culturally relevant experiences like in music festivals, engaging with content creators or meeting with customers. The engagement has been exceptional. Then to enable consumers to enjoy our products at home, we executed the third pillar of our playbook, which is to increase availability. On Slide 16, you can see several of our in-store executions. These products, not only Matcha, but the top conversion we presented last quarter have been performing very well and are driving truly incremental volume by bringing new young consumers into the category and expanding the consumption of the existing consumer base. Across Europe, we're seeing examples of these new products quickly becoming the fastest turning in the category and with excellent repeat rates. Importantly, these new products are accretive to our sales mix and gross margin, which is very encouraging indeed as a business model. But we're not stopping there. Slide 17 shows what we're working on. We recently launched our first Future of Taste report, where we interviewed hundreds of baristas and drinks experts from all around the world to identify the key trends that we expect to drive menus going forward. Again, we do not just follow trends, but true to our DNA, we aim at creating them. I encourage you all to read it. But if you don't have the time, you should know that we have used those insights to inform our latest Lookbook, which we recently launched in Berlin at the global event where we invited customers, media, and opinion leaders from around the world. Our prior Lookbook was a big success and helped us drive incremental demands with provocative drinks and unexpected recipes that totally changed the way in which consumers view oat milk. It is no longer just an alternative to cow's dairy, but an exciting canvas to experience drink in the broader and more exciting beverage space that is way bigger than only coffee. Turn to North America on Slide 18. We continue to face the discrete headwinds that we have discussed in the past, including a large customer sourcing change and the frozen SKU rationalization. Importantly, though, we made underlying progress. Excluding the impacts of those headwinds, the segment has grown revenue by 5% in the quarter and by 4% year-to-date. We believe these growth rates are a better representation of how the underlying business is actually performing. We have clearly reduced our dependence on our largest foodservice customer as they represented just 10% of the segment's revenue in the quarter compared to nearly 30% 3 years ago. This enhanced diversification increases our flexibility to pursue growth where it is most strategic. As we move forward, we are open to partnering and growing with any customer if they are supportive to our mission, helpful in building our brand, and committed to growing the category profitably. As we have started to roll out the playbook, we have found that many new customers checked all those boxes. On Slide 19, you can see that our North American foodservice business, excluding the largest customer, grew up by 11% in the quarter as we are building momentum with the playbook. Our relevant messaging using the unique Oatly voice to inform consumers that they are likely to prefer Oatly to cow's dairy. These executions are in super high-traffic areas such as train stations, you see on this slide. And then when consumers are at their local coffee shop, they can now order interesting social media-ready drinks that use oat milk as the default base. On Slide 20, you can see, we have also continued to make progress in retail, where total revenue increased by 4% in the quarter. This growth was helped by extending our relevant messaging to in-store executions. Additionally, I am excited to see the growth contribution by strong club sales, which have rapidly increased to 6% of the segment's quarter 3 revenue compared to less than 1% in 2024. We're driving strong velocities, and we expect clubs to be a growth driver for us. Today, we're in 5 Costco regions, and we expect to add more clubs and more SKUs in the near future. While foodservice and club sales are not in the scanner data you tracked closely, these are high-quality channels that are very helpful in building our brands, growing the category, improving profitability, and ultimately delivering on our mission. As I mentioned last quarter, we are being thoughtful, deliberate, and disciplined in rolling out our playbook in North America. Given the success in Europe and international, we know what's possible. We continue to see that the underlying category, coffee, and consumer trends are extremely similar in both regions. However, our execution is a few steps behind and we're still in the very early stages of rolling out our playbook. The U.S. market is also more complex. And what we expect, we will continue to improve. We do not expect the growth acceleration to come as quickly as we have seen in the Europe and International markets. Make no mistake, though, we are committed to driving the performance that we expect in these critical segments. And we're confident that with sharp, locally relevant execution, our playbook can drive strong profitable growth in North America, but step-by-step. Turning to Greater China, on Slide 21. Our Greater China team continued to execute well in a challenging consumer environment. The segment posted strong growth in both channels. The foodservice business, which is the largest part of this segment, grew revenue by 18% in the quarter, and we maintained strong relationship with the largest coffee chains. We have continued to develop the retail channel with our entrance into club. In the quarter, the segment's retail volume reached an all-time high. And the segment drove positive adjusted EBITDA in the quarter and on a year-to-date basis. I am proud that the teams have remained focused on the business as we execute the ongoing strategic review. They have continued to build the business and service customers very well. I will now turn the call over to Marie-Jose. MJ. Marie-Jose David: Thank you, Daniel, and good morning, everyone. Slide 23 shows the quarterly P&L, which is our best performance as a public company. This quarter, we grew revenue 7.1% and 3.8% on a constant currency basis. Gross margin was 29.8%, which is flat compared to last year Q3. Adjusted EBITDA was a positive $3.1 million in the quarter, which is $8.2 million higher than last year Q3. Slide 24, shows the bridging item of our revenue growth. Volume grew 6.6%, partially offset by a 2.8% decline in price mix. Foreign exchange was a 3.2% tailwind. Slide 25, shows our year-over-year gross margin bridge. The benefits of absorption and supply chain efficiency improved margin by 60 basis points. This includes the benefits of the closure of our Singapore manufacturing facility in December. These benefits were partially offset by the impact of lower volumes in North America, including absorption headwinds and supplier penalties that were higher than anticipated as we true up our accruals. We expect fewer supplier penalties in Q4. Pricing and product mix was neutral to gross margin in the quarter. The benefits of our strategic mix management in Europe and International and customer mix in North America were offset by unfavorable product mix in Greater China. We experienced a 90 basis point headwind from inflation in the quarter, which was mainly driven by higher labor costs in our European supply chain. Finally, the impact of foreign exchange movements added 30 basis points. Slide 26, shows the year-over-year improvement in our adjusted EBITDA. The $8.2 million improvement was driven by a $4.3 million increase in gross profit and a $3.8 million decrease in SG&A and other. The reduction in SG&A reflects the ongoing work for a more fit-for-purpose cost structure. These reductions are from various areas, including indirect procurement that we mentioned last quarter and were partially offset by the impact of FX movements. Slide 27, shows segment-level detail. Europe and International grew volume by 8.4%, which highlights that our growth playbook is working. This strong growth drove a $9.5 million increase in the segment adjusted EBITDA. North America's 10.1% revenue decline was driven mainly by the change in sourcing strategy at a large customer. The segment's adjusted EBITDA declined $4.5 million compared to the prior year, which was mostly driven by the decrease in revenue. Greater China grew constant currency revenue by 28.7%, which was higher than we expected. This outsized growth was impacted by the timing of customer orders, and we do not expect sales to be as strong in the fourth quarter. Corporate improved by $3 million as we continue to drive out costs. Turning to our cash flow, on Slide 28. In the quarter, free cash flow was a net cash outflow of $5 million, which is $22 million better than last year third quarter. As a big driver of our cash flow improvement has been working capital. Year-to-date, our total working capital as reported in the cash flow statement was a $20 million cash inflow. In the quarter, our cash conversion cycle was below 40 days, which is the best level since our IPO, driven by strong processes to manage inventory, collections, and payment terms. I continue to see good progress through the company and I believe we still have room for improvement. Turning to Slide 29. In September, we disclosed that we signed a series of transactions to improve our capital structure and our financial foundation. The transactions were fully executed at the beginning of October. Specifically, we reduced the size of our revolving credit facility to SEK 750 million, which is a more appropriate size for our asset-light strategy. We issued SEK 1.7 billion of Nordic bonds. We prepaid our Term Loan B, and we repurchased and canceled a portion of our convertible notes. These transactions will be fully reflected in our financial statements starting next quarter. This slide shows the impact of the transactions on certain financial items of our go-forward business. We expect to save approximately $5 million in annualized interest expense, which is a 7% reduction. These savings will hit the finance expense line in our P&L. Finally, the repurchase of convertible notes reduced the potential dilution from the convertible notes. We benefit from both the reduction in outstanding convertible notes as well as the avoidance of any future peak interest. The potential dilution from the convertibles is approximately 40 million shares lower or approximately 10%. This equals to 2 million ADS. On Slide 30, we are reaffirming our outlook for our main guidance metrics. We continue to expect constant currency revenue growth in the range of approximately flat to plus 1%. This full year range is slightly below our year-to-date growth of 1.4% and Q3 growth rate largely due to a shift in timing of sales in the Greater China segment. Based on recent FX rates and assuming no change for the rest of the year, we estimate FX to add approximately 250 basis points to full year net sales growth versus our prior expectations of 150 basis points. For adjusted EBITDA, we are reaffirming the range of positive $5 million to $15 million. Given our year-to-date performance and outlook for the fourth quarter, we are likely to be in the bottom half of that range. Our guidance continued to assume no direct impact from U.S. tariffs. We also assume that the current economic conditions and consumer behavior will remain largely consistent for the rest of the year. Finally, we continue to expect CapEx to be approximately $20 million for the full year. This concludes our prepared remarks. Operator, we are now ready to take questions. Operator: [Operator Instructions] The first question comes from Andrew Lazar with Barclays. Andrew Lazar: I guess, first off, you were able to reaffirm your constant currency top line sales guide for the year. It looks for very modest growth. That's obviously inclusive of some of the onetime headwinds in North America and the discontinuation of some of the frozen products in the region. It's obviously still early to give any specific '26 guidance. But as we start to lap some of these onetime headwinds in North America and momentum in Europe remains strong, how are you thinking through what sales growth might look like next year? And what are the sort of the key puts and takes to consider? And then I've got a follow-up. Daniel Ordonez: Andrew, it's Daniel here. I will take your question, if that's okay. As you said, it's early to talk about 2026, but this is how we're thinking about the business at the moment, and it's going in the direction you're suggesting. First, in Europe, we see solid continuity of the playbook that is clearly working. As we prepared in the prepared remarks, we see profit growth via demand generation. That's what we see in Europe, and I will unpack it for you a little bit. In the U.S., we will continue to see step-by-step progress. That's the way we see, without the one-offs, right, that we will be lapping eventually in 2026. So how to think about Europe and how to think about profit growth via demand generation? I think it's a combination, Andrew, of a much stronger portfolio with focus on new usage drink occasions that are really allowing the taste strategy to bring more exciting recipes to foodservice customers and grow share of shelf. The growth of share of shelf in retail is very significant at the moment. To that, you should add an increase of the critical mass of the expansion markets. So as Oatly growth returns, so does the category. That's what we are looking in Europe at the moment. And we're confident that with the new playbook, the category growth overhaul will take a little bit of time, but we're already seeing very, very concrete signals that we're in a good path. When it comes to the U.S., as I was just saying, we see progress. If you exclude the one-off effects, we see the highest sales on records in both channels, retail and foodservice. We continue to outperform the market and also competitors in a market that continues to show softness in retail, and I underline, in retail. Why do I underline in retail? Because, of course, you need to -- you have to expect, Andrew, a bit of a one-off portfolio delisting to continue to hit us for the rest of this year and the start of 2026. Normally we should be lapping that and start with a clean base as of quarter 2. And then you will see some new distribution coming. So there is more distribution to go as of quarter 1 2026. Second to that, you need to add clubs. Clubs is an exciting prospect. We see velocities mounting and significant expansion still to take place, as we prepare in the prepared remarks and at least 2 more Costco regions. The most interesting parts, to give you more color, Andrew, is foodservice. You see the double-digit growth quarter-on-quarter. And that is already proof that, it's initial proof that the playbook is also working in North America in the channels in which we can activate faster and more strongly. That's as far as I can share with you today, I believe, Andrew. I hope that's okay. Andrew Lazar: And then just a quick follow-up on Slide 11. It looks as though the European retail consumption for the oat milk category accelerated in the third quarter, surpassing that of plant-based milk category overall. And that had not been the case, I guess, in any of the prior 3 quarters. I guess what would you attribute the acceleration to? And would you expect the trend of oat milk taking share within plant-based to continue in Europe? Or were there any extenuating circumstances that made this quarter sort of more of a one-off? Daniel Ordonez: Yes. Thank you, Andrew. Daniel again. Yes, I -- certainly, the attribution is to the experience and taste strategy. It's clearly driving consumer relevance and is creating category demand, again, in Europe. If you ask me, we -- were we expecting to see this, this fast? Possibly not. The reality is that we see concrete signs that with Oatly's growth, the category growth follows. You will remember, we use that phrase that we differentiate plant-based milks from oat milk from Oatly. That's exactly what we're seeing again. So we see strong volume growth and even oat milk penetration, Andrew, we talked these many times, penetration is a marker of category growth that is the hardest. We see some decimals of category penetration showing signs of growth. What we see is that it clearly hits a bull's eye of what Gen Z are expecting: Flavor, excitement, well-being, and sustainability. So this new strategy puts us a bit of -- in the center of the storm in the forefront of this much bigger beverage space that we had in one of our slides in the presentation. We're making both foodservice menus and shelves in retail more relevant and way more exciting, more colorful, more exciting. So that's why I like this phrase that we used for the prepared remarks that it's a bit of a reframing of the category, what we're seeing, Andrew, and time will tell, but it's not just an alternative to milk any longer, but an experience canvas for drinks that is relevant to all and not just for a few, right? As we lap the first generation of plant-based growth, we are indeed creating the, what we call internally the second revolution. We are implementing the same playbook in the U.S. with positive signs in foodservice, as I said. So I'm sure you were thinking about the U.S. and so were we every day, the U.S. being a bit more complex. So it will take a bit longer to close the cycle in retail, which you know is a much more slow-moving channel. I hope that's okay, Andrew. Operator: The next question is from Tom Palmer with J.P. Morgan. Thomas Palmer: I wanted to just first ask on kind of some of the trialing that you've mentioned this quarter and also in some recent quarters, how the taste preference is a great way to highlight or, I guess, a great differentiator and way to drive traction with customers. What are the most effective ways you found to, I guess, get customers to trial? And maybe some color on kind of how that plays out. I mean it does seem like there is some distribution opportunity, especially in the U.S. that you're starting to take advantage of. So just kind of driving the trial to bolster that. Daniel Ordonez: Very good, Tom. So Daniel here again. I will try my best not to repeat, the part of the answer of Andrew were blended in your question, I guess. We believe we're really capitalizing on this taste and flavor bonanza as we like calling it internally, right? So that has transformed coffee, as you know, from hot to cold and much more of a beverage space than coffee. So how do we generate trial, which was your question? You know that Oatly has this proprietary way of looking at business, which is we have been, since our inception, intimately woven into the coffee space. Today we've built an iconic team, Tom, of over 60 Barista market developers who spend more than 1,500 hours a week in coffee shops from Mexico City to Seoul to Paris. And they are dedicated to working directly with our partners to making their menus more relevant as they capture the evolution of coffee in -- really, really in the early stages of the change curve. So that is what we believe, and that is how we generate the trial. So people should experience these signature drinks first. And then we scale it up. We have a very concrete monetization strategy, which is how does that show up in retail. We -- you might remember from the last quarter, we talked about the popcorn flavor, which is flying off the shelves and now we added the Matcha Oat drink. So these are drinks that have -- people have tried in foodservice, they have tried in concerts and in pop-up stores and then they find in the retail for them to take home. And that is a bit of the circle or the flywheel, if you want, as to how we see the business model working. That's what I can add, Tom, to your question. Thomas Palmer: And then just on the guidance, and you did provide, not a super wide range here in terms of EBITDA. But when thinking about kind of the upper end versus the lower end of the range, what are kind of the key swing items that you're watching? Marie-Jose David: Yes. Hello, Tom, this is Marie-Jose. So as we said, I'm going to repeat a little bit what we already said in the prepared remarks. If you look at Q3, right, from a top line standpoint, you do know that there is a timing shift here going into Q4. When it comes to gross margin, if you take back what we said in the prepared remarks, there is an impact that it's a true-up that happened in Q3 that will not happen in Q4. So we expect this impact to be for about 200 to 300 basis points in Q4. And then if you take that from a gross margin standpoint and you add the work that we're doing in SG&A, which has been, and you can see that we have made improvement in our Q3 results as well, the combination of the 2 is what will drive a few million dollars to impact in Q4. So if you look at the evolution and the continuous improvement, what I just said explains why we just call out the low end range of our guidance. Thomas Palmer: I apologize. I meant -- I thought it was the bottom half of the range, so essentially the 5% versus the 10%. Marie-Jose David: Yes, correct. This is -- I mean, the way to look at it is it will be on the lower half because of how we are looking at Q4 when it comes from a phasing standpoint on the top line with the true-up that will not happen in gross margin in Q4. And that combined with our SG&A improvement will make the adjusted EBITDA on the lower half for the full year. Operator: The next question is from the line of Dara Mohsenian with Morgan Stanley. Dara Mohsenian: So you've done an impressive job reinvigorating growth in Europe in the last few quarters. As you mentioned, North America is taking more time. Just anything you've learned in Europe from your success there that you think is applicable to the North American market as you think about returning to consistent growth in that region? Obviously, separate consumer dynamics in the 2 regions and the U.S. is a complex market, but any cross-geography learnings you think can be applied? And just as we look forward to 2026, can you just give us a bit more detail on plans to drive greater household penetration in the U.S., more conversion of the oat milk category, the club expansion maybe is perhaps part of that? But just as you think about really trying to unlock new customers for this category, what are the biggest focus points for you? Daniel Ordonez: Dara, how are you doing? That's Daniel here again. Yes, as you can imagine, we think day in, day out about that question. So -- and we -- yes, the way which I would like to start addressing that is that we are confident, we're very confident that we will be able to drive strong and profitable growth in the U.S. We believe -- strongly believe, and I will unpack it for you. We believe it's a matter of when as opposed to a matter of if, right? So why -- the first part of your question, why do we believe that is the case? Well, first, you see -- because we see that the evolution of the European and the American consumers in our space is fundamentally similar. I underline, in our space, right? Based on the hard evidence of the underlying consumer trends and the real-life experience of pulse check we have from our Barista market developers. You saw what I answered to Tom, we have over 60 Barista market developers in different cities in the world scanning what is -- how is the change curve happening. And the 3 points that substantiate that, Dara, are the coffee space. It has developed identically in both regions from hot to cold and into experiential beverages. You see exactly identical trends. And you see a lot of customers now pivoting from London to New York in the foodservice space, for instance, right? So that's #1. #2, younger consumers, Gen Z, but then the Alphas are obsessed with flavor and taste. Obsessed. And #3, as we have mentioned in a couple of quarters ago, the preconceptions on taste for plant-based drinks are the #1 barrier to conversion in both regions. When we do blind taste tests in dairy versus Oatly, we see that both in the U.S. and in Europe, in many markets, the same 50% preference for Oatly everywhere. So that's the fundamental. The second one is that we see it working already in coffee and foodservice. So remember that when we look still and when you look at these segments, you are going -- we are navigating headwinds that have to do with this large customer that I want to underline now represents only 10% of our revenue. And also some delistings of adjacencies that didn't fully work, right? So when you remove that, we see it working in coffee and in foodservice, where customers are more receptive to the strategy I was describing, Dara, and so we can move faster. So we do believe that the taste-focused approach is the right approach for the U.S. And of course, we're adapting the nuances on taste, and we're adapting to nuances on formats. We are under no illusion that things are identical when it comes to the product offering in both markets. Now I will pause there to say what are the differences. The U.S. market is very large and more complex. The most notable difference, Dara, is the timing of shelf resets at retail. Typically does once a year and very, very strict and narrow windows. So while these differences and complexities might make progress lower than in Europe, and it will, inevitably, we believe. The important thing is that we understand the differences, and we set the course in the right direction. So we expect progress, but step-by-step. Dara Mohsenian: And then just on the profitability front, obviously, EBITDA progress this year. Just as we look beyond the guidance that's in place for this year, any thoughts around being able to drive continued cost savings, whether it be efficiencies on the supply chain front or SG&A in the broader organization as we look out to 2026 and beyond? Jean-Christophe Flatin: Thank you, Dara, Jean-Christophe speaking. Just to be clear, we will continue harvesting savings on both fronts, both supply chain and SG&A. What was initially 2 to 3 years ago, a turnaround urgent necessity has become a permanent daily mindset. So all the teams are permanently looking for opportunities to be more efficient, leaner, and drive more impact with the same amount or even less of resources. So this continuous improvement obsession is all around and will continue in '26. As you can imagine, we are still in the middle of the budget planning. So too early to translate that statement into figures, but that's exactly what we will continue to do. Operator: The next question is from John Baumgartner with Mizuho Securities. John Baumgartner: I'm curious, coming back to North America in terms of the profitability there, quarterly EBITDA has been bouncing around breakeven now since, I guess, early 2024. And presumably, some of the operating leverage benefits have now leveled off. I'm curious, in the context of this ongoing productivity, how are you thinking about the margin evolution in the region going forward? Short-term needs for incremental reinvestment relative to new opportunities for efficiencies, what those efficiency buckets might be? And then long-term, how do you anticipate North America margins at normalized levels relative to those in Europe? Daniel Ordonez: John, I'll start by, I think MJ possibly will complement or JC here as well. There is a very, very clear and concrete part of your question, which is the volume decline in North America have consequences, of course, in the levels of absorption and some of the penalties that MJ was referring to. So that is the attribution to the -- yes, we call it lack of progress, if you want, as we would have intended in North America as we are lapping those effects eventually during quarter 1, quarter 2, as I mentioned in one of the previous questions on both foodservice and on the adjacencies, we do see underlying growth. So you see -- you should be seeing those 2 lines crossing in the future. Now there is absolutely nothing structural or long-term that you should be concerned about. And here, we have set very clear long-term guidelines for both our margin and profitability. And we have said consistently that we believe that the U.S. should be driving strong profitable growth in the near future. It's only that the top line has been more stubborn for the reasons that we have explained so many times. There are some mechanical events that we're still lapping. Some of them are not under our full control. And we are focused relentlessly on driving consumer demands as we see already in clubs and as we see already in foodservice. So we will be relentless there. And then with volume and with demand generation, you will eventually see what we're seeing in Europe, which is profit growth through consumer demand. John Baumgartner: And then looking at Europe, a lot of conversation about the oat milk part of the category. But I'm curious, given how well established plant-based beverages are in general in the region, what are you seeing from some of the other varieties, soy milk, hazelnut? How do you think about the competitive advantage of oat, whether it's formulation being used in creamers? I'm curious what you're seeing with interactions with other plant-based varieties. Are volumes softer? Do you see more price competition from other varieties? Can that price competition derail some of the progress that you're making in oat? Just your thoughts on the competitive environment in Europe. Daniel Ordonez: Very good. There are many elements of your question. It's Daniel again here, John. First, you see it's not necessarily more established. You're talking about 30% penetration. So this category, when you look with perspective compared to all the categories were used to manage you, us, is on its infancy. So we look at a notion of opportunity of 70% category penetration ahead of us. That's how we look at the category. And when you look at it like that, you are creating new consumer demand. You're bringing new consumers into the category and you're bringing new consumers into a category that why the new generations is not seen just as an alternative to cow's dairy. That is the most exciting, not that we have nothing -- we're not changing our mission. Our mission is still identical, and we believe in our mission. It's just that bringing more people into this category takes a different playbook. So that is the most important part of addressing your question. Then as coffee evolves into beverages and new Gen Z and Alpha are kicking in, yes, you see some other crops evolving, but from a very, very small base. The reality is, as I said, I believe, to Andrew at the beginning, the macro dynamic we see in Europe, whether it's in the established market for Oatly, on the new is, Oatly growth outgrows the oat milk category, and then that drives plant-based milk penetration and growth. That's the phenomenon we see today. Then the third angle to your question is pricing. You see, we command a strong premium in Europe. We have said this many times, there will always be space for pricing and private labels. That's not our market. And we respect consumers that go for price. That's not our game. We are in a value game, and we feel very, very comfortable in it. So -- and we're driving growth and profitability in it. So that is, in a nutshell, the way we see Europe at the moment. Operator: The next question is from Samuel [indiscernible] with Nordea Markets. Unknown Analyst: Perhaps one question from my side. Looking at the financials, sequentially, we didn't see any improvement in free cash flow from Q2 despite the decrease in the cash conversion cycle. I'm just curious that how much there is still to squeeze from and what you would expect to be the magnitude for the next improvement in the coming quarters regarding the free cash flow? Marie-Jose David: Hello, Samuel, this is Marie-Jose. So look, since I joined Oatly 2 years ago, I've been repeating how cash is important to me and to the company. And this quarter, as you just mentioned, is another proof point of how much we are progressing on that field. So how to look at it? You know that we've been working through a couple of building blocks. First one, of course, is to continue our P&L profitability journey. Second is definitely to double-click on good practices and processes. And we do know that we have room for improvement when it comes to working capital. You saw the slide on the deck that as well show the improvements we're making, not only from a free cash flow, but as well on the cash conversion cycle. And then on top of that, we remain disciplined on CapEx, and you saw that as well as we go. So I'm not going to call any numbers or any evolution. But if you take all those building blocks and you look at how we have been continuously improving, it's a matter of time. We are on track. We are delivering our business plan. We are fully funded. It's a matter of time. This is all what I can tell you. Operator: This concludes our question-and-answer session. I would like to turn the conference back to Brian Kearney for any closing remarks. Brian Kearney: Great. Thanks, everyone, for joining us today. If you have any follow-up questions, please feel free to reach out to me, and we can set something up. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Q3 2025 Earnings Conference Call. I am Mattilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Drager, CEO. Please go ahead. Stefan Dräger: Yes. Good afternoon, and thank you for joining our conference call on our financial results for the first 9 months of 2025. I have with me today Gert-Hartwig, CFO; as well as Tom Fischler and Nikolaus Hammerschmidt, both Investor Relations. I would like to take you through the results of the presentation that we made available on our web page this morning. Following the presentation, we will open the floor to your questions. Let's get started on Page 5 with the business highlights. With a significant increase in orders, noticeable growth in sales and very good earnings, we delivered a strong business performance in the first 9 months of 2025. Despite difficult economic conditions, demand for our Technology for Life rose to around EUR 2.6 billion. The last time we had such a high order intake after 3 quarters was in our record year 2020. Growth was driven by both divisions and all. The same is true for net sales, which increased to around EUR 2.3 billion. Earnings before interest and taxes almost reached the prior year level at around EUR 77 million despite the positive one-off effects mentioned above in the prior year. As a reminder, last year, we had divested a non-core business in the Netherlands and unused property in the United States and a building in Spain, totaling around EUR 30 million in one-off effects. Similar effects are missing this year. In addition, this year, we need to compensate for some quite strong headwinds, currencies and tariffs had a substantial negative impact on our earnings. So without these headwinds, our EBIT would have been significantly above the prior year level. Our business in the third quarter made a substantial contribution to the strong overall performance in the first 9 months. Net sales were significantly above the prior year level in Q3, while EBIT more than doubled. In addition to our top line, we were able to improve our operating cash flow in the first 9 months with a considerable increase by more than EUR 35 million to around EUR 93 million. This development has also been recognized by investors. Until the publication of our preliminary figures, our preferred shares had already increased by around 44% year-to-date. On the day after the publication, they rose by 12%, resulting in an increase of around 63% in the current year. Our common shares have shown strong performance as well with an increase of around 41% year-to-date. Ladies and gentlemen, as communicated 2 weeks ago, we now expect the net sales growth and the EBIT margin in the upper half of our forecast range. I'll come back to our outlook at the end of our presentation. With that, I turn over to Gert-Hartwig for a review of the financials. Gert-Hartwig, please. Gert-Hartwing Lescow: Thank you, Stefan, and welcome, everyone. Please turn to Page 7 for a group overview. As usual, all growth rates are quoted on a currency-adjusted basis. As Stefan Drager said, we continue to see strong demand for our Technology for Life in both divisions in all regions. Order intake rose by 9% to around EUR 2.6 billion in the first 9 months of '25. The Americas led the growth with an increase of around 19%, followed by EMEA and APAC. In Germany, the order volume was slightly above the prior year level. In the third quarter, orders grew by roughly 7% as the slight decline in Germany and APAC was more than offset by an increase in the other regions. Our net sales development has further accelerated in Q2. We are well on track to compensate for the slow start in the year caused by some supply chain disruptions. Net sales rose by more than 10% in the third quarter. In the first 9 months, they increased by roughly 4% to around EUR 2.3 billion. All divisions and regions contributed to growth in the respective reporting periods. The positive development in the third quarter was driven in particular by a significant increase in the EMEA and Americas regions. I'll comment on that when we get to the divisions. Our gross profit margin increased by 0.7 percentage points in the first 9 months to 45.1% despite currency headwinds and higher tariffs. The margin improvement was strong in the Medical division than in the Safety division. Operating costs rose only moderately, reflecting disciplined expense management. Our functional expenses increased around 6% in the first 9 months, but mainly driven by the absence of last year's EUR 30 million one-off income. Excluding the positive one-off effects mentioned above, the cost increase amounted to 2.4% in the first 9 months and to 1.5% in the third quarter. In nominal terms, however, functional expenses were on a slight decline in Q3. Due to the only moderate increased costs and the significant growth in net sales, we more than doubled our EBIT to around EUR 57 million in Q3, coming from around EUR 24 million in the prior year quarter, which had been still supported by the positive one-time effects amounting to EUR 10 million in the quarter. Our EBIT margin rose from 3.6% at 3.1% to 6.8%, strong earnings performance in the quarter. Over the first 9 months, EBIT came in at around 3% margin, slightly below last year's EUR 80 million and a 3.5% margin. Again, the positive one-off effects from the prior year are now missing. In addition, headwinds from currencies and tariffs strained our EBIT as the euro appreciated sharply against key trading currencies. Carefully monitor the development of foreign currencies and manage risks proactively through hedging and price adjustments. Having said that, FX still had a negative impact of roughly EUR 22 million on EBIT. Our operating performance improved year-on-year, and that improvement nearly but not fully offset the absence of one-offs and the FX and tariff drag; thus, our EBIT declined slightly. Finally, our rolling 12-month EBITDA improved significantly from roughly EUR 30 million to around EUR 49 million. Let us now take a closer look at on Page 8. We grew order intake by almost 12% to around EUR 1.5 billion in the first 9 months of 2025, driven by high demand for ventilators, anesthesia machines, services, and consumables. In the second quarter, mid-double-digit million euro order for hospital infrastructure from hospital further powered our growth in the Americas. But even without this large order, demand in the Medical division rose year-on-year. In the third quarter, order intake in the Medical division increased by more than 5%. The decline in APAC was compensated for by the significant growth in EMEA and by the positive development in the other regions. Thanks to EMEA and the Americas, in particular, net sales rose significantly by more than 10% in the third quarter after a slight decline in the prior year period. Looking at the first 9 months, net sales increased by around 5% to EUR 1.3 billion, driven by all regions. In APAC, growth was driven mainly by EMEA and China, with business development somewhat uneven in China. After solid growth in the first 6 months, demand has cooled considerably in the third quarter. Although the resolution of our Q1 supply chain problems had a positive impact in Q3 as expected, these effects were offset by the overall weak business in China, resulting in a decline in net sales compared to the prior year quarter. Our gross margin expanded by nearly 3 percentage points in Q3 and by 1.1 percentage points in the first 9 months, thanks to a favorable product and country mix and lower quality expenses from field actions. Functional expenses rose by 6% in the first 9 months of 2025 and by roughly 8% in the third quarter. Excluding the proportionate positive one-off effects from the sale of real estate in the prior year, the increase amounted to roughly 4% in the first 9 months and also in the third quarter. Earnings in Medical returned to positive territory in Q3 as we are making progress in improving the profitability in the division. Our EBIT grew considerably from minus EUR 4 million to plus EUR 11 million, lifting the EBIT margin from minus 0.9% to 0.3%. For the first 9 months, EBIT amounted to around minus EUR 23 million after around minus EUR 28 million in the prior year period. As mentioned before, one-off effects in the prior year's period played a role. Our rolling 12-month EBITDA improved significantly by around EUR 22 million to around minus EUR 45 million. I will now turn to our Safety division on Page 9. In the first 9 months, order intake rose by roughly 6%, driven by gas detection, respiratory and personal protection products, and Engineered Solutions. Orders for occupational health and safety normalized after last year's large order for NBC Protective filters, leading to a lower demand in Germany. EMEA and the Americas delivered strong double-digit order growth, while APAC remained almost stable. After a somewhat slower development in the second quarter, order intake accelerated in Q3 with orders rising by roughly 9%. In addition to the significant increase in EMEA and the Americas, growth in APAC also contributed to this development. Q3 net sales rose significantly by roughly 10%, driven by EMEA and the Americas in particular. The first 9 months, net sales increased by more than 2%, thanks to growth in all regions. That said, our safety business is back on track after slight weakness in Q2. Our gross margin expanded by 1 percentage point in Q3 and was stable in the first 9 months, thanks to a favorable product mix. Functional expenses rose about 5% in the first 9 months. This was mainly due to other operating income in the prior year period from the sale of our fire alarm systems business in the Netherlands and the sale of real estate. Higher marketing expenses also had a negative impact on function costs. Excluding the other operating income of the prior year period, functional expenses decreased slightly by 0.3% in the first 9 months of the year and by 2.4% in the third quarter. So good expense management and safety. Q3 EBIT improved significantly to roughly EUR 46 million after EUR 28 million in the prior year quarter. The EBIT margin increased to 12.6%. After the first 9 months, the EBIT came to just under EUR 100 million, down from EUR 108 million. The EBIT margin was just below 10%. Rolling 12-month EBITDA decreased slightly by roughly EUR 3 million to around EUR 94 million, coming from EUR 97 million in the prior year. That concludes the Safety division revenue. Let's move on to the development of our cash flow and other key figures on to Slide 10. In the first 9 months, we significantly improved operating cash flow by around EUR 35 million to roughly EUR 93 million. This was mainly due to effective working capital management, especially better development of trade receivables, trade payables and other liabilities. Outflows from investing activities more than tripled from EUR 2 million to about EUR 76 million, resulting in a free cash flow of around EUR 17 million after around EUR 35 million. Among other things, the significant increase in outflow was due to a base effect in the prior year, the sale of our fire alarm systems business in the Netherlands and the sale of the property in the U.S. led to a considerable inflow, which is now missing. On the other hand, Drager added an investment to one of its holdings in the first quarter of 2025, which has contributed to a higher outflow year-to-date. Looking at our net financial debt, we had modest reduction, keeping our leverage at a healthy 0.7 net financial debt to EBITDA. Our 12-month return on capital employed rose from 10.9% to 12%. This was due to the significant increase in our rolling 12-month EBIT, which was much stronger than the increase in capital employed. The considerable growth of our rolling 12-month EBIT resulted from the good performance in the fourth quarter of '24, which had delivered much higher earnings compared to Q4 '23. Net working capital was around 3% higher than in the prior year at around EUR 21 million. Our equity ratio as of September 30 stood at nearly 50%, remaining at the year-end level of 2024. Now I hand back to Stefan Dr ger for our outlook on Page 12. Stefan Dräger: Ladies and gentlemen, Q3 was a strong quarter for Drager. Our excellent order development and the increasing sales momentum make us optimistic about the further growth of the business for this year. Therefore, we now expect the upper half of our previous guidance. We now expect net sales growth of 3.0% to 5.0% net of currency effects and an EBIT margin of 4.5% to 6.5%. EBIT is now expected to be in the range of EUR 10 million to EUR 18 million so far, business development during the year has given us a good basis to reach our targets. We start in the most important quarter of this year with our typical seasonality. In the next coming weeks, we will remain focused on execution to deliver on our promises. With this, I would like to end the presentation and hand over to the operator to open the line for your questions, please. Operator: [Operator Instructions] The first question comes from the line of Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: I would have 3 and probably take them one by one, if possible. The first one would be on the ventilation market, if you just can discuss the dynamics there. I mean I assume the whole industry has benefited from the exit of Bayer, GE and Medtronic. There have been some kind of voices who claim that Tania and Hamilton have gained most from these kind of changes and Dr gerwerk somewhat less. I mean I assume everyone has seen significant growth. I was just trying to get a kind of feeling, do you feel that's fair? Or do you believe you have captured your kind of fair share in this kind of market development? And also to what extent if we move into next year, is that kind of challenging base effect? Or will this kind of market consolidation support further growth next year? That would be question number one, please. Stefan Dräger: Yes. This is Stefan answering your question, Mr. So, I believe all the market participants that are still there, they get a fair share, including ourselves of the opportunities that come from the withdrawal of the 3 players. And so, for me, I couldn't understand why they made this withdrawal these 3 players and I see that for the times to come, very beneficial to be in the market. As you know, we have the longest tradition and experience and the greatest production capacity for all players as we invented the ventilator in 1907, my great, great grandfather this. And I still see it for the future as very beneficial to be in there. And I see that both Mr. Hammerschmidt and myself, we address our customers personally the video message to let them know that we will be there at their side in the future. So, it's not a secret. For Hamilton, it's a challenge because although it's a U.S.