加载中...
共找到 14,543 条相关资讯
Operator: Good day, and thank you for standing by. Welcome to the A.O. Smith Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Helen Gurholt. Helen Gurholt: Good morning, and welcome to the A.O. Smith Third Quarter Conference Call. I'm Helen Gurholt, Vice President, Investor Relations and Financial Planning and Analysis. Today, I'm joined by Steve Shafer, Chief Executive Officer; and Chuck Lauber, Chief Financial Officer. Within today's presentation, we have provided non-GAAP measures. Free cash flow is defined as cash from operations less capital expenditures. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website. A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include matters that we described in this morning's press release among others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. We will use -- we will be using slides as we move through today's call. You can access them on our website at investor.aosmith.com. I'll now turn the call over to Steve to begin our prepared remarks. Stephen Shafer: Thank you, Helen, and good morning, everyone. I would like to start by briefly thanking the many dedicated A.O. Smith employees and broader set of partners and customers in our ecosystem for another quarter of helping to make clean, hot and safe water available to millions of people. We appreciate all you do to make that happen. Please turn to Slide 4, and I will now review our financial performance in the quarter. Our global A.O. Smith team delivered third quarter sales of $943 million, a year-over-year increase of 4%, and EPS of $0.94, a 15% increase over 2024. North America sales grew 6%, primarily as a result of our pricing actions and strong commercial water heater and boiler volumes. We achieved North America segment margin expansion of 110 basis points and Rest of World segment margin expansion of 90 basis points. Continued economic challenges and more limited availability of government stimulus programs led to a 12% decrease in local currency sales in China. Pureit contributed $17 million of sales in the quarter, and our legacy India business continued its strong double-digit growth trajectory by delivering 13% growth in local currencies. North America water heater sales increased 6% in the third quarter, driven by pricing actions taken in response to higher tariffs and other input costs as well as higher commercial water heater volumes. Our market-leading high-efficiency condensing gas and heat pump products continue to have a compelling payback story in commercial applications. Our residential water heater volumes were also positive, so we believe that Q3 industry volumes declined year-over-year. As we expected, we believe our -- we believe we outperformed the residential and commercial markets in the quarter, in part due to our production efficiency initiative that limited the prebuy impact on our sales in the first half of the year. Our North America boiler sales increased by 10% compared to the third quarter of 2024, led by the benefits of pricing actions and higher volumes of our high-efficiency boilers. North America water treatment sales decreased 5% in the third quarter, as continued growth in our priority channels was more than offset by an expected decrease from the retail channel. Our priority dealer, e-commerce and direct-to-consumer channels grew 11% in the quarter. In China, third quarter sales decreased 12% in local currency, as the ongoing economic challenges and reduced availability of government subsidy programs along with an increasingly competitive environment led to lower volumes. Despite these challenges and the resulting volume pressure, we achieved 90 basis points of margin expansion compared to last year through the restructuring initiatives we undertook in 2024 and other cost-saving measures. Please turn to Slide 5. I would now like to take a moment and talk about our commitment to sustainability. For us, sustainability is not just a goal, but a core part of who we are and what we do every day. We are committed to not only developing and bringing to market innovative, high-efficiency products, but we are also dedicated to sustainability in our facilities and manufacturing processes. Later this week, we will publish our sustainability progress report, which will include our sustainability scorecard and an update on our water conservation, greenhouse gas emissions and waste reduction goals. What the report will show is that we are meeting or exceeding the goals that we set out for ourselves. The outcome of these efforts are providing both sustainability and bottom line results. Example initiatives we have undertaken to support these goals include the test water recirculation system, which recycles water used during our product testing processes and our glass enamel reuse process, which captures waste glass enamel for reuse in our tank manufacturing process. These are examples of how we are seamlessly -- how we seamlessly integrate sustainability into 2 of our priority areas, operational excellence and innovation. We remain dedicated to finding better ways of doing things, including how to improve our business while protecting our planet. I'll now turn the call over to Chuck, who will provide more details on our third quarter performance. Charles Lauber: Thank you, Steve, and good morning, everyone. Please turn to Slide 6. Third quarter sales in the North America segment of $743 million increased 6% compared to the same period last year, primarily due to benefits of pricing actions as well as higher commercial water heater and boiler volumes. North America segment earnings were $180 million, an 11% increase over the third quarter of 2024. Segment operating margin was 24.2%, an increase of 110 basis points year-over-year, primarily due to pricing actions and higher volumes, more than offsetting higher material and other input costs. Moving to Slide 7. Rest of the World segment sales of $208 million decreased slightly compared to last year and included $17 million of sales from the Pureit acquisition. Sales in our legacy India business grew 13% in local currency. China third-party sales decreased 12% on a constant currency basis. Rest of the World segment earnings of $15 million increased year-over-year as continued expense management and the benefits of restructuring actions more than offset lower volumes in China. Segment operating margin was 7.4%, an increase of 90 basis points compared to the prior period. Pureit will continue to be a headwind in the near term as we focus on integration, which is progressing well. Please turn to Slide 8. Operating cash flow grew 21% to $434 million, and free cash flow grew 35% to $381 million during the first 9 months of 2025 compared to the same period last year, primarily due to lower inventory balances that were partially offset by other working capital outlays, including lower customer deposits in China. Our cash balance totaled $173 million at the end of September, and our net debt position was $13 million. Our leverage ratio was 9.2% as measured by total debt to total capital. Let's now turn to Slide 9. Earlier this month, our Board approved a 6% increase in our quarterly dividend to $0.36 per share, making 2025 the 32nd consecutive year that A.O. Smith has raised its dividend. We repurchased approximately 5 million shares of common stock in the first 9 months of 2025 for a total of $335 million. This is an increase compared to the same period last year, as we raised our planned full-year repurchase intentions from $306 million in 2024 to approximately $400 million of shares for 2025. Consistent with our key priorities, we are actively assessing strategic opportunities and have sufficient dry powder for acquisitions that meet our strategic and financial criteria. Our M&A priority continues to be deals that strengthen our core business or help us build new growth platforms. Please turn to Slide 10 and our 2025 earnings guidance and outlook. We are narrowing the range and lowering the top end of our 2025 EPS outlook from a range of $3.70 to $3.90 per share to a range of $3.70 to $3.85 per share. We have included the following assumptions in our outlook. We began to see the impact from tariffs in the third quarter and expect that our tariff costs will continue to increase into the fourth quarter as additional impacts make their way through our supply chain. Though the tariff landscape remains uncertain, we maintain our estimate that annualized tariffs will increase total company cost of goods sold by approximately 5%, which includes tariff rates currently in place as well as the mitigation efforts we have implemented. As a reminder, our mitigation strategies include footprint optimization, strategic sourcing and other cost controls and pricing actions as necessary. Apart from tariffs, we expect overall material costs for the year to remain approximately flat versus last year, with steel costs rising 15% to 20% in the second half of 2025 compared to the first half. We estimate that 2025 CapEx will be approximately $75 million. We expect to generate free cash flow of approximately $500 million. Interest expense is projected to be approximately $15 million. Corporate and other expenses are expected to be approximately $75 million. Our effective tax rate is estimated to be approximately 24%. And we project our outstanding diluted shares will be 142 million at the end of 2025. I will now turn the call back over to Steve, who will provide more color around our key markets, top line growth outlook and segment expectations for 2025, remaining on Slide 10. Steve? Stephen Shafer: Thanks, Chuck. Key assumptions in our top line outlook include the following. We project that 2025 U.S. residential industry unit volumes will be flat to slightly down compared to last year, a slight decrease from our previous guidance due to residential new construction expectations that have come down since last quarter. Lower housing completions, particularly in multifamily as well as concern around consumer confidence, have led to this revised outlook. The wholesale channel impact is expected to be greater due to its heavier exposure to new construction. That said, we are encouraged by the resilient demand we are seeing in the commercial water heater market segment. And as a result, we are increasing our projection for commercial water heater industry volumes from flat to last year to up low single digits. We are pleased with our strong performance relative to the market in the third quarter and the share momentum we have going into the fourth quarter, supported by our winning products in this segment. Economic challenges persist in China. While government stimulus programs helped to stabilize parts of the market in the first half of 2025, we believe the stimulus programs pulled forward a significant amount of demand. During the third quarter, national sub fees were discontinued, resulting in increased promotional activity and discounting from our competitors, much of which we chose not to participate in. Because we do not expect an improvement in market conditions in the near term, we are lowering our 2025 China sales outlook to a decline of approximately 10% in local currency. We continue to benefit from the restructuring actions taken in 2024, as well as other cost-saving measures, which we project will offset the margin impact of lower volumes for the year. Our 2025 North America boiler sales projection of an increase of between 4% and 6% compared to 2024 is unchanged. We are very pleased with our growth in the first 9 months of the year, although we believe we may have benefited from a minimal amount of prebuy related to price increases implemented in the second quarter. We continue to monitor our key markets closely. We have not changed our guidance that North America water treatment sales will decline approximately 5% in 2025, as we deemphasize the less profitable retail channel. We continue to be pleased with the growth we have seen in our priority channels and our onboarding of new dealers during the year. Our plan to drive 250 basis points of operating margin improvement in 2025 for the North America water treatment business is on track. Finally, we expect the addition of Pureit will add approximately USD 55 million in sales in 2025, slightly higher than our earlier guidance. It will not have a significant bottom line contribution this year, as we work through integration. Based on the continued economic challenges in China and the softening wholesale residential water heater market in the U.S., we have lowered our full-year sales outlook from 2% to 3% growth to a range of flat to up 1% compared to last year. We continue to expect our North America segment margin will be between 24% to 24.5%, and we expect that Rest of World segment margin will be approximately 8%. Please turn to Slide 11. Last quarter, I laid out my areas of focus. Earlier this month, the top 140 leaders of A.O. Smith gathered to talk about the future of our company, to align on key priorities and inspire each other through the opportunity to connect and share ideas on how to deliver the next great chapter of the A.O. Smith legacy. I came away from this important time together confident in our path forward and with the commitment from our leadership team to execute. I look forward to sharing more regarding this leadership summit and our focus areas in the quarters to come. I am also pleased to welcome Chris Howe as our new Chief Digital Information Officer. Chris is the transformational leader that we need to help us invest wisely in new technologies for the future and unlock even more value potential in the technologies we are invested in today. In his previous roles, Chris led transformational effort to leverage enterprise software solutions or most recently worked on the forefront of generative AI solutions. He will be instrumental in ensuring we have the technical capabilities needed to support all our priorities, especially operational excellence and innovation. As we shared last quarter, and as part of our portfolio management priority, we announced the intention of our formal China strategic assessment. While we remain early in the process, we are making good progress. We commissioned a third-party analysis of the China market, and it confirmed many of our assumptions entering the strategic assessment. One, our brand remains strong, well-known and respected among Chinese consumers, especially with regard to our innovative products and premium solutions. Two, our strategy to expand into broader categories that can be connected by smart home solutions and our AI Link capability was a necessary path forward. And three, we have a number of go-to-market and business model opportunities to better strengthen the business and capture our fair share of market recovery. We believe that we have a good understanding of our challenges and are evaluating potential opportunities to ensure the future success of this business, as we drive greater value for shareholders, employees and other stakeholders. In conclusion, I am pleased with our third quarter execution, particularly in the North American segment. I'm also encouraged by the progress we are making on our strategic priorities, including portfolio work to help strengthen our business going forward. Regarding execution, we delivered a solid third quarter in North America, led by pricing performance and our strong commercial, high-efficiency portfolio while expanding margins through operational discipline. Looking forward, we remain confident in our ability to navigate the tariffs and competitive landscape in our core water heater and boiler businesses, where we serve a large replacement-driven market with a broad industry-leading portfolio and go-to-market model. Regarding our portfolio, we are driving double-digit growth in priority areas, including boilers, select North America water treatment channels and India. At the same time, through our strategic assessment, we are working to understand and address what is required to improve the performance of our China business. Finally, we continue to generate cash, maintain a strong balance sheet and are ready with dry powder necessary to build out our portfolio in ways that complement our business today. With that, we conclude our prepared remarks and are now available for your questions. Operator: [Operator Instructions] Our first question comes from Saree Boroditsky with Jefferies. Saree Boroditsky: Maybe just building on some of the China color. You obviously lowered expectations around China sales. Could you just talk about your performance versus the overall market there? And is this just a weaker market? Or is there any competitive dynamics going on? Stephen Shafer: Yes. It's a little bit of both. So the market continues to have its challenges. And as I mentioned, there's been a little bit of a pull-forward demand driven by the government subsidy program. So we're on the other side of that. And I think within that down market, the competitive intensity continues to increase. So we see a lot of promotional activities trying to step in where government subsidies were playing a role to generate demand previously. And so that's adding to the competitive pressure. And I think, as we see our path forward, as I mentioned, we've got confirmation that our brand remains very strong there. We have a really strong innovative portfolio to serve our customers, but we need to work through this period of challenging market conditions. Saree Boroditsky: Appreciate that. And then obviously, one of the bright spots this quarter was in the North America commercial water heater sales. I think previously, you attributed some of the strengths to prebuy. So just maybe a little bit more detail on what you're seeing in that market and what's driving the strength there? Stephen Shafer: Yes. It's been a strong market condition for commercial products, but I'd also say we have a really strong portfolio in that space. And I mentioned on the last earnings call, the launch of our FLEX commercial water heater, and -- so we've got that out in the marketplace that I think is performing very well. So it's a combination of a really strong market backdrop, but also in an area where we've got a really competitive product offering. Charles Lauber: And I would add that during the third quarter, we benefited from our production efficiency program to make sure that we were level loading a bit closer to the market. And some of that strength we saw in commercial and residential heater was a part of the output of that benefit in the level loading program. Operator: Our next question comes from Bryan Blair with Oppenheimer. Bryan Blair: Just to level set on the China strategic review. We know there isn't a timetable as of now in terms of the ultimate decision, but given the insights from the assessment so far, has the range of potential outcome has been narrowed in any way? Stephen Shafer: No, Bryan, not yet. I mean, we're still early enough in the process that we're not ruling out any outcomes at this point. So like I said, we've done some really good work just trying to profile and understand the market. We've gotten some third-party assessment to do that. We've started the process of reaching out to other participants, which is why we wanted to announce that we were putting the business under the strategic assessment, but we're not at a point yet where we've kind of narrowed down or have a view of what the outcome of that is yet. It's still too early. Bryan Blair: Yes. Understood. Appreciate the color. The priority channel growth in North American water treatment, certainly encouraging in Q3, and that 11% nicely aligns with the 10% to 12% organic growth target you had put out at Investor Day. With mix now reset for the platform, is that kind of organic growth in play going forward? Stephen Shafer: I mean, that's certainly how we think about the business long term. I would say there's still more work to be done, right? So we've done some reprioritization of the channels and where we think we can be competitive and win. I think there's still more work and investment in that space to build out that platform. But we feel good about the growth potential of that business. Operator: Our next question comes from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Just on the U.S. resi water heater market, I think you didn't change your industry shipment assumptions, but seem to lean a little more cautious. So I just wanted to understand a little bit better how you see that playing out. Charles Lauber: Yes. Our outlook for the industry, we were talking about flat industry on our last call. And now, we're saying flat to slightly down. So we do see a little bit of pressure on the residential side. Most of that is coming through new home construction completions on the residential side that we're seeing some of that weakness. So we've taken it down just a tad. Jeffrey Hammond: And are you seeing kind of the market share recapture play out as you thought? Stephen Shafer: Yes. As we were looking at level loading our production this year, we've seen our performance relative to the market in Q3 come back and gain share back as we expected. Jeffrey Hammond: Okay. And then just -- I think you mentioned some additional tariff headwinds, maybe quantify or talk about where you're seeing that? And then just as you look at steel pricing and kind of forward tariffs into '26, how does that kind of inform pricing actions you need to take into '26? We're seeing -- we're hearing from kind of other channels that maybe next year is another above average increase. I just wanted to get your view there. Charles Lauber: Yes. This is Chuck. I mean, the mention on tariff pressure was really framing from third quarter to fourth quarter. It's probably maybe 20 basis points on North America margins, where we are seeing a bit heavier tariffs kind of accumulate. Our full year outlook at 5% has not changed. So it's still a little bit of timing, putting a little pressure on the North American margins in the fourth quarter. We'll be back in January. We're giving a little bit of an outlook on cost. The tariff world is a bit volatile. So I think we'll kind of hold off commentary to see where material costs go in that respect. Operator: Our next question comes from Mike Halloran with Baird. Michael Halloran: Could you talk a little bit through what you're seeing in the residential side of things in terms of the discretionary spend? I certainly heard the commentary earlier that some of that weakness that -- or incremental weakness you saw in the residential volume side from an outlook perspective is tied to new housing starts being a little bit lower, no surprise. Are you seeing anything different on the discretionary piece? Charles Lauber: We really haven't seen that change. We do a survey every quarter, and we look at proactive replacement, as you know. And if we kind of look at that survey, there's quarters where it edges up, edges down. But overall, it's still above that 30%. Proactive replacement remains pretty resilient. Certainly, something we'll watch as we go forward. But -- it's a backward since the last trailing 12 months survey. So we'll have to continue to watch that and make sure we understand if there is a trend developing. But right now, still above 30%. Michael Halloran: So -- and then following up on Jeff's other question, I know you're not giving '26 thought process, but if trends were to play out, and we weren't going to get any incremental actions, the pricing that you've taken in your mind is enough to make you price-cost positive or at least be price-cost neutral on the margin line or in terms of EBITDA dollars once kind of all the catch-up happens. Is that a thought process? Or is there still going to be some gaps relative to what you're seeing from an inflation perspective with the actions you've already taken? Charles Lauber: Yes. When we do our price increases, and it really was no different other than the amount of the price increase this time with the tariff costs hitting us, we typically look to cover margin plus cost. So just a reminder, the last one was second quarter because it was effective. When we announce those prices, they go out, and certainly, we see pressures over time on the price, and we have a bit of a fade. So I think we'll kind of still reserve kind of the answer to that as we get into the next quarter, but we're comfortable with our price-cost relationship now. But as you'll see, there's some pressure when you look at our guidance and a little bit of pressure on margins in the fourth quarter. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Charles Perron-Piché: This is Charles Perron-Piche. First, I'd like to go back on the China market. Understanding the market conditions are tough, but I guess, do you have any thoughts on potential additional restructuring initiatives in the region given the environment and something that would be done ahead of potential strategic announcement? Stephen Shafer: I think it's one of the things we're going to continue to kind of work through and learn more about as we go through our strategic assessment, and I kind of alluded to the fact that there's opportunities for us as we think about how we go to market, our business model. We're going to continue to evaluate those things. Whether we do those through partnerships or we do them for ourselves, it's something we still have to work through. But our goal is to make sure that the business is set up well for success. And obviously, a little bit of market recovery will help aid that in a bit. But we're going to continue to kind of learn from the changing market environment and make the necessary changes. And whether that comes through things that we'll take on and self-help to do that or whether that's done through partnerships is one of the things we're assessing right now. Charles Perron-Piché: Okay. That's helpful color. And then I think in your prepared remarks, you talked about the potential for a strategic acquisition within your or adjacent market. I guess, on this, can you talk about what is the pipeline for these types of opportunities in the current environment, along if the timing of any strategic decision on that is dependent on the potential announcement of the strategic review in China? Stephen Shafer: No, I think one of the strengths we have, right, is a strong balance sheet and our cash generation capabilities, so we've got an active pipeline. We continue to evaluate that from kind of a strategic lens, financial lens, where we want to go next. And as I mentioned, partly it's how do we strengthen the core of our business, how do we think about building new higher-growth businesses, and we're going to continue through that process. So I don't think it's connected to other decisions we're making across our portfolio at this time, and we're ready to move, I think, when the right opportunities come about. Operator: Our next question comes from David MacGregor with Longbow Research. David S. MacGregor: I wonder if you could just give us an -- I was wondering if you could just give us an update on gas tankless and the progress to date on relocation of manufacturing and market development and just the impact on third quarter margin contribution and maybe the implied fourth quarter, which you've got in the '25 guide? Stephen Shafer: Sure. As you know, we've made a big investment to enter with our own products into the gas tankless space. We've been building out the right set of products, the manufacturing capability here in North America. And all of that is progressing well. I think the market itself for tankless is under pressure, heavily connected back to the residential construction market that we talked about. So from that standpoint, it remains kind of a challenging market. But I think we're really excited that I think we've got the right products, we've got the manufacturing capability ready. As we've talked about in the past, we've made some changes. In the past, we were talking about launching in China, moving to North America. We've made some changes into that strategy, which has made some delays to our current plan in terms of how we're going to go after the market. But I think we're happy with where we're at. We'd like to move faster in the marketplace. And I think as the market picks up and recovers, especially around new construction, and with the product offering we have and the supply chain we have, we'll be ready to compete successfully. David S. MacGregor: Are you getting good feedback -- sorry, go ahead. Charles Lauber: I was just going to answer the question on margin pressure. It's -- we're anniversarying when we first launched the product last year, so the margin pressure is a bit less than the 40 basis points we had historically talked about. For the quarter, it's probably about 20 basis points. It's not overly significant. And I think you were asking about feedback. David S. MacGregor: Yes. I was just going to get you to talk a little bit about what you're getting back from the marketplace and people. I know that you were undertaking a phased launch on that product in terms of just incremental models, and is the acceptance level relatively good at this point? Or are people waiting for the full assortment? Just any commentary on that would be helpful. Stephen Shafer: Yes, folks love the product. And when they get their hands on it, and they get comfortable with it. And as you know, we've been building out our portfolio. So when we have the full portfolio, we'll be even more compelling. There's also elements of how we serve this market, right? A lot of more gas tankless tied to the new construction. So we're working out on the business model as well. But I would say, at the end of the day, the product is a market-leading product, and that's what we look to do when we got kind of our own product offering into this space. Operator: Our next question comes from Nathan Jones with Stifel. Adam Farley: This is Adam Farley on for Nathan. Let me follow up on -- I wanted to follow up on the China commentary. I know fourth quarter is typically seasonally stronger quarter due to the shopping holidays. So what is your expectation for the selling season going into the fourth quarter, balancing that with some of the headwinds you guys are seeing there? Charles Lauber: Well, you're exactly right. It's typically the fourth quarter is one of our strongest quarters in China. Our outlook assumes that there is an uptick in volume in the fourth quarter compared to the third quarter. But I will say when you kind of frame our outlook for China overall to be down 10%, you'll note the fourth quarter gets a little more pressure on year-over-year comps compared to the third quarter. So without the -- with the discontinuation of the subsidy program, there's a bit of uncertainty in China on how the fourth quarter may play out. But right now, we have kind of normal cadence, but not at normal volumes. But just kind of relative to the third quarter, we do see a bit of an uptick. Adam Farley: That's helpful. And then maybe shifting to boilers, which was a bright spot in the quarter, I think you mentioned maybe you think there's a little bit of pre-buy there, but I was also wondering if the boiler sales cycle is maybe elongating at all due to general market uncertainty or maybe that's not an issue at all? Charles Lauber: No. I mean, we do believe that there was some pre-buy, so there is certain boilers that, I'll call it, inventoriable size. They're small enough that you'd be willing to invest and put them in inventory. We've seen a couple of strong quarters in boilers. Typically, our strongest quarter is the third quarter. So we do think we'll see a little bit of a headwind as we go into the fourth quarter for some of the unwind of the, call it, inventoriable boilers that will come out in the fourth quarter. But overall, the market quoting remains pretty steady, pretty consistent, particularly on the large CREST units. So we're not seeing any major change or elongation in, what I would say, quoting to the order cycle. Operator: Our next question comes from Andrew Kaplowitz with Citi. Andrew Kaplowitz: Steve, obviously, you've had good operating experience in your past positions. Maybe just stepping back as you've looked at AOS, and given how many of your markets are relatively sluggish, how have you sized the potential opportunity for cost out overall at AOS and/or the potential to accelerate new product-related growth as you begin to transition into '26? Stephen Shafer: Yes. Andy, so as I've mentioned, 2 of our priority areas are A.O. -- the operational excellence and how do we get more out of the A.O. Smith operating system and innovation. And I think that gets after both components of your question. I think -- we don't have a good sizing yet of what the value is at stake on that, but what I'll tell you is I'm encouraged by the fact that we can bring even more kind of discipline into our operating rhythm at A. O. Smith. I think we have great manufacturing capability, and we run a lot of our business with great people with a lot of experience. And I think bringing some discipline, and I mentioned Chris Howe joining us as our CDIO, I think discipline and leveraging some of the technology investments we've made is going to be a meaningful opportunity for us. And we haven't kind of framed that in numbers yet. We're sort of building the foundation that we can build on. And I think that's something we'll continue to talk to you all about going forward. And then, on the innovation front, we also have a new CTO, and one of the things we're really focused on is how do we kind of increase the pace and success of our commercialization capabilities and -- across our businesses. And so that's another area of focus. And again, we're kind of putting the foundation in place. But we've got a great history at this company of breakthrough innovation, creating categories. And so tapping into that culture of innovation is something that's another big priority for us. Andrew Kaplowitz: That's helpful. And maybe just a little more color on inventories across your resi channels, anything you're seeing there? Obviously, resi HVAC is having much more difficult time than resi water heaters, given their own inventory problems over there. It doesn't seem to be the case with you guys here, but what's the risk given weaker consumer confidence that we could see some destocking? Charles Lauber: Right now, I would say we think that inventories in the channel on both residential and commercial side is at pretty normal levels, pretty much target levels. As there's hesitancy, maybe on new home construction, may see some of the distributors looking to be very prudent on how they manage inventories in the back half of the year. But we feel like channel inventories are pretty much where they should be right now. Operator: Our next question comes from Tomohiko Sano with JPMorgan. Tomohiko Sano: My first question is on CapEx. Could you talk about the CapEx guidance compared to 3 months ago, including what kind of items like did you revise for the full year, please? Charles Lauber: Yes. We lowered our CapEx outlook just a little bit. We pushed out