-owned company, operations are based in [Biel/Bienne] in Switzerland, the tariffs for the U.S. are 39%. So that led to some extra effort to cope with that, that we don't have. So, it's beneficial for other European ventilator manufacturers, including the one in Sweden. Oliver Reinberg: That makes sense. And do you believe you can still grow from this kind of base next year? Or is that a kind of demanding base, of which we would expect to kind of decline? Stefan Dräger: No, I would not expect a decline. I think the overall market has still opportunities and room for growth, as the medical technology and environment, the general positive trends they are still there and continue. So, despite maybe some single countries drop out, the global trend is still there. Oliver Reinberg: Super. That's helpful. The second question is just on supply chain. I mean, there's obviously the kind of discussion on Nexperia, the kind of Dutch company where the conflict with China, I think, largely people focus on the automotive industry, but I think they're also a major supplier for chips for the Medtech industry. I'm just wondering, is there any kind of risk factor that you face here in particular as we move into the kind of Q4 now? Stefan Dräger: Not a big effect. We do use some of these chips, but only to a small extent. And we have larger inventory that we keep on stock as the automotive people do. And from what we can see, luckily, these are used for applications that are not so regulatory dependent. So it's easier to replace and there are alternative suppliers. So we may see some smaller effect, but not in Q4, maybe in the next year. Oliver Reinberg: That's super. That's reassuring. And then the last question, obviously, it's a bit too early for next year. But just to get any kind of flavor, we are making nice margin progress in 2025. At the midpoint, we would probably run 50 basis points ahead of the kind of normalized run rates toward a 10% EBIT margin in 2030. I'm just wondering, looking at the pulls and pushes for next year, I mean, is there any reason why you should be below the kind of 6% EBIT margin, which would be implied by this run rate for next year? And in particular, can you provide any kind of color what incremental margin headwinds you expect from currency next year, please? Stefan Dräger: So I'll give you the first part we keep reiterating. So the business cannot be judged by the quarter. So it can always be a bad quarter that does not mean that the worst is bad. And the same holds true if we have a very good quarter like. So if we look at the figures and analyze where we are, then we see we had an exceptionally good margin in the Q3. And so in addition, we had an exceptionally good margin in Q4 last year. So if we go back on an average margin for this coming Q4, then there is a reason to assume that it is not so extraordinary, then you might probably speak at the first glance. And going back to the margin to normal, that's partially fueled because there are some large tender businesses that start delivering in this current quarter. So it's better to be a little bit cautious with the forecast and development of the future. The effect of the currency, I hand over to Gert-Hartwig. Gert-Hartwing Lescow: Yes, there will be given current average rates, there will be an additional FX headwind. We are in the final steps of finalizing planning and currency adjustments, but it's possibly in the range of another percentage point margin. We will provide more clarity on that with the publication of our guidance for '26. Operator: [Operator Instructions] The next question comes from the line of Virendra Chauhan from AlphaValue. Virendra Chauhan: So for now, just one question around your margins. So Q3 was fairly strong margin. And like you pointed out in your notes as well as presentation that it came from the strong net sales growth that you saw in this quarter. Now, of course, the sales growth guidance as well being upgraded, is there a chance that we see a similar year-on-year margin expansion in Q4 as well, because Q4 of last year was also very strong, I think close to 12%, if I remember correctly. So that's my question around your EBIT margin, please. Stefan Dräger: As I just explained on the question from [Indiscernible] Q3 was a very good margin that resulted from a favorable mix of the products in the portfolio. And it is safe to assume that will normalize and decline slightly for the Q4 and for the future. And also keep in mind that Q4 in 2024 was also a very good margin if you compare the quarters. So keep that in mind and think about this so should not be overoptimistic for the good margin to persist. As I said in, we do not think in quarters because in single quarter can always be a little bit up or down versus the others. So we, as much as we appreciate the current good result and the general outlook on the single quarter and the margin, I expect that for the Q4, there could be a slight decline. The EBIT margin overall that is more the focus that is as we said in our guidance, the upper end of the previous guidance. And it is in line with what we said earlier that we strive for a continuous improvement of the EBIT margin that should be about the same figure as the calendar year. So for this year, it's 25 that we said that already a couple of years ago, then it should be plus/minus 5%. And again, 2026, you can think about the ballpark figure of 6%. Virendra Chauhan: Sorry, maybe can I just ask one more question. So on your connected care launch, the silent ICU that you had talked about on the previous call, and it was scheduled to be launched in H2 '25. So I had 2 bits on that. One is what is your early customer feedback? What is that? And then secondly, when do you expect in terms of a time line that this entire project or focus could translate into meaningful revenue generation for the firm? Stefan Dräger: The customer feedback from the ICU projects, it's very excited. So we are very happy to observe that, and we look very much forward to taking off. We just this we started our marketing campaign where we took the horn more explicitly for this approach. And so I expect that from the next year on, that can be effect to the business from these kind of projects. Operator: We now have a question from the line of Jean-Marc Mueller from JMS Invest. Jean-Marc Mueller: First, I would like to congratulate you on a very good Q3 results. Quickly on Q4. I mean, you spent quite some time when we spoke about the numbers adjusting them for one-offs. And it's fair to say that in Q4 last year, albeit the numbers was good, it was actually worse by roughly EUR 10 million than what it should have been because you had an impairment charge last year in Q4, right? The underlying number would have been EUR 124 million, not EUR 114 million. Gert-Hartwing Lescow: Yes, that is correct. Jean-Marc Mueller: So when you're now saying that Q4 might be maybe a little weaker than last year, are we talking about adjusted numbers or reported numbers? Gert-Hartwing Lescow: There is a range and what we try to emphasize is, and I think you're iterating that, Q4 last year was also operationally a strong quarter. And depending on the delivery and given that it is just by the total number of net sales, there is a higher, if you will, sensitivity to variations in net sales variations. There is a chance that we also get at the lower end when it comes to reported figures even. Not that we are striving for that, but the discussion was just wanted to point out that the Q4 was operationally and also nominally in spite of the charge, a relatively strong quarter. Jean-Marc Mueller: Yes. Okay. I understand. I understand. And maybe ask a little differently. I mean, it's the most important quarter, I understand that, and it's typically a big number when it comes to full year results. But the range of the guidance is still very wide. I mean we're talking from the lower end to the upper end, we're talking about roughly EUR 70 million EBIT range. Maybe you can help us a little bit what would need to happen that we really hit the lower end of the range and what has to happen that we get to the upper end of the range? Gert-Hartwing Lescow: There is a couple of factors. And obviously, firstly, I mean, let me just, that's not what we're planning forward. I think you're asking what risks, we have seen FX turning against us, and this could certainly be a risk going forward. We do see that in spite of the good development overall, we do see some areas where our business is developing not as nicely, if you will. We talked about China, in particular in the Q3, where we saw a bit of like up. We also see that our safety business, while very robust overall is in Germany, for example, being put under pressure due to the general market trends for the industry. Stefan Dräger: For the industry. And that s the customer to a chemical industry. Gert-Hartwing Lescow: We also see that in the U.S. for different reasons, many customers are reluctant to fully engage in investments. And to the degree that we see some of these risks to materialize over proportionally and perhaps not see the support or a bit of a slowdown in the support, we see a risk that we also get to the low end. But let me also reiterate, we would be disappointed if our margin falls below the 5%. But at this point, we wouldn't rule that out either. Jean-Marc Mueller: Okay. And the upper end would just be flawless execution of all the projects? Gert-Hartwing Lescow: Exactly. Exactly. The flawless execution will clearly lead to the upper end. Jean-Marc Mueller: But this is what you're good at, no, flawless execution? Gert-Hartwing Lescow: Well, you can keep the fingers, the thumbs pressed and I'm sure it will help us. Say you will get an FX development that for change is not running against us, but in our favor happen. Jean-Marc Mueller: No, no. I understood. And an add-on question quickly on the cash flow. I mean also Q4 last year, the cash flow was pretty solid despite that the working capital movement in Q4 was actually negative. What should we expect this year? I mean, we obviously, we should still expect a positive free cash flow, I would assume. But the magnitude, I mean, you lowered your investment guidelines. So I would assume that also cash flows in Q4 should be fairly strong. Is this a fair assessment? Or do you see things which will go against the strong cash flow in Q4? Gert-Hartwing Lescow: By and large, I would support that, and that leads is in our range of possible net financial debt, we expect in the normal course to be at the lower end, so more positively for us. There is no underlying risk for our Q4 cash flow situation. Operator: [Operator Instructions] We have a follow-up question from the line of Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Probably also two or three. I mean the first question would be on anesthesia. There was some kind of news flow in the industry. Obviously, Jetting now has lined up with Philips. And in fact, also GE has introduced and called out the kind of launch of a new workstation, which is more meaningful apparently. I'm not sure if this is kind of normal industry development? Or is there a certain risk that may provide a kind of headwind for Anesthesia going forward? That would be the first question, please. Stefan Dräger: I would say that's a normal industry development. There are discussions, say, all the time. And we're also having discussions and that's a normal thing. So we're not afraid of this development. Oliver Reinberg: Right. So when you're also having discussion, that means you also are generally open to more different new ways of distribution. Is that the way to understand that? Stefan Dräger: That's very correct. And so there are obviously the companies like that do not have certain modalities and they are seeking and contacting the ones that have, because they want to become a full service suppliers. So that's a long development. And that has its pros and cons. And as I said, we are not afraid of this setup. Oliver Reinberg: Okay. Perfect. Understand. And on China, I mean, we've seen an improvement in the first half. Q3 looks like a kind of a larger change to the opposite again. I mean this is larger volatility? Or because you're calling that out, is there any kind of specifics that happened here? And why has it happened if you have any visibility here? Stefan Dräger: Basically I would say there's nothing new. It's very fragile from where we ended last year. And so far, it's say, stable, but at a modest level. And it's not likely that it comes back to where it was. So, for various reasons. Oliver Reinberg: Understood. And last question, any update on the defense-related demand in Germany in terms of what have you seen so far? Is there any kind of acceleration being seen at the moment? Stefan Dräger: Please keep in mind that last year in Q1, we received a large order for this last Mask 2000 for the Army of roughly EUR 15 million. And so that obviously did not repeat this year. And despite this not repeating a single order effect from last year, our orders are currently having a double-digit growth of around 25% year-over-year for the defense business. So, it is eventually picking up, and we do expect to receive more than EUR 100 million in orders in the current year. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Drager for any closing remarks. Stefan Dräger: Thank you very much to all of you that with us today for your time and your interest in here, and we look very much forward to meet you again, hopefully, sometime in person in the future. Have a pleasant afternoon and evening. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you.
Operator: Ladies and gentlemen, welcome to the Q3 2025 Earnings Conference Call. I am Mattilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Drager, CEO. Please go ahead. Stefan Dräger: Yes. Good afternoon, and thank you for joining our conference call on our financial results for the first 9 months of 2025. I have with me today Gert-Hartwig, CFO; as well as Tom Fischler and Nikolaus Hammerschmidt, both Investor Relations. I would like to take you through the results of the presentation that we made available on our web page this morning. Following the presentation, we will open the floor to your questions. Let's get started on Page 5 with the business highlights. With a significant increase in orders, noticeable growth in sales and very good earnings, we delivered a strong business performance in the first 9 months of 2025. Despite difficult economic conditions, demand for our Technology for Life rose to around EUR 2.6 billion. The last time we had such a high order intake after 3 quarters was in our record year 2020. Growth was driven by both divisions and all. The same is true for net sales, which increased to around EUR 2.3 billion. Earnings before interest and taxes almost reached the prior year level at around EUR 77 million despite the positive one-off effects mentioned above in the prior year. As a reminder, last year, we had divested a non-core business in the Netherlands and unused property in the United States and a building in Spain, totaling around EUR 30 million in one-off effects. Similar effects are missing this year. In addition, this year, we need to compensate for some quite strong headwinds, currencies and tariffs had a substantial negative impact on our earnings. So without these headwinds, our EBIT would have been significantly above the prior year level. Our business in the third quarter made a substantial contribution to the strong overall performance in the first 9 months. Net sales were significantly above the prior year level in Q3, while EBIT more than doubled. In addition to our top line, we were able to improve our operating cash flow in the first 9 months with a considerable increase by more than EUR 35 million to around EUR 93 million. This development has also been recognized by investors. Until the publication of our preliminary figures, our preferred shares had already increased by around 44% year-to-date. On the day after the publication, they rose by 12%, resulting in an increase of around 63% in the current year. Our common shares have shown strong performance as well with an increase of around 41% year-to-date. Ladies and gentlemen, as communicated 2 weeks ago, we now expect the net sales growth and the EBIT margin in the upper half of our forecast range. I'll come back to our outlook at the end of our presentation. With that, I turn over to Gert-Hartwig for a review of the financials. Gert-Hartwig, please. Gert-Hartwing Lescow: Thank you, Stefan, and welcome, everyone. Please turn to Page 7 for a group overview. As usual, all growth rates are quoted on a currency-adjusted basis. As Stefan Drager said, we continue to see strong demand for our Technology for Life in both divisions in all regions. Order intake rose by 9% to around EUR 2.6 billion in the first 9 months of '25. The Americas led the growth with an increase of around 19%, followed by EMEA and APAC. In Germany, the order volume was slightly above the prior year level. In the third quarter, orders grew by roughly 7% as the slight decline in Germany and APAC was more than offset by an increase in the other regions. Our net sales development has further accelerated in Q2. We are well on track to compensate for the slow start in the year caused by some supply chain disruptions. Net sales rose by more than 10% in the third quarter. In the first 9 months, they increased by roughly 4% to around EUR 2.3 billion. All divisions and regions contributed to growth in the respective reporting periods. The positive development in the third quarter was driven in particular by a significant increase in the EMEA and Americas regions. I'll comment on that when we get to the divisions. Our gross profit margin increased by 0.7 percentage points in the first 9 months to 45.1% despite currency headwinds and higher tariffs. The margin improvement was strong in the Medical division than in the Safety division. Operating costs rose only moderately, reflecting disciplined expense management. Our functional expenses increased around 6% in the first 9 months, but mainly driven by the absence of last year's EUR 30 million one-off income. Excluding the positive one-off effects mentioned above, the cost increase amounted to 2.4% in the first 9 months and to 1.5% in the third quarter. In nominal terms, however, functional expenses were on a slight decline in Q3. Due to the only moderate increased costs and the significant growth in net sales, we more than doubled our EBIT to around EUR 57 million in Q3, coming from around EUR 24 million in the prior year quarter, which had been still supported by the positive one-time effects amounting to EUR 10 million in the quarter. Our EBIT margin rose from 3.6% at 3.1% to 6.8%, strong earnings performance in the quarter. Over the first 9 months, EBIT came in at around 3% margin, slightly below last year's EUR 80 million and a 3.5% margin. Again, the positive one-off effects from the prior year are now missing. In addition, headwinds from currencies and tariffs strained our EBIT as the euro appreciated sharply against key trading currencies. Carefully monitor the development of foreign currencies and manage risks proactively through hedging and price adjustments. Having said that, FX still had a negative impact of roughly EUR 22 million on EBIT. Our operating performance improved year-on-year, and that improvement nearly but not fully offset the absence of one-offs and the FX and tariff drag; thus, our EBIT declined slightly. Finally, our rolling 12-month EBITDA improved significantly from roughly EUR 30 million to around EUR 49 million. Let us now take a closer look at on Page 8. We grew order intake by almost 12% to around EUR 1.5 billion in the first 9 months of 2025, driven by high demand for ventilators, anesthesia machines, services, and consumables. In the second quarter, mid-double-digit million euro order for hospital infrastructure from hospital further powered our growth in the Americas. But even without this large order, demand in the Medical division rose year-on-year. In the third quarter, order intake in the Medical division increased by more than 5%. The decline in APAC was compensated for by the significant growth in EMEA and by the positive development in the other regions. Thanks to EMEA and the Americas, in particular, net sales rose significantly by more than 10% in the third quarter after a slight decline in the prior year period. Looking at the first 9 months, net sales increased by around 5% to EUR 1.3 billion, driven by all regions. In APAC, growth was driven mainly by EMEA and China, with business development somewhat uneven in China. After solid growth in the first 6 months, demand has cooled considerably in the third quarter. Although the resolution of our Q1 supply chain problems had a positive impact in Q3 as expected, these effects were offset by the overall weak business in China, resulting in a decline in net sales compared to the prior year quarter. Our gross margin expanded by nearly 3 percentage points in Q3 and by 1.1 percentage points in the first 9 months, thanks to a favorable product and country mix and lower quality expenses from field actions. Functional expenses rose by 6% in the first 9 months of 2025 and by roughly 8% in the third quarter. Excluding the proportionate positive one-off effects from the sale of real estate in the prior year, the increase amounted to roughly 4% in the first 9 months and also in the third quarter. Earnings in Medical returned to positive territory in Q3 as we are making progress in improving the profitability in the division. Our EBIT grew considerably from minus EUR 4 million to plus EUR 11 million, lifting the EBIT margin from minus 0.9% to 0.3%. For the first 9 months, EBIT amounted to around minus EUR 23 million after around minus EUR 28 million in the prior year period. As mentioned before, one-off effects in the prior year's period played a role. Our rolling 12-month EBITDA improved significantly by around EUR 22 million to around minus EUR 45 million. I will now turn to our Safety division on Page 9. In the first 9 months, order intake rose by roughly 6%, driven by gas detection, respiratory and personal protection products, and Engineered Solutions. Orders for occupational health and safety normalized after last year's large order for NBC Protective filters, leading to a lower demand in Germany. EMEA and the Americas delivered strong double-digit order growth, while APAC remained almost stable. After a somewhat slower development in the second quarter, order intake accelerated in Q3 with orders rising by roughly 9%. In addition to the significant increase in EMEA and the Americas, growth in APAC also contributed to this development. Q3 net sales rose significantly by roughly 10%, driven by EMEA and the Americas in particular. The first 9 months, net sales increased by more than 2%, thanks to growth in all regions. That said, our safety business is back on track after slight weakness in Q2. Our gross margin expanded by 1 percentage point in Q3 and was stable in the first 9 months, thanks to a favorable product mix. Functional expenses rose about 5% in the first 9 months. This was mainly due to other operating income in the prior year period from the sale of our fire alarm systems business in the Netherlands and the sale of real estate. Higher marketing expenses also had a negative impact on function costs. Excluding the other operating income of the prior year period, functional expenses decreased slightly by 0.3% in the first 9 months of the year and by 2.4% in the third quarter. So good expense management and safety. Q3 EBIT improved significantly to roughly EUR 46 million after EUR 28 million in the prior year quarter. The EBIT margin increased to 12.6%. After the first 9 months, the EBIT came to just under EUR 100 million, down from EUR 108 million. The EBIT margin was just below 10%. Rolling 12-month EBITDA decreased slightly by roughly EUR 3 million to around EUR 94 million, coming from EUR 97 million in the prior year. That concludes the Safety division revenue. Let's move on to the development of our cash flow and other key figures on to Slide 10. In the first 9 months, we significantly improved operating cash flow by around EUR 35 million to roughly EUR 93 million. This was mainly due to effective working capital management, especially better development of trade receivables, trade payables and other liabilities. Outflows from investing activities more than tripled from EUR 2 million to about EUR 76 million, resulting in a free cash flow of around EUR 17 million after around EUR 35 million. Among other things, the significant increase in outflow was due to a base effect in the prior year, the sale of our fire alarm systems business in the Netherlands and the sale of the property in the U.S. led to a considerable inflow, which is now missing. On the other hand, Drager added an investment to one of its holdings in the first quarter of 2025, which has contributed to a higher outflow year-to-date. Looking at our net financial debt, we had modest reduction, keeping our leverage at a healthy 0.7 net financial debt to EBITDA. Our 12-month return on capital employed rose from 10.9% to 12%. This was due to the significant increase in our rolling 12-month EBIT, which was much stronger than the increase in capital employed. The considerable growth of our rolling 12-month EBIT resulted from the good performance in the fourth quarter of '24, which had delivered much higher earnings compared to Q4 '23. Net working capital was around 3% higher than in the prior year at around EUR 21 million. Our equity ratio as of September 30 stood at nearly 50%, remaining at the year-end level of 2024. Now I hand back to Stefan Dr ger for our outlook on Page 12. Stefan Dräger: Ladies and gentlemen, Q3 was a strong quarter for Drager. Our excellent order development and the increasing sales momentum make us optimistic about the further growth of the business for this year. Therefore, we now expect the upper half of our previous guidance. We now expect net sales growth of 3.0% to 5.0% net of currency effects and an EBIT margin of 4.5% to 6.5%. EBIT is now expected to be in the range of EUR 10 million to EUR 18 million so far, business development during the year has given us a good basis to reach our targets. We start in the most important quarter of this year with our typical seasonality. In the next coming weeks, we will remain focused on execution to deliver on our promises. With this, I would like to end the presentation and hand over to the operator to open the line for your questions, please. Operator: [Operator Instructions] The first question comes from the line of Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: I would have 3 and probably take them one by one, if possible. The first one would be on the ventilation market, if you just can discuss the dynamics there. I mean I assume the whole industry has benefited from the exit of Bayer, GE and Medtronic. There have been some kind of voices who claim that Tania and Hamilton have gained most from these kind of changes and Dr gerwerk somewhat less. I mean I assume everyone has seen significant growth. I was just trying to get a kind of feeling, do you feel that's fair? Or do you believe you have captured your kind of fair share in this kind of market development? And also to what extent if we move into next year, is that kind of challenging base effect? Or will this kind of market consolidation support further growth next year? That would be question number one, please. Stefan Dräger: Yes. This is Stefan answering your question, Mr. So, I believe all the market participants that are still there, they get a fair share, including ourselves of the opportunities that come from the withdrawal of the 3 players. And so, for me, I couldn't understand why they made this withdrawal these 3 players and I see that for the times to come, very beneficial to be in the market. As you know, we have the longest tradition and experience and the greatest production capacity for all players as we invented the ventilator in 1907, my great, great grandfather this. And I still see it for the future as very beneficial to be in there. And I see that both Mr. Hammerschmidt and myself, we address our customers personally the video message to let them know that we will be there at their side in the future. So, it's not a secret. For Hamilton, it's a challenge because although it's a U.S.-owned company, operations are based in [Biel/Bienne] in Switzerland, the tariffs for the U.S. are 39%. So that led to some extra effort to cope with that, that we don't have. So, it's beneficial for other European ventilator manufacturers, including the one in Sweden. Oliver Reinberg: That makes sense. And do you believe you can still grow from this kind of base next year? Or is that a kind of demanding base, of which we would expect to kind of decline? Stefan Dräger: No, I would not expect a decline. I think the overall market has still opportunities and room for growth, as the medical technology and environment, the general positive trends they are still there and continue. So, despite maybe some single countries drop out, the global trend is still there. Oliver Reinberg: Super. That's helpful. The second question is just on supply chain. I mean, there's obviously the kind of discussion on Nexperia, the kind of Dutch company where the conflict with China, I think, largely people focus on the automotive industry, but I think they're also a major supplier for chips for the Medtech industry. I'm just wondering, is there any kind of risk factor that you face here in particular as we move into the kind of Q4 now? Stefan Dräger: Not a big effect. We do use some of these chips, but only to a small extent. And we have larger inventory that we keep on stock as the automotive people do. And from what we can see, luckily, these are used for applications that are not so regulatory dependent. So it's easier to replace and there are alternative suppliers. So we may see some smaller effect, but not in Q4, maybe in the next year. Oliver Reinberg: That's super. That's reassuring. And then the last question, obviously, it's a bit too early for next year. But just to get any kind of flavor, we are making nice margin progress in 2025. At the midpoint, we would probably run 50 basis points ahead of the kind of normalized run rates toward a 10% EBIT margin in 2030. I'm just wondering, looking at the pulls and pushes for next year, I mean, is there any reason why you should be below the kind of 6% EBIT margin, which would be implied by this run rate for next year? And in particular, can you provide any kind of color what incremental margin headwinds you expect from currency next year, please? Stefan Dräger: So I'll give you the first part we keep reiterating. So the business cannot be judged by the quarter. So it can always be a bad quarter that does not mean that the worst is bad. And the same holds true if we have a very good quarter like. So if we look at the figures and analyze where we are, then we see we had an exceptionally good margin in the Q3. And so in addition, we had an exceptionally good margin in Q4 last year. So if we go back on an average margin for this coming Q4, then there is a reason to assume that it is not so extraordinary, then you might probably speak at the first glance. And going back to the margin to normal, that's partially fueled because there are some large tender businesses that start delivering in this current quarter. So it's better to be a little bit cautious with the forecast and development of the future. The effect of the currency, I hand over to Gert-Hartwig. Gert-Hartwing Lescow: Yes, there will be given current average rates, there will be an additional FX headwind. We are in the final steps of finalizing planning and currency adjustments, but it's possibly in the range of another percentage point margin. We will provide more clarity on that with the publication of our guidance for '26. Operator: [Operator Instructions] The next question comes from the line of Virendra Chauhan from AlphaValue. Virendra Chauhan: So for now, just one question around your margins. So Q3 was fairly strong margin. And like you pointed out in your notes as well as presentation that it came from the strong net sales growth that you saw in this quarter. Now, of course, the sales growth guidance as well being upgraded, is there a chance that we see a similar year-on-year margin expansion in Q4 as well, because Q4 of last year was also very strong, I think close to 12%, if I remember correctly. So that's my question around your EBIT margin, please. Stefan Dräger: As I just explained on the question from [Indiscernible] Q3 was a very good margin that resulted from a favorable mix of the products in the portfolio. And it is safe to assume that will normalize and decline slightly for the Q4 and for the future. And also keep in mind that Q4 in 2024 was also a very good margin if you compare the quarters. So keep that in mind and think about this so should not be overoptimistic for the good margin to persist. As I said in, we do not think in quarters because in single quarter can always be a little bit up or down versus the others. So we, as much as we appreciate the current good result and the general outlook on the single quarter and the margin, I expect that for the Q4, there could be a slight decline. The EBIT margin overall that is more the focus that is as we said in our guidance, the upper end of the previous guidance. And it is in line with what we said earlier that we strive for a continuous improvement of the EBIT margin that should be about the same figure as the calendar year. So for this year, it's 25 that we said that already a couple of years ago, then it should be plus/minus 5%. And again, 2026, you can think about the ballpark figure of 6%. Virendra Chauhan: Sorry, maybe can I just ask one more question. So on your connected care launch, the silent ICU that you had talked about on the previous call, and it was scheduled to be launched in H2 '25. So I had 2 bits on that. One is what is your early customer feedback? What is that? And then secondly, when do you expect in terms of a time line that this entire project or focus could translate into meaningful revenue generation for the firm? Stefan Dräger: The customer feedback from the ICU projects, it's very excited. So we are very happy to observe that, and we look very much forward to taking off. We just this we started our marketing campaign where we took the horn more explicitly for this approach. And so I expect that from the next year on, that can be effect to the business from these kind of projects. Operator: We now have a question from the line of Jean-Marc Mueller from JMS Invest. Jean-Marc Mueller: First, I would like to congratulate you on a very good Q3 results. Quickly on Q4. I mean, you spent quite some time when we spoke about the numbers adjusting them for one-offs. And it's fair to say that in Q4 last year, albeit the numbers was good, it was actually worse by roughly EUR 10 million than what it should have been because you had an impairment charge last year in Q4, right? The underlying number would have been EUR 124 million, not EUR 114 million. Gert-Hartwing Lescow: Yes, that is correct. Jean-Marc Mueller: So when you're now saying that Q4 might be maybe a little weaker than last year, are we talking about adjusted numbers or reported numbers? Gert-Hartwing Lescow: There is a range and what we try to emphasize is, and I think you're iterating that, Q4 last year was also operationally a strong quarter. And depending on the delivery and given that it is just by the total number of net sales, there is a higher, if you will, sensitivity to variations in net sales variations. There is a chance that we also get at the lower end when it comes to reported figures even. Not that we are striving for that, but the discussion was just wanted to point out that the Q4 was operationally and also nominally in spite of the charge, a relatively strong quarter. Jean-Marc Mueller: Yes. Okay. I understand. I understand. And maybe ask a little differently. I mean, it's the most important quarter, I understand that, and it's typically a big number when it comes to full year results. But the range of the guidance is still very wide. I mean we're talking from the lower end to the upper end, we're talking about roughly EUR 70 million EBIT range. Maybe you can help us a little bit what would need to happen that we really hit the lower end of the range and what has to happen that we get to the upper end of the range? Gert-Hartwing Lescow: There is a couple of factors. And obviously, firstly, I mean, let me just, that's not what we're planning forward. I think you're asking what risks, we have seen FX turning against us, and this could certainly be a risk going forward. We do see that in spite of the good development overall, we do see some areas where our business is developing not as nicely, if you will. We talked about China, in particular in the Q3, where we saw a bit of like up. We also see that our safety business, while very robust overall is in Germany, for example, being put under pressure due to the general market trends for the industry. Stefan Dräger: For the industry. And that s the customer to a chemical industry. Gert-Hartwing Lescow: We also see that in the U.S. for different reasons, many customers are reluctant to fully engage in investments. And to the degree that we see some of these risks to materialize over proportionally and perhaps not see the support or a bit of a slowdown in the support, we see a risk that we also get to the low end. But let me also reiterate, we would be disappointed if our margin falls below the 5%. But at this point, we wouldn't rule that out either. Jean-Marc Mueller: Okay. And the upper end would just be flawless execution of all the projects? Gert-Hartwing Lescow: Exactly. Exactly. The flawless execution will clearly lead to the upper end. Jean-Marc Mueller: But this is what you're good at, no, flawless execution? Gert-Hartwing Lescow: Well, you can keep the fingers, the thumbs pressed and I'm sure it will help us. Say you will get an FX development that for change is not running against us, but in our favor happen. Jean-Marc Mueller: No, no. I understood. And an add-on question quickly on the cash flow. I mean also Q4 last year, the cash flow was pretty solid despite that the working capital movement in Q4 was actually negative. What should we expect this year? I mean, we obviously, we should still expect a positive free cash flow, I would assume. But the magnitude, I mean, you lowered your investment guidelines. So I would assume that also cash flows in Q4 should be fairly strong. Is this a fair assessment? Or do you see things which will go against the strong cash flow in Q4? Gert-Hartwing Lescow: By and large, I would support that, and that leads is in our range of possible net financial debt, we expect in the normal course to be at the lower end, so more positively for us. There is no underlying risk for our Q4 cash flow situation. Operator: [Operator Instructions] We have a follow-up question from the line of Oliver Reinberg from Kepler Cheuvreux. Oliver Reinberg: Probably also two or three. I mean the first question would be on anesthesia. There was some kind of news flow in the industry. Obviously, Jetting now has lined up with Philips. And in fact, also GE has introduced and called out the kind of launch of a new workstation, which is more meaningful apparently. I'm not sure if this is kind of normal industry development? Or is there a certain risk that may provide a kind of headwind for Anesthesia going forward? That would be the first question, please. Stefan Dräger: I would say that's a normal industry development. There are discussions, say, all the time. And we're also having discussions and that's a normal thing. So we're not afraid of this development. Oliver Reinberg: Right. So when you're also having discussion, that means you also are generally open to more different new ways of distribution. Is that the way to understand that? Stefan Dräger: That's very correct. And so there are obviously the companies like that do not have certain modalities and they are seeking and contacting the ones that have, because they want to become a full service suppliers. So that's a long development. And that has its pros and cons. And as I said, we are not afraid of this setup. Oliver Reinberg: Okay. Perfect. Understand. And on China, I mean, we've seen an improvement in the first half. Q3 looks like a kind of a larger change to the opposite again. I mean this is larger volatility? Or because you're calling that out, is there any kind of specifics that happened here? And why has it happened if you have any visibility here? Stefan Dräger: Basically I would say there's nothing new. It's very fragile from where we ended last year. And so far, it's say, stable, but at a modest level. And it's not likely that it comes back to where it was. So, for various reasons. Oliver Reinberg: Understood. And last question, any update on the defense-related demand in Germany in terms of what have you seen so far? Is there any kind of acceleration being seen at the moment? Stefan Dräger: Please keep in mind that last year in Q1, we received a large order for this last Mask 2000 for the Army of roughly EUR 15 million. And so that obviously did not repeat this year. And despite this not repeating a single order effect from last year, our orders are currently having a double-digit growth of around 25% year-over-year for the defense business. So, it is eventually picking up, and we do expect to receive more than EUR 100 million in orders in the current year. Operator: [Operator Instructions] Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Drager for any closing remarks. Stefan Dräger: Thank you very much to all of you that with us today for your time and your interest in here, and we look very much forward to meet you again, hopefully, sometime in person in the future. Have a pleasant afternoon and evening. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you.