some of the investments that we had planned for the fourth quarter of this year into early next year. Some of those, not all of those were related to just watching the DOE commercial regulatory initiatives out there, and we're just being prudent on making those investments until we have a more surety around that. Tomohiko Sano: And my follow-up is capital allocation. So you have been aggressive with buybacks and dividend increases, how do you prioritize capital allocations going forward, especially if the macro headwinds persist, please? Charles Lauber: I mean, certainly, the dividend is very important to us. We've raised it for 32 years. We look at that from a yield perspective, and we feel pretty comfortable with where we are at on that. Buybacks, we're framing really to not grow cash, which we're buying back a prudent amount, we believe to not grow cash and still reserve firepower for acquisitions. So as Steve mentioned, we have adequate firepower. We're looking for adding those acquisitions, and we're in a good position to do that. Stephen Shafer: And I'd say in terms of market conditions and how they change, we still recognize we need to deploy capital to our core business, and we have a very resilient core business from that standpoint. So making sure that we maintain a very strong core business that's cash flow generating is in that dynamic as well. And at the same time, we're looking to how do we provide more adjacencies that get us into kind of higher growth businesses. Operator: [Operator Instructions] Our next question comes from Scott Graham with Seaport Research Partners. Scott Graham: I'm sorry for jumping on late, balancing several conference calls. So I missed your prepared remarks. Was sort of the lean into the -- I should say, the reduction to the lower end of the guide range for the year, was that on China exclusively because it looks like the North American items are fairly flat versus last quarter? Was that China? Or was it something else? Stephen Shafer: Yes. Scott, there were 2 things we pointed out. There was obviously the softness, and we did revise down our China outlook for the year to down 10%. So that was a big part of it. The other thing we've highlighted is weakness on the residential side of the North America business, and we just see that a little bit softer now, where previously, we talked about it as a flat market. We now see it as flat to slightly down. So those 2 components are what have us being a little bit more cautious. Scott Graham: Okay. And I'm sorry for having to ask that. It was something you already said. Does that presuppose that, or maybe contemplate that, the October industry shipments were better than September because September really dropped off there? Can you kind of talk about what you're seeing in the industry in October? Charles Lauber: Well, the industry shipments, August really was down quite a bit on the residential side. We think September will be -- not similarly down, but was also weak. And as we think about kind of our orders, and maybe that's where we can comment in October because we haven't seen any industry data yet for October. But in October, as we look at our orders, we haven't seen resiliency, particularly on the wholesale side, which is generally more influenced by new home construction. So it's been a bit weak overall. So those all kind of -- all those factors come into play, Scott, when we're thinking about a flat industry last quarter, now flat to slightly down. We just see a little bit of pressure, particularly on the new home construction. Stephen Shafer: And we've talked about our approach to trying to level load our production a bit more for the efficiency benefits of that, working closely with our customers to do that. So we saw Q3 where the industry was down a bit, but we also gained share as was our intention as we walked through the quarter because of the way we level-loaded our production. Operator: Thank you. I would now like to turn the call back over to Helen Gurholt for any closing remarks. Helen Gurholt: Thank you for joining us today. Let me conclude by reminding you that we are pleased with our growth in the quarter. We look forward to updating you on our progress in the quarters to come. In addition, please mark your calendars to join our presentations at 3 conferences this quarter: Baird on November 11; UBS on December 3; and Goldman on December 4. Thank you, and enjoy the rest of your day. Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust Third Quarter 202 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Kristen Griffith, Investor Relations. You may begin. Kristen Thomas: Thank you. Good day, everyone, and welcome to NexPoint Residential Trust's conference call to review the company's results for the third quarter ended September 30, 2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer; Matt McGraner, Executive Vice President and Chief Investment Officer; and Bonner McDermett, Vice President, Asset and Investment Management. As a reminder, this call is being webcast through the company's website at nxrt.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent annual report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements. The statements made during this conference call speak only as of today's date, and except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, see the company's earnings release that was filed earlier today. I would now like to turn the call over to Paul Richards. Please go ahead, Paul. Paul Richards: Thank you, Kristen, and welcome, everyone, joining us this morning. We appreciate your time. I'll kick off the call and cover our Q3 results, updated NAV and guidance outlook for the year. I will then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance. Results for Q3 are as follows: Net loss for the third quarter was $7.8 million or a loss of $0.31 per diluted share on total revenues of $62.8 million. The $7.8 million net loss for the quarter compares to a net loss of $8.9 million or $0.35 loss per diluted share for the same period in 2024 on total revenue of $64.1 million. For the third quarter of 2025, NOI was $38.8 million on 35 properties compared to $38.1 million for the third quarter of 2024 on 36 properties. For the quarter, same-store rent and occupancy decreased 0.3% and 1.3%, respectively. This, coupled with a decrease in same-store revenues of 0.6% and same-store expenses of 6.2% led to an increase in same-store NOI of 3.5% as compared to Q3 2024. As compared to Q2 2025, rents for Q3 2025 on the same-store portfolio were down 0.2% or $3. We reported Q3 core FFO of $17.7 million or $0.70 per diluted share compared to $0.69 per diluted share in Q3 2024. During the third quarter, for the properties in the portfolio, we completed 365 full and partial upgrades, leased 297 upgraded units, achieving an average monthly rent premium of $72 and a 20.1% return on investment. Since inception, NXRT has completed installation of 9,478 full and partial upgrades, 4,925 kitchen and laundry appliances and 11,389 tech packages, resulting in $161, $50 and $43 average monthly rental increase per unit and 20.8%, 64% and 37.2% return on investment, respectively. NXRT paid a third quarter dividend of $0.51 per share of common stock on September 30, 2025. For Q3, our dividend was 1.37x covered by core FFO with a 73.2% payout ratio of core FFO. On October 27, 2025, the company's Board approved a quarterly dividend of $0.53 per share, a 3.9% increase from the previous dividend per share payable on December 31, 2025, to stockholders of record on December 15, 2025. Since inception, NXRT has increased the dividend per share by 157.3%. Turning to the details of our updated NAV estimate. Based on our current estimate of cap rates in our market and forward NOI, we are reporting a NAV range per share as follows: $43.40 on the low end, $56.24 on the high end and $49.82 at the midpoint. These are based on average cap rates ranging from 5.25% on the low end and 5.75% on the high end, which remained stable quarter-over-quarter. Turning to full year 2025 guidance. NXRT is reaffirming guidance midpoints for loss per diluted share, core FFO per diluted share, same-store rental income, same-store total revenues, same-store total expenses and same-store NOI and tightening guidance ranges for acquisitions and dispositions. Loss per share core FFO ranges are as follows: loss per diluted share of negative $1.22 at the high end, negative $1.40 at the low end, with the midpoint of negative $1.31 and for core FFO per diluted share, $2.84 at the high end, $2.66 at the low end with affirming the midpoint of $2.75. This completes my prepared remarks, so I'll now turn it over to Matt for commentary on the portfolio. Matthew McGraner: Thank you, Paul. Let me start by going over our third quarter same-store operational results. Same-store total revenue was down 60 basis points, albeit with 5 of our 10 markets averaging at least 1% growth, with Atlanta and South Florida leading the way at a positive 2.8% each. We are also pleased to report continued moderation in expense growth for the quarter. Third quarter same-store operating expenses were down an impressive 6.3% year-over-year. Payroll and R&M declined 7.5% and 6.1%, respectively, with year-over-year and total controllable expenses down a meaningful 6%. Insurance was also favorable by 19%, driven by the team's efforts here and market improvement on the property casualty side. Real estate taxes also decreased 8.7% due to favorable protest outcomes, most notably in our Nashville portfolio. Third quarter same-store NOI growth continues to improve in our markets with the portfolio averaging a positive 3.5%. A markable improvement from down 1.1% last quarter. 7 of our 10 markets achieved year-over-year NOI growth of at least 2.5% or greater with Nashville and Atlanta leading the way at 26% and 7.8% growth, respectively. Our Q3 same-store NOI margin registered a healthy 62.2%. The portfolio experienced improved revenue growth also in Q3, with 5 out of our 10 markets achieving growth of at least 1% or better. Our top 5 markets were Atlanta and South Florida at 2.8%, Tampa at 2.4%, Raleigh at 2.1% and Charlotte at 1%. Renewal conversions for eligible tenants were 63.6% for the quarter, with all 10 markets executing positive renewal rate growth of at least 75 basis points or better. 646 renewals were signed during the quarter at an average of 1.81%. On the occupancy front, the portfolio registered a 93.6% occupancy as of the close of the quarter. Market competition from lease-up assets on down the spectrum remain our biggest challenge, but clear skies are forming ahead. As of this morning, our portfolio is 93.6% occupied and 95.8% leased with a healthy trend -- 60-day trend of 92%. Even though we saw elevated pressures to occupancy and concession utilization, top line rent beat our internal forecast by 20 basis points for the quarter and bad debt continues to stabilize with a meaningful 32% year-over-year improvement for the quarter. Again, on expenses, they continue to moderate and finished the quarter down 6.4%. Payroll declined 7.6% this quarter and continues to trend downward as we implement centralized teams and AI technology. Our centralized platforms for renewals, screening, call centers, alongside AI applications deployed across various aspects of the resident experience are all driving greater efficiency and enabling reductions in on-site staffing, particularly within the leasing offices. As mentioned previously, we are now focused on optimizing our maintenance operations to drive similar efficiencies across our markets. Insurance, real estate taxes, R&M and G&A were the other categories that saw meaningful year-over-year improvement for the quarter with all categories improving at least 6% or more. Now turning to our updated view on supply. We believe we're close to the end of a record national new multifamily supply cycle. CoStar sees annual net deliveries having peaked at 695,000 units in the trailing 12-month period ending Q3 2024 and Q4 2024. This compares to annual net delivered units of 351,000 on average in the prior 5 years that prior 5 years being Q3 '14 through Q3 '19 and 282,000 units on average since 2001. CoStar forecast net deliveries reached 697,000 units in 2024 and expected to be 508,000 units in 2025 before falling significantly year-over-year in 2026 by 49% and 2027 by an additional 20%, a critical Q3 for deliveries followed by a steeper drop-off. For Q3 of 2025, deliveries are 17% down quarter-over-quarter and is the last quarter with more than 100,000 units delivered. An increased expectation for 3Q '25 deliveries is followed by a significant drop-off to Q4 2025 deliveries that is now forecasted at just 69,000 units, down 52% year-over-year and 41% quarter-over-quarter. This ushers in the start of the lengthy period where deliveries are expected to be below the long-run average and more bullish long-term forecast versus prior years. 2027 and 2028 delivery forecasts have also fallen. CoStar now expects 2027 deliveries of 234 units that compares to forecast from December of last year of 283,000 units and 231,000 units for 2028 that compares to prior forecast of 308,000 units. That's down 27%. On the whole, cautious optimism best fits our rental market outlook. Looking better in places still challenged, but we have come to the time where market fundamentals are coalescing to support a more bullish outlook for multifamily. We expect the rental market will take the lion's share of new household formation and outperform the for-sale market on the near term. While some markets still have supply issues, particularly in our fast-growing Sunbelt markets, demand is still there. We're absorbing units at a very strong clip right now, and part of that is due to the affordability challenge in the for-sale market. It's about twice as expensive on a monthly basis to own a home as it is to rent at the average apartment in the U.S. During the quarter, the team re-underwrote each of our assets as if we were to buy them new today with a particular view on the submarket competition for lease-ups. We tried to estimate based on historical lease-up trends when each of our submarkets that have supply pressures would indeed stabilize. We define submarket stabilization as 92% occupied with new construction deals being at least 70% leased. Our analysis showed that 5 of our 10 markets should stabilize in the first quarter, 6 of the 10 in the second and 8 of the 10 in the third quarter of next year with all markets stabilizing by year-end. Indeed, this could happen sooner as NXRT markets are littered with major job and corporate relocation announcements almost daily across finance, technology, defense, logistics, manufacturing and research. Billions of capital and thousands of jobs across names such as Align Data Centers, AllianceBernstein, Apple, Bell Textron, Fujifilm, Goldman, Intel, Microsoft, Oracle, TSMC, Wells Fargo have all hit our markets in the past 6 months alone. Again, more reason for cautious optimism. On the transaction front, buyer sentiment for multifamily purchasing continues to improve in Q3 according to CBRE and our own experiences. Institutional investor allocations to real estate are expected to tick up to 10.8% in 2026 according to Institutional real estate allocations monitor. Firms like Blackstone remain bullish on commercial real estate investments given muted supply growth and lower cost of capital in the form of lower rates and tightening spreads. Indeed, Blackstone, in particular, believes we're now approaching a steeper point in the price recovery, and we share that view. We continue to actively monitor the sales market for opportunities and stay close to any movements on cap rates in our markets. Many investors remain sideline, but we see opportunity to return to the market as fundamentals improve. We're expecting to recycle capital in the next couple of quarters against this transaction backdrop and are excited to announce that NXRT has been awarded the opportunity to acquire a 321-unit multifamily community in the high-growth suburbs of Northern Las Vegas. This asset features a unit mix focused on 2- and 3-bedroom floor plans ideal for young families and roommate situations. Recent large-scale developments have driven significant expansion, job growth and residential revitalization in North Las Vegas, which is now the Las Vegas Valley's most prominent industrial market. Nearby, over 15 million square feet of industrial space is currently under construction or planned, supporting the creation of approximately 8,000 jobs in this submarket alone. We have evaluated this asset to be structurally sound, well located and prime for value-add execution that is the best we have underwritten all year. We believe the asset has potential to generate a 7% same-store NOI CAGR over the next 5 years. Our plan will be to acquire the asset in late Q4, utilizing available capacity on the facility. And then we expect to execute one or more sales transactions in the first half of 2026, utilizing tax-efficient 1031 reverse exchange mechanics, thereby initiating our capital recycling growth strategies as we head into 2026. We expect this strategy to modestly be accretive for 2026 while yielding stronger core FFO growth throughout the 2027 to 2030 period. Capital recycling to generate growth is our primary external objective, selling mature assets with limited potential into newer growth, nicer and higher growth assets within our familiar market geographies. Transforming the portfolio and unlocking gains for tax-efficient capital recycling into high conviction assets to grow NOI at an outsized rate is consistent with the company's historic execution. We expect to continue scouring the market for the best opportunities, but we will absolutely prioritize stock buybacks as well in the low 30s over the near term. To summarize and reiterate a couple of points. On the macro outlook, we see the market signaling a steeper recovery ahead. On operations, revenue is moderating but at a decelerating pace, and we continue to demonstrate strong expense control driven by R&M, labor and insurance. We have stabilized bad debt and view the financial health of our tenant demographic is quite strong and resilient to market pressures. We have full conviction we can hit our same-store guidance expectations, and we are positioned for improved performance heading into 2026. On the balance sheet, we're cognizant of the swap maturity overhang on our earnings forecast, and we continue to monitor that daily for opportunities. We expect to act in replacing the swap book over the near term and certainty before any expirations. And on our path to growth, we see green lights ahead as it relates to our capital recycling strategy. Good deals are available. We are confident in our ability to underwrite, capitalize and execute on them, and our team will be heavily focused on doing just that heading into 2026 as well as, again, importantly, buying back stock in the low 30s. In closing, in the near term, we will continue to prioritize a balanced approach, driving occupancy, maintaining disciplined rent strategies, managing controllable expenses to support steady NOI growth while we look to accelerate our capital recycling strategy and portfolio transformation to drive external growth as conditions on the field are set to improve. Looking ahead, we are confident in the long-term fundamentals of our Sunbelt positioned workforce housing assets, which we see to be well positioned to outperform other geographies given our favorable trends in population migration, job creation and wage growth. That's all I have for prepared remarks. I appreciate our team's work here at NexPoint and BH for continuing to execute. And that concludes our prepared remarks. So at this time, I'll turn it back over to the operator and open up the call for questions. Operator: Your first question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: On the operating expense side, again, things look like they're going really well. Could you just talk a little bit about if that is going to be sustainable on a going-forward basis? And I just asked that in the context of full year guidance, where the midpoint of guidance suggests that FFO growth in -- or FFO in the fourth quarter will be $0.61 versus your current $0.70 run rate, which is being helped by better-than-expected expense control. Matthew McGraner: Yes. I think the -- there's a couple of categories that [ tries ] us back. We think that we'll have continued improvement in sustainability on the noncontrollable side with insurance. We also feel good about the real estate tax protests that are going on and see potential upside in that number. On the payroll and R&M side, we don't see anything changing materially and expect that to be consistent as well. For what it implies for core, I think we're cautiously optimistic that we'll exceed expectations as usual. And that's -- we're doing everything we can to beat on the expense side in the face of these supply pressures. I don't know, Bonner, if you have anything to add to that? Bonner McDermett: Yes. I would just add, I think on the real estate taxes, we received one pretty significant settlement that's kind of one time in Q3. So that's not necessarily the run rate for taxes there, but it does. If you'll remember, Nashville is on a 4-year revaluation cycle. So we fight this battle every 4 years that occurred last year. We've been in the process of litigating those. We've got court dates on a couple of the other deals, but we don't expect to see any dramatic shift there. So some of the real estate tax savings that you see in the quarter is more onetime in nature. But I agree with Matt, particularly on payroll and repair and maintenance expenses, those are heavy focuses for us controlling. So I do think that we can continue at least through the first quarter on the payroll run rate. We've made the strategic initiatives to centralize a lot of the operations. So most of that activity on the P&L hit kind of April 1 and going forward. Omotayo Okusanya: Got you. Can you quantify that onetime benefit in 3Q? How much that was? Bonner McDermett: Yes. The total there was about $820,000. Omotayo Okusanya: Got you. Okay. That's helpful. Then my second question is, again, your self-disclosed NAV, again, you guys -- whether you're at the low end or the high end, depending on the cap rate you're using, I mean the stock has been persistently trading at this kind of huge discount to NAV. And I guess when you guys look at that over a long-term period, if that gap is not necessarily made up over time, how do you kind of think about kind of what next for NXRT and how you try to create shareholder value if you just kind of get assigned this perpetual large discount to NAV, granted a lot of the sector is already trading that way. So this is not unique to you, but just curious how you're thinking about that. Matthew McGraner: Yes. Look, we've been very clear since we became public in 2015 that we view the company as a growth company. But we also -- I mean, we also have the company set up to transact as well with floating rate debt. Our goal is to hit $170 million of NOI by 2027. It's that simple. And the terminal value, at least in our mind, will always be there. We think that the portfolio is hard to replace and scale. We think we have the best job -- best exposure to the highest job growth markets. And we have -- we believe that if the discount isn't closed, then we'll close it. We own 16.5% of the company. We're highly aligned to do so. And what we absolutely know is that even in a muted transaction environment, there's still a bid for multifamily. The transaction market is still kind of a 5 cap market and especially for assets like ours. So while the public markets are discounting multifamily stocks, we think that, that will change dramatically in 2026 as new lease pricing inflects. I think that's going to be the catalyst of it. I see that happening in the second quarter probably of 2026. And I think our stock will start to perform into that bid of new lease growth. But if it doesn't, we're confident that there is a terminal value and a bid for the company. We know that for sure. So we'd like to continue to grow the earnings stream and think we can. But if not, there's a bid there. Operator: Your next question comes from the line of Buck Horne with Raymond James. Buck Horne: I apologize. Did you guys give out the splits on new lease rates, renewals and the blend for the quarter? Matthew McGraner: No, we did in the supplement, but we'll update it for you. The new -- for the quarter, new leases were down 4.06% or $58. Renewals were up 1.94% or $29, almost $30. That's a blended negative 44 basis points. Buck Horne: Got it. Appreciate that. And by the way October? Matthew McGraner: October is kind of trending the same way. Buck Horne: I got it right here. Matthew McGraner: New leases were down 3.78% or $54. Renewals were up about 70 basis points or $10 for a blended down 1%. Buck Horne: Perfect. You already beat me to my next question. I appreciate that. Step ahead of me. I want to also touch a little bit on the CapEx spend, just kind of the maintenance CapEx, both recurring, nonrecurring, I think it added to about $9 million in the quarter. Do you see that starting to taper off anytime soon? Or is that kind of the run rate that you expect the portfolio to be on for at least a few more quarters? Matthew McGraner: Yes. I mean I think we're -- it's a little bit elevated. And the reasons for that is because we haven't been able to recycle as much of the portfolio as we typically do. So there is a little bit of more maintenance CapEx going into it. Bonner, do you have anything to add to that? Bonner McDermett: Yes. I'd also say if you're referencing Page 22 of the supplement, you'll see the interior spend is up, particularly in the third quarter. That's up, but it's also up on a smaller dollar improvement. So our market upgrade program where we're not doing the full enchilada of premium upgrades with hard surface counters and things like that. We're focused more on kind of that on average, it was about $4,000 upgrade. So to some units that we touched in the past or needed some help to be competitive. We're spending about $4,000. We're getting a $70 premium. So it's not quite the historical run rate for spend on interiors, but we're still getting to that kind of 20% annual return. So we think that, that makes sense short term while pricing is under pressure. And then we -- I think we referenced this on the last call, the large refinancings that we did with Freddie Mac, we got new property condition assessments, those kind of dictated some larger nonrecurring CapEx spends, some milling and paving of drive lanes, some siding repairs, some roofs. We're also doing -- we're redoing a pool in Raleigh. So we've got some, I would say, larger projects this year. I think we're more focused on streamlining that spend going into next year. Matthew McGraner: And those are more onetime in nature anyway, so it should moderate. Buck Horne: Perfect. That's great color. I appreciate that. And again, congrats and great job on controlling the expenses in this environment, a lot of progress there. I think I want to go back to Omotayo's question about capital allocation and just thinking about the NAV discount. But I guess the question really is why go after a new asset in Vegas at this point when you could buy the existing portfolio probably at an equal or better kind of combined NOI yield and growth rate going forward? Just kind of what's the -- help us walk through the rationale of why buy an asset right now when you can buy the existing portfolio? Matthew McGraner: Yes. I think -- I don't think they're mutually exclusive. I think we can do both. As I said, I think over the near term, until we close on this deal, we're going to aggressively buy back stock given where the capital is. But our view also is we do need to show some external growth in terms of capital recycling. We're not going to be net acquirers, so to speak. So we're not going to just go out and buy willy-nilly. The difference with this deal is, given the situation of the asset, it's basically going in almost a 6 cap that we believe we can drive to a 7.5% or an 8% cap over the course of our 3-year value-add campaign. And those opportunities don't really exist on a large scale. This is a very precision-based investment. And I don't think it cannibalizes anything we're doing on a stock buyback program. Our free cash flow yield is still strong. And I mean, I meant what I said when we're trying to hit $170 million of NOI in 2027 by the end of that year. I think that that's possible. And if we do that and we apply the terminal cap rate, I think we'll all be very happy. Operator: This concludes today's question-and-answer session. I would now like to turn it back over to the management team for closing remarks. Matthew McGraner: Thank you very much for everyone's participation today and look forward to speaking to you all live in December at NAREIT. Thanks again. Operator: This concludes today's call. You may now disconnect.
Operator: Good day, and welcome to Zedge's Earnings Conference Call for the Fourth Quarter and End of Year Fiscal 2025 results. [Operator Instructions] I will now turn the call over to Brian Siegel. Brian Siegel: Thank you, operator. During today's call, Jonathan Reich, Zedge's Chief Executive Officer; and Yi Tsai, Zedge's Chief Financial Officer, will discuss Zedge's financial and operational results that were reported today. Any forward-looking statements made during this conference call during the prepared remarks or in the question-and-answer session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results in the future to differ materially from those discussed on today's call. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in Zedge's periodic SEC filings. Zedge assumes no obligation to update any forward-looking statements or to update the factors that may cause actual results to differ materially from those that they forecast. Please note that our earnings release is available on the Investor Relations page of the Zedge website and has also been filed on Form 8-K with the SEC. Finally, on this call, we will use non-GAAP measures. Examples include non-GAAP EPS, non-GAAP net income and adjusted EBITDA. Please see our earnings release for an explanation of our use of these non-GAAP measures. Now I'd like to turn the call over to Jonathan. Jonathan Reich: Thank you, Brian, and good afternoon, everyone. Fiscal 2025 was a year of transition in which we reshaped Zedge to be more efficient, financially disciplined and positioned it for scalable and sustainable innovation. During the year, we completed a major restructuring aimed at positioning Zedge for sustainable, profitable growth. This included closing operations in Norway and a targeted rightsizing of GuruShots. These actions, when combined with the completion of the GuruShots retention program that was implemented at the time of the acquisition in 2022 are expected to reduce our gross annualized expenses by about $4 million. We also incurred approximately $1.5 million in cash restructuring costs and $1 million in noncash charges, which Yi will discuss in more detail shortly. Fortunately, as we enter fiscal year '26, the vast majority of these charges and cash expenditures are behind us, providing greater operating flexibility. This leaner cost base enables us to reinvest selectively in initiatives that offer the highest return potential, focusing on accelerating growth, improving margins and enhancing free cash flow generation. Operationally, business performance was mixed in Q4. Our Zedge Marketplace, which includes Zedge Premium, subscriptions and advertising performed well, while GuruShots appears to be plateauing. Separately, subscription revenue increased 21% year-over-year, and we ended the year at record levels with nearly 1 million active subscribers, an increase of 47% compared with Q4 of fiscal '24. We also saw continued growth in Zedge Premiums GTV. Fourth quarter Zedge Marketplace ad revenue grew year-over-year, but total ad revenue for the company was softer than expected due to a decline at Emojipedia from the competitive impact of AI search. Going into Q1, Google introduced a change to its search engine results page, whereby users can now directly copy and paste emojis from the search page. Although Emojipedia still ranks first or second across search, Google's change is diverting traffic away from the site. We are actively testing strategies to mitigate this outcome and strengthen Emojipedia's performance. We also made advances with DataSeeds.AI, our platform for providing rights-cleared, ethically sourced data sets for AI training. Since launching earlier this year, DataSeeds has secured contracts from several leading AI customers, underscoring the value and credibility of our approach. What makes DataSeeds uniquely positioned for success is our community of skilled photographers and graphic artists. Collectively, this group has produced a large and diverse image library of close to 30 million assets, which can be licensed for AI training. We can also leverage our creator community to generate customized on-demand data sets tailored to specific customer requirements. By launching themed GuruShots competitions aligned with client objectives, we can rapidly produce a critical mass of high-quality rights cleared data that directly supports each customer's unique AI training needs. In parallel, we have started building the DataSeeds Production Cloud, a managed global production network that mobilizes domain experts, including professional photographers, videographers and graphic artists to deliver highly unique and specific data sets at scale that don't lend themselves to photo competitions. This creates a scalable and differentiated advantage for DataSeeds in this fast emerging and explosive market. Turning to capital allocation. We repurchased approximately 640,000 shares in the fourth quarter and a total of 1.3 million shares for the full year using cash generated from operations. For the fourth quarter, our more aggressive share repurchases, along with restructuring and retention-related payouts temporarily reduced our cash position. We ended the year with approximately $19 million in cash and cash equivalents, reflecting our decision to strategically deploy capital where we see the greatest long-term value. These actions also underscore our confidence that Zedge's intrinsic value is not fully reflected in its current share price. In fact, following the end of the quarter, we also announced the initiation of our first quarterly dividend of $0.016 per share, further reinforcing our confidence in the strength of the company's cash flow generation and balance sheet. The share repurchase and dividend reflect a disciplined, balanced capital allocation strategy focused on returning value to shareholders while preserving the flexibility to invest in high-impact innovation and future growth opportunities. Fiscal '26 is going to be a year where we invest in growth and innovation. Our strategy is centered around