Operator: Good afternoon, and welcome to the MGM Resorts International Third Quarter 2025 Earnings Conference Call. Joining the call from the company today are Mr. Bill Hornbuckle, Chief Executive Officer and President; Corey Sanders, Chief Operating Officer; Jonathan Halkyard, Chief Financial Officer and Treasurer; Gary Fritz, President of MGM Interactive; Kenneth Feng, Executive Director and President of MGM China Holdings Hubert Wang, COO and President of MGM China Holdings; and Howard Wang, Vice President, Investor Relations. [Operator Instructions] Please note, this call is being recorded. Now I would like to turn the call over to Mr. Howard Wang. Please go ahead. Howard Wang: Thanks. Welcome to the MGM Resorts International Third Quarter 2025 Earnings Call. This call is being broadcast live on the Internet at investors.mgmresorts.com, and we've also furnished our press release on Form 8-K to the SEC. On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures when talking about our performance. You can find the reconciliation to GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, this presentation is being recorded. I will now turn it over to Bill Hornbuckle. William Hornbuckle: Thank you, Howard, and good afternoon, everyone. Our industry is constantly changing, and MGM is always moving forward, proactively navigating with agility and allocating capital with discipline to best position our company for future success. One example of our capital discipline was a challenging decision to withdraw our application for commercial license in Yonkers, New York. We dedicated significant time and resource over the last several years to this project adjusted along the way with our best efforts to make the project work for all parties involved. We have been and continue to be a proud partner of the city of Yonkers and the State of New York. We remain committed to operating the property in its current format and believe it will continue to enjoy success serving customers in the Yonkers and surrounding communities. Also, we have been consistent in our focus on premium best-in-class market-leading integrated resort operations and have held true to our message that we will optimize our portfolio when the right value opportunities are presented. This was the case for Northfield Park, which we are selling for $546 million in cash. You may recall, we acquired the operations in 2019 for $275 million. We have grown the business and create significant value over the last 6 years. And importantly, the sale of multiple of 6.6x represents a significant premium to MGM's current share price which values the opco business at less than 3x. This company's diversity is also a true benefit, and then all the headlines or concerns about Las Vegas and the general consumer MGM's consolidated net revenues grew this quarter, thanks to the geographic and channel diversity of our business. I've spoken in the past about the evolution of Las Vegas and that over the last 30 years, the market has grown at a CAGR of over 4%. Of course, that growth ebbs and flows over shorter measurements of time. And this summer, we heard from some of our guests around value in Las Vegas, and we responded by making adjustments to ensure a rationalized premium value experience across all of our properties. We also partnered with the destination on a fabulous 5-day sale during which we sold over 300,000 room nights, nearly double our typical pace, reflecting the strong demand that exists for our experiences. There are additional factors presuming the current visitation dynamic, including international visitation, particularly from Canada, Southern California drive traffic and the recent Spirit Airlines bankruptcy, resulting in several canceled routes. We are still expecting to receive over 40 million visitors to Las Vegas in 2025. While we don't expect the dynamic to be changed overnight, we are proactively working to create initiatives and draw incremental visitation. Despite these headwinds, several of our luxury properties generated record 3Q slot win. As we look to the fourth quarter, we see signs of stabilization as the luxury market segment continues exhibiting strength, Groups and conventions are returning and all MGM guest rooms will be upgraded and back online and F1 ticketing presales, particularly for the Bellagio Fountain Club are pacing higher versus the prior year. All of which puts us on a solid footing as we approach 2026. Over 90% of our target groups and conventions are contracted for next year, and the first quarter starts off strong with Conag continuing into the year with other citywides. We also built off the 900,000 room nights we are facing the book through our Marriott partnership this year. And I'd note, October is shaping up to be the strongest room night month ever for forward bookings originating from the Marriott channel. We'll have a full year in 2026 to benefit from the group and convention initiatives launched in the second quarter this year that will allow us -- that will allow meeting planners and attendees to earn Marriott Bonvoy loyalty perks. In the meantime, we continue maintaining an oversized share room nights and rate relative to our Las Vegas competition. As visitation ramps up in Las Vegas, we fully expect our advantage will be maximized by the outside efforts of our employees who achieved our highest-ever 3Q gold plus NPS scores despite continuing disruption from the MGM throughout the quarter, which, again, now has ended. Our teams in the regional markets drove another quarter of solid results. Several regional properties achieved record 3Q total revenue and EBITDAR and the regional operations as a whole generated all-time record slot win this quarter. The targeted capital to create and elevate VIP experiences at Borgata but a notable role again as a casino GGR growth outpaced the market during the quarter, and the Borgata posted all-time high table games drop and slot win. In Macau, even a brief closure caused by typhoon wasn't enough to stop the positive momentum as MGM China achieved record 3Q EBITDAR. Our contributions are leading Macau's evolution in the entertainment destination including the Macau 2049 Residency Show at MGM Cotai and the POLY MGM Museum at MGM Macau, all while staying focused on understanding our customers, particularly our focus on premium mass. The high end continues to drive market growth and quarter-to-date, we've seen a great response to the Alpha Gaming Club at MGM Macau, which officially opened in late September. Similar to the elevated experience provided by MGM Cotai's Matching 1, MGG Macau's 3,500 square meter Alpha Gaming Club includes nearly 30 tables, dedicated restaurant, cigar lounge and located just below the newly designed alpha villas. With more nongaming and entertainment events taking place in Macau, customers now have more reasons to visit and continue to drive growth into the market. The later 2 drove accelerated revenue growth for this segment, which in aggregate, grew top line by 23% this quarter and saw a priority market collectivity growing in line with TAM or higher. Our European BetMGM reached a new all-time revenue high in 3Q, with improved profitability driven by customers' growth and market share gains. Even though the success has been offset by increased investment in Brazil, we are seeing quarter-over-quarter growth with healthy player fundamentals. Notably, growth has been driven around the key metrics of retention, which is exceeding even some of our healthy mature markets. We have a great relationship with our local media partner, Grupo Globo, and are taking a disciplined investment approach for long-term brand positioning and profitability. We expect that to gain market share and reduce our gross spend in the future and MGM Digital has an opportunity for $1 billion in revenue with a significant margin, driving double-digit returns on those investments. Progress in Japan continues for 2030 opening, and we remain confident in our ability to generate a high-teens return at the time of opening, particularly as the only integrated resort in Japan, a country of over 120 million people. As of early this month, all elements of this project were under construction and at one time, there are 60 to 80 cranes and other pieces of heavy equipment on site. We also recently entered a USD 300 million equivalent yen-denominated credit facility at very attractive rates to support our funding commitment to MGM Osaka. And then Dubai also continues to make progress with an expected opening date in the second half of 2028. With that, I will now hand it over to Jonathan to provide additional detail on our performance this quarter. Jonathan Halkyard: Thanks, Bill. And I'd like to echo my appreciation to all of our employees throughout our operations globally for their hard work and dedication. The effort does not go unnoticed and truly is the driver behind everything MGM achieves. This quarter, the Las Vegas segment reported $601 million in EBITDAR, down $130 million year-over-year. The bridge to that shortfall includes 3 main parts: there was $27 million in decreased business interruption proceeds together with an increase in insurance expense due to increased reserves; $25 million in disruption from the MGM Grand Room renovation; and $78 million from the impact on operations, primarily related to occupancy and ADRs. Roughly half of that operations impact can be attributed to Luxor and Excalibur and $6 million more can be attributed to lower hold year-over-year. The balance is attributed to softer ADRs and a decrease in occupancy, which affected volumes in food and beverage in some of our properties. This operating environment has provided an opportunity for us to focus on our cost containment efforts, and we've been able to reduce certain costs alongside top line fluctuations. Net revenue in Las Vegas declined 7%, but we managed expenses down accordingly where possible, including FTEs that also decreased by 7%. As we look into the fourth quarter, we're seeing improving room rates. We also have the benefit of all MGM Grand Rooms online and newly upgraded in time for the group and convention season. and we're seeing strong group demand in November and December, driving stabilization in our business. As we look to next year, the 2026 group and convention channel has the ability to drive growth. Currently, future bookings are pacing up in all outer years, while attrition and cancellations are in line with historical averages. Regional operations had another steady quarter as we grew net revenues modestly. EBITDAR was down $4 million related to a decrease in business interruption proceeds of $6 million year-over-year. Beyond that impact, the results were very solid. MGM China continued its impressive run with record third quarter EBITDAR despite an estimated $12 million typhoon-related impact in September. We also ended the quarter with a record market share of 15.5%. We continue to benefit from MGM China's strong cash flows with an $85 million dividend paid to MGM Resorts in September. As we look to fourth quarter in Macau, we experienced year-over-year growth across segments during the Golden Week holiday period with visitation up 11% and total win up 20%. For the month of October, we're pacing to a 16.5% market share and well over $100 million in EBITDA. Our BetMGM North American venture reported outstanding results and also announced that prior to the end of the calendar year, it will begin distributing cash back to MGM Resorts with the expectation of doing so on a quarterly basis going forward. We expect to receive at least $100 million in the fourth quarter from our $630 million total investment with more to come. The business model is proving out as within just the last 12 months, we've witnessed the evolution from positive EBITDA inflection, then to solid growth trajectory, and now to a business generating ample cash capable of funding growth and cash distributions. MGM Digital reported revenue growth of 23% during the quarter, while segment EBITDA was a loss of $23 million. For the full year, we now expect MGM Digital to have EBITDA losses that could approach $100 million, given our increased investment in Brazil. Though keep in mind, the actual contribution is consistent with our stake in the Brazil venture, which is roughly 50%. The venture has seen encouraging growth quarter-over-quarter throughout the year in active players, deposits and GGR. In our fourth quarter initiatives, including launching our in-house Sportsbook and continuing to increase the scale of the business, focusing on efficient returns. In Japan, construction continues making progress. We've recently raised a yen denominated Term Loan A at the MGM Resorts level equivalent to USD 300 million at a borrowing cost of approximately 2.5% as of this month. This facility also has the ability to upsize to $450 million and we're already receiving incremental interest. We'll use the proceeds from this issuance to cover our equity contributions for MGM Osaka at least through next summer. Finally, we continue to see significant value in our share price. In this quarter, we were able to provide yet another transaction precedent to further evidence the attractive valuation, when you strip out the value of MGM China at market value and assign a consensus value to the BetMGM North America venture, which we still view as very conservative given the current trajectory, you end up with an implied multiple of under 3x trailing 12-month asset EBITDA to say nothing of the value of MGM Digital, a business that's capable of $1 billion in run rate top line with double-digit EBITDA margins and this compares to the 6.6x announced sale multiple for Northfield Park's operations in Ohio, which, if applied across the board to our brick-and-mortar business, inclusive of Vegas, which arguably deserves a higher multiple than the regionals that would imply a share price of approximately $60. I'll open it back to Bill. William Hornbuckle: Thanks, Jonathan. Fairly, I thumbed over a page, which I would like to spend a second on commenting about our digital business. before we take your questions. I know a few weeks ago, you all heard BetMGM's venture reported strong 3 quarter results and raised our full year guidance for the second time this year, increased 2025 EBITDA guidance to approximately $200 million represents an EBITDA increase of roughly $450 million in just 1 year without any new jurisdictions. Importantly, BetMGM will start returning capital to MGM Resorts with an expected initial cash distribution of at least $100 million in the fourth quarter. I also want to follow up on BetMGM's recent comments about prediction markets. For decades, the gaming industry has been a highly regulated at state level. This intense scrutiny has been essential to ensuring the integrity of the gaming industry and in the case of sports betting, helped to identify potentially irregular activity. This is not the time to back away from these high standards. Gaming historically has been and should continue to be a highly regulated industry with safeguards in place to protect consumers and promote integrity. I also want to take a moment and thank our Chief Operating Officer, Corey Sanders, who will be retiring at the end of the year, making this his last earnings call. I'm sure many of you on this call spoke to Corey frequently throughout his tenure. It's impossible to overstate what Corey has meant to this company over the last 30-plus years. As a person, as a leader, Corey understands the importance of caring for employees and treating people with respect. We all want to thank you, Corey, for your dedication, your service and your leadership and let you know that you will be deeply missed. In closing, I want to stress that MGM is the only global operator across physical and digital channels, converging gaming and hospitality with entertainment and sports delivering diversified growth at scale. We have proven to be disciplined allocators of capital, and we'll look at any opportunities with attractive returns, including share buybacks. And in Las Vegas, it's worth repeating, we are focused on what we can control and are well positioned to adapt given the range and diversity of our luxury offerings. We stabilized -- we see stabilization in the fourth quarter and growth in 2026 and beyond. And over the long run, we see a measured supply outlook, a growing local population, expanding entertainment infrastructure, rising demand for live entertainment and for luxury, and we remain very bullish on Las Vegas. And now operator, if we could open it up for questions. Thank you. Operator: [Operator Instructions] And our first question will come from John DeCree with CBRE. John DeCree: I'm sure we'll talk quite a bit about Las Vegas, but maybe to start with your decision to exit New York. Obviously, it was such a focus of your for a while. Bill, I know you gave some prepared remarks, but curious if you could elaborate. Was it just investment sizing, you put out a press release, but anything else you could kind of tell us there? And then my follow-up with the swing in liquidity. How should we think about MGM's kind of return hurdles for investment going forward with New York didn't quite pencil out? William Hornbuckle: Sure. look, there wasn't originally a concern with -- and I think most of you know this, between ourselves and resorts, we basically had a guarantee to -- whether we did the tax or not, we had to make whole on the education fund, we had to make whole for the horseman. And ultimately, we struck a deal with the city of Yonkers, which meant we would have had a minimum tax of about $400 million. So that was our first hurdle. We knew that, but that remained a large hurdle. As we then began to understand the landscape that particularly as it's looked more and more where the competitive set would land, it put further pressure on the deal further pressure on the numbers. And I think the thing that concerned us probably the most was at the end when we thought we were buying for a 30-year license and were told it was 15 and it was done after we've made an original submission that was concerning because if not for that, then what else. And so while we initially liked the return, it got tighter and tighter so much so that given overall market conditions, we think it's capital best spent some other location and some other opportunity. Jonathan Halkyard: And John, it's Jonathan. On your second question in terms of our return thresholds. I mean, given present circumstances with our share price, our return thresholds are pretty darn high. I mean we can capture free cash yield, just in repurchasing our own shares. I don't have the math in front of me, but it's probably 25% or 30%. One investment we're very excited about is our project in Japan. And despite Sarah's great efforts in securing this yen-denominated facility, which will get us through next summer, we'll be investing in that project in late '26, '27 and '28. But this is a project that we think probably has the most favorable supply-demand dynamics of any integrated resort. So we're very excited about that project. Otherwise, we're being -- we scrutinize our capital investments very closely, the growth capital investments that we have opening shortly in Las Vegas, like Carbone Riviera, Gymkhana, and the rest, we think are going to drive very nice returns for us. But we have a high return threshold right now as compared to simply buying our own shares. John DeCree: And Corey, congratulations on your retirement. It's been great working with you over the years. Congratulations. Operator: Your next question will come from Shaun Kelley with Bank of America. Shaun Kelley: Also I'd like to offer my congrats to Corey, and we enjoyed working with you Corey, so thanks for that. So if I could just build on the last question a little bit around -- sort of the high ROI threshold, Jonathan, that you mentioned. I think the question we get over and over again is, obviously, I think we know the trajectory of land-based gaming in the U.S. we think a lot more about the growth in digital that you're experiencing. Does the turnaround -- and so there's going to need to be a balance at some point between value today and a lower cost of capital but -- or a higher cost of capital, but growth that you could achieve looking to a digital future. So just trying to kind of get your current sense on how you -- how you kind of prioritize or balance that? And just sort of your thoughts on doubling down on digital given, I think, the stability we've seen from the BetMGM team, obviously, lending itself to being able to return some capital to you. Jonathan Halkyard: Yes. Thanks, Shaun. The interesting thing is right now, our digital investments are cash generative as opposed to cash consuming. We're in a very much a growth mode in MGM digital as it relates to our BetMGM brand expansions over in Europe and in Brazil. But the kind of the core LEO Vegas business together with, of course, BetMGM and North America are both generating now pretty substantial cash flow for us. So it's not requiring a digital investment. And as it relates to other additional investments in digital, we're really just focused on growing the existing businesses we have right now as opposed to doing any kind of inorganic growth. Shaun Kelley: And then just as my follow-up, obviously, throughout the prepared remarks, you guys weathered pretty challenging Q3 environment. A lot of talk about Q4 stabilization as the group calendar comes back. F1 sounds encouraging. So just can you help us kind of put it on a spectrum of what -- like we hear stabilization? Is that getting better sequentially? Is that potentially flat in the 4Q? How much better could it be? Or do you really need like a bigger group calendar like we expect to see in Q1 to potentially see some growth in the Vegas segments just given some of the calendar issues that you're up against in Q4? William Hornbuckle: Shaun, I'll kick it off, and obviously, my colleagues will pile on here. It has been sequential. Obviously, July for everyone in the community was a rough month. The summer was rough, but it sequentially got better. I will say the same about October. Knock on wood, we may even beat October of last year. And recognizing the fourth quarter last year was like an all-time fourth quarter. So all that being said, F1 does feel good. Leisure activity is there, we obviously can generate through value. We saw it with a fabulous sale. We literally doubled the bookings in that particular week. So we feel better about it. There's a lot out in front of us. The FAA in its considerations with the government shutdown may or may not have an impact. It has not, to date, thankfully. But there's no precursor to what that will mean for the next 6 weeks or so. But I think overall, we feel positive. There's a couple of weeks in December with leisure that is a hole that we need to -- we want to continue to push on to see how we fill. But sequentially, we feel better. And we use the word stabilization not lightly. We think we can get there. Operator: Next question will come from Brandt Montour with Barclays. Brandt Montour: Just starting off in Macau, the stats you gave for October were really impressive, obviously, implies share gains, and you gave the share number. But some of your peers have been more aggressive recently and they've been sort of public about that. And I know the EBITDA is there for you, you gave that for the month of October as well. But have you had to change your strategy at all? And is that sort of imputed in the share numbers that you have here? William Hornbuckle: Kenny, why don't you take that? Xiaofeng Feng: Yes. Okay. This is Kenny. Thank you for your question. Actually, competition is not new to us at all. We see rational competition in the market that operates like a folks -- operators are focusing on like offering quality products and bringing in excellent services for Macau visitors. For MGM China, we -- as we always said, we are focusing on understanding our customers like conducting CapEx project and improving our services to refresh and fine-tune experiences for our premier customers. For example, we have fully launched our Alpha Villas and Alpha Clubs clubs and the Fantasy Parks at MGM side. There is no such competitive products in the Macau peninsula market. These products, the key that these products truly reflect our understanding of our customers, they are well received. Like Macau market in January looks pretty optimistic for October. But for MGM China, we believe we anticipate we will deliver one of the strongest months in terms of GGR and the EBITDA performance at our company's history. So currently, what we are focusing on is we are focusing on the effective projects. Like on Cotai side, we are trying -- we are doing like we are converting 160 rooms to 63. Majority of them are 2-bedroom suites. So construction has started. We targeted to complete in the first half of next year. We believe these 60 suites will cater to the evolving taste of our customers And we are also developing some other high-end gaming place. places at MGM Cotai side as well. We hope we can utilize this our advantage, which is our deep concerning our customers. We are acting quickly and to maintain our market share in the mid-teens in Macau. Brandt Montour: Okay. That's great color. And then back domestically, you guys had a saving programs of about $150 million. Some of that was taking price in certain areas. And I was hoping you could give a refresh on that program and sort of if you've had to sort of change things around, given some of the consumer awareness of prices in Las Vegas and if that was something that had to be adjusted and how you're faring there? Jonathan Halkyard: Yes. We are kind of deep into that program now. In fact, most of the actions, the vast majority, let's say, over 90% of the actions that we set out really about this time last year are complete. And I would say -- and I don't want to speak for Corey or Bill, but in my opinion, there's really nothing we would have done differently on the -- kind of on the customer value side than what we did. In fact, many of the things that we did were in response to what we were hearing from our customers and the kinds of things that they were and were not willing to pay for. A lot of our activities also were in just the daily blocking and tackling of labor management and procurement and those types of things as well. I certainly wouldn't undo any of that because I don't think they in the end really had a customer impact. William Hornbuckle: And just maybe a more global view on the whole value. Look, we lost control of the narrative over the summer. I think we would all agree to that in hindsight. When we look at the $150 million, we think about resort fees and park fees and some of the other things that were fee-based inside that number, those have remained as and in place. When we think about pricing and things that got everyone's attention, whether it's the infamous bottle of water, where a Starbucks Coffee Excalibur cost $12, shame on us. We should have been more sensitive to the overall experience at a place like Excalibur to those customers. You can't have a $29 room and a $12 coffee. And so we've gone through the organization. We think we hope we believe and we price corrected. I think the sale that the community did and we participated in a meaningful way, demonstrated we understand value, we understand Las Vegas and we'll always be that. We'll always need to be that. And so I think we've positioned ourselves for that, and we'll continue to do so going forward. Operator: Next question will come from Dan Politzer with JPMorgan. Daniel Politzer: I was wondering if we could talk a little bit about Las Vegas through the lens of the high end and low end. Bill, you mentioned luxury properties, record slot handle there, and then kind of juxtapose that with Excalibur and Luxor. Have you seen maybe a widening in the performance between these segments of your portfolio? And if so, kind of what are the adjustments or levers you can make going forward to kind of keep everything on the growth path? William Hornbuckle: I think the core answer is yes. I don't think that's unique to us or our industry for that matter. But yes, look at Bellagio, ARIA, Cosmopolitan have continued to maintain rates, continue to maintain ADRs, generally speaking, in a tough environment. When you lose 400,000 seats in a marketplace over the summer, principally around Spirit and Spirits of value or airline that speaks to a marketplace that we potentially lost. When you think about what's going on in the country and you think about Southern California market, heavily Hispanic, I think our drive -- I don't think I know our drive traffic was down in the summer. And so that had presented and continues to present somewhat of a challenge. You think about international visitation in Canada. And while we're all trying to do things to make that better, I don't think that's going to go away anytime soon. And obviously, that's really across all of our marketplaces, the international piece, but it also impacts, I think, to a degree, for sure, Luxor, Excalibur, which is the 2 properties that we struggled here in Las Vegas the most. I don't know, Corey, if you have some more color. Corey Sanders: Look, I think you look at the Bellagio, it seems to be -- you wouldn't know anything was wrong with it. We're able to fill the hotel rooms. The gaming volumes are high-end players is where it has been in the past. Weekends for everywhere, we were able to get occupancy. Rates sometimes a little more challenged than it was last year, but still we're able to fill the hotels. And this midweek when the convention base is not here, it's really Luxor and Excalibur, that probably have the biggest challenges of occupying rooms. Daniel Politzer: Got it. And then this is a higher level one for Bill or Jonathan, whoever wants to take it. Obviously, there's been a few deals on the M&A front lately that you guys have been involved in, but I guess can you just talk about the appetite for a more diversified cash flow stream as you think about the things that you're seeing in your portfolio now? And obviously, the balance sheet is in good shape right now, but if something did come across your plate, what are kind of the thresholds we should think about that you guys would kind of go to kind of take advantage of that? William Hornbuckle: Well, I'll talk about 40,000 feet, and Jon I can think about the actual threshold. Diversification, we've been saying it all along is key. We think we have the opportunity, given our scale, scope, breadth and knowledge to participate in many pieces of this marketplace. We think we do best when we're creating things that are at the highest end. And I think a lot of the recent things we've done in Macau proved that to be the case. I think ultimately, what you'll see in Japan will prove that out to be the case. We are obviously in the digital business in a big way, the combined businesses next year will probably do $3.5 billion top line. And as we've said, time to tell bottom. All that said, diversification is key. We have a large Las Vegas concentration which we understand and we manage to and -- but we will continue to look. I mean, obviously, right now, the value of our stock, you just -- I mean, when we're trading under 3x for our core business, not to continue to buy back our own stock. It doesn't make -- it makes all the sense in the world to us for today, but I'm sure the market because it always has, will readjust itself and other opportunities may come up. Jonathan Halkyard: I think, our -- one of the pretty things about the performance of MGM China, for example, and BetMGM, and we expect MGM Digital as our company is becoming more diversified rather than less as those relatively smaller businesses grow at very high rates. With respect to M&A activity in the regional markets, between Goldstrike and Tunica, over $100 million EBITDA business, Northfield Park over $130 million EBITDA business. These are big businesses, but yet they are ones that we don't think have the growth to represent the scale of the regional portfolio that we aspire to have. So it's a pretty high bar for us to look at any additional regional properties. They have to be, of course, of the quality consistent with our brand, but also of a scale, and they're just in any market that we're not in. So it's a pretty high bar for regional M&A, I would say. Operator: Next question will come from Steve Wieczynski with Stifel. Steven Wieczynski: So what ask is the strip leisure recovery question maybe a little bit differently. So if we think about the next couple of months and fully aware, the booking window is a little bit tighter right now. But are you seeing a major difference in the booking patterns for that FIT visitor between your different properties. You talked -- you touched on this a little bit, Bill. But meaning is demand at Bellagio, Cosmo, ARIA, whatever you want to think about it, all really strong and you aren't seeing the same thing at the other properties like New York, New York, Luxer, et cetera? Or moving forward, are the booking patterns starting to become a little bit more similar across all your assets there? Corey Sanders: I think the luxury booking patterns are similar to what they've been in the past. The core is -- and the legacy properties are booking a little bit differently. So where we used to book a ton of that in 30 days, we're seeing some of that book out a little further. Steven Wieczynski: Okay. Got you. And then, Jonathan, to your last kind of remark there. If we think about the rest of your regional portfolio now after the Northfield sale. Just wondering how you view the rest of your regional assets at this point, meaning would any of the remainders be for sale? Are they all for sale at the right price? Just any high-level thoughts there about kind of rightsizing the rest of that regional portfolio would be helpful. Jonathan Halkyard: That's a top question with my CEO sitting right next to... Unknown Executive: I mean, sure, I guess, at some price, all properties are for sale. But I would say that our regional portfolio right now, they represent pretty much in every case, market-leading properties with very nice importation into Las Vegas. Most of them very important BetMGM omnichannel locations as well. So we like that regional portfolio a lot. William Hornbuckle: Yes. And of the 7, 5 of them, our market leaders that they dominate anywhere from 25% to 47% of market mix in those particular -- the markets that they serve. And so we think of them, whether it's Borgata or the Bow in Mississippi as highly representing our brand well, market leaders independent of anything else we do, they stand on their own and they do quite well. Obviously, to Jonathan's comment on digital, it's important in most -- all of those states. A couple of them are not. Obviously, we've talked about New York. And so how to think about that long, long term, time to tell. But one day at a time, we've just come off of the -- we're not going to push forward for today in New York. Operator: Your next question will come from Stephen Grambling with Morgan Stanley. Stephen Grambling: Just want to follow up on Dan's question, but perhaps from the opposite angle. You talked about the undervalued nature of the stock. So what do you view as the primary levers or path that you could pursue to unlock value from here? And I know you referenced diversification, but is there also a path of simplification to consider? And if there are, what do you think is the kind of the lowest hanging fruit as we look across China, BetMGM, digital or otherwise? William Hornbuckle: Let me kick it off and then Jonathan be -- obviously, digital and the unlock over time of BetMGM is something that we'd contemplate and that's not a surprise to anybody on the call. And so we're constantly talking to our partner about how we can all get the best value of what has been created there, which is a tremendous business. I think that's very real. Look, we enjoy our position in Macau. We particularly as of late. I think the team has done an amazing job there. You all know we own 56.7% of it. And so we've had a 20-year relationship with Pansy Ho, and so I don't see that changing anytime in the near future. If we can diversify and continue to grow our digital business and obviously, when Japan steps in, it's going to outweigh this, but if we could continue to grow our digital business, it will become more and more of a performer and more and more of what's important to us. But that's probably the place that we most think about diversification. Jonathan Halkyard: Yes. And I think it's generating cash flow through our dividend stream from MGM China, now dividends from BetMGM. And then the other thing I'd say is we've, of course, talked a lot about the last quarter in Las Vegas, but we still think Las Vegas is a fantastic market, and we love our position here. We have a better cost structure than we've ever had in Las Vegas. And so with the dynamism in this market, I think that that's an unlock also for the stock. Stephen Grambling: That's helpful. Maybe one quick follow-up since you flagged digital unlock with BetMGM first. Are there any organizational changes or bylaws to consider that need to be thought through as we think about the timing or path? William Hornbuckle: No, not really. Look, we have a great relationship and partnership with our folks and friends and Entain. We constantly think about ways to improve that business. But no, there's nothing in that context that we need to unlock it. Operator: Your next question will come from Barry Jonas with Truist Securities. Barry Jonas: First off, congrats, Corey. It's been a real pleasure working with you over the years. I wanted to start on a strip question on the 2026 group outlook. I know the homebuilders conference is not in town for just next year. But that definitely doesn't seem to dampen the enthusiasm we're hearing for growth. So CON/AGG obviously, returns. But are there other specific large conference call outs you could share so we better understand what's driving the growth outlook? Corey Sanders: Yes. Barry, we'd have to look and get back to you on the large conference call outs that I could tell you, our mix is going to be better next year. We're going to have more room nights. First half of the year is going to be extremely strong. First quarter and second quarter will be north of 20% convention mix, which allows us really, not only to fill all of our rooms, but even potentially yield up our rates. Stephen Grambling: Understood. Okay. And then just as a follow-up. There have been some talk about increasing promotions in the regional markets. Curious to get your take on what you're seeing there, just in the regions and at the strip, you're seeing anything there as well? William Hornbuckle: Look in the regional markets -- well, I guess I go back to Kenny's answer, there's always competition. Maryland continues to be more and more competitive as does New Jersey. Look in New Jersey, we've recreated a real differentiator with our product. We've gone in there. We've done all the rooms now what's called the MGM Tower, with the old Water club. We've gone through and redone and have an amazing baccarat area of VIP, domestic VIP. We have a new noodle shop. We have a new BBar, which is a center bar. And so you go in there, it's refreshed. It feels like a new property, and it's really focused on the high end. We've repositioned an aircraft there. So we are doing personalization when it comes to our highest level customers in that market. And so while we're aggressive, we're aggressive, not necessarily in what shows up in your mailbox, but what shows up with your host. And so we're pushing that high-end VIP extensively there. The other markets continue to be aggressive, and we continue to do what we do. I think the margin in this quarter was 30.1% for regional. So I think it's indicative of our activity case is measured and appropriate. And I think we'll continue to do that. Corey Sanders: And we monitor all of our competitors and all of our markets also. And our reinvestment is where we thought it would be and it's fairly close to what it was last year. Operator: Last question for today will come from Chad Beynon with Macquarie. Chad Beynon: Corey, congrats from us as well on your retirement. I wanted to ask about, I guess, capital in Vegas. So maybe a 2-parter on this. First on MGM Grand. I think the disruption that you outlined today on last quarter's call, ended up being exactly what you had thought. So first question on that, given that, that project is done, should we start to see the ADR increases and some of the returns come in? Or do you maybe have to ease into this a little bit just because of the market softness? And then the second question that I have on capital projects in Vegas. Bill, I think you teased us before on ARIA potentially being a project in '26. I believe that wouldn't start until maybe after some of the big conventions, but if you could update us on that as well. William Hornbuckle: Sure, Chad. I'll kick it off. Well, I think we were down for the quarter, 8% in room nights and 5% in AAC. So I think the first real challenge for all of us given the market conditions is to refill those rooms, and we've begun to do that, frankly, occupancy fairly easily and not easily, but I mean, we're in good shape there. Yes, over time, it will build because the actual product itself is spectacular. I think it exceeded not only our expectations, but the customers who have stayed there. And so I think as that gets out and use of what that product actually is, I think we'll see both AAC and ADR lift over the long haul. We are going to take pretty much the balance of '26 off in terms of room remodel. And what may be MGM so impactful was we were redoing the bathrooms and plumbing. So we were taking 2 more floors out than normal. So there was always 5 to 8 floors out in any given moment. Normal remodel centers around 3. But we're not going to start the ARIA until November of next year and then really push it into '27 and have the principal work being done over the summer of '27 so we can come out of that seasonality rate to roll and go to the next one, which is -- it's like Golden Gate Bridge in 2028. Jonathan Halkyard: Chad, it's Jonathan. We will be, as Bill said, starting that in November, we will incur CapEx right at the end of '26 in the ARIA room renovation, but even so, we expect CapEx to be -- in '26 to be below in 2025. And during our fourth quarter call, we'll give specifics on CapEx guidance for the year. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bill Hornbuckle for any closing remarks. Please go ahead. William Hornbuckle: Thank you, operator. And again, I appreciate everyone's recognition of Corey. So Corey congrats and you're making me just. And look, Vegas is fine fundamentally. We feel good about the fourth quarter and particularly going into '26. Macau continues to outperform, and we're excited by that. And we're even more excited by what the digital business has been able to do year-over-year and ultimately where we think this goes. So hopefully, you share some of that excitement, and I appreciate everyone's time today. I know it's late back East. So thank you all. Operator: This concludes our conference call for today. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Verisk's Third Quarter 2025 Earnings Results Conference Call. This call is being recorded. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Verisk's Head of Investor Relations, Ms. Stacey Brodbar. Ms. Brodbar, please go ahead. Stacey Brodbar: Thank you, operator, and good day, everyone. We appreciate you joining us today for a discussion of our third quarter 2025 financial results. On the call today are Lee Shavel, Verisk's President and Chief Executive Officer; and Elizabeth Mann, Chief Financial Officer and Interim Head of Claims. The earnings release referenced on this call as well as our traditional quarterly earnings presentation and the associated 10-Q can be found in the Investors section of our website, verisk.com. The earnings release has also been attached to an 8-K that we have furnished to the SEC. A replay of this call will be available for 30 days on our website and by dial-in. As set forth in more detail in today's earnings release, I will remind everyone that today's call may include forward-looking statements about Verisk's future performance, including those related to our financial guidance and our recently announced pending acquisition of AccuLynx. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance is contained in our recent SEC filings. A reconciliation of reported and historic non-GAAP financial measures discussed on this call is provided in our 8-K and today's earnings presentation posted on the Investors section of our website, verisk.com. However, we are not able to provide a reconciliation of projected adjusted EBITDA and adjusted EBITDA margin to the most directly comparable expected GAAP results because of the unreasonable effort and high unpredictability of estimating certain items that are excluded from projected non-GAAP adjusted EBITDA and adjusted EBITDA margin, including for example, tax consequences, acquisition-related costs, gains and losses from dispositions and other nonrecurring expenses, the effect of which may be significant. And now I'd like to turn the call over to Lee Shavel. Lee Shavel: Thanks, Stacey. Good morning, everyone, and thanks for joining us today for our third quarter earnings call. Today, I will provide broad context on the results and allow Elizabeth to go into more detail on the financial review. I will also offer some relevant perspective from recent C-suite meetings with our largest clients. Finally, with AI being a focus for investors in our sector, I will update you on the AI enhancements that we've delivered and are developing for our clients and what we believe AI represents for the industry and for us in the coming years based on extensive engagement with our clients on the topic and ground truth experience from our active AI-enhanced solutions. Now let's turn to the third quarter results. Verisk delivered organic constant currency revenue growth of 5.5% driven by strong subscription revenue growth of 8.7%. This growth compounded on top of the solid growth delivered last year. In the quarter, we experienced an exceptionally low level of severe weather resulting in a decline in claims assignments across our Xactware system. This and other factors drove transactional revenue declines of 8.8% on an OCC basis. Despite the transactional revenue impact, we delivered 8.8% OCC adjusted EBITDA growth with expanded EBITDA margin of 55.8%. Looking at our year-to-date performance, we delivered 7.1% OCC revenue growth, 9.4% OCC adjusted EBITDA growth and a 56.3% margin, which reflects the underlying strength and resilience of our business and is fully consistent with our organic guidance for the year. Our strong subscription growth reflects continued strategic engagement with our clients and a much improved dialogue on the value that we are delivering and how we can tailor our solutions to their individual needs. As an example, last month, I attended with several of my direct reports, the CIAB Insurance Leadership Forum in Colorado and hosted 40 strategic client meetings. What we heard consistently from our clients was, one, that they need more data from us to better integrate across their businesses and functions, and they've demonstrated in new solutions like excess and surplus that they're willing to increase their data contributions. Two, a high interest in the AI enhancements that we've developed using our data sets where they can get immediate benefit without heavy investment. And three, strong support for the efficiency driving multi-partner integrations that we provide in our property estimating solutions and specialty business and that we are developing an anti-fraud and extreme event solutions. It is for this reason that we remain committed to investing in integrations to deliver value to clients. I'd also highlight three meetings just in the past month with clients where we have not had previous C-suite engagement. These discussions included comprehensive reviews of where we support these clients across underwriting, risk and claims but most importantly, our discussion centered around future planning on how we can integrate and augment that support to align with our operating, data, AI and financial objectives, elevating and adapting to how our clients are evolving in this ever-changing environment. In every meeting, the conclusion is that there is more opportunity for us to work together. Concretely, our elevated strategic engagement is leading to more pipeline opportunities. And in fact, 2025 is on track to be our strongest sales year yet with sales teams across Verisk exceeding an ambitious quota for the second straight year. Digging into our AI strategy further and given the heightened focus on the topic from investors and analysts, I believe it's important to share a few perspectives on what we are doing and what we've been experiencing. First, AI is top of mind for our clients as well. They've been exploring the technology and its potential and have turned to Verisk as an active partner in helping them evaluate use cases and to support their operational objectives with our data sets and content. Through our strategic engagement, our Chief Information Officer and Chief Global Data Officer, have participated in meetings to help our clients on key issues, including data architecture, vendor management and governance. Additionally, many of our clients want to understand Verisk's AI investment and deployment strategy so that they can align and prioritize their own investment. This underscores the connection we have to the industry and its support for the fundamental and central utility function we provide by developing and deploying a technology that the industry can benefit from at a much lower cost of ownership and investment. Second, and proceeding from the first, our deployed AI applications have been enthusiastically embraced by our clients. As an example, in XactXpert where we utilize AI to advise claims professionals in estimate review. We now have over 40 clients using the solution, including 6 of the top 10 carriers and year-to-date, sales performance is now more than double original quotas. And XactXpert can now be further enhanced by XactAI, adding GenAI capabilities like photo tagging through a new solution, which launched just this month and already has 273 users, including a top 10 carrier. On the development front, we've had very positive reactions to our AI query tools for ClaimSearch and [ SavvyR ] for regulators, with about half of our 30 [ SavvyR ] states signed on, allowing our clients to more easily interrogate our data through natural language interfaces. Third, it's all about the data. AI relies on high-quality and usable data to train the models, and I can say with confidence that Verisk's content, which includes data, language, analytics and models is built upon proprietary data that is not publicly available and is structured, cleansed, vetted and designed by us to take advantage of the power of AI. Additionally, our clients continue to reinforce the value of our content and the importance of integrating it into their workflows. Our investments in Core Lines Reimagine and the success we've had as demonstrated by our subscription growth is the clearest evidence that our curated data sets remain the fuel that powers insurance analytics. While it is still early, we are experiencing increased usage of our content as the introduction of AI tools in certain of our solutions is making it easier for our clients to interact with driving value for our clients. Further, we continue to grow the number of contributors to our existing data sets, onboarding 10 new statistical data contributors so far in 2025. Verisk's clients are also actively supporting our new initiatives to build greenfield contributory data sets across anti-fraud and for the excess and surplus lines. Specifically, our new digital media forensics currently has 106 contributors, including 5 of the top 10 carriers, representing over 600 million digital images. With E&S, insurers are responding positively to our initiative to collect data for this growing market. We began this initiative less than a year ago and have already received commitments and actual data from several companies representing billions of dollars of premium. Our ability to provide analytics on their data and benchmark this data to the admitted market, leveraging our statistical data is also driving additional interest in contribution. Fourth, it's not just about AI. While AI is a powerful tool making the insurance industry better, requires human expertise and collaboration. We are connecting ecosystems across the industry that bring material efficiencies and improved data sets to drive better results. Our Whitespace and Xactware platforms are compelling models of the value we can deliver to clients across the industry. Fifth, AI is enhancing our own internal processes and product development as we leverage advanced technologies to better ingest and interrogate data to advance our models and analytics. In our Extreme Events business, we are using the power of AI to simulate globally correlated atmospheric perils with a level of realism and reliability that traditional approaches cannot achieve. Specifically, we are using deep learning AI models to correct biases in raw output of a climate model, ensuring that the frequency and intensity of extreme events align with observed reality. In addition, we're also using generative AI techniques to introduce details that capture the local impact of these large events. In short, our clients are more interested in working with us on AI because of our experience and the economic utility of using our solutions. Our proprietary data is more valuable with increasing AI utilization because of its breadth and usability. Our clients are contributing more data and actively supporting the development of new contributory data sets demonstrating their commitment to Verisk's partnership. Our growth opportunities are expanding by the rapid adoption of solutions like XactXpert and the robust pipelines we have across many of our new inventions. We have been investing in these solutions and enhancements for several years while maintaining our strong margin profile. And finally, we believe our long-term growth and margin model is enhanced by the integration of AI into our own processes and across the industry overall. Beneath the near-term light weather impacts reflected in our current quarter's results is clear and unmistakable evidence that our strategic engagement initiatives, enhanced go-to-market strategy and product invention, including AI, are enhancing the value of our data and expanding our growth opportunities. Before I turn the call over to Elizabeth, let me share recent developments on the AccuLynx transaction. FTC approval of the transaction has been delayed. We have received a second request for information, and we continue to have productive engagement with the FTC, working within the conditions of the federal government shutdown. Consequently, we do not expect to realize any material benefit from the pending transaction in 2025 and have removed any operating results from our 2025 guidance. We are proactively engaged with the FTC and continue to believe in the strategic and financial merits of the transaction. With that, I'll turn it over to Elizabeth for the financial review. Elizabeth Mann: Thanks, Lee, and good morning to everyone on the call. On a consolidated and GAAP basis, third quarter revenue was $768 million, up 5.9% versus the prior year, reflecting growth across both underwriting and claims. Net income was $226 million, a 2.5% increase versus the prior year while diluted GAAP earnings per share were $1.61, up 5% versus the prior year. The increase in diluted GAAP EPS was driven by sales growth, operating leverage and a lower average share count. Moving to our organic constant currency results. Adjusted for nonoperating items, as defined in the non-GAAP financial measures section of our press release, our operating results demonstrated balanced growth across the business. In the third quarter, OCC revenues grew 5.5% with growth of 5.8% in underwriting and 5% in claims. We did experience two temporary factors that impacted growth in the quarter. Namely, first, a historically low level of weather activity and therefore, claims volumes that were significantly lower than our estimate of a typical year. And two, the reduction in a government contract, which we had spoken to you about previously. Together, those factors combined for an impact of approximately 1% to overall Verisk OCC revenue growth in the quarter. We view these factors as temporary and continue to have confidence in our ability to deliver results in line with our long-term target for this year for 2026 and beyond. The clearest demonstration of the health of our business is the growth of our subscription revenues. Subscription revenues, which comprised 84% of our total revenue in the quarter, grew 8.7% on an OCC basis, compounding on the 9.1% OCC growth we delivered in the prior year quarter and consistent with growth levels in the first half of the year. This quarter's growth was broad-based across most of our subscription-based solutions with outperformance across our largest businesses. Within forms, rules and loss costs, we continue to execute on our innovation agenda through the Reimagine program, which is driving solid price realization in the renewal process across all client tiers. In the third quarter, we launched 3 new modules as the latest demonstration of the increased value we're delivering to clients and the industry. For example, our new indication center delivers key rating elements to our clients 2 months sooner than our traditional loss cost review process. This allows insurers to begin responsive rate actions sooner and more confidently when incorporating Verisk data into their pricing and underwriting management. We remain on track to deliver all 20 planned Reimagine releases in 2025, reinforcing our commitment to innovation and execution discipline. We are also driving double-digit subscription growth in Extreme Event Solutions through the expansion of contracts with existing clients, solid renewals and the addition of new logos globally, including competitive wins. We are seeing strong appetite from clients to subscribe and expand their hosted relationship with Verisk in preparation for the transition to our fully SaaS-based Verisk Synergy Studio, creating a more durable and more deeply aligned client partnership. Within our anti-fraud business, we have continued to achieve strong price realization through enhancement of the solution and the continuation of our ecosystem strategy. In addition, we have driven outsized growth with noncarrier clients like third-party administrators and healthcare subrogation companies as we are focused on building and expanding solutions specifically geared for their use cases. Additionally, we are seeing meaningful interest in our advanced anti-fraud inventions, including claims coverage identifier and digital media forensics and have a rich pipeline of future opportunities. And finally, we delivered double-digit subscription growth across our Specialty Business Solutions and Life Solutions businesses, where we are driving new sales and expanding relationships with existing clients. Our transactional revenues, which comprised 16% of total revenues, declined 8.8% on an OCC basis. The principal factor for the transactional revenue decline with lower transactional volumes in our Property Estimating Solutions business, resulting from historically low levels of weather activity. Weather events in the third quarter as tracked by NOAA, declined 18% versus last year and were 31% below the 5-year average. According to Verisk's own PCS data, third quarter weather event frequency and severity declined 30% and 78%, respectively, on a year-over-year basis. In fact, this third quarter marks the lowest level of storm events in the U.S. since 2017, and 2025 is on track to be the first year since 2015 without a named U.S. hurricane to make landfall so far. This has translated into lower level of transactional claims assignment and fewer subscription overages across our Property Estimating Solutions business. This quarter of lighter weather activity has validated our strategy to increase the level of subscription volume in our PES business as it has reduced the weather-related variability for both us and our clients. As discussed last quarter, we continue to see softness in our Personal Lines Auto business relating to competitive pressures. In addition, we are experiencing tougher comparisons on certain non-rate action deals as carriers have been more successful achieving greater rate adequacy. Finally, transactional revenue growth was negatively impacted by ongoing conversions to subscriptions across our business. As we look ahead to the fourth quarter, we remind you that we do have another very tough weather comparison as last year, we saw an uplift in revenue from hurricanes, Helene and Milton. Moving to our adjusted EBITDA results, OCC adjusted EBITDA growth was 8.8% in the quarter, while total adjusted EBITDA margin, which include both organic and inorganic results, were 55.8%, up 60 basis points from the prior year. This level of margin expansion reflects our ongoing cost discipline, including the benefits of our Global Talent Optimization as well as the core leverage from sales growth. It also reflects continued investment in our business across many projects, including Core Lines Reimagine, Verisk Synergy Studio and in new and advanced technologies, including AI. Over the past 5 years, we have delivered over 500 basis points of margin expansion, while self-funding investments in some large-scale transformative technology and product upgrades, including our cloud migration, Core Lines Reimagine, the ERP implementation and artificial intelligence. Specific to AI, we continue to develop inventions across our business units that include AI and as we mentioned, we have many solutions commercially available today. And we have confidence that like our other tech transformation, we will be able to self-fund this investment while also continuing to deliver margin expansion in line with our target. Moving down the income statement. Net interest expense was $42 million in the third quarter compared to $32 million in the same period last year, due to higher debt balances and higher interest rates, offset in part by higher interest income on elevated cash balances. During the third quarter, we acted opportunistically to take advantage of favorable bond market pricing and issued $1.5 billion in senior notes to finance the announced acquisition of AccuLynx. We are earning yields on those cash proceeds, which significantly reduced the net interest expense. Our reported effective tax rate was 25.3% compared to 22.9% in the prior year quarter. The year-over-year increase was driven by a lower level of employee stock option exercise activity in the current year and a onetime tax benefit in the prior year period. We continue to believe that our tax rate will fall in the 23% to 25% range for the full year. Adjusted net income increased 1% to $241 million, and diluted adjusted EPS increased 3% to $1.72 for the quarter. The increase was driven by revenue growth, margin expansion and a lower average share count. This was partially offset by higher depreciation and interest expenses and a higher tax rate. On a reported basis, net cash from operating activities increased 36% to $404 million, while free cash flow rose 40% to $336 million. This increase was driven primarily by an improvement in the timing of collections as well as lower cash taxes paid due to changes in the tax code associated with the treatment of research and development costs. We remain committed to returning capital to shareholders. During the third quarter, we paid a cash dividend of $0.45 per share, a 15% increase from the prior year. Additionally, we repurchased $100 million of common stock. As of September 30, we had $1.2 billion in capacity under our share repurchase authorization. Turning to guidance. Though it is not our typical practice to update guidance following 3 quarters, we want to provide more transparency given the recent delay in approval for the AccuLynx transaction. We do not expect to realize any material financial benefit from the pending transaction in 2025 and have therefore removed any operating results from our 2025 guidance. More specifically, we expect consolidated revenue to be in the range of $3.05 billion to $3.08 billion. We expect adjusted EBITDA to be in the range of $1.69 billion to $1.72 billion and adjusted EBITDA margins to remain in the 55% to 55.8% range. We now expect net interest expense to be in the range of $165 million to $185 million, reflecting the impact of cash earned on the proceeds from the bond transaction. From a tax perspective, we are still expecting to be in the range of 23% to 25%. Taken all together, we continue to expect diluted adjusted earnings per share in the range of $6.80 to $7. A complete listing of all guidance measures can be found in the earnings slide deck, which has been posted to the Investors section of our website, verisk.com. And now I will turn the call back over to Lee for some closing comments. Lee Shavel: Thanks, Elizabeth. We are excited about the growth opportunities ahead and have confidence in delivering on our long-term strategy and driving value creation for shareholders. We continue to appreciate all the support and interest in Verisk. Given the large number of analysts we have covering us, we ask that you limit yourself to one question. With that, I'll ask the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Manav Patnaik of Barclays. Manav Patnaik: I just had a question on the deal. You obviously included in the guidance last quarter. You raised the debt, so you feel confident in the closure. So I was just curious what -- if you could give us some more color on perhaps what's in question here. And somewhat tied to it, I know obviously, you have that strategic agreement with ServiceTitan as well, which I think you said was the main competitor of AccuLynx. So how does all that play into this? If you could help us with that. Elizabeth Mann: Yes, Manav, thanks for the question. Look, the FTC is reviewing the deal, and we continue to work collaboratively and expeditiously with them through the government shutdown. So we're making progress towards approval of the deal. On ServiceTitan, we did -- we announced a partnership with them through our Property Estimating Solutions business. And so they integrate through the Xactware platform. I'm not sure we would say they are the main competitor of AccuLynx. They are one because of their recent IPO that people have asked questions about. Operator: Your next question comes from the line of Toni Kaplan of Morgan Stanley. Toni Kaplan: I was hoping you could talk about what you're seeing in the competitive landscape regarding AI startups. You have a very strong moat with your proprietary data. But I imagine there are some parts of the workflow that AI startups are trying to infringe upon. And so just wanted to hear anything you're seeing in the market with regard to that. Lee Shavel: Sure. Thanks, Toni. I appreciate the question. And we've obviously described in the opening comments on what we've been doing with AI. And so certainly relevant to that is what we are seeing and what our clients are seeing. And I think as you suggest, there are a lot of kind of general AI companies that are looking to apply their large language models to kind of broad data sets or individual client data sets. Others that are coming up with kind of bespoke solutions for specific functions. But I think as you allude to, without access to kind of the proprietary content in terms of data sets that we have, expertise, specific knowledge of the insurance industry challenges that they face, it's difficult to achieve scale in delivering value for clients. That's why we feel we're in a very strong position to be a partner to our clients, given the expertise, given the data set. We've seen receptivity. And there also is a higher degree of confidence that we're able to deliver and be a reliable partner with them on their AI efforts. But it is something that we continue to monitor to determine if it is a solution that a client sees value in. And it's -- we can be supportive in providing data that becomes an opportunity for us. And it's also very consistent with the connected ecosystem that we have developed in our Property Estimating Solutions area and are developing in other dimensions of our business. So if it is something that is relevant and our data sets are valuable and it delivers value to the clients, that becomes an opportunity for us to participate in. Operator: Your next question comes from the line of Faiza Alwy of Deutsche Bank. Faiza Alwy: Lee, thank you for the comments you made upfront around the continuing strategic dialogue with your customers. You mentioned a few things like increasing usage and more contributory data. I'm wondering if you can share your thoughts around future pricing opportunity, especially in light of decelerating net written premiums in the insurance industry that we're hearing. And I understand that there isn't a formula, but just curious how you're thinking about that future pricing opportunity given the various dynamics? Lee Shavel: Yes. Thank you very much for the question, Faiza. We think it is a very real opportunity. First and foremost, because I think both we and our clients recognize that we can provide incremental value to them in a variety of ways. And in those strategic dialogues, the elements that we discussed and kind of relate to the revenue opportunity is for instance, most directly as we've experienced with XactXpert, as we're experiencing with XactAI and developing in other areas, we have been able to deploy an AI enhancement to their productivity that adds value, and we have been able to realize upsell revenue from that enhancement. So that is a very clear direct and immediate opportunity that we're executing on. Secondly, the ability to integrate our data sets, either directly into their AI strategies or integrating our own data sets to meet some of their functional objectives is incremental value for them. And so that becomes an element of an opportunity for us as we are looking at our subscription contracts where we have the ability to factor that in, recognizing that we're creating value. And so there's an opportunity to participate in that. I would draw a connection to the very strong subscription growth that you were seeing across our business is a function in large part of the modernization of our data sets through our Core Lines Reimagine function that has expanded our clients' ability to utilize our data sets and integrate them into their workflows. So it's a natural expansion on that front. So -- and then finally, as I alluded to in the call, we're using AI to improve the quality of our underlying products, and I specifically noted our use of it in the CAT modeling area. And so we're strengthening that product. And if it is a stronger product competitively delivering more value to our clients, that naturally becomes a pricing opportunity. And we've seen very strong subscription growth from our CAT modeling area as well, I think, reflective of that continued investment and innovation within that product set. Operator: Your next question comes from the line of Andrew Steinerman of JPMorgan. Andrew Steinerman: Elizabeth, I heard your list of kind of dynamics around the auto underwriting solutions revenues and that the main product there is LightSpeed. The things I didn't hear you say on that list was when looking at that end market, auto underwriting growth of their policies has been decelerating. That's kind of been well documented during earnings season. And I thought that might be a headwind as well, as well as just the level of shopping around auto. And if you could just highlight for us what you guys currently see as the uniqueness of LightSpeed with insurers now? Elizabeth Mann: Yes. Thanks for the question, Andrew. Yes, that business itself doesn't have any particular linkage to premiums. So that wouldn't impact the performance of that business. Shopping activity has been in line more or less. So that hasn't been a major driver of change for that. On LightSpeed, I think we've talked before about the merits of that business. The ability for carriers to deliver a bindable quote in real time, and that value continues. So that strategic benefit is there. Lee Shavel: And Andrew, one other factor is if you -- it sounds like you have, if you're observing on the dynamics in the auto insurance rate, rate adequacy has improved dramatically and as a consequence, some of the opportunities, kind of cyclical opportunities that we've seen previously in the non-rate action area has been less prominent than it was when profitability on the auto underwriting side was less robust. Operator: Your next question comes from the line of George Tong of Goldman Sachs. Keen Fai Tong: You mentioned your full year guide now excludes the impact of AccuLynx. Can you clarify how much of the guide reduction was due to the removal of the deal versus other factors like maybe extreme weather coming in lighter than expected? Elizabeth Mann: Yes. Thanks, George. As usual, for a full year guide, we don't break down the pieces of it. You can kind of map the sequential changes that we've done. Keen Fai Tong: I guess how much of the change is organic versus M&A related? Elizabeth Mann: Yes. That's -- we've given you the aggregate level. Operator: Your next question comes from the line of Ashish Sabadra of RBC Capital Markets. Ashish Sabadra: In the prepared remarks, Elizabeth, you've highlighted, the difficult comps from hurricanes as we get into the fourth quarter. We estimate that was almost 100 basis points of tailwind last year. So is it right for us to assume that we see an incremental 100 basis points of headwind from 3Q going into 4Q or was some of it headwinds pulled into 3Q? So any color there. But also as we think about other offsets, are there -- Lee, you mentioned really good sales momentum this year and last year as we start to see some of those sales translate into revenue into fourth quarter? Or are those more going to contribute for '26 and beyond? Elizabeth Mann: Yes. Thanks, Ashish, for the question. Yes, you're right. In the fourth quarter, we will be comping that strong impact from hurricanes Helene and Milton that was in the fourth quarter of last year. As we typically say, at the beginning of the year, we tend to forecast for an average year of weather. Last year had the significant hurricane impact, and this year is shaping up to be a light year on the weather side. So those factors are likely to persist into the fourth quarter in general, but on a full year basis, we are in line with the guidance and the long-term targets. And yes, as we talked about some of the sales opportunity, the momentum that we're having in the sales force and with the new product adoptions will be continuing into next year. Operator: Your next question comes from the line of Gregory Peters of Raymond James. Charles Peters: So I'll focus my one question on the cash flow numbers. I know Elizabeth you called out some discrete items like tax and I'm not sure to the extent other variables might be affecting it. But I think from a bigger picture perspective, is there any step change in your conversion rate of free cash flow on an annual basis? And if so, what are the driving factors on that? Or I guess when I think about free cash flow for '26, I'm just wondering how I should look at your results in the third quarter and interpret -- and extrapolate that into how I think about next year? Elizabeth Mann: Yes. Thanks for the question, Greg. And we're happy to highlight the strong free cash flow in this quarter and for the full year. I called out there was a cash tax benefit in the third quarter. There was also -- if you look on a year-to-date basis, there was a first quarter tax refund. On a -- if you normalize for those, the free cash flow growth, I'd call it strong double digits. Another benefit that's helping us this year, although there's some quarterly variability to it is we are seeing better collections and lower DSOs as we take advantage of the Oracle and the ERP implementation that we've had. So there's some quarterly variability in that, but an improvement over last year. If you strip through all of that, we'd say probably the free cash flow growth is roughly in line with EBITDA growth, but that's kind of an ongoing benefit that we expect to continue. And so this -- yes, this strong free cash flow growth is and will be the fuel to continue to drive our capital allocation engine, and we can choose to deploy that in continued organic investment in M&A and in return of capital where we have and can continue to lean in. Operator: Your next question comes from the line of Kelsey Zhu of Autonomous Research. Kelsey Zhu: You called out the competitive pressure in auto 2 quarters in a row now. So I was just wondering if you can give us an update on what is happening in that market and your strategy to maintain or expand share in that market? Elizabeth Mann: Yes. Thanks for calling out, Kelsey. It's nothing new from last quarter. It's just the financial impact, which is in line with what we had called out in the last quarter. So no change. I think on there, we're spending time from a product side. We are focusing on the client feedback and the opportunities for competitive differentiating -- differentiation. We are focusing on areas where we may have a deeper data set and some deeper analytic objects that can build unique value proposition for the clients. Operator: Your next question comes from the line of Jeff Silber of BMO Capital Markets. Jeffrey Silber: You mentioned premium growth levels in an answer to another question. I was wondering if you can just refresh our memory, what is the industry growing at this year? And what are your expectations for next year? Elizabeth Mann: Yes. Thanks, Jeff. As you know, these -- the data takes a while to review, and it also varies line by line. In aggregate, across the industry, we were seeing high single-digit premium growth in 2024. Depending on the line that is perhaps normalizing to mid-single digits in 2025. But again, I'll remind you, while there is some input to some of our contracts to the net premium growth, that is only an input and not necessarily a main driver. We're focusing on the value delivery in those contracts. Jeffrey Silber: And what are folks forecasting for next year? Lee Shavel: I think based upon what I see, Jeff, is they're expecting kind of that similar normalization into the mid-single digits. And obviously, it's going to vary by -- from product line to product line. And so I would just say directionally, what we're seeing is that normalization from a more inflation-oriented growth that elevated the industry for a while to a more normalized low to mid-single digits growth. But I also want to take the opportunity to reprise some of the statistics that we provided that over the past 15 years, there has not been a significant differentiation of our organic revenue growth rate in soft or hard markets. I think the variation was between 6.8... Elizabeth Mann: 6.8%. So historically, since we've been public in the soft market years, our growth has been about 6.8%, in hard market years, it's been, on average, 7.3%, so a slight impact. Lee Shavel: And it underscores the fact that our revenue growth is tied to the value that we deliver and the expanding adoption of data and analytics by the insurance industry, which we continue to see. And as I mentioned in my remarks, we believe that AI is an accelerant to the effective utilization of our data sets. So while we do look at overall industry premium growth as an indicator, it really is driven by data and technology adoption and the value that we're able to deliver in our function as an effective utility for the industry. Operator: Your next question comes from the line of Alex Kramm of UBS. Alex Kramm: It seems like a lot of things have been asked and answered already. But maybe quickly on M&A. I know you're obviously focused on AccuLynx and driving that forward. But just maybe some general perspective on how that -- how your M&A outlook has changed over the last 3 months? Do you feel like you have capacity for other things? What have prices done? And Lee, as you engage with the C-suite here more, are there any specific workflows that clients are asking for that you feel like M&A is the answer for those? Lee Shavel: Yes, Alex, thank you very much for the question. First, as you can imagine, we are very focused on the AccuLynx transaction. As Elizabeth indicated, we're continuing to work collaboratively and expeditiously with the FTC to execute that transaction, which we still fully believe in the strategic and the financial merits of. And so naturally, while we continue to monitor the market for opportunities that are additive where we can add value, I might say that our primary focus is on those deals, AccuLynx as well as the closed SuranceBay deal to make certain that those are effective. So we want to maintain our focus on delivering value and executing those transactions primarily. But you always want to be aware of what is happening in the market. It's an interesting question in terms of what we're hearing from clients. I would say that while it tends not to be oriented to acquisition targets, I would kind of extend their desire to see a more centralized efficiency and connectivity as a part of what they do. And I would probably use SuranceBay as an example of where we've heard from our life clients that the kind of the regulatory element that SuranceBay provides is very additive and connective to what we're providing on the policy administration side. So -- and feedback that we received with regard to AccuLynx in terms of the ability to improve efficiency and connectivity for contractors and carriers is a benefit that we've talked about previously. So those are elements and anything that augments our data sets and allows them to be utilized more effectively or more broadly in the industry is what we're hearing from clients. Operator: Your next question comes from the line of Russell Quelch of Rothschild. Russell Quelch: I appreciate your comments on AI and the opportunities that it brings to Verisk. But are there any of your large carriers that are talking to you about how they want to leverage AI to garner greater insights from their own sort of large amount of data they hold, particularly in the property insurance space. And I'm wondering if they are, how you think that could impact the long-term usage of contributory databases as perhaps the sole source of data for insurance pricing like it currently is? Lee Shavel: Thank you for the question, Russell. So certainly, our clients are looking to utilize AI against their existing businesses. But what I would emphasize is that their ability to analyze their own data, the overall market perspective of how the industry as a whole is performing and the benchmarking function remains very critical to that. What we have seen is that when clients are increasing the sophistication of their data assessment within their own lines of business, it increases their interest in comparing what they are doing to the industry as a whole. And because of the very rich data sets that we have, we can offer an enhancement and augmentation to what they are trying to do internally. Just using that internal data not enriched by the data sets, whether we have in [ pro metrics ] to give very detailed information on properties that they can benchmark their own assessments against or the loss cost information that we have or the catastrophic risk exposure that we're able to model, all of that is an enhancement to what they are attempting to accomplish within their own applications. And so a key pillar of our ANI strategy beyond developing the tools, beyond using AI for our own benefits is understanding what our clients' needs are so that we can partner and enhance what they're doing. We've heard that consistently. One kind of specific -- other specific example of even a data set in our admitted lines business becomes very relevant in benchmarking excess and surplus performance because it is a reference market for that. And as they have been increasingly sophisticated in tracking and contributing that data, that becomes an incremental value opportunity for us to provide that type of benchmarking and validation. So I think the point that I would summarize for you is that while they are looking to do these to analyze their own data, the connectivity and the enhancement of what we can provide becomes even more relevant. Operator: Your next question comes from the line of Scott Wurtzel of Wolfe Research. Scott Wurtzel: Just on AccuLynx, despite the closing of the transaction getting delayed given the second request. Just wondering, is there anything on the sort of technical integration side that you can do during this sort of interim period to when the deal is eventually closed sort of speed up the overall integration process with AccuLynx? Elizabeth Mann: Thanks a bunch, Scott. The short answer is no. We are -- the legal requirements are to operate independently as two separate companies until that approval is given. Operator: Your next question comes from the line of David Motemaden of Evercore. David Motemaden: I just wanted to just ask -- I don't want to focus too much on 1 quarter too closely. But Elizabeth, you had talked about 6.8% OCC growth in softer markets, but it was 6.5% this quarter if we normalize for the light weather and the government contract. So I guess, why -- what is it about the environment now, which I think is still -- I wouldn't say we're in a soft market yet, I guess what's dragging down the OCC growth now from that 6.8% in the soft markets that you had sort of spoke about? Elizabeth Mann: Yes, David, look, there's always going to be some quarterly variability. This is not -- that was that 6.8% was an average across many different years, which themselves had a range of outcomes. So we've -- some of the factors I talked about this quarter were some of the swings and you may continue to see that in the future. But in the long term, we're very confident that we can continue to deliver growth rates within the long-term organic targets. Lee Shavel: Yes. And David, the other differentiation that I would make is looking at the subscription growth, you can see that, that remains exceptionally strong and a function, again, of the value that we're delivering. I think when we are talking about softer or hard markets, that really is going to play out in the subscription growth from a value perspective whereas clearly, within this quarter, that differentiation, that 6.5%, is primarily transactionally driven. So I would just -- I would make that distinction as you were thinking through that issue. Operator: [Operator Instructions] Your next question comes from the line of Jason Haas of Wells Fargo. Jason Haas: So if we look at the OCC growth that you reported, the 5.5%, you called out 1 percentage point from government and also the weather headwinds. So even if you add that back, you're at 6.5%. In the prior quarter, you were at 7.9%. So I'm trying to understand what caused that deceleration? Because in response to an earlier question, you said that the auto competition sounds like that's been a similar level. So yes, I'm just -- I think we're trying to figure out what caused that deceleration. And I think the concern is that your customers are seeing lower growth than they did last year. So is that what's weighing on the growth? Or can you unpack what caused this deceleration? So we can get some confidence for how the growth could accelerate going forward. I guess that will be past 4Q because you'll have a tough compare. But yes, you can unpack that, I think that gives us a lot more confidence and would be very helpful. Elizabeth Mann: Yes. Thanks a bunch for the question, Jason. Yes, as we map to the last quarter, look, I called out a couple of factors in Q2 that were going to impact the second half of the year. We talked about the government contract and we talked about the softness in the auto space. Those have played out in line with the way we talked about in the prior quarter. So I think on the auto softness side, we called it out as something we saw coming ahead. It wasn't necessarily impacting the second quarter yet, which is, of course, why we called it out as something for the second half of the year. So -- and then what we hadn't yet seen at the time was the light weather activity which typically that third quarter is the prime quarter for severe convective storms and North Atlantic hurricanes. So it's really those factors that are impacting it. Again, of those three, what we call temporary factors, two of them were as anticipated and then the weather was an additional point. I think going back to our emphasis on the subscription revenue, that strength there demonstrates what we think -- if -- somewhere in your question was, are we seeing customer hesitation and the answer is no. You can see that in the subscription growth. You can see that in the strong sales momentum that we've highlighted. So we really do think it is a function of the temporary factors. Lee Shavel: And I would just add to that. As you heard us say, we remain very confident in our ability to continue to deliver growth in that 6% to 8% range on an ongoing basis, notwithstanding the temporary factors that Elizabeth just described, the fundamental dynamics of client demand, the integration, the elevated dialogue, AI opportunities that we are experiencing and are demonstrated in our subscription growth that underpins our ongoing confidence of adhering to our long-term growth model. Operator: Your next question comes from the line of Andrew Nicholas of William Blair. Andrew Nicholas: Just one quick one for me. Just on AccuLynx, I understand you're going through the second request from the FTC, and you can't do anything from an integration perspective. But have you been able to have maybe more lengthy dialogues with your clients on the strategic merits to that deal and maybe the opportunity for increased engagement in that part of the insurance ecosystem to this point? And if so, would be curious to see what the feedback has been on that front. Lee Shavel: Yes, Andrew, let me start and Elizabeth, who's been involved in our interim claims role can supplement this. Obviously, the announcement has been in the public domain. Our clients have been interested. We've been spending time describing what we think the strategic and the business merits are. And I think we have received an endorsement from them in terms of what we can accomplish across both the data and the connectivity element. So obviously, this all remains subject to the process, and we continue to work, as we've said, collaboratively and expeditiously with the FTC to bring this to a close, but we have been engaged. Elizabeth Mann: Yes. I would just add from the dialogue that I've had with clients on the claim side. We've had, I would say, high-level discussions in line with operating as 2 separate companies. So we've gotten positive feedback for the deal, a positive feedback in terms of the benefits it would bring to the industry, but we haven't gone into specific discussions as that would not be appropriate. Our primary focus right now is on completing the deal. Operator: Your next question comes from the line of Jeff Meuler of Baird. Jeffrey Meuler: I just want to make sure I'm mapping the headwinds you're calling out correctly to subs and transactional. So I guess, subs growth decelerated by 60 basis points into a tougher comp. It sounds like the government headwind is in subscription, if you can confirm that. And then for transactional, that's where you're seeing both the weather headwind or the majority of it and the auto headwind or the preponderance of it is also in transactional, if you can confirm that? And just to be clear, what we're talking about, is this just like one lost client in a business where you've forever been in a challenger position? Elizabeth Mann: Yes. Thanks for the question, Jeff. On the subs trans breakdown, that's -- yes, that's right. The government contract is entirely subscription. The weather and the auto piece are primarily transactional, but do have a bit of impact on subscription as well. And so the subscription growth is all the more notable in absorbing those headwinds as well and pointing to the strength around the business. On the auto side, it's a bit more general than that. Operator: With no further questions, that concludes our Q&A session and today's conference call. We thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Third Quarter 2025 IDEX Corporation Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jim Giannakouros. Thank you. You may begin. James Giannakouros: Good morning, everyone, and welcome to IDEX's Third Quarter 2025 Earnings Conference Call. We released our third quarter financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investor Relations section of our website, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX; and Akhil Mahendra, our Interim Chief Financial Officer and Vice President of Corporate Development. Today's call will begin with Eric providing highlights of our third quarter results and a discussion of our current business outlook and strategies. Then Akhil will discuss additional financial details and our updated outlook. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to Slide 2 of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric. Eric Ashleman: Thanks, Jim. Good morning, everyone, and thank you for joining us today. The IDEX teams across the globe collectively delivered better-than-expected results in the third quarter of 2025 and I'm proud of our team's hard work and steadfast commitment to execution, particularly given today's challenging economic conditions. I'm on Slide 3. Regardless of the business environment, our business model and 8020 philosophy, along with our strong balance sheet and continued robust cash generation position us to quickly address challenges and pursue opportunities as they arise. We do this while remaining focused on driving long-term sustainable growth and value for all of our stakeholders. As we'll discuss further today, our team is laser-focused on the things we can control, thoughtfully executing our strategy amid a dynamic economic environment. Before I provide an overview into our results, I'd like to step back and highlight where we are in IDEX's evolution and frame our priorities in the months and quarters ahead. When IDEX was founded almost 40 years ago, it was effectively a holding company with a portfolio of disparate but attractive industrial businesses. These were strong brands operating independently without a clear governing framework. In Phase II, we introduced a common IDEX culture and business approach, powered by an operating model with 8020 as its heartbeat, not only enhance the efficiency of our operations, but also served as a decision-making framework and growth accelerator, guiding our focus, resource allocation and portfolio optimization. In our current Phase III, we've made a number of foundational acquisitions accompanied by complementary bolt-ons to expand our capabilities in targeted advantaged end markets. These additions helped us establish higher growth platforms leverage to 21st century secular trends. Today, we are intensively deploying 8020 in these areas to enhance efficiencies and productivity and unlock integrated growth potential. We followed this playbook over the previous decade to build our IDEX Health & Science platform. Now we want to repeat the work at a faster pace with more power as we integrate new businesses and technologies into IDEX. I'd like to take a moment and shine a light on the 3 pillars of 8020 driven higher growth, so you can best understand our strategy to unlock sustainable value for shareholders. Please turn to Slide 4. The first pillar involves targeting high-growth advantaged markets as we allocate capital within our portfolio. We acquired 11 outstanding companies over the past 5 years. Each business brings one or more critical technologies to IDEX alongside a series of attractive market access points. Examples of the critical solution set that's expanded for us include support for data centers, space and defense, advanced semiconductor manufacturing and water. Each acquired company links and integrates in some way with other pieces of IDEX, providing scale and efficiency while reducing enterprise complexity. In parallel to this work, we divested 4 businesses with less attractive market exposures and lower potential to scale. Our collective growth entitlement has moved to the right of traditional industrial indexes. We now have 5 thematic growth platforms that cover half of our revenue, and we believe they will disproportionately fuel organic growth for IDEX as we move forward. In prior earnings calls, we talked about our build-out of the intelligent water platform, expanded in the last few years with the acquisitions of Nexsight and Subterra. These businesses were a strong contributor of organic growth for IDEX in Q3. In September, we were proud to host a number of analysts and investors at the largest Water Industry Trade Show in North America. They were impressed by what we've built. We've also publicly referenced some great work at Airtech within our performance pneumatics group. The team continues to win as they support power gen applications for data centers. They were a top driver of orders and sales growth for HST this quarter, making great businesses work together is the second pillar of Phase III growth outperformance. Please turn to Slide 5. Here, we integrate technologies and market access points within growth platforms. As an active example, I'd like to take you through our integration progress within our material science solutions platform. The teams there have done excellent work. They also were strong contributors to HST's growth in Q3. All of the companies within MSS map close to one of three critical jobs to do for customers. One, we form critical material properties. Two, we shape materials to create and control surfaces. And three, we had functionality by applying coatings. The platform brings these capabilities together for power. Our teams like to say, if we hit one of these attributes, we can bid on a project. If we hit 2, we're highly likely to get the order, if we hit all 3, we can set specifications in the space and drive transformative growth. Within MSS, I'd like to highlight how the team at Muon is doing a great job effectively offsetting pressures within semicon lithography to drive performance. With 8020 at the heart of the work, Muon is improving productivity, rationalizing its cost structure, focusing on higher quality revenue and redeploying resources towards higher-value commercial opportunities. An example of tuning towards advantage markets is the development work Muon is actively pursuing now within data center cooling applications after recently winning business in the optical switching space, which we mentioned last quarter. We are excited about the results our 8020 actions are driving, which notably improved Muon's profitability in the third quarter to above HST segment average. The MSS platform is well positioned to drive profitable growth going forward. Please turn to Slide 6. The third key component of Phase II of IDEX' evolution is balanced capital allocation. Akhil will get into more details here, but after the last few years of accelerating larger M&A to build our growth platforms, our current focus is on optimizing our business portfolio, tuning our capabilities in an ever-evolving marketplace, augmenting those efforts with strategic bolt-on acquisitions and returning capital to shareholders. I hope you found this overview of the evolution of IDEX helpful and engaging. We are confident in the strategic plans to drive sustainable profitable growth for shareholders in the years ahead. Now I'd like to move to our third quarter 2025 results, which demonstrate traction on these collective efforts and position us well to deliver within the guidance we set for the second half of 2025. I'm on Slide 7. IDEX delivered better-than-expected third quarter results despite continued macro uncertainty. Our Health & Science Technologies segment, or HST, is building momentum as our teams continue to identify integrated growth opportunities. Overall, organic orders and sales increased 5% and 10%, respectively, year-over-year, on the back of growth in pharma and data centers. Our most recent acquisition, Micro-Lam is off to a great start, enhancing our capabilities and optics given their proprietary material shaping technology. As discussed earlier, we saw strength from our businesses within MSS, notably within our Optics businesses and Muon. HST also drove strong margin improvement due to volume leverage and full run rate of their platform optimization efforts. We see a path for continued margin expansion going forward. While HST continues to successfully turn its capabilities towards advantage markets, the segment's more fragmented industrial market exposures are netting to flattish, and we see little evidence of near-term improvements. And Fluid & Metering Technologies, or FMT, third quarter sales and profitability exceeded expectations, driven by strong execution and pricing. Our water businesses facing municipal markets were standouts in terms of orders and revenue growth. FMT's general industrial exposure points remain stable without signs of positive inflection. Finally, in our Fire & Safety Diversified Products segment, or FSDP disruptions in the funding environment and sluggish replenishment spend impacted our third quarter results and temper our expectations for near to midterm demand. So overall, we see a dynamic macro environment with an uncertainty overhang that we expect will continue into 2026. It's not clear how and when broad external catalysts will line up to support more predictable and positive conditions. But at IDEX, we plan to continue to make our own luck through 8020, tuning our resources and technologies towards those opportunities with higher growth velocities and work together as a team to integrate our growth platforms, providing more solutions power for key customers. We're on track to deliver the second half of the year and look forward to continuing our momentum into 2026. With that, I'll pass it over to Akhil to discuss our financials and our updated outlook in greater detail. Akhil Mahendra: Thanks, Eric, and good morning, everyone. All the comparisons I will discuss will be against the prior year period, unless stated otherwise. As Eric mentioned, in the third quarter of 2025, IDEX delivered strong financial performance. Organic revenue growth of 5% was better than we expected with momentum in HST driving the outperformance. And adjusted EBITDA margin and adjusted EPS came in higher than our forecast for the company overall. Orders grew 7% organically in the quarter. Our HST segment reached a record high at $390 million, and both FMT and FSDP posted high single-digit order growth in the quarter. While order activity was strong on a year-over-year basis, much was received and shipped within the quarter, leaving overall backlog levels relatively flat sequentially, and as a reminder, given the nature of IDEX's rapid fulfillment business model, we typically enter a quarter approximately 50% booked, which limits our overall visibility. Touching on some of the more meaningful business demand trends in the quarter, we saw strong order activity within municipal water, data centers, semiconductor MRO, Pharma and Space and Defense. Semiconductor lithography remained below prior year levels. In Life Sciences, where IDEX provides niche components for analytical instruments, we continue to see low single-digit growth. Finally, while we posted order growth in FSDP, this increase was largely due to timing of orders last year. FSDP order activity was subdued in the third quarter, specifically in Dispensing and Fire & Safety outside of the U.S. Organic sales in the third quarter grew 5% with both positive price and higher volumes contributing versus last year's third quarter. Strong price execution across segments was a primary driver, while volumes increased in both our HST and FMT segments, but declined in FSDP. IDEX adjusted gross margin contracted slightly or 10 basis points versus last year given unfavorable mix. These headwinds were largely offset by productivity gains across our businesses. Adjusted EBITDA margin expanded 40 basis points versus last year, reflecting productivity gains, favorable price cost and volume leverage. These more than offset unfavorable mix. Our platform optimization and cost containment efforts yielded $17 million in savings in the third quarter. These initiatives remain on track to deliver over $60 million in full year savings. Free cash flow of $189 million decreased 2% versus last year on higher working capital. Free cash flow conversion was 123% of adjusted net income. And we remain on pace to achieve our target of at least 100% free cash flow conversion for 2025. We ended the third quarter with strong liquidity of approximately $1.1 billion. And finally, we deployed another $75 million to repurchase IDEX shares in the quarter, taking our total to $175 million for the first 3 quarters of 2025, continuing our acceleration of returning cash to shareholders as Eric noted earlier. Now quickly, some color on our results by segment. I'm on Slide 9. In HST, organic orders grew 5% and revenue grew 10%. Volumes increased on strength in life sciences, space and defense, semiconductor consumables, pharma and data centers. These areas more than offset year-over-year declines in semiconductor lithography and industrial businesses. HST adjusted EBITDA margin expanded 120 basis points year-over-year given strong volume leverage, platform optimization savings, cost containment actions and favorable price cost. These more than offset the dilutive impact of unfavorable mix. Turning to Slide 10. In FMT, organic orders increased 8% and organic sales increased 4%. Orders growth was supported by our intelligent water platform, which delivered strong performance this quarter, with project timing and favorable prior year comps driving results otherwise. Looking at our leading indicator industrial order rates, they appear to be range bound and notably without any strong indication for sustainable inflection in the near term. We also are seeing continued hesitation on larger orders from customers across most of our industrial end markets. FMT achieved adjusted EBITDA margin improvement of 90 basis points driven by favorable price cost and execution of platform optimization and cost containment actions. Please turn to Slide 11. FSDP organic orders increased 7%, but organic sales declined by 5%. Orders benefited from continued growth within North America Fire OEM and growth in BAND-IT. Within dispensing, orders increased, but this was largely driven by timing. Organic sales declined in the quarter, primarily due to soft volumes across Fire OEM, rescue tools and dispensing. While short-term headwinds impacted sales in Fire and Rescue, the broader outlook for these businesses remains steady, albeit with limited catalysts for near-term acceleration as macroeconomic and geopolitical factors weigh on order activity. Dispensing volumes were also pressured, reflecting the natural progression of the business' refresh cycle. As customers increasingly shift towards refurbishing existing equipment, rather than investing in new machinery, we anticipate continued softness in this area. FSDP experienced adjusted EBITDA margin contraction of 200 basis points, mainly due to volume deleverage. This headwind was partially offset by platform optimization and cost containment actions and favorable price cost. I'm on Slide 12. Let us turn to capital allocation for the quarter. As Eric mentioned, free cash flow generation remains strong, allowing us to continue to allocate resources towards the areas we think will generate the highest returns. We drove $189 million of free cash flow after investments for organic growth, including CapEx spend of $15 million in the quarter. And IDEX has generated 97% free cash flow conversion year-to-date. We ended the quarter with strong liquidity of $1.1 billion including cash levels of about $600 million and revolver capacity of about $500 million. Our current gross leverage position sits at approximately 2.1x. And while we feel comfortable with our current leverage and liquidity position, we attend for our leverage to migrate lower and get to our typical target range of under 2 in the next several quarters. Our balance sheet provides financial flexibility to meet capital allocation priorities. As mentioned earlier, we accelerated our pace of share repurchases. We're purchasing $75 million shares in the quarter and $175 million year-to-date. And in September, we increased our share repurchase authorization to $1 billion. We paid approximately $54 million in dividends in the third quarter and continue to target 30% to 35% of adjusted net income in dividends paid. Regarding M&A, we do not expect to pursue large acquisition opportunities in the near term after investing in the establishment of our growth platforms over the last couple of years. Instead, we will be focused on bolt-ons and portfolio optimization in the coming quarters. Please turn to Slide 13. We are narrowing our full year guidance range to $7.86 to $7.91, which remains within our previously communicated outlook of $7.85 to $7.95. This reflects continued strength in HST, particularly within our advantaged markets. Data centers, space and defense, semiconductor MRO and pharma which are helping offset pressure in our FSDP business stemming from funding disruptions and sluggish equipment replenishment spending. FMT continues to perform in line with expectations, contributing to overall portfolio stability. Both our organic growth expectation of 1% for the fiscal year '25 and adjusted EBITDA margin expectation of between 26.5% to 27.5% remain unchanged. Our updated guidance reflects more of a level load of sales between the third and fourth quarters, reflective of the typical historical seasonal cadence at items. Our strong third quarter results have positioned us well to deliver on the second half expectations we set this summer. With that, I'll turn the call back over to Eric. Eric Ashleman: Thanks, Akhil. I'm on Slide 14, where we highlight the key drivers of IDEX's shareholder value creation. As I mentioned earlier, we are squarely in the midst of driving Phase III of our evolution. We are applying 8020 to drive integration, operational improvement and enhanced growth prospects across our high-margin growth platforms. We intend to remain very selective around bolt-on acquisitions to augment our organic efforts taking a balanced long-term approach to capital allocation, supported by near-term intentionality. And as Akhil said, our current focus here is smaller bolt-ons and returning capital to shareholders. In the past couple of years, we identified acquisition opportunities and pulled forward activity to more quickly establish attractive value-creating growth platforms. We are now acutely focused on applying 8020 to maximize their potential. We believe all of this will drive meaningful EPS growth over the longer term, driven by organic growth we can leverage and capital deployment that amplifies IDEX's value creation potential for all stakeholders. We have outstanding and passionate teams and talent, a portfolio of highly critical and adaptable technologies in advantaged markets and a culture of operational excellence and the heartbeat of 8020, which powers it all, supported by a robust balance sheet that we leverage via a balanced and effective capital deployment philosophy. We believe we are in a position of strength to deliver as a premier growth compounder as we close out the decade and head towards our next phase of evolution. That concludes our prepared remarks. And with that, I'll turn it over to the operator to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Deane Dray with RBC Capital Markets. Deane Dray: I really appreciate that Slide 3 on the evolution. And also just kind of giving us the near-term clarity on capital allocation, portfolio optimization. And so that was a big help. Eric Ashleman: Sure. Deane Dray: This seems always appropriate, especially given the macro uncertainty, Eric, have you give us your insight into the tone of business? You mentioned some order hesitation. But just the metrics that you typically use, the day rates, order size, some of the bellwether businesses? And can you also weave in whether there have been any blanket orders that's also a good indicator for us. Eric Ashleman: Sure, sure. Well, really, look, I think there's kind of 2 realities out there. There's -- those areas that we focus that are really contributing to our growth, and those are dynamic and aggressive and exciting data centers and the things we're doing in water space, I know you know well. So those kind of have their own rhythm of positive energy. And then you have kind of the broad economy next to it. And this is, for us, is a lot more fragmented. I'd say it's certainly stable. I don't -- it's not really inflecting one way or the other. The way that we kind of pulse that, as you know, as we line up at 6 or 7 businesses. We look at what we call the sort of day rates, a lot of it comes through fragmented distribution. We watch them together. And if they ever move in the same cadence, it generally tells us we're approaching some inflection point, either positive or negative. And so as we've been monitoring those throughout the year, I'll actually take you through it. I'd say in kind of Q1 leading up to the events of the spring around policy, those were stable, but they were a little higher than they are now. Then of course, we went through the spring and summer periods of tariff announcements and policy stuff, and we had a lot of things swinging back and forth. That kind of resolved itself in July as we talked through on the last call. And now it's stable again. It's just a slightly lower level than it was in the first quarter, and it kind of makes sense. There's an extra dimension of uncertainty hanging over everyone's heads here related to where policy direction might take us. So I think we're still looking for things to turn there. We monitor them every week, but as of now, very, very stable without inflection. On the large order side, which is not as big a part of the order flow for us, but does tell us things these would be discrete items where we actually know the end customer and how many they require and what they're actually building out. We just see the same kind of hesitancy. We don't see things being canceled. We see the decision process being elongated. We'll typically kind of see the funnel move a little bit to the right in terms of timing of outcomes. And largely, we're capturing the orders we would expect. It's just taking longer, and so not really an inflection positive there either. But again, just that's kind of one world. It's sit next to another world that almost operates with an entirely different cadence because it's being driven by other macro forces that are not as affected by these things. Deane Dray: That's all really helpful. And just as a follow-up, and then I'll hand it off. Just can you reference any of the bellwether businesses, in particular, and also the impact of government shutdown on the fire business, in particular. Eric Ashleman: Yes, yes. So the kind of bellwether businesses, a lot of them for us are in FMT. There's much more fragmented user base through indirect distribution. So you can think of places like Gast, Warren Rupp, Viking. Over on the HST side, a business like BAND-IT, which does clamps, there's a portion of that business that's pretty fragmented as well through kind of industrial applications. There's a few others, but that's generally the nature of what we're looking at. And the reason it's meaningful for us is, I mean, it's really, really rapid fulfillment, as you mentioned. So we can get an order on a Monday, make it on a Wednesday and it's in service on a Friday. So it gives you a really good indication of what consumption actually looks like on the outside. And when those are constant, it generally tells us the system is working, people are fixing things, maintaining, replacing, like-for-like. When it starts to move, they're doing more work. They're running extra shifts. They might even be expanding the facilities. So that's kind of how we use it as a filter. And sorry, the government funding question. Really, that's doesn't have the effect you might think. The North American fire and rescue markets are actually really good. They've been good for a while now. As you know, we do -- we've got kind of an enhanced automation offering there as well that's kind of helping us grow above baseline entitlements. So what we're really seeing when we reference government support, it's more of a European and Far East issue for us, that's China markets and some broader Southeast Asia. Typically, at kind of this point back half of the year, they start to move up a bit as you get closer to the end of a budget cycle. And this particular year in both geographies, we didn't see that. In fact, thought it kind of turn the other way. If you think about it, in Europe, a lot of the funding over there is being used for other purposes, you can think of like the European equivalent for FEMA and sort of preparedness, so there's not as much to go around in our line of work. And I just think in China, it's the continuation of a theme there. It's a desire to support more local industries, if you will, and be really, really careful on decision-making around higher government spend at a time where the economy is just not as strong, but not as affected on the U.S. side, it's not that direct a relationship. Operator: Our next question comes from the line of Mike Halloran with Baird. Michael Halloran: So no, I agree with Deane. I like those 4 slides you put at the front that kind of laid things out. One question on it. Can you frame what this means from a growth perspective for the portfolio relative to history? I know that the 2010, the growth was pressured by the 8020 piece, but it was kind of that 3%, 4% kind of range, all else equal on a reported organic basis. What does that look like on a forward basis in a normal environment? Or however you want to frame the growth algorithm today versus the previous decade before you embarked on Phase III. Eric Ashleman: Well, sure. I think like if you kind of track IDEX historically, especially in that period or before, you'll see that we kind of track right along with industrial production or the ISM index, I mean almost one for one. It's very high correlation in those years. And so by doing this work on the integrated side, bringing in, frankly, higher levels of vitality in the technologies that we've acquired. A lot of it in HST, some of it in the water space, certainly captive within our growth platforms. What we're trying to do is move that fulcrum to the right. And we're starting to break from it now just because of the collective weight, a lot of it being delivered in the HST segment. And so if you think of that as historically something that's been kind of the lower side of low single digits is an entitlement, the industrial piece, we see that moving up and ultimately would like to get it sitting closer to mid-single digits for the company. It's kind of GDP plus and really being just driven on the backs of 2 things, really, the portfolio itself, the composition of just higher tech assets that are more in line with, as I said on the call -- the prepared remarks, 21st century secular trends. But at the same time, and I think this is important, a source code that we're writing in terms of how these technologies actually work together in a company like IDEX with tunable technology. And you really, really see that taking shape in the Material Science Solutions platform that I outlined. And its impact on a single business like Muon. We're actually you're seeing faster results because of the collaboration across the dimensions that we've outlined here. So it's those 2 things. It's assets coming on board and the way we work those assets together, but then moves us off of kind of an industrial fulcrum to something closer to mid-single digits. Michael Halloran: That's helpful. Appreciate that. And then maybe the answer here is obvious with some of the stuff you said in the earlier remarks, but you look back over the last 7 or so quarters, orders have been positive. They've kind of trended if I take a really lose average in that 3%, 4% kind of range from an organic growth perspective. How do you think about when the revenue levels can start more consistently normalizing towards that range? We've had a lot of moving pieces quarter-to-quarter for a while now. But just when do you think there's going to be more of a consistent relationship between those things emerging? Eric Ashleman: Well, I think 2 things got to happen there. I mean we -- obviously, we're getting a lot of price, too. So as you referenced those numbers, what we're looking at is not just the organic rates, especially on the industrial businesses, but we're actually looking for the volume step up underneath it. And so I do think it's been a while now since that sort of base level in industrial world started to move or inflect. So at some point, when it does, I mean we're going to be really, really well positioned to move on top of it. That's still an important part of the business, and it covers a lot of IDEX. I think back to this theme of controlling what we can control and having more pieces available at our disposal to do it, that's the part that's more impactful and where we're spending all our time and energy. So stories like you see in the Material Science Solutions platform, the work that I've referenced long ago about kind of how data centers are coming together in our pneumatic space, that's kind of leading the way for growth for us right now. Water, which on the municipal facing side, that was a high single-digit grower for us here in this quarter. And so having more of those cases and points put down and then ultimately Mott being part of that as well as we continue the exact same work there. I think it's those 2 components. It's an entitlement shift that I think is overdue. On the industrial side and then us just doing the work that I'm describing here on top of it. Operator: Our next question comes from the line of Joe Giordano with TD Cowen. Joseph Giordano: I'm just curious, Eric, like when you -- if you just like step back now, like after the -- and kind of take in the last year, 18 months or so, and you look at the deals you've done, clearly like interesting deals with positioned into the growth areas that you mentioned. But like if I compare like what we've been acquiring to what we used to acquire like -- was there a sense of like maybe we chase growth in a different way? And did we get away from what made IDEX unique in terms of the positioning and the -- like the visibility of these businesses? Or I'm just curious how you would kind of push more on the whole like the last 2 years here on the M&A side. Now that we're refocusing on 8020 look as a specific mandate again. Eric Ashleman: Yes. Yes. I appreciate the question. I think -- well, look, from probably the most positive aspect, the line of sight between the technology and the market access points we've acquired and areas of growth in the economy that are not affected by some of the things we've talked through, I think, is really positive. Almost every single point we've referenced here in terms of us making our own luck, you can trace it back to areas very close to the businesses that we've acquired. So I think that part of the thesis I feel very confident about. The actual work being performed is not that different then I remember kind of the earlier days of IDEX, while a lot of our traditional technology was pretty industrial in nature. The actual development and iterative innovation work that goes on there is very, very difficult in cutting edge. And so part of the thesis here really is to essentially set the same specification points now in emerging industries, be a part of that, be a partner with customers as they develop things and then solve problems that I think are honestly pretty equivalent to what we did back in the earlier industrial times. But there's new markets and new worlds here that are available that we need to be a part of that will be essentially annuity streams for us over the next decades here. They're different assets. We do a lot more of the work in clean room environments than we used to do in traditional manufacturing. But the nature of engineering first rapid iteration, kind of a big capital D and a small R in R&D, I mean, that's classic IDEX. And then the ultimate business filter here that looks at delivering massive criticality at a kind of low point of the bill of materials is just -- that's the sort of secret source code of our economic engine, that's constant as well. So I think it's -- while it is an evolutionary shift and probably the newest nature piece of it is the way that we're collaborating across borders within business. I actually think that's reflective of just where the world is now as well. The kind of solutions they're asking us to solve some of the best customers that are out there. They often demand work that transcends a single business or a single technology. So we're setting ourselves up in a way that we can continue to participate with a world that's evolving -- developing and evolving as well. Joseph Giordano: That's great color. And just kind of like an extension of that. And I understand that policies can change and they do change all the time from like a governmental, if we think about what's in place now and if I was to like ask you to do kind of like a 5-year kind of growth outlook, I'm not looking for the number, but if you were to compare that now versus like if I asked you 5 years ago, are any of like your businesses do you think like structurally differently positioned in a world where policy is kind of here thinking some of the -- maybe some of the -- on the Med tool side and something like the lab-based clinical applications. Eric Ashleman: Well, look, I think there's no question in certainly the last 5 years, things have changed and the pace of change is a lot faster than it used to be. So when I think of that from the highest level, I think about businesses in a company that's agile and can move on a dime and being able to quickly rally around change, I think we're actually really, really well set up for that. I'll just give you a quick example. We highlighted a lot of great things going on in this Material Science Solutions platform. Got some applications there on the data center side, they didn't even exist, on. They really weren't on our horizon. Even 1 year, 1.5 years ago. And there are a testament to the teams and the flat organizational nature of the way we run things and autonomy of decision rights, those teams jumped on that kind of put 100% effort on it, segmented it with 8020, went out, put prototypes in front of people and ultimately won the day very, very quickly. So I'll step back and say in a world of change, I do think we're very, very well set up just in terms of kind of how we run and lead IDEX to go after that. Now there are specific places, you mentioned one there on the life sciences side. And that's in a different space than it was years ago. But I think even there, the tunability of our technology allows us to respond to things very, very well. In Life Sciences today, there's absolutely some pressure on the kind of academic funding side of things. But there's a lot of strength on the pharma side, and we're able to tune resources and shift accordingly. So that ability to do that within kind of a small- to medium-sized organizational construct and do it fast. I do think sets us up for change sort of no matter what direction it takes us. And then just from a kind of a trade policy perspective, which is sort of the big headline today that we're dealing with, remember, this is a really localized business model. We tend to iterate, ideate, produce, source, make stuff and sell it within the same geography. So it protects us a bit from unexpected shifts there on that side as well. Operator: Our next question comes from the line of Nathan Jones with Stifel. Nathan Jones: I guess I'll come from the other side of the platforming strategy and some of the acquisitions that have been made here. Questions have obviously been focusing on growth. I think there are opportunities for you guys to take some more cost out of those businesses, maybe combining some rooftops. I know you did some headcount reductions earlier in the year. So maybe if you could just talk about it from the other side and the potential for reducing costs, expanding margins as part of this strategy as well. Eric Ashleman: Yes. Well, look, that's kind of a classic part of how we drive value at IDEX. We're very good at operational excellence. We apply 8020 to understand where resources are being well leveraged and where they're not. I'd kind of within a more recent framework, take you through maybe 3 of the acquisitions, so you can understand the work there. I'll go back a bit in time a few years ago, we bought Airtech. We did a lot of work with that business. We -- at one point, we did a kind of President's Kaizen Event there and brought in most of the senior leaders of IDEX and helped out on a number of elements to make sure that they were set up to grow that business. I was happy to say when I went back a year later that there you can see it, it's alive today and they've taken that and they've incorporated into their business, and it's how they're able to grow at the levels that they have. We've got some insight into the Material Science Solutions platform and Muon specifically here, where as you know, we took some cost actions there. In Q3, we see that at -- we can appreciate it at full run rate. And as you can see now, we've got profitability above the consolidated HST levels. and are well set up now to lever it as we go forward. And then more recently and certainly at a different scale, the work we're doing with Mott, it's the same thing. We're in there and we're making calls on business, where do we think the 80s are? Where are the 20s? How does this help us map resources accordingly. And we're doing a lot of work on the efficiency side. One of the highlights of Q3, as you know, Mott has a ramp, kind of a long linear ramp to Q4. They're going to step up that business, actually executed some of it early into the third quarter because of efficiency gains and some of the great work that, that team has done as well as the work on our side. More structurally, we've long referenced the work that we did around operational -- or structural productivity and delayering and things like that at the platform level, that's part of it, too. And when we move from single businesses and kind of a classic IDEX sense that has all the back office and all the administrative things happening business-to-business, and we combine them and they work together, we get back-office efficiencies there. So a lot of the things that are on the plate right now, that's where it came from. And now we're seeing full run rate here in the third quarter and we're -- it upticks a bit even into Q4. Akhil Mahendra: Nathan, just maybe to put some numbers around it, right? Eric mentioned the dealer and the platform optimization efforts. And then we -- the second bucket was really cost containment efforts and actions that we put into place in the -- starting in the second quarter. What you see today is we delivered $17 million across those two buckets and the step-up will be a few million dollars and run rating at about $20 million here in the fourth quarter. Nathan Jones: Are there further opportunities for these kinds of restructuring savings. I think you've talked about maybe consolidating some rooftops as one of the things to do in the future as part of combining these businesses, moving them closer together. Is there something that you're likely to move on in 2026? Eric Ashleman: Well, that's certainly a chapter that we'll take a look at. One of the advantages when you put similar businesses together, as you can absolutely look at your infrastructure topology and then ask questions around how to effectively lever that. I will say we haven't done as much of it here this year because that's a big variability element as we've worked on some of the other aspects of 8020 and bringing people together, particularly in a commercial and a technical way that's different. We've been a little careful not to superimpose more variability on top of it and run the risk that any of that then manifest through to the customer base. So that's a chapter to come. It's something that we'll certainly consider here, and we'll be thoughtful in how we layer it across, so that it doesn't interrupt growth. But that is an open up area of opportunity for us. And certainly, as we scale the company, we're always thinking of that because we want to take some of that complexity out of the system. Nathan Jones: I guess my follow-up is going to be around capital allocation. Specific change in priorities, I guess, really this quarter with I know you talked about M&A maybe taking more of a backseat now smaller deals, not the transformational deals. And you have repurchased shares each quarter this year, increase the authorization. Is part of the plan here to be more of a serial repurchaser of stock going forward? I would imagine that you think the stock is probably well below intrinsic value right now and IDEX has historically been a share repurchaser in that situation. So just how we should think about share repurchase, both opportunistically in the short term and more as a long-term avenue for capital deployment? Akhil Mahendra: Yes, Nathan, let me just sort of walk you through that framework, right? And first, I think it's important for me to recognize the high-quality portfolio we've built, which actually enables us to generate strong free cash flow consistently that we're actually able to deploy, right? And you sort of called it out M&A, there was a period of heavy investment for us during our growth platform building phase, and now we're focused on bolt-ons that are going to have attachment points to these growth platforms that we've built. And one of the greatest examples here that half for you who was in one of the slides was Micro-Lam, which we announced a quarter ago, right? Its integration is going really well. It's sort of plug in very nicely into the MSS platforms. Look, from a funnel perspective, our funnel is strong. We continue to cultivate proprietary ideas. And so we'll -- as those opportunities are available to us, right, we'll execute on them. And then as we think about excess cash flow, we'll continue to return that capital to shareholders. And that's through dividends. I do want to make sure that, you know, we spend a minute on that. That is sort of a policy that -- where we've grown our dividend here historically. We aim for 30% to 35% adjusted net income to be paid out from that front and then share repurchases, which, as you mentioned, right, we stepped up. So coming into the year, we had already stepped up the share repurchases because we were outside of that heavier deployment of capital towards platform building. And so if you look at sort of where -- how the numbers stack up, right, year-to-date, we've returned about 80% of our free cash flow to shareholders. So, as we think about this framework and look at what's ahead, especially us moving towards more bolt-on being able to add more things to the growth platforms, you'll see that excess cash being returned to shareholders. Eric Ashleman: But I think, Nathan, long-term -- also people to recognize, I mean, we've got some work in parallel. We're always thinking about where does IDEX go next, what other technologies are out there that could be interesting for us, are there access points for markets, so that work continues, but it's of a longer duration. So we're not -- it's really important that we don't interrupt it, but we're kind of do 2 parallel tracks here. And we're thinking ultimately about deploying capital to the points of highest return. I think right now, for us, taking advantage of what we purchased, getting it to work together effectively, working on both the top and the bottom line and driving a ton of value out of the base that we've acquired is absolutely a point of high return. And then as we do that, returning cash and capital to the shareholders, we think if nothing else, a real signal and sign of the confidence we have in the long-term growth strategy for the company. Operator: Our next question comes from the line of Bryan Blair with Oppenheimer & Company. Bryan Blair: The Intelligent Water platform has gotten a decent amount of airtime today. I think that's fair. Eric, as you called out, the team presented quite well at WEFTEC. So wondering if you could offer some finer points on contribution in the quarter. And I think you would noted high single digit. I don't know if that was a revenue or order expansion. A clarification there would be helpful. And then even more importantly, just speak to the underlying demand trends, visibility and growth prospects of the platform as we look to '26? Eric Ashleman: Sure. The high single digits is on the revenue side, orders were good as well. We point out the municipal facing side because when we talk about water platform as a whole, we also have a piece of it that's vectored towards high-purity applications. A lot of that's in kind of semi fab build-out areas. So we want to make the distinction, but the bulk of it is municipal facing. And it's -- I mean, the great businesses. We're doing a job there that is absolutely critical. We help people understand what's going on underneath the ground. These are environments, as you know, you don't want to spend a lot of time in. And we've augmented that through acquisition as well. So Nexsight, it brought us some more critical inspection gear and a lot of analytical intelligence. This is our most software-intensive business in all of IDEX. And we use it -- the 2 technologies together, think of it as flow monitoring, flow detection in very difficult environments. I assure you that's not an easy job to do. And then a data capture portion of it that then sends it into an analytical framework, which essentially allows us to help municipalities understand how the system is working. And so we present that information all across the global customers. And essentially, if you think about it, there's 2 primary customers. On the one side, there's the operator side that's trying to just run a good system day-to-day. But maybe even more importantly for us, we're actually supplying that analytical input into capital specification engineers, and they're using it then to essentially vector capital into larger scale projects and infrastructure build-out. Without the work that we do, that would be very difficult. So it's much more integrated than it was originally. We presented it that way at WEFTEC. It works that way in actual fact. And here with the latest addition, Subterra, that allows us kind of to go in, in an untethered way, a lot further and extends our reach with a pretty simple device. So we're really, really pleased with what we have there. It's great to see the growth as a reward, and we look for more in the future. Bryan Blair: That's excellent. I appreciate the color. And Q3, HST results were pretty encouraging overall. I know your team has been navigating challenging market conditions for a while, and perhaps there aren't standout green shoots quite yet, but it seems like, I guess, the aggregate demand outlook is, I believe, is gradually improving. Given the restructuring and optimization work your team has done, how should we think about HST incrementals once we do get back to a more supportive demand environment? Akhil Mahendra: Bryan, it's Akhil. Yes, I can take this one. Look, the way I would think about it is sort of from an incremental standpoint, just given sort of the demand dynamics that you laid out, we'd expect somewhere in that 35% to 40% incrementals. And again, as sort of if those demand dynamics weren't there, right, we'd vector to the lower end of that, but that's sort of how we're thinking about with demand there to support the business. Eric Ashleman: And I think as you said, and I want to highlight here, especially for the teams that are doing the work in HST. Yes, they had a really good year. I mean this segment has grown orders, sales and profitability, each of the 3 quarters that we've had here, and they're going to step it up again in the fourth quarter. Again, the underlying markets are -- some of them are better than others in IDEX, but a lot of this is on the backs of great work like we've outlined in MSS or in data center applications and Airtech and other places. Operator: Our next question comes from the line of Vlad Bystricky with Citigroup. Vladimir Bystricky: So maybe just going back to your commentary, Eric, on sort of the price versus volume dynamics that you've seen and you mentioned that you've been seeing strong price realization overall. So could you give any color on what price actually contributed in 3Q and how you're thinking about pricing heading into '26, particularly if kind of a still sideways or sluggish demand environment in portions of the business line. Eric Ashleman: Yes. Well, look, so price capture has increased, obviously, as we've gone through the year, much of it in response to the tariff announcements. And so in Q3, we were about 3.5%. That's a high point for the year. that's higher than everything we had in 2024, and it's kind of starting to approach some of the levels at the tail end of '23, which was kind of the end of that big inflationary cycle. So it's increasing. And two things I would say about it. One, I always want to remind people here. One of the reasons that we're able to do that and do it effectively, it is a testament to the differentiation that we have in our technologies, the positioning of our businesses and the great work of our teams. I say that because I think as this goes on and the levels get higher, I think this is an area where it's getting a little more difficult. I think there's some real pricing fatigue that is out there generally. And I think this is where I appreciate the differentiation that we have in our businesses and our ability to kind of withstand that argument. It goes back to the original business filter of the company of lots of criticality at a relatively low price point, so that when our increases do hit, they're easier to rationalize than some others. So heading forward, I think, obviously, from a pricing perspective, a lot of it is going to depend on where does policy go. So much of it has been a response to that, kind of the base level pricing entitlement that does things like covers traditional inflation for us and others. We've -- we're planning for that. We've got some of it out now as kind of a pre-announcement getting ready. So nothing really interrupting that side of the cycle. The real open question is, does policy become more aggressive? Does that then force us to go to even higher levels? And then ultimately, that's into an environment that I think is starting to have some real fatigue. Akhil Mahendra: Yes. And Vlad, I can put some dimensions around sort of the 3.5%, right? I think you heard us talk about it earlier in the year. We came out with sort of traditional price of about 1.5. And then in the second quarter, once we tarted to put tariff pricing in place to be able to offset that incremental cost. We're now at about a 2% run rate just to help you put some numbers around what Eric mentioned, and we expect that to continue here in the fourth quarter unless there's maybe a positive announcement here or it could go the other way, just given what's on the horizon. So we're not accounting for that, but our intention is to continue to offset it, just given the remarks Eric made here. Vladimir Bystricky: Okay. That's helpful color, helpful to understand. And then could you just -- maybe help me understand a little better kind of the cadence between 3Q and 4Q and whether you saw some shift in demand, just given the upside here in 3Q with the full year largely reiterated. Just what's changed amongst the quarters? Akhil Mahendra: Yes. Look, I think if you go back when we were out here in the summer, right, we talked about sequentially 2% to 3% would generally be flat and there was that step-up. And as we said in our prepared remarks, right, the teams did a really nice job executing with this backdrop and you think about certain order timing materialized earlier than we anticipated, the 8020 work that Eric mentioned with Mott and the operational improvements that we're seeing there. That left us with more of a balance 3 to 4Q, which is more reflective of a historical pattern for IDEX overall. We're in the 4Q, we still see a ramp in HST, but we've got line of sight to it. It's in our backlog. So we're pretty confident in being able to deliver on that. Operator: Our next question comes from the line of Rob Jamieson with Vertical Research Partners. Robert Jamieson: Just -- I know you're not going to give formal guidance on '26. But can you provide us maybe a little bit of framework of how you're thinking about next year. Just as we're trying to drive the business back to our historic mid-single-digit organic growth algorithm, like what are some of the key risks and opportunities that we should be thinking about and considering into next year? Eric Ashleman: Yes. Well, I mean, I think a lot of it still will come down to where is the -- what's the nature of kind of base level industrial entitlement because that still covers a decent part of IDEX. So as we go through Q4, monitoring those bellwether businesses to see if there is some inflection, that will be a key input for where we end up on a lot of IDEX on -- in terms of industrial coverage. Pricing dynamics will be important as well. So as Akhil mentioned, where are we going to be between that ratio of kind of a lower figure, which takes care of our own inflation and then a higher figure, which has to offset whatever policy may be at that point. That will go into the calculus. And then the bulk of it is really going to come down to momentum and where we are in these individual areas where we're creating our own luck. So kind of each one of the 5 growth platforms, we're starting there. We are having those discussions now around what's in the funnel, what are we winning? When does it look like it's going to come out. So I think those 3 pieces moving together is how we'll be thinking about the year to come out. The last piece is in our control. The other 2 largely, we are somewhat captive to how the world goes and how that shapes out given the diversified nature of the company. But we will be looking for signs of inflection as we go through Q4 and certainly would be referencing those as we talk together. Operator: Our next question comes from the line of Walt Liptak with Seaport Global Securities. Walter Liptak: Just a quick follow-on on that last one, thinking about 2026. I guess, one, just on the organic revenue, what's your feel at this point, if you can give us any about, are you cautious about 2026 or you're optimistic about the organic growth and especially given the platforms? And then maybe second, just help us think about the operating leverage that we should get when we're thinking about modeling 2026 EPS. Akhil Mahendra: Yes Walt, it's Akhil. So sort of just building on what Eric mentioned, right, we'll talk about guidance when we see here next. But just at a higher level, look, he sort of mentioned us monitoring the day rates. We are short cycle, have limited visibility. So we are continuing to do the work around '26 and what that's going to look like, taking into account all the factors that Eric mentioned, right? The pricing dynamics us being able to make our own luck and the work that we're doing within our growth platforms and then really just some of this macro backdrop around rapid fulfillment, and we're going to continue to monitor that pretty closely. But as you think about generally the incrementals, right, we sort of I mentioned, I would say, think of it as 30%, on a consolidated basis, 30-ish percent. Plus some are going to be higher here. So that is what we're going to be looking at from an incremental standpoint. Earlier in the call, right, we mentioned where HST would be, so I think taken together, that should hopefully give you some level of guidance of where we expect '26 incrementals to land. Eric Ashleman: And I would just say, Walt, to add on, the degrees matter here. closer the world tends to tilt towards flattish. Our incrementals don't spring as well. You get a little bit of buoyancy in the system and get that up around 3%, 4%, things start to perform a lot better. So kind of where we are in that spectrum will matter as well around that point that Akhil mentioned. Operator: Our next question comes from the line of Brett Linzey with Mizuho Securities. Brett Linzey: I wanted to come back to the platform optimization savings and the cost containment. So the $60 million, I guess, how should we think about any carryover into next year? And then how much would be maybe structural versus discretionary that would flex back up as these volumes might improve? Akhil Mahendra: Brett, it's Akhil. I'll take that one. So as you think about the couple of buckets here, right, you got this platform optimization and dealer layering bucket. I would think of that as more structural in nature, and that's going to achieve run rate this quarter here. And so you'll see that moving forward. That was about -- think of that as the a $42 million bucket that we had put forward here when we announced that on the back of our 4Q earnings earlier this year. And then you think about the second bucket that we talked about cost containment, again, that's also going to hit run rate here. That's more temporal in nature. I would think of that one as possibly coming back depending on the opportunity set that we're expecting to pursue here, we could make some of those investments to land those opportunities. So that's that $20 million bucket for a total of $62 million. So that's how I would parse the two. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to Eric Ashleman for closing remarks. Eric Ashleman: Well, thank you. Thanks for joining today, and thanks for your interest and support in IDEX. I think key takeaways here, certainly, we're making our own luck with 8020 in a really broadly uncertain world that taking you through our evolution, I hope you can appreciate we built some real strong foundational assets. We've got some outstanding businesses, very strong teams in talent, a highly engaged and collaborative culture and effective operating model powered by 8020. And now we boosted our technical and commercial vitality through these strategic acquisitions and divestitures and we're writing the source code for a new way of working together as a team within scalable growth platforms. And I'm happy to see we're starting to put some growth points on the board there as we do that work together. We're confident overall that we'll continue to build momentum through this work, focused work as we move forward to drive value for all of our shareholders. And I really look forward to talking to you about it more in the quarters ahead. Thanks so much, and have a great day. Operator: Thank you. And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Monro Inc.'s Earnings Conference Call for the Second Quarter of Fiscal 2026. [Operator Instructions]. And as a reminder, this conference call is being recorded and may not be reproduced in whole or in part without permission from the company. I would now like to introduce Felix Veksler, Vice President of Investor Relations at Monro. Please go ahead. Felix Veksler: Thank you. Hello, everyone, and thank you for joining us on this morning's call. Before we get started, please note that as part of this call, we will be referencing a presentation that is available on the Investors section of our website at corporate.monro.com/investors. If I could draw your attention to the safe harbor statement on Slide 2, I'd like to remind participants that our presentation includes some forward-looking statements about Monro's future performance. Actual results may differ materially from those suggested by our comments today. The most significant factors that could affect future results are outlined in Monro's filings with the SEC and in our earnings release. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, on today's call, management's statements include a discussion of certain non-GAAP financial measures, which are intended to supplement and not be substitutes for comparable GAAP measures. Reconciliations of such supplemental information to the comparable GAAP measures are included as part of today's presentation and in our earnings release. With that, I'd like to turn the call over to Monro's President and Chief Executive Officer, Peter Fitzsimmons. Peter Fitzsimmons: Thank you, Felix, and thanks to everyone for joining us. Great to be here with you today. This morning, I'd like to update you on the continued progress we are making at Monro. As we have on our prior quarterly calls, I will focus on the 4 key areas identified as opportunities for performance improvement, which are shown on Slide 3 of our presentation materials. These include driving profitable customer acquisition and activation, improving our store-based customer experience and selling effectiveness, increasing merchandising productivity, which includes mitigating tariff risk and continuing to work on real estate disposition related to the previous closure of 145 underperforming stores. After that, I'll briefly touch upon our fiscal second quarter results, which serve as a solid foundation to build upon as we continue to implement our performance improvement plan to enhance Monro's operations, drive profitability and increase adjusted operating income and total shareholder returns. Let's start with driving customer acquisition and activation. As previously discussed during our last 2 earnings calls, we've identified Monro's highest value customers. As a reminder, these customers deliver significantly more profit per customer than the lowest tier of customers. They are repeat purchasers that visit us over a number of years, and they choose us because we provide both the tires they want and the auto aftermarket services that meet their vehicle needs. During the second quarter, we continued to advance our acquisition marketing efforts through the deployment of a wide range of digital marketing tools to reach our target audience. We have increasingly activated our customer relationship management marketing to speak to our existing customers. Integrated into our marketing activities is the completion of a customer segmentation analysis that is helping to augment our marketing efforts with further granularity on higher-value existing customers and potential customers. Those who are expected to generate significantly more revenue and gross margin dollars than the average Monro guest. We have now ramped our refined targeting to almost 600 stores, and we are encouraged to see that these stores are outperforming the balance of our store chain on several key metrics such as call volumes, store traffic, sales and gross profit dollar generation. And while we won't necessarily expand our marketing efforts to all stores, we do plan to ramp up and scale these efforts by the end of December. In early September, we were pleased to strengthen our marketing team with the hiring of a new leader, Tim Ferrell, as our Vice President of Marketing. Tim has extensive experience driving growth for multi-location businesses, including Valvoline and Sun Auto Tire & Service, with a focus on media strategy and targeting, brand positioning and messaging, digital marketing, lead generation and conversion rate optimization. In 2 months, Tim has made meaningful enhancements to our marketing strategy and execution. Now let's discuss the things we are doing to improve the customer experience and selling effectiveness in the stores. During the second quarter, we further emphasized our digital courtesy inspection tool, ConfiDrive, to more effectively present pictures of needed vehicle maintenance and repairs to our guests during their visit to the stores. As part of improving our store operations, we've also built a periodic review process of key data coming out of ConfiDrive at the local level. As a reminder, we have a centralized call center that our customers call to schedule an appointment with us. This allows our store managers to focus more of their time on in-store activities without having the burden of answering each and every call that comes in. In the more than 700 stores where our customer call center has already been implemented, we are encouraged to see that these stores are outperforming the balance of our store chain on key metrics such as sales and gross profit dollar generation. We plan to expand the rollout of our customer call center to all of our stores by early November. During the quarter, we also completed a field realignment to rightsize and streamline our field management following the closure of the 145 underperforming stores. While this resulted in an overall reduction of district managers, it has also resulted in an overall increase in the quality of district managers across our chain. Finally, and importantly, we've also introduced a new district manager toolkit, which we believe will allow our district managers to better understand the input metrics and levers that drive store-level sales, attachments and gross margins. Now let's turn to merchandising, including mitigating tariff risk. We continue to work closely with our tire vendors to align on go-forward assortment opportunities to drive incremental sales for both parties, and we are now in the process of developing an updated tire assortment strategy that will resonate with our guests and position both Monro and our strategic supplier partners for growth. We are encouraged by the level of vendor support we are receiving on all tire tiers as well as with the enthusiasm of our suppliers to work with us. One area in which we have received additional support from vendors is with our fall promotions, which have helped us accelerate the sellout of tire inventory. We are also implementing new analytical tools for demand and inventory forecasting as well as for pricing. These tools will enable us to run a more dynamic sales and operations planning process and ensure our price positioning is appropriately competitive while maximizing margins. As a complement to these tools, during the second quarter, we augmented the capabilities of our existing merchandising team with the addition of 2 new colleagues who are helping to lead tire acquisition and product and service pricing. We continue to carefully manage the impact of tariffs on our overall product acquisition cost and on our market pricing. We are also actively monitoring the impact of tariffs and other market conditions on actual and potential changes in tire mix as well as potential customer vehicle maintenance deferrals. Generally, we have been able to balance cost and price adjustments to enable us to maintain solid margins. And finally, just to provide an update on closed store real estate disposition. After having successfully completed the closure of 145 underperforming stores and repositioning our inventory in the first quarter, we started a process to exit the real estate at these locations, which includes 40 stores that we own. During the second quarter, we exited 21 leases and sold 3 owned locations, which resulted in proceeds of $5.5 million. As a reminder, this process is expected to generate positive cash flow and be largely completed during the next few quarters. Importantly, and as discussed previously, this enables us to focus on improving performance in our continuing locations for the remainder of fiscal 2026. Now let me briefly touch upon several key highlights of our fiscal second quarter results, which Brian will cover in more specific detail in just a few moments. Turning to Slide 4 of our presentation materials. The Monro team drove comparable store sales growth again in the quarter, which has enabled us to report 3 consecutive quarters of positive comps for the first time in a couple of years. Further, our business generated $0.21 of adjusted diluted earnings per share, which exceeded $0.17 of adjusted diluted EPS in the prior year second quarter. We achieved this through solid gross margin performance with a gross margin rate that expanded 40 basis points to 35.7% and prudent operating cost control as reflected in lower store direct costs and good corporate expense control. Further, for the second quarter in a row, we reduced inventory levels across the system this time by approximately $11 million, which reflects improved inventory management. And while we have seen some recent softness in consumer demand, which is reflected in preliminary October comps that are down 2%, we expect to deliver positive comp store sales in fiscal 2026 and we have a variety of levers to pull that we believe will enable us to achieve meaningfully higher year-over-year adjusted operating income. To summarize, we continue to be pleased with the progress we've made implementing our 4 key areas of focus, which we believe will allow us to accelerate the pace of the company's performance improvement as well as better capitalize on positive industry trends to unlock Monro's full potential. Our fiscal second quarter results serve as an indication of continued progress toward building enhanced profitability in fiscal 2026. Before I hand the call over to Brian, I would like again to thank our teammates for their dedication to achieving our business goals as well as their commitment to serving our customers. And with that, I'll now turn it over to Brian, who will provide an overview of Monro's second quarter performance, strong financial position and additional color regarding the remainder of fiscal 2026. Brian? Brian D'Ambrosia: Thank you, Peter, and good morning, everyone. Turning to Slide 5. Sales decreased 4.1% to $288.9 million in the second quarter. This was primarily driven by a reduction in sales from the closure of 145 underperforming stores in the first quarter of fiscal 2026, partially offset by a 1.1% increase in comparable store sales from continuing store locations. For reference, comp sales were up 2% in July, up 3% in August, and we exited the quarter down 2% in September. And while tire units were down mid-single digits, we believe we outperformed the industry in the quarter. Gross margin increased 40 basis points compared to the prior year. This primarily resulted from lower occupancy costs and lower material costs as a percentage of sales. These were partially offset by higher technician labor costs as a percentage of sales, mostly due to wage inflation. Total operating expenses were $90.4 million or 31.3% of sales as compared to $93.2 million or 30.9% of sales in the prior year period. Importantly, the increase as a percentage of sales was affected by $8.3 million of costs incurred in connection with consultants related to our operational improvement plan, partially offset by $7.6 million of net gains from closed store real estate dispositions. The second quarter of the prior year also included $2.8 million of net gain on the sale of our corporate headquarters. Operating income for the second quarter was $12.8 million or 4.4% of sales. This is compared to operating income of $13.2 million or 4.4% of sales in the prior year period. Adjusted operating income, a non-GAAP measure, for the second quarter was $14 million or 4.8% of sales as compared to $12.6 million or 4.2% of sales in the prior year period. Net interest expense decreased to $4.4 million as compared to $5.1 million in the same period last year. This was principally due to a decrease in weighted average debt. Income tax expense was $2.8 million or an effective tax rate of 32.9%, which is compared to income tax expense of [ $2.5 ] million or an effective tax rate of 30.9% in the prior year period. The year-over-year difference in effective tax rate is primarily related to the discrete tax impact related to share-based awards and other adjustments, none of which are significant. Net income was $5.7 million as compared to net income of $5.6 million in the same period last year. Diluted earnings per share was $0.18. This is compared to diluted earnings per share of $0.18 for the same period last year. Adjusted diluted earnings per share, a non-GAAP measure, was $0.21. This is compared to adjusted diluted earnings per share of $0.17 in the second quarter of fiscal 2025. Please refer to our reconciliation of adjusted operating income, adjusted net income and adjusted diluted EPS in this morning's earnings press release and on Slides 9, 10 and 11 in the appendix to our earnings presentation for further details regarding excluded items in the second quarter of both fiscal years. As highlighted on Slide 6, we continue to maintain a strong financial position. We generated $30 million of cash from operations during the first half of fiscal 2026. Our AP to inventory ratio was 186% at the end of the second quarter versus 177% at the end of fiscal 2025. We received $7 million from the disposal of property and equipment and $3 million in divestiture proceeds, invested $13 million in capital expenditures, spent $19 million in principal payments for financing leases and distributed $17 million in dividends. At the end of the second quarter, we had net bank debt of $50 million, availability under our credit facility of approximately $410 million and cash and equivalents of approximately $10 million. Now turning to our expectations for the full year of fiscal 2026 on Slide 7. We continue to expect to deliver year-over-year comparable store sales growth in fiscal 2026, primarily driven by our improvement plan as well as any tariff-related price adjustments to our customers. We continue to expect that the results of our store optimization plan will reduce total sales by approximately $45 million in fiscal 2026. Given baseline cost inflation as well as our exposure to tariff-related cost increases, we expect that our gross margin for the full year of fiscal 2026 will be consistent with fiscal 2025. We continue to expect to partially offset some of this baseline cost inflation as well as some of the tariff-related cost increases with benefits from our store closures and operational improvements from our improvement plan. We believe this will allow us to deliver a year-over-year improvement in our adjusted diluted earnings per share in fiscal 2026. We continue to expect to generate sufficient operating cash flow that will allow us to maintain a strong financial position and to fund all of our capital allocation priorities, including our dividend during fiscal 2026. Regarding our capital expenditures, we continue to expect to spend $25 million to $35 million. And with that, I will now turn the call back over to Peter for some closing remarks. Peter Fitzsimmons: Thanks, Brian. As previously indicated, through our national retail network, economies of scale and durable business model, we believe we can both provide our customers with the services they need and generate meaningful value for our shareholders in any economic environment. We have a compelling set of consumer offerings and more than 6,000 talented teammates. Our balance sheet is strong, and our business generates healthy cash flow. We remain encouraged by the progress we've made, and we are keenly focused on executing our plan to improve operations, drive incremental profit and enhance total shareholder returns in fiscal 2026. With that, I will now turn it over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Bret Jordan from Jefferies. Bret Jordan: Could you talk about within the comp, the price contribution versus car counts? And I guess, what are you expecting for price in the second half of the fiscal year, just given a lot of noise around tariffs? Peter Fitzsimmons: Why doesn't Brian take the comp and then why don't I expand a little bit on our thoughts there? Brian D'Ambrosia: Yes, Bret, in the quarter, we were down mid-single digits in traffic, up mid-single digits in ticket, netting out to the up 1% overall comp. Peter Fitzsimmons: So just a couple of comments from me on the comps. Remember that in the second quarter, we were up 1.1%. So it's the third consecutive quarter of positive comps. And I think we did see some consumer demand softness in September and October. But I would say from experience in performance improvement assignments, working with aftermarket and retail companies, you usually expect some unevenness in comp store sales. And the things that we've been doing in the last 4 months to implement digital marketing in half our stores now, which ramped up steadily through the second quarter and still hasn't touched more than half of our stores makes us think that in the next couple of quarters, we're going to see some real benefits from our marketing efforts. And I would say same for the efforts in improving performance in the stores. So we remain pretty comfortable that we're going to see positive comps for the fiscal year. Bret Jordan: Okay. And a question on working capital. Obviously, you benefit from the payables program, and there's been a lot of noise around that recently. Have you seen any changes as far as the risk spread that is being expected by the banks participating in your working capital program? Peter Fitzsimmons: Nothing related to the risk spread. We did have a pricing adjustment back when we did our amendment to the credit facility for this period of time over the next 5 quarters. Our current spread is 225 basis points over SOFR. That's reflected in our supply chain finance facility, but no changes outside of that change. Bret Jordan: Okay. So nothing recently with all the noise around a particular event? Peter Fitzsimmons: No, not at all. Operator: Our next question comes from Thomas Wendler from Stephens. Tom Wendler: We saw some nice improvement in gross margins this quarter, expectations kind of flat gross margins year-over-year now. Just digging into the 50 bps improvement from material costs, can you maybe speak to the drivers there? What kind of wins are you seeing with vendors? How is this kind of being impacted by changing product assortment? Brian D'Ambrosia: Yes. I will -- I'll take the overall gross margin question and let Peter answer any color that he wants to add on the vendor question. As you said, gross margins increased 40 basis points in the quarter. That was driven a 70 basis point improvement with higher comp sales and benefit from store closures that improved our occupancy costs as a percent of sales. Material cost was 50 basis points improvement as a percent of sales, and that is primarily due to better service category margins that we saw in the quarter. And then partially offsetting those was an 80 bps increase in tech pay as it relates to wage inflation year-over-year. As we look out for the rest of the year regarding gross margin expectations, we expect gross margin for the full year, as you said, to be consistent with 2025. And importantly, this means that we expect higher gross margins in the second half of '26 compared to the prior year period. All of this is dependent on comp sales levels, of course, and our ability to continue to manage price adjustments with our cost increases, both for material and labor. And we continue to expect to see a benefit from our store closures in the second half as it affects gross margin. Peter Fitzsimmons: And Tom, maybe a couple of comments on vendors. One of the great things about our particular business is we have 8 to 12 vendors that matter, and we have good relationships with all of them, tires and parts. The vendors are happy about the things that they've heard from us, and they really like the things that we're doing with our marketing program. So in the second quarter, together with the strengthening of our merchandising department with the joining of Katy Chang, we've gotten more marketing support from more vendors for the things that we're putting into place. So I think we're going to continue to feel pretty good about the marketing support we get from all of our vendors. Tom Wendler: And then you mentioned some softness in the consumer you were seeing. Is there any kind of distinct consumer that's having some more troubles than others? Are you guys seeing any more trade down? Are you still drawing the line at Tier 3 tires? Peter Fitzsimmons: I think that the lower income consumer is probably feeling a fair amount of pressure right now. I think it's reflected in what you read in the papers and see elsewhere. But I want to remind everybody that what we offer is a service that's nondiscretionary and that everybody needs. We have customers at all economic levels, and we have products for everyone that wants to shop at our stores. So I think that over time, the services that we're providing are going to enable us to capture good market share and comp store growth, as we've said before, in any economy. Operator: Our next question comes from David Lantz from Wells Fargo. David Lantz: I guess tire units declined mid-single digits in the quarter. So curious how you're thinking about the overall tire backdrop as we enter peak selling season here over the next couple of months. Brian D'Ambrosia: Yes. I think as we're looking at tire units, we're encouraged by what we believe is relative outperformance to the industry. A lot of the dynamics that have been in place regarding tires are still in place, being a high-ticket category. It is an area of sensitivity for our consumers and customers' wallets. As we look forward, we believe, as Peter just said, that even in a tough backdrop, which we clearly think that we're in relative to the consumer, we're doing a lot of things that are going to move the needle for us in terms of units and overall tire sales, which is obviously 50% of our overall sales. And that's really driven by the marketing, merchandising and in-store execution that Peter talked about in his prepared remarks. So we feel that we've got a lot of momentum as we're scaling those initiatives into the back half of this year and think that, that helps to support our business against that soft macro backdrop. Peter Fitzsimmons: We recommend another question. I think Brian answered it well. David Lantz: Perfect. Yes. So I guess the next one would be just expectations on SG&A for the second half, considering softer comps in September and October. And if there's been any change to the expectation that, that should be flat on a dollar basis? Brian D'Ambrosia: Yes. Great question. So as we talked about in our remarks, we demonstrated good cost control in the quarter. SG&A was $2.8 million lower than the prior year quarter. And if you adjust for nonoperating items such as our net store closing costs or impairment charges, consulting costs related to the operational improvement plan, we were actually $4.7 million lower than the prior year in Q2. And the decrease largely being driven by the reduction in SG&A for the store closures. So regarding our expectations for all of 2026, we continue to control expenses, but we do expect to further invest in our marketing initiatives, which will partially offset the savings that we did see in Q2 from the store closures. So as such, we expect G&A in Q3 and Q4, excluding any of the nonoperating items, to be running above where we were in Q2 and closer to that flat compared to prior year, not necessarily running consistent with what we just saw in this past quarter. Peter Fitzsimmons: David, I want to go back to your question about tires for just a second as I reflect on that. One of the things that we did in September was promote on the website and in the drop-downs that we have tires for everyone. And as I mentioned just a few minutes ago, we've had excellent support from all of our tire vendors. I think as we move into, to your good point, the selling season as the weather turns cold in the north, we've got the right tires for everybody. And I think having the right Tier 1, Tier 2, Tier 3 and Tier 4 tire is going to matter in increasing our ability to sell units in the next couple of quarters. So we feel good about where our tire positioning is, and we emphasize that we have tires for everyone in the promotions in the fall. Operator: Our next question comes from Brian Nagel. Brian Nagel: First question I want to ask, and I apologize, it's repetitive, but just looking at the trajectory in comps. So here, you stayed positive in the current -- in the quarter which just reported, but it's moderated from basically mid-single-digit type gains a couple of quarters ago. As you mentioned, I mean, there's pressures on the consumer that's well documented. But I mean is there a better way to explain what's happening here? I mean how much of that comp deceleration is a tougher environment versus maybe something more internal at Monro? Peter Fitzsimmons: I think it's a pause in the market, to be honest with you. And I think that the value that we're going to get from the incremental marketing and the store performance initiatives is going to show up in this quarter. Time will tell, but I don't think that there's anything in any of the data that we've seen as we've implemented more digital marketing in more stores that suggests we're not going to get positive growth going forward. For example, in every single tranche of stores that we've added, and we started adding stores to digital marketing in July and increased it 100 to 150 stores a month. We've seen positive calls compared to the rest of the chain, positive comp store sales across the board, every time we've added more stores to the mix and positive gross margin dollars. So for every dollar of advertising investment, we're getting more than that back in gross margin dollars. One of the reasons that you're seeing pretty positive results in our gross margin rate. And if you think about where we are at the moment, in the second quarter, we were probably 1/4 to 1/3 in terms of marketing support. That's going to change further in the next couple of months. As we said early on, we're going to add more stores to digital marketing effort. Final thing I would mention that encourages us about our ability to generate incremental comp store sales positive is we have focused our efforts on the digital marketing in the second quarter, and now we're adding another 350 stores to our call center. So we will have more stores in the call center in another week, and we'll have more stores that are supported with digital marketing. All of the data dating back to the summer says, as you do these things, comp store sales increase. Brian Nagel: That's very helpful. Then I guess my follow-up is somewhat related. So you started your prepared comments just talking about, I think what you referred to as kind of the high-value customers. And then I think you referred to better performing stores within the Monro network. So the question I have is, do you -- is there a way to quantify to the extent that those customers, those stores or some type of road map for the total company, can you quantify the outperformance of the comp -- the sales or comp outperformance of those cohorts versus the chain? Peter Fitzsimmons: So I don't want to say too much about this for competitive reasons, but one of the things that we've done in the last 3 months is a customer segmentation that's very revealing. It further supports our view that a minority of our current customers are really, really good customers. And they're customers that I would describe as value-oriented. They're looking for a bundle of services, not just tires, not just oil changes, but a number of things. And so one of the things we're doing with our content in marketing is reaching out to those customers and potential customers. So now not only in customer acquisition, but also in CRM to reach back to our good customers from the past. And we are offering those bundles of services that we think all the data says they're interested in. Another important segment is a wealthier newer vehicle owner. And those folks want good service. And so in the content that we're providing there online, we're appealing as a trusted adviser to that type of customer. And so the customer segmentation now enables us to share different types of messages with the customers depending on what their needs are. Again, I don't want to go on too much about this. We're still developing the customer segmentation, but our advertising is now reflecting what we've learned. Operator: Our next question comes from John Healy from Northcoast Research. John Healy: I just want to ask to put your consulting hat on a little bit here. Maybe help us understand how you get to the conclusion that things are slowing down kind of across the industry. I mean there's a lot of mixed data points. We don't see kind of negative same-store sales of the parts and service side on the franchise dealers. And I get that the mix and the repair work is different. But would love to see how you benchmark Monro, what you benchmark it to and maybe any sort of data series or just opinions on kind of how you would look at it from a consulting lens to kind of evaluate the comp performance kind of year-to-date? Peter Fitzsimmons: Sure. Well, one of the things I love about Monro is it's a service business. It provides tires and it provides parts and the parts have to be attached in all of our locations. And so the skill of our technicians really is part of the value that the customer sees. Again and again, when we talk to customers and our own labor, we hear that. So I would compare us less to the part sellers and more to other service providers. And there aren't a whole lot of public comps that match up exactly with us. That's one thing that's frustrated me a little bit when people look at the market and say, oh, you compare well to this particular set. We're a little bit different. We're just more of a service business than we are a retailer, but it's the combination of those things that really drives what we can deliver to the customer. And another thing I just want to emphasize is we have scale across the country with 1,116 stores that enables us to provide services on a local level that are needed. So think of us more as a service business than a parts seller. It's a real difference. Brian D'Ambrosia: The only thing I would add there, John, is we -- on the tire side, we have syndicated data that we subscribe to, a couple of different sources for us and some publicly available, some more proprietary. But our comparisons on the tire side are against that data set. On the service side, as Peter said, there's very -- a lot less transparency there for us to be able to compare against. But highlighting the fact that we did have significant outperformance in a couple of our large service categories, including brakes and front-end shocks in the quarter, we feel pretty good. And we talked earlier in the margin commentary that those also drove some of the margin outperformance in the quarter as well. John Healy: And then just one question on cash flow and kind of capital allocation. Any thoughts on just kind of the -- any perspective you could provide on just the safety of the dividend here? I think you guys paid out what, $17 million kind of year-to-date, but not sure we're tracking there on a kind of an earnings basis to this point this year. So just your ability and willingness to keep the dividend maybe ahead of what potentially could be just the underlying earnings of the company. Peter Fitzsimmons: Yes. When we look at the dividend, we're looking at our ability to fund the dividend as well as all of our capital allocation priorities, including our scheduled debt repayments on finance leases, our CapEx program, investing in our business and of course, maintaining a conservative balance sheet in this operating environment. And our cash flows support all of our capital allocation priorities, and we believe that to be true for the balance of FY '26 and beyond that. So we don't view it as much on a net payout ratio against income because we generate a lot of cash flow relative to our net income. So that payout ratio still makes sense to us. Operator: We currently have no further questions. So I'll hand back to Peter for any closing remarks. Peter Fitzsimmons: Thanks, Claire, and thanks again, everyone, for joining us today. I'm optimistic about the opportunities in front of us, and I believe Monro is well positioned to capitalize on positive industry trends as we focus on driving profitable growth. Having said this, we still have a lot of work to do. But with our recent progress, we now have a stronger foundation to create long-term value for all shareholders. I look forward to keeping you updated on progress in the quarters to come. Have a great day. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Timken's Third Quarter Earnings Release Conference Call. [Operator Instructions] Mr. Frohnapple, you may begin your conference. Neil Frohnapple: Thank you, operator, and welcome, everyone, to our third quarter 2025 earnings conference call. This is Neil Frohnapple, Vice President of Investor Relations for The Timken Company. We appreciate you joining us today. Before we begin our remarks this morning, I want to point out that we have posted presentation materials on the company's website that we will reference as part of today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are The Timken Company's President and CEO, Lucian Boldea, and Mike Discenza, our Chief Financial Officer. We will have opening comments this morning from both Lucian and Mike before we open up the call for your questions. During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone a chance to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials. Today's call is copyrighted by -- the Timken Company and without expressed written consent, we prohibit any use, recording or transmission of any portion of the call. With that, I would like to thank you for your interest in the Timken Company. And I will now turn the call over to Lucian. Lucian Boldea: Thanks, Neil, and good morning, everyone. Thank you for your interest in Timken and for joining our call today. I'm excited to lead Timken into the future, and I strongly believe there is opportunity here to create significant value for shareholders. Since this is my first earnings call, I would like to thank Rich Kyle for his leadership as CEO, along with members of the Timken Board for their support. I've also enjoyed meeting many of our employees, and I'm impressed with their clear sense of purpose and commitment to our customers. I have covered a lot of ground during my first 60 days on the job. And today, I'll share with you some of my early observations where I see potential going forward. But first, let me emphasize that our management team's top priority is finishing the year strong. Mike will cover the details, but in the third quarter, we increased revenue, expanded operating margins and grew adjusted earnings per share double digit versus last year. We also generated significant cash flow and we strengthened the balance sheet. We are moving with urgency to position the company for earnings growth in 2026. The Timken franchise is very strong, been built over 125 years and recognized in global industrial markets for our technical leadership, robust product portfolio and deep customer commitment. From this foundation, I believe we have tremendous potential to expand positions in key markets, drive profitable growth and create significant value. This is what attracted me to Timken. Prior to joining, I was impressed with the company's focus on innovation and how well Timken collaborates with customers. Now from the inside, I can see the team's unwavering integrity and commitment to quality, excellent process and world-class engineering talent that makes it all possible. A significant part of my time has been spent reviewing the portfolio, the operating model, our products and services and also collaborating with our leadership team to better understand our customers' needs. It's clear that the company is successful at adding value for customers in engineer-to-order mission-critical applications where quality, performance and reliability matter. This is true across our portfolio of closely adjacent products within engineering bearings and also Industrial Motion Solutions. Our complementary product portfolio serves common customers and applications through similar sales channels. We also have strong positions in essential industries such as rail, aerospace and defense, heavy industries and wind energy. And we're targeting further growth in newer end markets to Timken like automation and food and beverage. The company has operating discipline across its manufacturing footprint, generates significant cash flow and has a solid balance sheet. With a strong foundation, I see many opportunities to improve top line and also bottom line performance. To start, we intend to approach the portfolio with an 80/20 mindset to structurally improve margins, grow faster in the most profitable verticals and create significant value for shareholders by focusing on the actions that will have the most impact. Margin expansion is a key focus for our team and will leave no stone unturned as we review the business for margin potential. I also believe there's opportunity to raise Timken's organic growth algorithm by expanding our market focus in fast-growing regions and verticals and launching new products and services. Capitalizing on the strength of the Timken brand and utilizing our global footprint can help us further grow revenue at many of our acquired businesses, taking them into new regions of the world. In addition, I see how continued integration of our acquisitions can deliver synergy across the entire portfolio. A greater focus on leveraging our strong market positions and aftermarket presence will drive increased cross-selling of our broad product offering. By leveraging strengths across our portfolio more holistically, innovating new products and delivering best-in-class service, we believe we can outgrow our underlying markets. These are a few of the opportunities that I believe will increase Timken's earnings power based on my review over the past 2 months, but there is much more work to be done. Our team is focused on operating with urgency and rigor as we work to position Timken for stronger growth and higher margins. With that, let me turn over the call to Mike for a more detailed review of the results and outlook. Mike? Michael Discenza: Thanks, Lucian, and good morning, everyone. I'm excited to be here on my first call as CFO and for the opportunity to partner with Lucian and the rest of the Timken team to accelerate value creation for our stakeholders. For the financial review, I'm going to start on Slide 6 of the materials with a summary of third quarter results. Overall, revenue for the quarter was $1.16 billion, which is up 2.7% from last year. Adjusted EBITDA margins came in at 17.4%, a 50 basis point increase. And adjusted earnings per share for the quarter was $1.37, up 11% from last year. Turning to Slide 7. Let's take a closer look at our third quarter sales. Organically, sales were up 0.6% from last year. The increase was driven by higher pricing across both segments and modest volume growth in Engineered Bearings, which more than offset lower demand in the Industrial Motion segment. Looking at the rest of the revenue walk, the CGI acquisition and foreign currency translation each contributed approximately 1% of growth to the top line. On the right, you can see third quarter performance in terms of organic growth by region. This excludes both currency and acquisitions. Let me give you some color on each region. In the Americas, our largest region, we were down 1%, with growth in North America slightly more than offset by lower revenue in Latin America. By sector, revenue was higher in general industrial and aerospace, while we had lower shipments in the rail, renewable energy and on-highway markets. In Asia Pacific, we were up 2% from last year, led by growth in China with a significant increase again in wind energy shipments. India was up slightly in the quarter, while the rest of the region was lower. And finally, we were up 2% in EMEA, led by growth across the off-highway, rail and heavy industry sectors, partially offset by lower on-highway revenue. Note that this is the first time the region posted growth in more than 2 years, which is great to see. Turning to Slide 8. Adjusted EBITDA was $202 million or 17.4% of sales in the third quarter compared to $190 million or 16.9% of sales last year. We achieved nearly 40% incremental margins in the quarter, driven by improved operating performance more than offsetting the dilutive impact of tariffs. Looking at the year-over-year change in adjusted EBITDA dollars, you can see the increase was driven collectively by several factors, which more than offset the impact of lower volume and incremental gross tariff costs. Let me comment a little further on the different drivers. On price/mix, pricing was positive in the quarter, while mix was negative. Pricing was also up sequentially from the second quarter as we continue to put through pricing actions to mitigate the impact from tariffs. And as you can see on the slide, tariffs were a $20 million headwind versus last year and costs were also higher sequentially. Looking at material and logistics, costs were notably lower versus last year, driven mostly by savings tactics in the Engineered Bearings segment. Moving to the SG&A other line. Expenses were down from last year, driven by cost reduction initiatives and lower accruals for bad debt. Currency added $4 million to adjusted EBITDA, while our CGI acquisition contributed $3 million and was accretive to company margins again in the third quarter. Keep in mind that CGI was included in the acquisitions line for only about 2 months this quarter as we passed the 1-year ownership mark in early September. Now let's move to our business segment results, starting with Engineered Bearings on Slide 9. Engineered Bearings sales were $766 million in the quarter, up 3.4% from last year. Organically, sales were up 2.7%, driven by higher pricing and higher volumes with growth across all geographic regions during the quarter. Among market sectors, renewable energy, aerospace and general industrial achieved the strongest gains versus last year. We also posted growth in off-highway and rail, while auto truck declined from last year. Engineered Bearings adjusted EBITDA was $144 million or 18.8% of sales in the third quarter compared to $138 million or 18.7% of sales last year. Margins came in above expectations as higher-than-anticipated sales volumes and strong operating performance by our team more than offset the unfavorable margin impact from tariffs. And note that currency was a headwind to margins in the quarter, and excluding FX, organic incremental margins were nearly 40%. Now let's turn to Industrial Motion on Slide 10. Industrial Motion sales were $391 million in the quarter, up 1.3% from last year. The CGI acquisition contributed 2.9% to the top line, while currency translation was a benefit of 1.9%. Organically, sales declined 3.5% as lower demand was partially offset by higher pricing. The organic volume decline was mostly driven by lower solar demand and a decrease in services revenue. Our services business was down against a tough comp last year, and we continue to see some customers delaying maintenance spend. And as expected, the belts and chain platform was down from last year as it continues to be impacted by lower agriculture demand in North America. On the positive side, our couplings platform was up in the quarter, while lubrication systems and Linear Motion were relatively flat. Industrial Motion adjusted EBITDA was $75 million or 19% of sales in the third quarter compared to $74 million or 19.2% of sales last year. The slight decline in segment margins primarily reflects the impact of lower volume and incremental gross tariff costs, offset by favorable pricing, lower SG&A expense and the benefit of the CGI acquisition to margins in the quarter. Moving to Slide 11. You can see that we generated operating cash flow of $201 million in the third quarter. And after CapEx of $37 million, free cash flow was $164 million, up significantly from last year, and we expect to generate more than $100 million of free cash flow in the fourth quarter. Looking at the balance sheet, we ended the third quarter with net debt to adjusted EBITDA at 2.1x, which is near the middle of our targeted range. Note that we strengthened the balance sheet from last quarter as we reduced net debt by $115 million, and you can see that our net leverage improved compared to June 30. Now let's turn to the updated outlook for full year 2025 with a summary on Slide 13. Overall, we are reaffirming the midpoint of our earnings guidance range of $5.25 as the better-than-expected third quarter results are offsetting an incremental $0.05 per share headwind from tariffs and a lower outlook for the fourth quarter. With respect to net sales, we raised the full year outlook by 50 basis points versus the midpoint of the prior guide. Specifically, we are now planning for 2025 sales to be down approximately 0.75% in total at the midpoint. Organically, we expect sales to be down around 1.75%, which is slightly better than our prior guide, driven by the stronger-than-expected volumes in the third quarter. Currency is now expected to be slightly positive to the top line for the full year versus flat in the prior outlook, while there is no change to our M&A assumption. Now let me provide a little more color on the updated organic revenue outlook. The implied outlook for the fourth quarter is for a 2% year-over-year decline. Note that this factors in a greater-than-normal seasonal sequential decline. The evolving trade situation continues to weigh on industrial market activity, and we are planning for customers to be cautious through year-end. And recall that last year's fourth quarter benefited from a sizable military marine project, which is impacting the Industrial Motion segment organic sales comparison. Moving to margins. Our full year consolidated adjusted EBITDA margins are now expected to be in the low to mid-17% range. This implies that fourth quarter margins will be down around 100 basis points from last year, driven by higher corporate expense, a dilutive impact from tariffs and lower profitability in the Industrial Motion segment, driven by the absence of last year's favorable military marine project. With respect to cash flow, we're reaffirming our outlook to generate $375 million of free cash flow at the midpoint, which would be more than 130% conversion on GAAP net income. On Slide 14, we provide an updated view on our 2025 organic sales by market and sector. Relative to the prior guide, we increased the outlook for renewable energy, driven by higher wind shipments. Overall, the net change among all the market sectors you see in the chart supports the slightly improved full year organic sales outlook. Moving to Slide 15. Here, we provide an overview and update on the direct impact of tariffs on Timken. We covered most of this on previous earnings calls, so let me just hit the changes. We're currently estimating a full year net negative impact from tariffs of approximately $15 million or $0.15 per share. This is more of a headwind than our prior estimate of $10 million or $0.10 per share, driven by the increase in the tariff rate on India and the expansion of Section 232 tariffs. The situation continues to evolve, but we still expect that our mitigation tactics will enable us to recapture the margin in 2026. In summary, the company delivered better-than-expected third quarter results, and the team is focused on finishing the year strong. While still early, we are cautiously optimistic on the outlook as we head into next year based on some encouraging order trends in a few of our markets and considering how long our industrial markets have been down. Timken remains well positioned to leverage a recovery in market volumes into higher profitability, and we expect to benefit from the strategic priorities that Lucian highlighted. Let me turn it back over to Lucian for some final remarks before we open the line for questions. Lucian? Lucian Boldea: Thank you, Mike. I hope you come away from today's call with a sense that the Timken team is focused on taking the company's financial performance to the next level. We're approaching things with an open mind, and I look forward to continuing to hear your thoughts and ideas. Your perspective is critical as we work to position the company for the future. We will have much more to share in the coming months. To that end, we plan to host an Investor Day in the second quarter of next year, where we will outline our strategic vision and priorities in more detail. Neil Frohnapple: Thanks, Lucian. This concludes our formal remarks, and we'll now open up the line for questions. Operator? Operator: [Operator Instructions] Our first question today comes from Bryan Blair with Oppenheimer. Bryan Blair: Lucian, you and gentleman are one for one thus far. So that's good to see. To level set on the near-term outlook, are you already seeing the kind of sequential weakness or incremental weakness that you've baked into the guide? Or is that simply the assumption of your team, given the backdrop, the mosaic as it is, that a sequential decline in order rates is going to occur as Q4 moves forward? Michael Discenza: Yes. So thanks for the question, Brian. Let me just say that our outlook includes the latest order trends. And we did see in the third quarter some seasonally declining order book, but yet year-over-year order book was up. So as I think about it, overall, the patterns we're seeing are supportive of the fourth quarter guide. I wouldn't say that we're losing share or anything, nothing notable like that. So really more, I would say, cautious given the tariff situation, the uncertain trade environment. But the guide incorporates kind of our latest thinking and what we've seen. So... Bryan Blair: Okay. Understood. And Mike, you stressed cautious optimism on 2026 in prepared remarks. I realize that we're not going to have '26 guidance for a bit. But at a higher level, maybe offer what your team sees as the puts and takes given current visibility looking to the new year? And if we are in a healthier demand environment, given the carryover of restructuring savings, other work that the team has done through 2025, what kind of incrementals should we anticipate next year? Michael Discenza: Yes, right. So as you say, a little early on 2026, but what I can say is we're moving with urgency. You heard Lucian say that. We're moving with urgency really to position the company for earnings growth next year. We're focused on executing what we can control and looking to accelerate value creation for shareholders. So as we sit here today, we're cautiously optimistic on next year based on some of the encouraging order trends that I've referenced really across a few of our key markets. And I think as we've said on prior earnings calls, we are at the -- we've been an extended or year-over-year decline for quite some time. We'd like to think we're approaching the end of that. So when we combine all that, we remain cautiously optimistic for next year. We're well positioned to leverage recovery in volumes when they come, and we'll leverage those into higher profitability. And then we do also expect to benefit from the strategic priorities that Lucian highlighted. So as we sit here today, early to call, but feeling cautiously optimistic, and we do have a few tailwinds that would be behind us relative to profitability. So looking to take the margins up next year and off of that higher volume if or when it comes through. Operator: Our next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Lucian and Michael, congrats on the strong quarter, and I look forward to working with both of you. Maybe just to go back on the -- just wanted to go back on the organic growth implication for the fourth quarter here. Do you think that there was, I guess, a pull forward in the third quarter? Or could you just kind of expand a little bit more maybe what you see or what you kind of saw inflect toward the kind of cadence you're guiding to in the fourth quarter by end market? And if you could talk about it on a monthly basis, too, I guess, what's the magnitude of declines that you've maybe seen in October and what end markets is that may be more pronounced? Michael Discenza: Yes. So let me answer maybe the first part of that question. There's nothing we can point to, to say that we saw pull forward into the third quarter. So nothing there that would give us an indication. Again, probably cautious on the fourth quarter. Nothing clearly in order patterns, customer behavior that says we would see a deceleration. -- just cautious as we have been on that outlook given the trade uncertainty. So yes, really nothing specific to speak of and nothing indicative of a pull forward in the third quarter. Angel Castillo Malpica: That's helpful. And then I guess just in terms of -- as we think about the headwind from tariffs here, I assume with things kind of kicking in for some of these on kind of November 1, there's maybe still a little bit of an incremental impact in 1Q. But can you talk about just your ability to recapture or start to really offset tariffs? Should we assume that 1Q would be kind of incrementally worse? Or do your mitigation strategies really start to kick in, whether it's price or cost, and therefore, we should assume that this is probably more of a trough, all else equal from a volume standpoint? Michael Discenza: Yes. So a couple of things. Obviously, we're focused on controlling what we can control around tariffs. So as you said, November 1 is a stated deadline and I can't control that. Just to be clear, though, that significant step-up in the China tariffs is not in our guide. So if that does occur, it would be an incremental headwind to where we are. As far as mitigation and recovery, we continue to push pricing through in the markets. We put more pricing through in the third quarter, other actions at our disposal around supply chain changes, et cetera. So we do expect to fully offset the tariff impact exiting this year and look to recapture those margins next year. So thinking about the first quarter next year and tariff offset, we are exiting the year at a higher pricing rate than the full year average. If you think 1.5% pricing for the year, exiting the second half at greater than 2%. So think about that incremental is benefiting us in the first half of next year. So we do have some headwinds related to pricing to help offset that tariff impact and then other actions as well. So look to recapture those margins in 2026. Operator: Our next question comes from David Raso with Evercore. David Raso: I'll be quick. And if I missed it, I apologize, a lot of companies this morning. The fourth quarter organic decline, did you give some color on the mix of that between the divisions? And particularly, I also wanted to see how trends are going with the industrial distribution business. I noticed you maintain that guide for the end market. The only one you bumped up was renewable. I'm just trying to get a sense of the mix into '26. I think renewables is a pretty solid incremental margin business. So that picking up is interesting. But the industrial distribution, I see you did not pick that up. So again, organic splits on the segment for the fourth quarter and then color on those markets. Michael Discenza: Sure. Thank you, David. So thinking about the segment split for the fourth quarter, we are expecting organic sales to be down in both segments. I would say maybe a little more in Industrial Motion. We called out particularly on a year-on-year, we had a sizable military marine project last year that doesn't repeat. So -- but we are looking for organic revenue to be down in both segments. As far as distribution goes, yes, we did not move it. I would say it's moving inside of the range, if you will. So not enough to move us -- to move anything up or down. So nothing changing there. We are encouraged. As we look forward, obviously, that is a channel that we're ready to serve. And if there's a market recovery, one that we would prioritize to serve. So we're well positioned for that to continue or to go up. But relative to the fourth quarter, we're kind of keeping it where it was as we're not seeing anything that would indicate otherwise. David Raso: And on the renewable side? Michael Discenza: Yes, sorry, renewables, right? So we continue to see strength and really driven by China wind and renewables, as you know, split for us between wind and solar. And the strength really is on wind. Solar continues to be challenged for us. But on the renewables, we saw strength in the second quarter, and we know there was some legislation incentives in China that went away at the end of the second quarter. So we were maybe expecting more of a step down than we saw. So the strength there really was a bit of a happy surprise for us. But in terms of growth, I would still -- I would expect that to continue to be a growth opportunity for us, but nothing in terms of significant trends. We did move it to the right on that strength that we saw in the third quarter. So I'd expect renewables to continue to be part of our growth story and really driven by wind. David Raso: And lastly, I'll be quick. The organic growth turning back positive as we think about it going into '26. Of your 2 businesses, which segment would you expect to see it first? Michael Discenza: Yes. I don't know if that really hard to pinpoint that. Obviously, the markets are going to drive where that goes. And as we're sitting here today, really hard to call next year's markets. So I can't say for sure where that would come from. So probably too early to call. We'll have a lot more information on that, obviously, in our next quarterly call. David Raso: I appreciate that. I was just trying to back into the industrial distribution is obviously a big slug of engineered bearings, and it's pretty profitable. And I was just trying to get a sense, is that where we feel a little bit better about going to '26 to turn EV positive before maybe the automation side of Industrial Motion. Just trying to feel yet on -- is there any hint of a restock on the distribution piece for EV, some of the off-highway businesses that were obviously significant drags and they're starting to turn a little bit year-over-year. But it sounds like you're not willing to say EV is the first one up compared to IM. Is that fair? Lucian Boldea: Yes, And this is Lucian. So we're trying to use all the data at our disposal to try to sense this. So short answer is I don't think we know yet, as Mike said. But one of the things we do look at is distribution inventory. So you look at sales in, you look at sales out and you try to see a disconnect to predict an upturn or a downturn. And I would say there is no data that points in either direction. Inventories are not elevated. So that's the good news. They're kind of stable and then sales in and sales out are still reasonably matched. So there is nothing in there that says that a big change is imminent. But that's the type of sensing we're doing to prepare for an upturn. Operator: Our next question comes from Stephen Volkmann with Jefferies. Stephen Volkmann: Great. Lucian and Mike, welcome. Maybe I'll switch to some kind of longer-term bigger picture questions. First and foremost, I guess, Lucian, your comments around 80/20 being a big focus for you. I'm always curious to see if companies are willing to do the PLS portion of 80/20. So I know you guys have talked about maybe deemphasizing some auto business next year. Any update on that? And any other areas where you think there's an opportunity to exit less profitable whatever businesses, processes, customers, any of that? Lucian Boldea: Yes. I mean, look, we appreciate the question. And we announced on purpose this 80-20 approach to the portfolio and really narrowed it down to looking at the portfolio. And the reason is we think it's essential to unlocking value in the company. So if you think about what the outcomes would be, obviously, structurally improve margins and then grow faster in the most profitable verticals. So we want to approach this portfolio with a completely open mind and really come back to -- we did announce in the prepared remarks that we're going to have an Investor Day in Q2. So by that time, really have a lot of clarity. But to step back and maybe share some of the thinking and some of the framework, we do want every business in that portfolio to be contributing to the 20% EBITDA margin target. So that's kind of table stakes. And then once you do that analysis, you very quickly come out with the great businesses that we have, and there's plenty of them and then making choices in there to say, where do we double down, where do we invest to grow faster. there fix it opportunities. And there, I think we're going to be very disciplined to not start long-term projects and really look at what are those businesses that can be turned around. And then there's a third category, and you alluded to some of that in your question, which is, is there a business that's just not us. And in the end, what is not us? It might be a numerical number that it doesn't fit a margin target. But frankly, it might be something different. It might be a good business where we are just not the natural owner. It just doesn't fit who we want to be. We are an engineer-to-engineer product development kind of work. We're not an RFQ to procurement type of business. We're not a high-volume business with a very low mix. That's not what's good for us. So what fits us best is those type of highly engineered solutions. And so we'll look at the portfolio with that angle. To get to your question about automotive, we have to put this in context and recognize we've gone from $1 billion of automotive business to now we're talking about 8% of the portfolio to saying we're going to deal with half of the 8, which is now a little over $100 million of the $1 billion that we once had. That activity is underway. Those conversations are underway in the marketplace. That's not an internal Timken paper exercise, and we are moving in that direction. We've communicated with our customers. We've communicated with partners. And so we're very, very clear about that in the marketplace. Having said that, these are customers with multi-decade relationships that have platforms depending on us. So we also have to work with them on the timing. However, any arrangement has to be good for both parties. And so in the end, I think it's reasonable for you to expect that we will improve even that business going into 2026. In terms of what timing we have to make an announcement on that remaining 4%, we'll -- we can't commit to that today. We'll come to you when we have it, but the commitment that you do have is that is a business we are going to deal with as part of this 80/20 effort. Stephen Volkmann: Great. That's very helpful. And then maybe just semi-related, you guys have done quite a bit on the M&A front prior to your arrival. And now you talked about your leverage being about where you want it. You have a good cash flow year here. Just any change, Lucian, in your view of the right way to allocate capital? Lucian Boldea: Yes. No immediate changes. Obviously, we'll provide you more color when we talk about our strategy and the complete context of this. But no immediate changes. It's really continuing that balanced capital allocation and continue to be disciplined is what you should expect to see from us. But I do want to say that to your point that we've made acquisitions in the past, we have a tremendous portfolio of acquired businesses, and that's what I'm excited about when we do this 80/20 is really finding those opportunities. And frankly, we have some pretty good ideas of what they are, where are the growth opportunities where we can double down. And I'll give you a couple of just teasers right now. We have several of the acquired businesses that are really almost single region business. And there's no reason they should be that way. We're a global company with 125-year history. And so taking those businesses globally is easier growth vector than entering a new market, a new application. And so that's one we plan to do. If you look at margin opportunities, the businesses that we've acquired and the legacy businesses serve the same end markets, the same end customers. So we can bring better solutions, more engineered solutions to our customers and at the same time, reduce our cost to serve. The IM businesses do have, at least today, as evidenced in the P&L, a slightly higher cost to serve. The good news is it's the same cost to serve that we are already spending on the EV side. So now how can we continue that integration. The integration has been done in some of the businesses that we've acquired a while back, and we have efforts there, but the businesses that are newly acquired, they're not in the same place. And so we'll continue that integration. We'll accelerate it. We'll be more deliberate and then really targeting those end markets that go across ED and IM where 1 plus 1 is more than 2. That's what this portfolio is going to drive, and that's from the portfolio that we have. Obviously, to the extent that there are gaps, then that's what more M&A is going to do. So we expect that, that effort will continue in a very targeted way, but we also expect to be able to at Investor Day, give you a lot more clarity to where any future M&A will be relatively straightforward to explain because we will have explained the strategy. Operator: Our next question comes from Rob Wertheimer with Melius Research. Robert Wertheimer: Lucian, your comments around 80/20 have been interesting. I wanted to follow up just a little bit more. I mean when you came in and you were able to get a deeper look at the portfolio, I mean, is the idea that there was a wider dispersion in margin and growth than you might have expected? Or is it -- some of it's maybe obvious when you talk about engineer to engineer and not wanting to be an RFP business on volume scale. But I'm just curious, when you glance the portfolio, did 80/20 leap out because there was a bigger spread than you would have expected? And what were your other impressions? Lucian Boldea: Yes. No, thank you for the question. I'd say the bigger thing that leaps out is the degree of opportunity that exists in different regions, markets, business combinations. And so you have to get a little deeper to spot these. But as I said, one of the opportunities that's most obvious is just regional penetration for some of these businesses. And so there's a lot of growth opportunity. I mean there are a lot of jewels in that portfolio. And so 80/20, sometimes we focus on what are we going to stop, and we definitely will do that, rest assured. But I'm equally excited about what are we going to double down on, actually more excited on what we're going to double down on. And that's what really got me going on 80/20 when I look at the portfolio because there are several businesses out there that are doing very well and where we can double down and do even better. And when you have businesses like that, you win twice, you accelerate your top line, but you also mix up. So that was more of the drivers to the extent that there are businesses in that portfolio that don't meet margin targets, then that's another lever that we definitely intend to exercise. Robert Wertheimer: All right. That was a great answer. And then maybe this is one level too deep and you can tell me if so. But when you looked at those opportunities to go global that hadn't been taken, was it your impression that there was a block, a study was done, the competitive threat was deemed too big or whatever? Or is it more just Timken has been a successful acquirer and has had a chance to fully lever it? And I'll stop there. Lucian Boldea: Yes. You have to recognize that this is with 2 months in the role, so it's easy for me to maybe make assumptions. But at least my hypothesis just in the spirit of transparency, its prioritization is just how many things can you do at once. And that's why really another reason for 80/20 because this is all about paretoing and saying where are the largest opportunities. And so that was part of the reason. The other part is historical. These businesses are entrenched. And this is not necessarily a new discovery that we're going to take a business that's regional into a new region. This was already underway. But really choosing a few of them where you say, okay, we're going to actually double down, do it in a more deliberate market back way versus product forward. And so that's really more of a change in the approach, but I don't want you to walk away with this is a brand-new idea that was not considered or not underway. It's just really accelerating it, doubling down on it in a few of the businesses that matter. Operator: Our next question comes from Carl Menges with Citigroup. Kyle Menges: Great. So it sounded like EMEA up 2% first time it saw growth in 2 years. So would love to hear a little bit more about what drove the return to growth in EMEA and just your level of confidence in growth sustaining in that region. Michael Discenza: Thanks for the question, Kyle. Yes. So just maybe the first thing about EMEA is it's been down so long that the comps continue to get easier. So I do think that there's an element of just reaching the bottom. So that would be part of it. We do have a strong European presence, excuse me, in some of our Industrial Motion businesses, and we pointed to those as having good quarters as well. And then it's really 3 markets, if I can highlight those that drove that growth. Off-highway was up rail, where we're winning, particularly in new platforms outside of freight rail, which has been our typical stronghold. We're winning in new applications there. And then heavy industries would be the third market. So really a combination of finally maybe reaching the bottom, a little early to call again, but being down for so long and then strength in some of these markets and new business wins. Kyle Menges: Got it. And then on margins, just how should we maybe be thinking about the fourth quarter exit rate on margins? It sounds like there could be some good momentum into 2026 with pricing and then maybe you see some of these auto OE actions start to come through in the first quarter of '26. I know you're not wanting to give 2026 guidance, but I mean, you do normally see a step-up in margins from the fourth quarter to the first quarter into the next year. Fair to assume that we would maybe see a bigger sequential step-up in margins into the first quarter of next year? Michael Discenza: Yes. Well, again, great question, a good point. And yes, I want to highlight, first of all, that fourth quarter for us is typically our seasonally low quarter, and we do see a significant step-up from fourth quarter to first quarter. So you can expect that to happen. With that volume uplift is generally margin uplift. And then the self-help we've done this year between pricing actions, which, again, I mentioned earlier, we're exiting the year at a higher run rate than the full year. So you'd expect that to be some uplift in the first half. And then our cost savings tactics, which we've talked about on prior calls and said would be second half weighted, that would also be a help to the first quarter margins as well. So as you said, too early to comment. I really not going to get into numbers at this point, but I think safe to assume that a significant step-up in both top and bottom line going from fourth to first quarter. Operator: Our next question comes from Ethan Coyle with JPMorgan. Ethan Coyle: This is Ethan on for Tomo. On pricing, how successful have you been through passing pricing to offset tariffs? And then on the increase in tariffs, do you expect further pricing in Q4 or maybe Q1 in 2026? Michael Discenza: Yes. Thanks for the question. So we've talked about pricing this year, and I've said it a couple of times, we're looking at pricing above 1.5% for the full year. So I'd say we've been largely successful passing through pricing. Just a reminder about how our pricing works. We have good pricing in the industrial distribution channel where we can get through pricing in, call it, with 60 days' notice, a little bit longer in our OEM businesses, depending on where they sit, that can be a couple of months to a couple of quarter lag. So I would expect that we will continue to push pricing. And then too early to comment on what additional pricing we will do next year, but know that we're ending the year with positive pricing momentum and are committed to recapturing the margins on that tariff impact next year through all of our mitigation tactics, including pricing. Ethan Coyle: And then on Industrial Motion, with organic declines in this quarter and then difficult comps in Q4, do you see that inflecting positively any time in the first half of 2026? Michael Discenza: Yes. Again, really early to be commenting on 2026. The only thing I'd reiterate is that fourth quarter to first quarter is a significant step-up. So you can expect Industrial Motion to step up from the fourth to first quarter. But again, really early to be coming on anything specific for '26. Operator: Our next question comes from Tim Thein with Raymond James. Timothy Thein: Great. Just on the margin driver -- one of the margin drivers we've talked about for '26, specifically on the cost save and all the footprint realignments that have been made over the last year plus. Can you just maybe help us quantify that? I think that from memory, the number coming into this year was circa $75 million or $80 million. Is there a way to kind of help us as to frame that as to what that could mean in '26? Michael Discenza: Yes, sure. Thanks for the question, Tim. Yes, you're right, referencing back to the $75 million of savings. We did announce that. And I would just reiterate, we're on track to deliver that $75 million of savings. maybe just one thing to point out on that, probably a little more -- a little ahead of plan in Engineered Bearings, a little behind plan in Industrial Motion. That's part of the margin story in Industrial Motion. But the way to think about that, I think you said it would be roughly -- it would be second half weighted, call it, 60-40 second half, first half. So if you do the math on that, 60-40, $75 million, you should get to somewhere around $15 million of incremental cost save in the first half next year. Timothy Thein: Got it. Got it. Okay. And again, I get it, we're limited as to what we want to talk about for '26. But just thinking about the quarter one beyond where we are today and as you -- normally, I think that you see about a, call it, 10-ish percent organic step-up 4Q to 1Q. But just based on what you're hearing from the channel and customers? I mean, do you think the pieces are in place for that kind of normal sequential step-up as we sit here today in the first quarter? Michael Discenza: Yes. Again, I appreciate the acknowledging that we're not going to talk much about next year. But I don't think there's any reason to believe differently than a typical step-up from fourth quarter to first quarter. Again, we'll have a lot more information next time, but there's nothing in what we're seeing in current order patterns or otherwise that would indicate we'd expect anything other than a typical seasonal step-up. Operator: There are no remaining questions at this time. Sir, do you have any final comments or remarks? Neil Frohnapple: Yes. Thanks, Emily, and thank you, everyone, for joining us today. If you have any further questions after today's call, please contact me. Thank you, and this concludes our call. Operator: Thank you for participating in Timken's Third Quarter Earnings Release Conference Call. You may now disconnect.