five key areas of focus. First, expand and diversify our revenue base. For our core products, we plan to continue to innovate new features and optimize our monetization strategies. Late in fiscal '25, we integrated audio AI capabilities into the pAInt suite, and we intend to further expand those creative tools in '26. We are also evaluating how best to evolve GuruShots. One of the biggest questions we are working through is, do we focus on making the game more engaging or do we more closely couple it with DataSeeds as a massive content acquisition platform or both? It's too early to commit to a specific direction, but it's fair to say that we are monitoring performance and opportunity closely. Second is to accelerate product innovation. Our product innovation team has adopted a model that launches test marketing campaigns to measure interest before writing one line of code and then capitalizes on the benefits that AI, vibe coding and automations offer to accelerate the development of the new potential winners. Syncat, our recently introduced app that turns still photos into fun and potentially viral video clips, was the first example of this new strategy. This approach allows us to build smaller, more focused products rapidly, test them against defined key performance indicators and scale those that show promise. We call these early-stage launches Alphas, and we expect to introduce at least 6 new Alphas in fiscal '26 under this framework. Third, scale tapedeck and DataSeeds.AI. In September, we launched tapedeck in the U.S. on iOS. Tapedeck is a music platform dedicated to indie artists and designed to allow them to make a living from their music by offering transparency and fairness to them. The tapedeck pilot started with approximately 500,000 tracks and allows artists, labels, and distributors to set their own pricing and keep 80% of each sale or stream. In addition, it allows their fans the ability to pay extra or tip their favorite artists directly. Although it's too early to comment about performance, our goal is to expand to Android, web and international markets during fiscal '26. Similar to all Zedge products, tapedeck's expansion will be tied to performance, and we plan to refine its creator tools and explore additional monetization models. For DataSeeds, our priorities center on expanding the creator ecosystem, expanding the pipeline of qualified enterprise prospects and converting prospects into customers. Our focus remains on delivering bespoke, rights cleared and ethically sourced data sets that meet the rigorous standards and evolving needs of the AI industry. Fourth is improving operational efficiency. Fiscal '26 will begin to show the full benefit of our restructuring efforts. We'll continue to reallocate resources to the most attractive opportunities, improve process automation through the implementation of AI across the company and reinvest savings into projects with measurable returns. And fifth, execute a balanced capital allocation strategy. We will continue returning capital to shareholders through buybacks and dividends while maintaining the flexibility to invest in initiatives that enhance our long-term value. In summary, we enter fiscal '26 with positive momentum. We have three early-stage products, DataSeeds, tapedeck and syncat that are evolving and the completed restructuring positions us for improved cash flow and profitability. Combined with our innovation pipeline, these initiatives give us confidence that fiscal '26 will mark the next stage in Zedge's evolution, one which is focused, creative and financially disciplined. Now I'll turn the call over to Yi. Yi Tsai: Total revenue for the fourth quarter was $7.5 million, down 1.5% from last year. There were a couple of items to note here. First, Zedge Marketplace revenue was up mid-single digits for the quarter and would have performed even better if it were not for a onetime $144,000 benefit related to Zedge Premium in the year ago quarter. Also offsetting growth at Zedge Marketplace was an 11% decline at Emojipedia, consistent with Jonathan's earlier comments and the expected 39% year-over-year drop at GuruShots. Although sequentially, the business was down less than $25,000, showing stabilization. Advertising revenue was up slightly for the quarter as growth in the Zedge Marketplace was offset by lower ad revenue at Emojipedia. Zedge Plus subscription revenue increased 21% year-over-year, and our net active subscriber base grew 47%, reaching nearly 1 million subscribers. We continue to optimize our subscription plans and are seeing the benefits of those changes. Deferred revenue, which primarily represents subscription-related revenue, reached $5.4 million, up 10% sequentially and 73% year-over-year. This is an important metric as it reflects future revenue that carries essentially 100% gross margin. Zedge Premium GTV grew 7% from the year ago quarter and ARP MAU increased 17%, continuing the shift toward higher-value users and improved monetization efficiency. As noted earlier, GuruShots, which is reported under digital goods and services revenue remained a challenge, down 39% year-over-year. As part of our cost optimization initiatives, we significantly reduced user acquisition spending for GuruShots while we evaluate the best path forward. These revenue declines were expected and encouragingly, the year-over-year rate of decline improved by 600 basis points. We expect to begin lapping some of these weaker comparisons in fiscal 2026. Cost of revenue was 6.4%, roughly flat year-over-year in absolute dollars. SG&A increased about 1% to $6.9 million for the quarter. This reflects higher paid user acquisition where we are achieving strong returns and approximately $400,000 in reinvestment from restructuring savings into consulting, professional services and product development to support the ramp of DataSeed.AI and tapedeck, which partially offset restructuring savings. We also recorded $0.6 million in restructuring charges in connection with the actions announced in late January and early February compared to no restructuring or asset impairment charges last year. As a result, GAAP loss from operations was $0.7 million compared to a loss of $0.1 million last year, primarily due to those restructuring costs and growth investments. GAAP net loss and EPS was $0.6 million and negative $0.01 compared to breakeven results last year. On a non-GAAP basis, net income was $0.1 million and EPS was $0.00 compared to $0.3 million and $0.02 last year. Cash flow from operations was $0.7 million, and free cash flow was $0.5 million for the quarter. As Jonathan mentioned, cash payments related to the restructuring and retention bonuses tied to our 2022 acquisition of GuruShots reduced free cash flow by about $600,000 in the quarter and $1.5 million for the year. These payments are now complete and will not impact results in fiscal 2026. Adjusted EBITDA for the quarter was $0.3 million. From a liquidity perspective, we ended the year with $18.6 million in cash and cash equivalents and no debt. The sequential decrease reflects our repurchase of approximately 640,000 shares during the quarter and nearly 1.3 million shares for the year. As of mid-October, about $600,000 remains available under our current buyback authorization. Thank you for listening to our fourth quarter earnings call. We look forward to updating you again soon when we report results for the first quarter of fiscal 2026. Operator, please open the line for questions. Operator: [Operator Instructions] Your first question for today is from Allen Klee with Maxim Group. Allen Klee: If you could touch a little more on tapedeck and DataSeeds.AI in terms of the actions you're looking to take going forward and how you might think about what the opportunity is in both of these offerings? Jonathan Reich: Allen, thanks for asking the question. So I think that there are really sort of three buckets here. We've got tapedeck, which has been an initiative that we have built to address a portion of the world of music, mainly in the artists that are underserved today in terms of revenue generation. As you know, Tim Quirk, our SVP of Product, comes from that world. And the goal of this product is to provide a transparent platform where fans of indie artists can support their fans and do so in a fashion that allows for these Indie artists to make a good living from their artwork. The product has been built with many of the hooks needed in order to facilitate that outcome. And we've launched with 500,000 tracks. The need for additional music is there. And based upon performance and KPIs, we will make a decision in calendar year 2026 as to whether to continue this initiative or to really put it on the back burner. Moving to DataSeeds, similar notion of really managing the business towards KPIs. DataSeeds, as I've described, is a B2B offering, our first B2B offering, which is focused on providing foundational AI companies with data sets that they are in need of in order to meet their development goals. And we are hard at work at taking content that we have access to through GuruShots, content that we can create with the -- with collaboration with our creator community, whether that be GuruShots players or Zedge premium artists or even creating very, very bespoke content with professionals that extend beyond our existing user base. We have signed two contracts in fiscal Q4. One of the partners that we signed, and these are well-known global brands and so on and so forth. One of those partners has signed a new contract with us in Q1 with a significantly larger order size. What we're in belief of is that many of [ these prospects ] will start off doing something small with us. We will need to prove that we can provide the data that's needed in a fashion which adds value to their development process and the goals that they are trying to achieve. And if we are successful there, some portion of those customers will come back and order more content from us to the tune of larger amounts of money. And then finally, we've got syncat, which is the first of our new innovation products that is being -- that are being rolled off the conveyor belt quickly through the [ increasing ] of AI and vibe coding and automation and other tool sets. And the goal there, again, is to manage specific KPIs in order to demonstrate that if we meet the KPIs, we can double down. If we are unsuccessful in meeting the KPIs that we can scale fast and move on to the next MVP, if you will, or product concept. I want to underscore, and this is really important that before we even write one line of code, part of the process is to run marketing tests in order to determine that the marketing funnel is one which is affordable and will yield customers that we feel that we can monetize and earn a good return on. If we see that the marketing tests are unsuccessful, there is no justification to move forward and develop that concept that we have. So there's a lot of innovation tied to meeting KPIs, doubling down on the ones that are successful and continuing with that path. We're doing that with our existing resources. And we're not looking to hire additional heads. One could imagine to do such an initiative, we would need to bring on a lot of new people. That is not what our intention is. And we're doing that across the three tracks, whether it be DataSeeds, whether it be the innovation track or whether it be with tapedeck. I hope that answers your question. Allen Klee: That was great. One of the encouraging things I saw in your results was a sequential improvement in monthly active users, which maybe suggests that there's a possibility of some stability or potential growth eventually. What would you point to of the steps you've been taking to get those results? Jonathan Reich: So as Yi had indicated in his comments, we are being very discerning about our marketing spend and ensuring that we are focusing on bringing on high-value customers that can generate an attractive ROAS profile. And our spend is linked to what's happening in the market in real time. Specific to the Zedge Marketplace, we need to see ROAS return in a very short period of time because the Zedge marketplace is not an app that people will come back to on a daily basis like they would with a social network or communications app or [ human game ]. And therefore, we are able to react quickly. And we're able to ratchet our marketing spend based upon what is happening in the market at any particular point in time. We have had our data scientists develop a model that we are using in order to make investment decisions in paid UA. And I think that, that lends itself to some of the improvement that you're seeing. Clearly, our product evolution is something that contributes to that as well. And then there are just market dynamics where certain things are going on, let's just say, the holidays, people get new phones, they want to personalize their phone, they will then come to Zedge and download accordingly. So some of those are within our control and others are seasonal. But the ones that were in our control, we are really being very discerning about how we allocate our paid user acquisition spend in order to yield a good return. And that, I think, is a critical part of answering your question. Allen Klee: That's very helpful. So I heard you say that you took some of the restructuring savings and reinvested it back in maybe paid user acquisition spend or some other things. Could you just kind of go into kind of where that was focused? And is that something as far as you can tell now that you would continue to prioritize those areas? Jonathan Reich: Generally speaking, we've had a couple of cash expenditures around marketing. We've talked about the share repurchase and Yi said that we've got around $600,000 less than the share repurchase program, which totaled with a $5 million share repurchase program underway. And now with the initiation of the dividend, that will also consume some cash. Our goal is to fund all of these with our existing cash flow, not to have to dip into reserves ultimately. And if and when we see a tremendous growth opportunity that is backed up by numbers, we may spend more on marketing in order to seize that opportunity. I mentioned earlier, even with respect to DataSeeds, there is product that is being developed in order to meet enterprise client needs, but we are aligning that development with signed contracts and revenue in order to align expense and revenue as opposed to taking a perspective of build and then they will come. Yi, do you have anything that you want to add to that? I'm sorry Yi, do you have anything that you want to add to that? We may have lost, I don't know where he is. Allen Klee: Okay. That's fine. Your comments on Emojipedia, could you just explain again what kind of what Google changed and what actions you're taking to try to remediate that and how you're thinking about the timing of how you're hoping that those actions might kick in the results? Jonathan Reich: Sure. So there are really two different things that are going on with Emojipedia. One is an industry-wide phenomenon relating to the advent of AI search. And that can be ChatGPT, Perplexity, Anthropic's Claude, whatever the case may be, whereby user just goes in and types, let's say, Smile emoji. And ChatGPT will respond by posting a Smile emoji. User will then copy that emoji and put it into their e-mail or into their text message, whatever the case may be. That is independent of Google. Of course, Gemini provides the same sort of experience. Separately, Google consistent -- regularly and consistently updates the algorithm and the results for their search engine results page. And what they had rolled out as being brand new, has not ever happened in the past is at least for a limited number of emojis, if someone were to go in and search Smiley emoji, on the search results page, there would be a Smile emoji with a little copy or cut or paste button underneath it. And then immediately following that, you would find the link to Emojipedia. We are still ranked #1 or #2 in terms of overall search results, but the functionality of the search results page now allows for a user to immediately acquire the content that they are looking for. In the case of Emojipedia, Emojipedia is much more than just copy paste, but clearly, we have copy paste users. And let me explain other users in the world of Emojipedia. We have a lot of digital agencies. We have news outlets. We have researchers that need to have detailed information behind each individual emoji that they are using in a digital campaign writing about or the like. And that information is available only in Emojipedia or primarily in Emojipedia. And the copy paste users are the ones that are, so to speak, being affected because they no longer would go to Emojipedia for a straight copy paste type of experience. I hope that answers your question. Allen Klee: Yes. I had a question on deferred revenue, which you highlighted how that's been growing and how that can provide future revenue at close to 100% margin. How do we think about the amount of deferred revenue, the timing of how it gets recognized? Yi Tsai: Can you hear me, Allen? Allen Klee: Yes. Yi Tsai: Sorry about that, something wrong with my headphone. I talked, but you guys couldn't hear me. Yes. So the way deferred revenue work is that as we sell the lifetime subscription, we take the cash, but we amortize the revenue over 30 months. So whatever we not recognize as a revenue, we put it under deferred, which we will recognize over the next 30 months. So would that mean that we will just recognize those deferred revenue over time. And as long as we keep the subscriber pool steady, we would level out the revenue based on what we sell, not what we recognize. I hope I answered your question now. Allen Klee: Yes, that's great. So one other question. Your SG&A was roughly flat year-over-year, but up sequentially. And you highlighted a few things that was spent on. Is it reasonable to think that this quarter is kind of a decent run rate for what SG&A might be going forward? Yi Tsai: This quarter, SG&A, as Jonathan mentioned, we -- the savings from the restructuring was used to pay for the ramp-up in PUA and pay for some consulting fee related to new initiatives. So yes, going forward, the SG&A will probably decline a little bit because we're not spending the same amount in PUA and consulting for the new project as we did in Q4 of '25. Operator: This concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Corning Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is my pleasure to introduce you, Ann Nicholson, Vice President of Investor Relations. Please go ahead. Ann Nicholson: Thank you, and good morning, everyone. Welcome to Corning's Third Quarter 2025 Conference Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer; and Ed Schlesinger, Executive Vice President and Chief Financial Officer. I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the company's financial reports. You should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. For the third quarter, differences between GAAP and core EPS include noncash mark-to-market adjustments associated with the company's translated earnings contracts and foreign-denominated debt as well as constant currency adjustments. As a reminder, the mark-to-market accounting has no impact on our cash flow. A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center. Supporting slides are being shown live on our webcast. We encourage you to follow along. They're also available on our website for downloading. And now I'll turn the call over to Wendell. Wendell Weeks: Thank you, Ann. Good morning, everyone. Today, we reported another excellent quarter. Year-over-year, sales grew 14% to $4.27 billion. EPS grew 24% to $0.67, again, outpacing sales growth. Operating margin expanded 130 basis points to 19.6%. ROIC increased 160 basis points to 13.4% and free cash flow of $535 million puts us on track for another year of strong free cash flow growth. These results demonstrate the powerful, profitable growth outlined in our Springboard plan. So I want to put our third quarter results in the context of that plan. In quarter 4 of 2023, we launched Springboard, which outlined our plan to significantly increase our sales as we captured important secular trends. We said we already have the required production capacity and technical capabilities in place to deliver the sales growth and the cost and capital are already reflected in our financials. Therefore, we expect to deliver powerful incremental profit and cash flow, leading to our earnings growing much faster than sales. So as we approach the 2-year anniversary of Springboard, how are we doing? When we compare our third quarter 2025 results to our launch point, we grew sales 31%. We expanded operating margin by 330 basis points. We grew EPS 72%, more than twice the rate of sales growth. We expanded ROIC by 460 basis points, and we generated strong free cash flow. Now let's compare our results to our upgraded Springboard plan. We are tracking well above our high confidence plan, and we're tracking very well on our internal plan. Through the end of the third quarter, we've added $4 billion of incremental annualized sales since the launch of Springboard. Looking ahead, we expect fourth quarter sales of $4.35 billion, which will add another $300 million to our annualized sales run rate. Of course, this plan is about more than sales growth. Our plan was also to dramatically improve our profitability by improving our operating margin from around 16% to 20% by the end of 2026. Let's see how we've done against that target. As we executed Springboard, you can see that our operating margin expanded significantly. As we look to the fourth quarter, we now anticipate achieving the 20% target a full year ahead of plan. So since the beginning of Springboard, we have significantly increased our sales. We have grown operating profit at twice the rate of sales, and we have increased EPS more than double the rate of sales. Going forward, of course, we still expect the effects of seasonality, which you can see on the chart. But this is a powerful enhancement to our profitability that should translate into very attractive returns as we continue to grow sales. Stepping back, as we approach the second anniversary of Springboard, the plan has certainly been a tremendous success. We've added $4 billion to our incremental annualized run rate, and we have significantly improved our profitability. Perhaps even more exciting is that we see much more growth and more springs ahead. Let me give you just a few quick examples of the opportunities we expect to add to our sales run rate. In mobile consumer electronics, I'm sure you all saw the recent announcement from Apple that committed $2.5 billion to produce 100% of iPhone and Apple Watch cover glass in the U.S. for the first time at our Harrodsburg, Kentucky facility. This plant will become home to the world's largest and most advanced smartphone production line. And we will open a new Apple-Corning Innovation Center there to deepen our co-innovation and play a key role in future generations of Apple products. In total, this creates a significantly larger, longer-term spring for us in mobile consumer electronics. In Optical Communications, we are expanding our innovation and technology leadership in Gen AI. First, in our enterprise business, where we report sales for inside the data center, we grew sales 58% year-over-year. Ann will share more detail. But the primary technical driver behind that growth is what the industry calls the scale-out of the network. That basically means that hyperscale customers are scaling out the GPU clusters with more and more connected AI nodes of server racks or simply put larger neural networks. Because each AI node is connected to the others in the cluster by fiber, this creates more volume for Corning. Now you only need to do a brief scan of the news each day to see that the scale-out opportunity is expanding dramatically. We have plenty of growth ahead, and we expect demand for our innovations to continue to accelerate. We are not only the inventor of the world's first low-loss optical fiber and the technology leader in this space, we are also the largest producer by revenue of fiber, cable and multi-fiber connectors in the world. Importantly, we also have low-cost, U.S.-based advanced manufacturing platforms for each of the critical components. This creates a unique Corning opportunity to support our hyperscale AI customers as they seek to build major U.S. data centers using U.S. origin products. There is more to come in this space. We're working to formalize customer agreements so stay tuned. Now let me shift to another significant opportunity we are pursuing in Gen AI, driven by what the industry calls the scale up of the network. Hyperscalers are creating more capable nodes that move from less than 100 GPUs per node today to hundreds of GPUs per node in the future. Historically, an AI node has been within a single server rack. As hyperscalers scale up, AI nodes are shifting to stretch across multiple server racks. This causes the distance to link these GPUs within the node to get longer. This will eventually cause the links to reach about 100 gigabit per second meter, what we call the electrical to optical frontier line, which roughly marks the point where fiber connections become more techno-economical than copper, creating a large potential opportunity for us. To help understand the size of this opportunity, a single Blackwell-like node has more than 70 GPUs with more than 1,200 links using more than 2 miles of copper. As that node scales up, those 2 miles will eventually be replaced by fiber connections. And those miles will grow over time as more and more GPUs are included in the AI node. I'm sure you've seen announcement regarding co-packaged optics or CPO. That is one of the technologies that helps activate this scale-up opportunity for us. If we succeed technically, the scale-up opportunity could be 2 to 3x the size of our existing enterprise business. And we are working with key customers and partners on making that future a reality as well. Another opportunity for growth tied to Gen AI is playing out in our carrier business. In the industry, this is referred to as DCI or data center interconnect. We introduced a high-density Gen AI fiber and cable system that enables customers to fit anywhere from 2 to 4x the amount of fiber into their existing conduit. And we have seen tremendous response to this product set. We expect this business to scale rapidly, reaching a $1 billion opportunity for us by the end of the decade. DCI also offers the opportunity for new, more radical innovations in this space. We recently strengthened our long-standing relationship with Microsoft, announcing a collaboration to accelerate the production of their hollow core fiber. Our fiber and cable manufacturing facilities in North Carolina will produce Microsoft's fiber as they seek to advance the performance and reliability of Azure's cloud and AI workloads. With hollow core technology, we're talking about cases where the difference between the speed of light through glass and the speed of light through air actually matters. Now this illustrates how important DCI could become as our customers look to decrease their latency. This offers Corning the opportunity to innovate on new dimensions. Now let's shift to our solar business, where we are pursuing another powerful secular trend and expect to add to our run rate in quarter 4 and beyond. We've been seeking a low-risk, high-return entry into the solar industry for some time. First, solar power is fundamentally about the efficient use of photons and low-cost materials conversion platforms. Both are key opportunities for innovation that are right in our wheelhouse. Second, we are already a world leader in semiconductor polysilicon, which is simply a much purer form of the fundamental material used in solar. Finally, we anticipated the growing need for a U.S. domestic solar supply chain, which is only accelerating with the advent of Gen AI and global tariff structures. We began this journey in 2020. And since then, we generated over $1 billion in cash in this platform. We funded the expansion of our manufacturing assets with a growing cash flow generated from assets we acquired for less than $0.10 on the dollar, customer funding and government support, all while generating positive cash flow every year. As a result, we now have built a strong foundation for rapidly accelerating growth. We made process advancements to serve a higher-end chip segment in semiconductors, allowing us to drive continued growth in the most advanced segment of semiconductor chips. We activated idle assets to serve the need for domestic solar polysilicon. And we added the capability to transform our polysilicon into higher-value, domestically made solar wafers, all integrated together on our campus in Michigan. We've sold out our polysilicon and wafer capacity in 2025 and now have more than 80% of our capacity committed for the next 5 years. And today, we're building on this progress with some exciting news. Over the last 18 months, we have built the largest solar ingot and wafer facility in the United States, co-located with our polysilicon manufacturing facility in Hemlock, Michigan. It was a significant undertaking. To give you a sense of scale, the factory contains as much steel as the Salesforce Tower, San Francisco's tallest skyscraper. The site is the equivalent of 60 football fields, and the building itself occupies about 1/3 of that. Now we hope we can offer our investors the opportunity to visit this site soon. So you can see this terrific new factory for yourselves. We have grown the Corning family in Michigan. And as we speak, our folks are starting that big factory up. In this quarter, we expect to move from producing thousands of wafers a day to more than 1 million a day. So needless to say, this is an exciting and stimulating time for us. As we've shared, we have committed customers for more than 80% of our capacity for the next 5 years. So our focus will be on our continued ramp to meet their needs. At the same time, we'll be applying our deep material science expertise to bring our more Corning content approach to bear in solar and applying our advanced manufacturing capabilities to establish ourselves as the global low-cost producer even as we're based in the U.S. Overall, we are thrilled with our progress in solar. In quarter 1 of this year, we generated $200 million of sales in this map. We expect to triple that run rate by 2027, adding $1.6 billion of new annualized revenue to Corning's earnings power as we march towards our goal of building a $2.5 billion revenue stream by the end of 2028. So altogether, as we approach the second anniversary of Springboard, the plan has clearly been a tremendous success, and we have plenty of growth yet to come. With that, I'll turn it over to Ed for more detail on our results and outlook. Edward Schlesinger: Thank you, Wendell. Good morning, everyone. We delivered outstanding third quarter results, reflecting strong sales growth and even stronger profit expansion across multiple businesses. Year-over-year in Q3, sales were up 14%, while EPS grew 24%. Operating margin expanded 130 basis points to 19.6% ROIC grew 160 basis points to 13.4%, and we delivered strong free cash flow of $535 million. First, I will provide more color on our Q3 results, then I will cover our Q4 expectations, both in the context of our Springboard plan. With that, let me share some details on our Q3 results at the segment level, where you see some of our key Springboard initiatives for sales growth and profit expansion [indiscernible]. In Optical Communications, our growth was led by strong adoption of our new Gen AI products. Third quarter sales grew 33% year-over-year to $1.65 billion, highlighted by 58% year-over-year growth in our enterprise networks business. Investors continue to ask us to size our Gen AI opportunity for inside the data center. We began to size the opportunity in early 2024 when we provided a 25% CAGR for 2023 to 2027 for our enterprise segment sales. We upgraded the CAGR to 30% in the beginning of 2025. As a reminder, in 2023, we had a $1.3 billion enterprise business and almost half of that business was for hyperscale data centers. In Q3 of 2025, our enterprise business sales were $831 million or $3.3 billion annualized. Compared with 2023, that's a $2 billion increase in sales. And essentially all of that growth is related to the scale-out of Gen AI networks. Clearly, we are growing much faster than the 30% CAGR we provided. This demonstrates the excellent response to our new Gen AI products, and we expect the growth to continue. We also saw another quarter of year-over-year sales growth in our carrier networks business. As a reminder, we categorize sales of our products used to interconnect data centers in our carrier business. We applied our Gen AI innovations to this space with new high-density Gen AI fiber and cable that enables customers to fit anywhere from 2 to 4x the amount of fiber into their existing conduit. We began shipping these products in the first quarter. We doubled sales from first quarter levels in the second quarter, and we saw another significant sequential step-up in sales again in the third quarter. And we're still in the very beginning of this opportunity as we expect it to be a $1 billion business for us by the end of the decade. Optical Communications net income for the third quarter grew twice as fast as sales, up 69% year-over-year to $295 million, driven by the successful implementation of our Springboard plan in both enterprise and carrier. Moving to Display. We shared our expectations for the full year net income of $900 million to $950 million in 2025 and net income margin of 25%, consistent with the last 5 years. We continue to expect to be at the high end of the $900 million to $950 million net income range and for net income margin to be at least 25%. In the third quarter, display sales were $939 million, and net income was $250 million, both up slightly from the prior quarter, driven by stronger-than-expected panel maker utilization. Q3 price was consistent with the prior quarter. And for the full year, our expectations for the retail market remain unchanged. We expect TV unit sales to be consistent with 2024 and TV screen size growth of about an inch. As a reminder, we successfully implemented double-digit price increases in the second half of 2024 to ensure that we can maintain stable U.S. dollar net income in a weaker yen environment. We hedged our exposure for 2025 and 2026, and we have hedges in place beyond 2026. In 2025, we reset our yen core rate to JPY 120 to the dollar, consistent with our hedge rate. We did not recast our 2024 financials because we expect to maintain the same profitability in display at the new core rate. Looking ahead, we expect glass market volume to be down slightly versus Q3, and we expect our Q4 glass pricing to be consistent with Q3. In Display, overall, we are maintaining our market, technology and cost leadership