Operator: Good morning, everyone, and welcome to the American Assets Trust, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the floor over to Meleana Leaverton, Associate General Counsel of American Assets Trust. Please go ahead. Meleana Leaverton: Thank you, and good morning. The statements made on this earnings call include forward-looking statements based on current expectations. These statements are subject to risks and uncertainties discussed in the company's filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements as actual events could cause the company's results to differ materially from these forward-looking statements. Yesterday afternoon, American Assets Trust's earnings release and supplemental information were furnished to the SEC on Form 8-K. Both are now available on the Investors section of its website, americanassetstrust.com. It is now my pleasure to turn the call over to Adam Wyll, President and CEO of American Assets Trust. Adam Wyll: Thank you. Good morning, everyone, and thank you for joining us today. At American Assets Trust, we remain focused on executing with discipline and consistency. Our vertically integrated platform, high-quality coastal portfolio and thoughtful approach to capital allocation continue to provide resilience and opportunity. As always, we remain focused on creating long-term value for shareholders across cycles. For the third quarter, funds from operations came in at $0.49 per diluted share, just ahead of our internal projections, supported by continued leasing progress, disciplined expense management and minimal utilization of our bad debt reserve. Portfolio-wide same-store NOI was slightly down for Q3 and is up almost 1% year-to-date, which candidly is tracking with what we've characterized as a transition year. Collections remain strong, and our teams continue to execute to the best of our abilities across all asset classes. The broader economic backdrop remains mixed. Interest rates have shown signs of stabilizing after 2 years of volatility, inflation has moderated but remains above long-term targets and consumer confidence has softened, perhaps less than some had feared. At the same time, capital markets activity remains relatively subdued for commercial real estate. Against this backdrop, our strategy of owning irreplaceable coastal assets, maintaining a strong balance sheet and operating through a fully integrated platform continues to serve us well, underscoring the durability of our long-term approach. Turning to portfolio updates. The office sector remains selective, and we remain very part of that select set. Tenants are focused on well-located, amenitized and institutionally managed assets, and our portfolio is designed to meet those demands. Our office portfolio ended the quarter 82% leased with our same-store office portfolio 87% leased and 5% of the office portfolio includes signed leases that have not commenced paying cash rents. Same-store office NOI increased positively for the quarter, ahead of expectations despite almost 160,000 square feet of known move-outs at First & Main, Torrey Reserve and 14 Acres. We completed approximately 180,000 square feet of office leasing during the quarter with comparable rent spreads increasing 9% on a cash basis and 18% on a straight-line basis, reinforcing that our best-in-class buildings continue to attract tenants even in a competitive environment. Importantly, while the time it takes to finalize office leases has lengthened across our markets, we are not losing deals as a result. Tenants are simply being more deliberate. Along those lines, entering Q4, we have over 25,000 square feet of signed leases and another 56,000 square feet in lease documentation with proposal activity over several hundred thousand square feet. At our new La Jolla Commons Tower 3, following quarter end, we executed leases or have leases in documentation for another 8% of the space with proposals out on another 15%. Momentum is clearly building with increased tours and RFP activity, and we remain optimistic that additional leasing will follow. Meanwhile, the new Travis Swickard restaurant opening later this year will further enhance the already robust amenity package at the campus. Combined with the scarcity of large blocks of Class A space in UTC, we believe this positions us well to capture demand in one of the healthiest office submarkets in the country. At One Beach Street in San Francisco, we saw continued touring activity and are in active negotiations for portions of the building. While San Francisco continues to evolve through its recovery, there are encouraging signs of improved tenant engagement at the highest quality properties such as ours, and we are confident that selective demand will find its way to our assets. It's only a matter of time. Our retail portfolio continues to perform well, thanks to strong consumer spending across our centers. Nationally, retail availability remains near record lows. New construction is virtually non-existent and asking rents have continued to rise. At quarter end, our retail portfolio was 98% leased with 2% signed but not commenced paying cash rents. We executed over 125,000 square feet of new and renewal leases in Q3, with spreads increasing over 4% on a cash basis and 21% on a straight-line basis. Same-store NOI was about $400,000 less than the comparable period, largely reflecting the amount and timing of expense reimbursements as well as lost rents from Party City and reduced rent from at home due to their bankruptcies. Nevertheless, tenant sales and foot traffic remained solid, supported by favorable demographics, resilient employment and limited new supply in our markets. Our focus remains on securing best-in-class retailers, maintaining high occupancy and continuing to drive rent growth over time. In multifamily, performance in San Diego reflected the dynamics of a market working through new supply. Rent growth has decelerated, yet our blended average rents remain positive and occupancy improved as we exited the quarter higher than a year ago, even as we enter the seasonally slower leasing period. At quarter end, our San Diego communities, excluding our RV park, were 94% leased, which is closer to 95% leased today based on recent leasing momentum. Same-store performance was notably impacted by higher concessions, military-related deployments and move-outs impacting almost 30 units in our South Bay assets. A reduction in international student occupancy at Pacific Ridge tied to recent administration policies and the timing of certain property expenditures. We achieved rent increases of 5% on renewals and 2% on new leases for a blended increase of 4%. Excluding our new Genesee Park acquisition, rent increases were a 3% blended increase. In Portland, Hassalo on Eight ended the quarter 91% leased and delivered slightly positive blended rent growth of 1%. Although the market continues to absorb new deliveries and faces affordability challenges, we are encouraged by steady leasing activity and strong retention. Looking ahead, the 4,000-seat live music venue under construction across the street from Hassalo scheduled to open in 2027 will add vibrancy and help drive continued demand. We recognize there is still room for improvement in multifamily lease percentages and rent levels, and our teams remain focused on driving occupancy and capturing long-term rent growth. At Waikiki Beach Walk, our retail component continues to perform in line with expectations, while our Embassy Suites lagged due to softer tourism and heightened rate competition in Oahu. Arrivals have been below prior year levels, reflecting both the stronger dollar and increased competition from other destinations. In addition, the hotel has been further impacted by labor and utility cost pressures and our guest base, which is more cost conscious, has felt the effects of economic uncertainty more acutely. Of note, in the past 3 months, more than $0.5 billion of leased fee interest beneath major Hawaii hotels have changed hands at yields of 4% or lower. This activity underscores the long-term strength and scarcity value of owning the fee simple under all of our Hawaii assets. We remain confident in the long-term appeal of this irreplaceable property and are managing costs and revenue opportunities carefully in the interim. Our priorities are unchanged: to convert leasing momentum across our office portfolio, including La Jolla Commons and One Beach into signed leases, sustain positive leasing spreads in office and retail leasing and support stable occupancy and rent growth in our multifamily portfolio as supply is absorbed. At the same time, we are managing expenses tightly and preserving flexibility to capitalize on future opportunities. All of this reflects our disciplined resilient approach to creating long-term value for our shareholders. Finally, I am pleased to share that the Board approved a quarterly dividend of $0.34 per share for Q4 payable on December 18 to shareholders of record as of December 4. In closing, I want to thank our teams across the company for their dedication and execution. Their hard work continues to position American Assets Trust to execute across cycles. With that, I'll now turn the call over to Bob. Robert Barton: Thanks, Adam, and good morning, everyone. For the third quarter, FFO was $0.49 per diluted share. Net income attributable to common stockholders was $0.07 per diluted share, and total revenue was $110 million for the quarter. Results were generally stable sequentially with modest variability by segment, largely reflecting known office move-outs, expenses, timing and softer tourism trends in Hawaii. Specifically, the $0.03 decline in FFO from Q2 to Q3 reflects 5 things: First, slightly lower office contribution due to a previously disclosed lease expiration at First & Main and the tenant termination at City Center Bellevue, which despite being cash positive with an immediate backfill resulted in a GAAP impact from writing off remaining straight-line rent. Second, retail results reflected timing of property tax refunds recognized in Q2 that did not repeat in Q3. Third, lower family base rent at Pacific Ridge from summer student move-outs and at Hassalo from Portland oversupply, along with higher operating expenses portfolio-wide. Fourth, softer tourism and rate pressure in Oahu; and fifth, partially offset by a $1.1 million lease termination fee recognized in the quarter. Let's talk about same-store cash NOI. For all sectors, same-store cash NOI combined decreased by 0. 8% in the third quarter of 2025 compared to the same period in 2024, which was generally in line with our expectations for a transition year. Breaking Q3 out by segment and each as compared to Q3 2024, our same-store office portfolio's NOI increased by 3.6%, benefiting from rent commencements and higher rents at our City Center Bellevue property and the expiration of rent abatements at Torrey Reserve. Our same-store retail portfolio's NOI declined by 2.6%, driven by credit-related loss of rents mentioned by Adam as well as timing of expense reimbursements. Our same-store multifamily portfolio's NOI declined by 8.3%, reflecting supply headwinds in San Diego and expense pressure at select properties. Our same-store mixed-use portfolio's NOI declined by 10%, primarily driven by lower-than-anticipated occupancy and average daily rate at Embassy Suites Waikiki. Specifically and compared to Q3 2024, paid occupancy for Q3 2025 was lower by 5.5%. RevPAR for Q3 '25 was $298, down 11.7%. ADR for Q3 '25 was $381, down 5.4% and net operating income for Q3 '25 was approximately $2.7 million, down $0.9 million. These results are similar to other hotels in our comp set in Waikiki, Hawaii. We view these macroeconomic pressures as near term and not reflective of long-term fundamentals, and we remain confident in the long-term performance of our Hawaii hotel. In fact, according to preliminary figures from the Japan National Tourism Organization, the number of Japanese nationals traveling overseas in August '25 reached 1.6 million, up 14% year-over-year. This was the highest monthly outbound volume so far this year. Compared to pre-pandemic August 2019 levels of 2.1 million. Outbound traffic has now recovered to nearly 80%. The trajectory of outbound travel is clearly upward. August strong performance reflects pent-up leisure demand during the summer holiday season, following fuel surcharges and increasing seat capacity by Japan's 2 national carriers. Hawaii continues to be one of the most aspirational overseas destinations for Japanese travelers and recovery trends in the outbound market directly benefit our property as well as the other properties in Waikiki and surrounding islands. Forward-looking trends from JAL and ANA Airlines suggest sustained demand for Q4, and we anticipate this momentum to carry into winter and spring 2026. As outbound volume nears pre-pandemic levels, Hawaii is well positioned to capture an outsized share of the recovery given its strong brand equity, culture affinity and increasing promotional activity. Let's talk about liquidity now. Turning to the balance sheet. As of the end of the third quarter, we had total liquidity of approximately $539 million, consisting of roughly $139 million in cash and cash equivalents and $400 million of availability under our revolving line of credit. Our net debt-to-EBITDA ratio was 6.7x on a trailing 12-month basis and 6.9x on a quarter annualized basis. And we remain committed to reducing leverage toward our long-term target of 5.5x or lower. Our interest coverage and fixed charge coverage ratios were both approximately 3.0x on a trailing 12-month basis. Let's talk about 2025 guidance. We are raising our full year 2025 guidance range to $1.93 to $2.01 per FFO share with a midpoint of $0.197 per share. This represents a $0.02 increase from our prior guidance midpoint of $1.95 issued in the second quarter of 2025. The upward revision largely reflects year-to-date performance. Outperformance towards the high end of the range would depend on consistent rent collections from tenants currently reserved for credit exposure, increased demand and continued expense discipline in multifamily, strengthening near-term travel trends at our Embassy Suites Waikiki. Together, these levers represent upside potential, and we will continue to monitor each closely as the year progresses. As a reminder, our guidance in these prepared remarks include the impact of any future acquisitions, dispositions, equity issuances or repurchases and debt refinancings or repayments, except for those already disclosed. We remain committed to transparency, and we'll continue to provide clear insights into our quarterly results and the key assumptions that inform our outlook. Additionally, please note that any non-GAAP financial metrics discussed today such as net operating income or NOI are reconciled to the most directly comparable GAAP measures in our earnings release and supplemental materials. I'll now turn the call back over to the operator for Q&A. Operator: [Operator Instructions] And our first question today comes from Todd Thomas from KeyBanc Capital Markets. Unknown Analyst: This is A.J. on for Todd. Adam, maybe starting with you. I appreciate your comments just in the opening remarks around the leasing pipeline. But just maybe pulling on that thread a little more. Would you just provide an update with regards to the anticipated time line to stabilize the La Jolla Commons 3 and One Beach Street assets? Adam Wyll: Yes, sure. I'll have Steve offer a little bit more insight. But what we are seeing lately, as I mentioned, is a lot more activity. And so though it's really difficult to pin actual stabilization date, we feel the momentum is carrying us to that date a little quicker than it had been in the past quarters. But Steve, maybe you can add a little bit more color on both of those. Steve Center: Sure. As Adam mentioned, we signed a lease with an international bank just last week, and then we have 2 others in lease documentation. One is a technology company in the legal field and the other is a very high-end insurance company. And then we've got 2 other proposals totaling actually 17,000 feet. And we've got 2 other competitors for this one 9,000-foot spec suite. So -- and then along those lines, we're building out more spec suites. We've got another several spec suites under construction and delivering spaces that are ready to go has really borne fruit. The bank that we signed went into a spec suite with minor modifications and the other tenants that are prospects are largely tenants that need the space sooner than later. So building the space out, having it ready to go with minor modifications is really playing out well. And the tenants that are signing leases are paying the rents. They want the best, and they're paying up for it. So we're hitting our numbers on the rent side. So we're very encouraged by that. And as Adam said, the activity is picking up. And with the completion of the restaurant and a major conference center that we're adding to the campus, we think the momentum in '26 is going to be really solid. As it relates to One Beach, we're excited. We just converted our first deal to lease documentation yesterday. We're getting that lease out today, and we hope to sign it gosh, by the end of the quarter, we expect to. We've got another prospect for the same space actually. And so we're playing that out. And we've got robust tour activity. Really, it's turning into an AI hub at the North Waterfront is in Jackson Square. There's one pivotal tenant that signed a lease 2 blocks away that really is creating some gravity in that location. And it's interesting being -- we talk to the CEOs of the 2 firms competing for the same space. They both live in the neighborhood. They can walk to work. So it really is turning out to be this new hub, and it's a great location. They love it. Furthermore, both firms looked at a bunch of space. They looked at competing projects, and they consider that all to be commodity space. And when they got to One Beach, they said, this is different. This is the first one we've been willing to step up and make an offer on. So we're encouraged by that feedback. And so as Adam said, we're more positive about stabilization of both. We can't predict exactly when, but it's sooner than we would have said last time we talked. Unknown Analyst: Understood. I appreciate that color, Steve. Well, I guess sticking with leasing, you guys are speaking about leases in the quarter. Any known move-outs, I guess, as we look to '26 that we should be aware of? Adam Wyll: Sure. There's -- well, they're not known yet. We've got some that we're forecasting. It's about 180,000 feet of those tenants that are up in the area. One case is -- let's see, Genentech. They're in 3 floors currently. They're considering getting back a floor, although we question whether that happens. So that will play out in the next 6 months or so. We've got a full floor health care clinic at Lloyd 700 that we know is coming back. So we've got 108,000 feet that's up in the air. We don't know for certain how that's going to play out. But we've got really strong leasing activity behind it. And so we've been able to really fight really well against those tides where we're swimming upstream, so to speak, but we only went backwards 10 basis points this quarter after losing 70,000 feet of known givebacks this quarter. So our new leasing activity is accelerating and the known givebacks this quarter are down to about 23,000 or 24,000 feet. So we think that's going to flip in our favor from an occupancy standpoint next year. Unknown Analyst: Perfect. I appreciate that. And then maybe, Bob, switching to you just real quick on the balance sheet. Just with leverage ticking up in the quarter, would you just provide some thoughts on the company's current leverage profile and perhaps plans and a time line to get back to under 6x on a Net Debt-to-EBITDA basis, closer to your long-term 5.5x long-term target? Robert Barton: Yes. From our perspective, we have a plan on how to get there. And the plan really is leasing up One Beach and La Jolla Commons 3. And with that, we'll have approximately $0.30 of additional FFO. We'll be back in the game and all the debt ratios will get closer to 6, if not below 6 by then. So we feel pretty confident about it. We've met with all 3 of the rating agencies, and they continue to give us a stable outlook. They understand. And even the rating agencies, all 3 of them have commented in their own information that they share with the public is that it's generally the expectation from their standpoint is it's generally 18 months out on leasing up office, high-quality office. If it's commodity, forget it. But if it's high-quality office like our portfolio, we have a good shot of even beating that. So we'll see. We'll take one step at a time. We feel positive about it. It's just a timing thing that's all it comes down to. Operator: And our next question comes from Rene Pire from Green Street Advisors. Reynolds Pire: So I know you mentioned the multifamily portfolio having been weighed on by higher deliveries in San Diego in addition to higher concessions. Just trying to get a sense of where you think that segment finishes out the year? Are you expecting some relief on the concessions front? I believe you've mentioned some stronger leasing recently in the portfolio. So trying to get a sense of where same-store NOI might finish the year out. Adam Wyll: Yes. I mean, well, just to start, the San Diego multifamily, we think that market remains fundamentally resilient. But as I mentioned, the near-term NOI is impacted by the higher operating expenses and some of the elevated supply. We have had some incremental leasing success. Maybe Abigail can share that with you high level. I'm not sure that we've modeled that in year-end NOI projections yet. So we just want to be careful about what we say on that front. But Abigail, do you have commentary perhaps on the incremental leasing we've seen over the past few weeks in our San Diego multifamily? Abigail Rex: We are currently 95% leased. And at the end of the quarter, specifically over at Pacific Ridge, we have seen a recent uptick with USD students securing tenant fees for their upcoming winter and spring semesters, which is really encouraging for us because going into what's traditionally a slower leasing season, we're finding that people are securing their units earlier sooner rather than later. And then also at our other communities, we're finding that leasing is moving forward strongly, specifically over at Loma Palisades and at Genesee Park, leasing over there has picked up, and we're upwards of 96%, 97% leased, again, in what's usually a historically slow leasing period for us. We really attribute that, as Adam mentioned, to well-maintained communities. Our properties are in the best ZIP codes in San Diego. And then we also have just incredible team members who are operating these communities. So we remain optimistic with our leasing through the end of the year and the end of the quarter. Steve Center: Yes, Rene, we expect stability to improve as supply is absorbed and expenses normalize. So that's the expectation looking out. Robert Barton: Yes. One last question, Rene. You have all 3 of us talking here on this, is that in San Diego, remember that you have the Pacific Ridge, which is right across from USD. So we do take a dip on the move out of tenants from July, August -- June, July, August. So that's our dip every year, and then we generally come back strong after that. But it's -- Abigail is doing a great job keeping the occupancy up. We're as competitive as anybody in San Diego when it comes to rate. But I think overall, I think people are feeling that there is pressure on the operating expenses. It's not just us, it's other multifamily as well. And I think with the competition, especially with -- compared to Mission Valley, there are concessions. So we're doing the best we can, and I don't think we're dissimilar from any other multifamily out there. Reynolds Pire: Great. I appreciate all that color. And then maybe a question for Steve primarily. Good quarter on the office leasing front. I was hoping you could give some detail around which tenant industries you're seeing the most active in market, that would be very helpful. Steve Center: Well, San Francisco, it's AI. And there's an emergence of new co-working operators in AI. So -- but it's really AI-driven for the most part there. We're seeing some of that in Bellevue as well. But we're also seeing a broad base of other types of tenants. So we've got a technology firm that's in the legal industry that's in leases at Tower 3. We've got an insurance company I mentioned earlier in Tower 3, that's ultra-high-end net worth people that they cater to. Let's see. We've got finance. We've got a company that's for a 4.5 and it's -- at First & Main in Portland, and they just did a valuation of a dental practice that we're doing an assignment on. So it's interesting. It's just a broad swath of really good quality tenants... Robert Barton: Law firms. Steve Center: Law firms. Operator: [Operator Instructions] Our next question comes from Ronald Kamdem from Morgan Stanley. Unknown Analyst: This is Matt on for Ron. I was just curious, you guys talked a little bit about the tenant types that are interested in leasing space. Could you talk about the leasing trends between the different submarkets? Would you say there's any markets that are seeing more concentrated interest or if it's just kind of widespread? Adam Wyll: It's a flight to quality. So I wouldn't talk about it market to market. It's really -- every market is mixed. Not all ships are rising. So it's really the activity is gravitating towards to the best properties, but also space that's ready to go. That's the biggest trend I'm seeing is tenants don't want to wait for TIs. Every tenant rep broker we talk to, we tell them our strategy of spec suites and having spaces ready to go, said we're spot on. And the results speak for themselves. We've got about, I think, 38% of the deals we've done year-to-date have been in spec suites. We're doing about 40% of our vacancy in spec suites. And these are smaller spaces. Our average space is 3,000 to 4,000 feet. So it's low risk. We build them out. They're ready to go with minor modifications at most. And that design will last longer than the tenancy. And if you look at our TIs on our renewals, they're very low because we've built out the spaces and they don't require a whole lot of working to relet them. Unknown Analyst: Got it. And then just as a follow-up to that, could you just talk a little bit about how we could think about the office occupancy trajectory over the coming quarters? You guys are seeing momentum in leasing and just kind of wondering how that actually builds into the occupancy as we get into '26. Adam Wyll: New leasing is about 70% of our activity right now. So that bodes well for making up any known givebacks that are coming. Q3 is a light known good back quarter, so we should make good ground up. And we've now recognized -- we're no longer looking at same store. It's really that 82% is the whole portfolio, including Tower 3 and including One Beach. So it is what it is. One Beach alone will really put a big dent in that. Tower 3, as I said, the momentum is building, and I think '26 is going to be a real strong year. So I think we'll go positive. We'll go positive in 2026. I can't tell you how far. We'll see how those known givebacks play out. But the new leasing is strong. If you -- Adam mentioned several hundred thousand feet of proposals, that's the biggest number we've had that I can remember. And our current leasing activity for the year, if we finish out the quarter as expected, it will be our second best quarter -- second best year since I've been here since 2018. Matt, we'll have more visibility into that with our next call in terms of occupancy expectations in the office sector. So we'll have dug in a little deeper on that through year-end. Operator: And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Adam for any closing remarks. Adam Wyll: Thank you for your continued support. We hope you enjoyed the call as much as we did, and hope you have a great day. Thanks, everybody. Operator: And with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Federal Reserve chair Jerome Powell speaks after the Fed approved its second straight interest rate cut, lowering its benchmark overnight borrowing rate to a range of 3.75%-4%.
Federal Reserve Chair Jerome Powell says that the inflationary effects of tariffs could be "more persistent" during a news conference on Wednesday.
‘The Big Money Show' panel discusses the Federal Reserve's latest 25-basis-point rate cut, Wall Street's record-breaking rally and whether Jerome Powell is acting in time to help Main Street before year's end.
Federal Reserve Chair Jerome Powell speaks after the Fed approved its second straight interest rate cut, lowering its benchmark overnight borrowing rate to a range of 3.75%-4%.
U.S. stocks are rising toward more records on Wednesday as Wall Street waits to hear from the Federal Reserve in the afternoon about what it will do with interest rates.
The Federal Reserve cut interest rates by a quarter point for the second time this year. Investors lowered the probability of a cut at the Fed's December meeting after Jerome Powell, the central bank's chair, said there were “strongly differing views” on what to do next.
Federal Reserve Chair Jerome Powell speaks after the Fed approved its second straight interest rate cut, lowering its benchmark overnight borrowing rate to a range of 3.75%-4%.
Federal Reserve Chair Jerome Powell speaks after the Fed approved its second straight interest rate cut, lowering its benchmark overnight borrowing rate to a range of 3.75%-4%.
During a news conference, Federal Reserve Chair Jerome Powell noted that members of the rating-setting FOMC were far from unified about what the central bank's next move should be.
Fed Chair Jerome Powell said in a statement that policymakers had “strongly differing views” about how to proceed in the FOMC's last meeting in December. A further reduction to interest rates is “not a foregone conclusion,” Powell said, “Far from it.