while benefiting from market growth and a glass supply-demand environment that is balanced to tight. Turning to Specialty Materials. The business delivered a terrific quarter. And as you heard earlier, our announcement with Apple creates a larger longer-term growth driver in mobile consumer electronics through Springboard and beyond. In Q3, sales were up 13% year-over-year to $621 million. primarily driven by the successful adoption of our premium glass innovations for our customers' flagship product launches. Net income was up 57% year-over-year to $113 million on the strong incremental volume, serving as a great proof point of the powerful incrementals outlined in our Springboard plan. Turning to Automotive. As a reminder, in Q1, we graduated our auto glass business and together with our Environmental Technologies business, created this segment. Automotive sales were $454 million, up 6% year-over-year, primarily driven by a stronger light-duty vehicle market in China, partially offset by lower heavy-duty diesel sales in North America. Net income was $68 million, up 33% year-over-year, driven by strong manufacturing performance. Overall, we are focused on executing our more Corning growth strategy in Automotive as additional content is required in upcoming vehicle emissions regulations and as technical glass and optics gain further adoption in vehicles. Turning to Life Sciences. Sales were consistent with the prior year. Net income grew 7%. Finally, let's turn to Hemlock and Emerging Growth Businesses. You heard an update on our new solar business from Wendell a few minutes ago. As a reminder, that business currently sits in this segment. We plan to build solar into a $2.5 billion revenue stream by 2028. We are commercializing our new Made in America ingot and wafer products. Our new wafer facility came online in Q3, and we are ramping in Q4. We have committed customers for more than 80% of our capacity for the next 5 years. Segment sales were up 46% year-over-year, primarily driven by additional polysilicon capacity coming online and the ramp of our module operations. As expected, net income reflected the ramp costs of our new solar products as we address significant customer demand. Now I'd like to take a moment to discuss operating expenses. In the quarter, OpEx was $826 million, which was above our normalized run rate. Included in Q3 OpEx was higher variable compensation expense, including stock compensation. The primary driver of the increase was the significant increase in our stock price in the quarter. And as a reminder, we pay for performance, and we are performing well. Now let's turn to the fourth quarter outlook. In the fourth quarter, we expect to deliver sales of approximately $4.35 billion, representing year-over-year growth of 12%, driven by strong adoption of our Gen AI products and by solar sales as we ramp wafer production. We expect EPS to once again grow faster than sales to a range of $0.68 to $0.72. Our expectations include approximately $0.03 for the temporary impact of the continued solar ramp. You can clearly see from both our Q3 results and our Q4 outlook, we are significantly enhancing our return profile as we execute Springboard. As a powerful proof point, we now anticipate achieving our Springboard operating margin of 20% in Q4, a full year ahead of plan. We are very pleased to see that on strong sales growth, we have grown operating profit at twice the rate of sales. That's a 370 basis point improvement in operating margin from our Q4 2023 starting point. With that, I'll shift from segment results to capital allocation. As we previously shared with you, our upgraded Springboard plan includes higher sales and higher profit. We expect to convert that higher profit into more cash flow. And we've told you that as we grow sales, we expect profit to grow even faster, resulting in strong free cash flow generation. The third quarter was another great proof point. We delivered free cash flow of $535 million. We expect full year 2025 free cash flow to be a significant step up from 2024. We expect to spend approximately $1.3 billion in CapEx in 2025. So how do we invest the expected higher cash flow? Companies do capital allocation in different ways. We prioritize investing in organic growth opportunities that drive significant returns, and we grow primarily through innovation. We believe this creates the most value for our shareholders over the long term. Our investors have confirmed they see the value in this approach. As we see high-return opportunities in the future, we will invest in those opportunities. We also seek to maintain a strong and efficient balance sheet. We're in great shape. We have one of the longest debt tenors in the S&P 500. Our current average debt maturity is about 21 years, and we have no significant debt coming due in any given year. Finally, we expect to continue our strong track record of returning excess cash to shareholders. We already have a strong dividend. Therefore, as we go forward, our primary vehicle for returning cash to shareholders will be share buybacks. We have an excellent track record over the last decade. We've repurchased 800 million shares, close to a 50% reduction in our outstanding shares, which at today's share price has created approximately $50 billion in value for our shareholders. Because of our growing confidence in Springboard, we started to buy back shares again in the second quarter of 2024, and we have continued to do so every quarter since then. And we expect to continue buying back shares going forward. Now before we move to Q&A, I'd like to wrap up by reiterating a few things. When we originally launched Springboard in the fourth quarter of 2023, we provided you with a compelling financial plan. And as we approach the second anniversary of the plan, we are delivering compelling results. From our starting point, we have grown sales 31%, expanded operating margin by 330 basis points, grown EPS 72%, more than twice the rate of sales growth, expanded ROIC by 460 basis points and generated strong free cash flow. And in Q4, we expect to achieve our Springboard operating margin target of 20%, a year ahead of plan. So we feel great about our progress. And most importantly, we are positioned to capture strong growth well into the future. With that, I'll turn it over to Ann. Ann Nicholson: Thanks, Ed. Operator, we're ready for the first question. Operator: [Operator Instructions] Our first question comes from Josh Spector with UBS. Joshua Spector: I just wanted to ask on the optical sales. I mean, obviously, a good quarter and good growth year-over-year. I think expectations are maybe a little bit higher based on some other kind of optical sales players into that supply chain. So I'm just curious if you could talk about any timing effects between 3Q, 4Q that may have impacted some sales or if this is kind of the right run rate we should be growing off of? Edward Schlesinger: Josh, thanks for the question. So maybe what I would do is just start with something I shared when I was reading my remarks. As a reminder, our data center business, the business that's primarily growing through the new Gen AI products we've introduced was about $1.3 billion in 2023, and our current run rate is about $3.3 billion. So we've added $2 billion of sales in that space over about 7 quarters. So a significant amount of growth. We expect that growth to continue. We also have a reasonable amount of growth that's accelerating in the data center interconnect space, and that's in our carrier business, and we also grew carrier about 14% in the third quarter year-over-year. So significant growth there as well. So I think we think of that as significantly outperforming hyperscale CapEx. We would size that if you use Dell'Oro or some of the other firms that publish at about a 40% year-over-year level. So that's not sort of how we think about that business. The timing in any given quarter certainly can depend on specific customer plans. Wendell Weeks: Let me do a little more strategic and then address the specifics. I think we do timing from quarter-to-quarter, Josh, best served there. I think to maybe follow up after the call with Ann and let's make sure that sort of how you're thinking about models and what's happening in a quarter -- any given quarter is one place for us to start, so we make sure we don't talk past each other. What I'd add to Ed is sort of every time we're in a conversation with our customers, they want more from us. And things are quite tight right now. That being said, the reaction to our products is such that they want us to grow even more dramatically as they look ahead to the needs of their supply chain. And so really, in the dialogues between ourselves and our customers, they're -- where they've really turned to is if we need to grow our capacity faster than we currently are, how can they step forward to derisk any capital that we have to invest because the way we look at this is the growth rates are just so high. And as we seek to serve and delight our customers is that we look to them to be able to help us with any sort of capacity investment and/or derisk that capital investment going forward for our shareholders. So it's hard for me to comment, Josh, like any specific deltas quarter-to-quarter. I think those are best handled sort of with IR. But if your question is that do we see just a ton of growth here? The answer is yes, sir. Operator: And the next question comes from Asiya Merchant with Citi. Asiya Merchant: Really powerful operating margin expansion growth here guided as well for 4Q. How should we think about -- given the growth that you guys are talking about, whether it's in optical, auto, solar ramp, how should we think about incremental operating margins going beyond this fourth quarter here? And if there are any updates now to the Springboard operating margin target, given you're already achieving that a quarter ahead -- sorry, almost a year ahead in 4Q? Edward Schlesinger: Asiya, thanks for the question. So first of all, we're really pleased with the performance we've had over the last 7 quarters. I think improving both our gross margin and our operating margin was a really key component of our Springboard plan. And so we feel great about where we are. And as I mentioned, in our guide for both Q3 and Q4, we had some ramp costs associated with bringing our solar facility online. So at some point, those costs will go away. We'll be producing at full capacity and selling and that will help with our gross margin and our operating margin as well. And the way I think for now that we'd like you to think about our operating margin is it creates a really strong return profile for our business. So we expect sales to continue to grow nicely as we go forward. We've got a 20% operating margin, certainly could go higher than that. We'll come back and address that at some point later in the future. But if we're able to continue to grow our sales at that level, we'll continue to improve our return on invested capital, and we'll continue to improve our free cash flow. So that's how I think investors and others should think about the financial profile of Corning going forward. Does that help? Asiya Merchant: No, that's great. And then just maybe on auto, how you guys are thinking about the upcoming emissions, whether it's a 2026 driver and kind of the growth rates we should expect in that segment? Edward Schlesinger: Yes. So I would say in auto, right now, one thing I would point out is that our sales are impacted by a weaker heavy market in North America. At some point, that will bottom out and start to come back, and we'll start to see the growth we would expect like in our auto glass segment and in maybe other parts of the business, we'll see that lift through just because heavy-duty will sort of stabilize and start to come back through the cycle. And then yes, we do expect a couple of drivers of growth in this business. First, auto glass. We expect that business to continue to grow and drive growth through this year into next year and so on. And then I think the emissions regulations in the United States could start to impact us at the end of '26 for model years that start in 2027 and beyond. Operator: And the next question is from John Roberts with Mizuho. John Ezekiel Roberts: In solar, I think there was a large amount of downstream cell and panel inventory brought into the U.S. in advance of the new duties. Does that impact your ramp at all? Or do you accelerate as those downstream inventories are worked off? Wendell Weeks: John, I love your insights in this space. You are correct. That was indeed true. And as those inventories deplete, we're seeing really 2 impacts: a, demand front and as well sort of module pricing continuing to improve. So yes, we're seeing the dynamics that you're talking about. The core of our particular play is the need for U.S. origin product. And as a result, most of our customers are signing up to us just for that. And so really, on the margin, the particular overall industry dynamics that you're explaining don't hit us that dramatically because we're a preferred supplier as a U.S. player. But your insights are right on, John. Operator: And our next question comes from Samik Chatterjee with JPMorgan. Joseph Cardoso: This is Joe Cardoso on for Samik. Maybe just for my first question here. Optical is clearly demonstrating strong revenue performance in the backdrop of these AI tailwinds, but margins have also been impressive, tracking close to 18% in the quarter. How should we think about the headroom for margins to continue to improve from here? And as you consider kind of the demand pipeline that you're seeing from your customers, how should we think about factors such as product mix as well as eventually capacity additions that could influence the trajectory here? Wendell Weeks: So I'll start, Joe, and then I'll let Ed add. I think you are on all of the right questions. You really are. So everything really comes down to the reaction to our innovations and the value they create. As our innovations create more and more value, it offers us the opportunity to continue to improve our profitability as well that we see the opportunity for continued growth here to be quite robust tied to those new product sets. And we'll provide a little more insight as we get a little bit further along in our customer dialogues with how we're going to approach capacity risk reduction and strong commitments from our customers that will allow our customers that will allow us to provide high confidence guidance for our investors. Edward Schlesinger: Yes, Joe, the only other thing I might add is, as we've shared the last several quarters, we have been adding capacity. We will continue to do that to meet demand. So there was or have been some ramp costs in our optical business as we are able to make more and sell more that improves our margins. You saw that nicely here in the third quarter. And I think there's definitely some room above where we are to continue to grow from there. Joseph Cardoso: Helpful color, guys. And then maybe for my second one and in a similar vein, the Hemlock ramp here, I'm just particularly interested in how we should think about margins for this business as well. Obviously, they're running a bit below last year's level as you kind of get through the early stages of the ramp. But any way we should be thinking about the timing of margins here tracking back to those levels and then potentially surpassing it, especially when we're considering the impact of tax credits and some of the other subsidies, which maybe at least from an investor standpoint is a bit opaque in terms of how those should influence the margin trajectory as we kind of think about the business ramping going forward? Edward Schlesinger: Yes. So maybe just stepping back, our goal here is to build a $2.5 billion business. So you can sort of take our current run rate and get to that -- how much incremental sales we'll add from there. We expect that business to be at or above the Corning operating margin level. So you can think of it as being a very nice margin business when we're fully up and running. I think you'll see sort of incremental improvements as we add capacity and as we sell more. So I don't know that I would particularly call out timing in any given quarter, but we should just continue to improve kind of quarter-over-quarter as we go. Wendell Weeks: Yes. So let us sort of get through this quarter and the sort of crucial start-up time with wafers and maybe a little bit into Q1. And then we ought to be able to provide a little more help to you on how the factory is coming up and how we think of it for the coming year. Right now, we're kind of making that jump between making thousands of wafers a day to trying to make 1 million a day, and that tends to focus our mind on the near term. Operator: Next question comes from George Notter with Wolfe Research. George Notter: I wanted to kind of talk a bit or ask a bit about the optical business in terms of just supply constraints. Talking with some folks around the industry, it sounds like you guys are no longer selling glass on an OEM basis to others. I assume it's because you've got more demand in your own internal glass needs than maybe you previously expected. But is that actually the case? And then can you talk about what you're doing to expand capacity? I saw the expansion news in the Hickory facility this past week. I'm just wondering kind of where lead times are and what the capacity expansions look like. Wendell Weeks: I won't comment on our specific on dialogues with our customers and what form they take our product on at this stage. I would say, George, that you are correct in that the demand for our products relative to our supply puts us in a situation where we are quite tight. And we have pre-existing sort of ramps that we have been doing. But now as we look to the accelerating demand from our customers, we're in dialogues with them about how to best set our manufacturing platform profile to serve them better for the future. And how do we handle sort of the risk of that and how do we make sure that we derisk any investments that we make through commitments and/or funding from our customer set. So that's where we are right now, George. More to come as those things start to come together. George Notter: Got it. And any comments on lead times? Yes, I was going to ask about lead times. Any comments there? Wendell Weeks: It really depends on the SKUs. There's no question though that everybody wants more from us faster, right? So in that way, we are seeking to improve our lead times because things are pretty tight. That being said, we're able to -- we've been able to meet really unplanned for growth from our customers in terms of demand. And we brought a number of new customers have come on board for us because of the power of our innovations. Operator: Next question comes from Wamsi Mohan with Bank of America. Wamsi Mohan: Maybe to start in enterprise, if we look at the pace of quarter-on-quarter changes in revenues, it's a little bit below the same time frame last year, and that happened in Q2 and in Q3. And I'm wondering if we can just kind of dissect what the reason behind that might be given that the opportunity that you've highlighted here and the investments that you pointed to across multiple hyperscalers and data centers is just seeming to be very strong. So maybe you could just put that in some context and how we should think about that flowing into the fourth quarter as well? And I have a follow-up. Wendell Weeks: So Wamsi, just to make sure that we understand you, you made a comment about Q2 to Q3, both this year? And then I thought you said last year. Could you just make your question? I just want to make sure we hear you correctly, Wamsi. Wamsi Mohan: Right. Yes. No, Wendell, happy to clarify. I'm just saying that the incremental sequential dollar changes that you experienced from Q2 of '24 to Q3 of '24 was about $100 million in enterprise. This year, it's about $82 million. And last year, in the same time frames in Q1 to Q2 also, it was a little bit higher last year versus this year. And I'm just wondering why the dollar increases are not accelerating as adoption of AI takes over more. Wendell Weeks: I totally get it, Wamsi, in a way, maybe ties to some of the stuff George was talking about. So as we take a look at the year over year -- sequential quarter growth last year versus this year? And why isn't the dollars sort of the same? And is that a demand question? Or is it a supply question? If that's where you're going, yes, it's how much incremental supply was available one quarter to the next is the primary driver of that. And we had a hunk more incremental supply in a particular SKU that enabled that jump last year and this year. So in that way, I guess it's all timing is a way to think about it, but it's not a demand piece. It's purely relative delta in supply between the years. Did that answer make sense, Wamsi? Wamsi Mohan: Yes. Maybe, Wendell, just to follow up on that. Does that mean that like you are undershipping demand fairly significantly now in Q3? And does that lead to a catch-up in Q4? Wendell Weeks: So I don't know how to think about undershipping demand. It's -- right now, if I could put more on my loading dock, our customers would take more. I mean that is just true, right? And so we expect that situation to continue for the foreseeable future. And so really, it's coming to a supply piece for us, what particular products undo a bottleneck at what particular time is driving more of what we put in a guide for our total revenue as a company than it is, can we sell more. Any particular model. We'll try to help after the call a little more with modeling and sort of how we think about it and what those range of outcomes can be, Wamsi. All right? Wamsi Mohan: Okay. And if I could, just quickly, obviously, very exciting news around Apple's investment in Harrodsburg. Now that we're talking about Apple on the call, can we actually just -- can you help us think through the -- if the economics in specialty change meaningfully for Corning, either on pricing or margins of these cover glass products given sort of the, I guess, co-investment that is happening here? Wendell Weeks: So the key thing that will drive our relative profitability in mobile consumer electronics will be the adoption of innovations and the rate of adoption of innovations. So for us, one of the most exciting things about the Apple announcement is the very long-term commitment and the co-innovation center that is going to be there. And what you can look through to that is saying, you can expect a lot of amazing new products to come out of that collaboration. Usually, the more amazing the products are that we make, the more return benefit accrues to our investors. And we would expect that historical approach, which we call -- more Corning to continue. Ann Nicholson: Operator, we've got time for one more question. Operator: Okay. And the last question will come from Mehdi Hosseini with Susquehanna Financial Group. Mehdi Hosseini: Most of the good questions have been asked. I'm just wondering, Wendell, as we look into the longer-term opportunity, especially given the success of the Springboard plan, should we expect that by '26, '27, the incremental revenue opportunities would be in the high single billion on a quarterly or $30 billion plus on an annualized basis? And I'm just looking at the charts that you provide on a quarterly basis, and I'm just taking the same run rate and then extending it into '27 and '28. And I have a follow-up. Wendell Weeks: So we'll update -- we'll owe you guys an update on Springboard given our strong performance. It seems like we upgrade our Springboard plans. And then within just a couple of quarters, we performed so well that we get asked to update our Springboard plan again. So as we look to -- we're in the middle of that process that runs through the remainder of this year and into early next. And then we'll give you a good solid update on what it is we see. To your specific questions on run rates, why don't we sort of follow up on that after the call so we can make sure we understand your math and everything that we've provided historically. Mehdi Hosseini: Got it. Okay. And just a quick follow-up, and this has to do with your strategy with solar and also the acquisition of the JA Solar module manufacturing capacity from the last quarter. Should we assume that you would be able to make the entire solar module, including poly and the module itself at an affordable way so that everything is made in U.S. and used by U.S. customers? And I'm focusing more on affordability, especially given the fact that the subsidies are fast going away. Wendell Weeks: So the short answer is yes. In the value chain, what has -- our area of focus has been on ingots and wafers. And then yes, we also wanted to have a go-to-market position in modules, primarily because we have some new innovations to bring to that, that could increase the conversion efficiency and provide some of the best products or maybe the best product in the world for solar is our hope. But the core of what we're doing, you've nailed it in one, which is we would like to see the U.S. supply chain that is able to make products that are competitive versus the landed basis of solar products made overseas by the time we are done with our efforts here. Our focus is going to be on those areas that we can be really strong. We would rather source, I would say, the cell portion from other U.S. makers through time. But one way or the other, we want to bring our innovation to bear so that the U.S. has domestically manufactured solar power because it's just going to be super important, especially we've been talking so much about AI. AI needs power, needs U.S. source power. This is yet super -- another super economical way for us to provide power, especially in speed. Ann Nicholson: Thank you, Wendell. Thank you, Mehdi. And thank you, everybody, for joining us today. Before we close, I wanted to let everyone know that we're going to attend the UBS Global Technology and AI Conference on December 2. Additionally, we'll be scheduling management visits to investor offices in select cities. Finally, a web replay of today's call will be available on our site starting later this morning. Once again, thank you all for joining us. Operator, that concludes our call. Please disconnect all lines. Operator: This does conclude today's conference call. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the MSCI Third Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I would like now to turn the call over to Jeremy Ulan, Head of Investor Relations and Treasurer. You may begin. Jeremy Ulan: Thank you. Good day, and welcome to the MSCI Third Quarter 2025 Earnings Conference Call. Earlier this morning, we issued a press release announcing our results for the third quarter of 2025. This press release, along with an earnings presentation and brief quarterly update are available on our website, msci.com, under the Investor Relations tab. Let me remind you that this call contains forward-looking statements, which are governed by the language on the second slide of today's presentation. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, are based on current expectations and current economic conditions and are subject to risks and uncertainties that may cause actual results to differ materially from the results anticipated in these forward-looking statements. For a discussion of additional risks and uncertainties, please see the risk factors and forward-looking statements disclaimer in our most recent Form 10-K and in our other SEC filings. During today's call, in addition to results presented on the basis of U.S. GAAP, we also refer to non-GAAP measures. You'll find a reconciliation of our non-GAAP measures to the equivalent GAAP measures in the appendix of the earnings presentation. We will also discuss operating metrics such as run rate and retention rate. Important information regarding our use of operating metrics such as run rate and retention rate are available in the earnings presentation. On the call today are Henry Fernandez, President and CEO; Baer Pettit, our President and COO; and Andy Wiechmann, our Chief Financial Officer. [Operator Instructions] With that, let me now turn the call over to Henry Fernandez. Henry? Henry Fernandez: Thank you, Jeremy. Good day, everyone, and thank you all for joining us. In the third quarter, MSCI delivered strong financial and sales performance that highlighted many of our underlying competitive advantages. We had organic revenue growth of 9%, adjusted EBITDA growth of 10% and adjusted earnings per share growth of over 15%. Since the beginning of the third quarter, we repurchased $1.25 billion worth of MSCI shares. This brings our year-to-date share repurchases to over $1.5 billion, which demonstrates very strong conviction in the value of our franchise. Moreover, MSCI's Board of Directors has authorized $3 billion worth in additional share repurchases for the next few years. Our third quarter operating metrics included total run rate growth of over 10%, which includes asset-based fee run rate growth of 17%. Our asset-based fee performance was driven by record AUM levels in both ETF and non-ETF products linked to MSCI indices. In my remarks today, I will discuss a few of the biggest themes from our third quarter results, starting with our Index franchise. Q3 underscore the depth and versatility of our Index franchise. MSCI achieved recurring net new subscription sales growth of 27% in Index, including 43% growth in the Americas. Total AUM in investment products linked to MSCI indexes reached $6.4 trillion globally, including $2.2 trillion in ETF products and $4.2 trillion in non-ETF products. There are now 4 ETF products linked to MSCI indices that have more than $100 billion in AUM. This helped our ABF run rate hit a new record high of nearly $800 million. The ongoing adoption of MSCI indices showcases the investment community's confidence in using our indices as a foundational element of their portfolios and to help them attract capital. In Analytics, MSCI delivered recurring net new sales growth of 16%, driven by strong adoption of our risk tools and equity models by multi-strategy hedge funds. Our growth in Analytics increasingly supports our growth in Private Assets and vice versa. Last month, for example, MSCI launched a private credit factor model, powered by data from more than 1,500 private credit funds in our proprietary database. This factor model will provide investors with improved transparency and a consistent, integrated view of market risk for a fast-growing asset class. Elsewhere in private assets, we recently launched a new global taxonomy, known as MSCI PACS, the private asset classification standard. This proprietary asset classification framework aims to bring consistent comparable standards to private markets. Powered by artificial intelligence, this new taxonomy covers a wide range of private assets, including private companies, real estate and infrastructure. The new framework builds on MSCI's long history as a standard setter in public equities. And investors can use it to benchmark, analyze and communicate portfolio strategies and performance. As the last example illustrates, MSCI's innovation teams are rapidly leveraging AI models, especially on our large proprietary databases, to enhance existing products and develop new capabilities. AI is allowing us to unlock significant value for clients, which will also lead to meaningful value creation for our shareholders. In addition to rapid expansion in new products, MSCI is significantly expanding our presence with newer client segments, while deepening our penetration of more established segments, which Baer will discuss. And with that, let me turn things over to Baer. C. Pettit: Thank you, Henry, and greetings, everyone. As you are aware, over the past year or so, I have framed my remarks on these calls through the lens of MSCI's main client segments, and I will continue to do so as we grow our footprint with newer segments and deepen our penetration of existing ones. With that in mind, as you saw in our earnings materials, MSCI recently enhanced our client segmentation strategy. Details and comparison points are available in our Q3 earnings presentation. Starting with hedge funds, MSCI delivered 21% recurring net new subscription sales growth. This was our highest Q3 ever for new recurring sales to hedge funds, with notable strength in Analytics. In particular, we see ongoing strong demand from hedge funds for MSCI's equity factor and enterprise risk and performance solutions, which have become deeply embedded in many clients' investment workflows. For example, MSCI closed a 7-figure renewal deal with one of the world's largest hedge funds in which our contribution to their alpha generation and risk management is central. We also completed a global deal with a large U.S.-based hedge fund that will expand its use of our enterprise risk and performance tools. Our analytics solutions are now fully integrated into every aspect of this client's risk management process, including its capital allocation framework for individual portfolio management teams. The common theme here is that amid elevated levels of market volatility and uncertainty, hedge funds want deeper, faster insights into key sources of investment risk and return. MSCI is fortifying our position as a trusted partner. Turning to wealth managers. We achieved nearly 11% subscription run rate growth, driven by a balanced mix of contributions from across product lines. Recently, a large independent wealth manager in the U.S. licensed our private capital fund transparency data to enhance client reporting on private funds. This shows how MSCI is enabling both scaled data gathering and the standardization of private asset data to provide the enhanced portfolio insights client need. Indeed, wealth managers' growing demand for tools and standards in private markets creates a great opportunity for us. We also have a growing list of clients licensing MSCI Wealth Manager, which has allowed us to deliver unified solutions for the home office with advanced tools spanning personalized client portfolios and proposal generation, along with regulatory workflow support. Shifting to asset owners, we posted 9% subscription run rate growth, driven by Analytics, Private Capital Solutions and Index. In one of our biggest deals in the quarter, MSCI renewed our relationship with a major Canadian pension fund across our equity models and risk tools. We also expanded our Private Capital Solutions relationship with a U.S.-based asset owner as we support this client's increasing demands for total portfolio solutions and performance measurement and transparency as they grow their private market allocations. In addition, a rising number of LPs are using MSCI private capital indexes and our newly launched frozen indexes as their policy or performance benchmark, reflecting a shift away from public proxies and return targets and have increased alignment with MSCI standards. We are, therefore, confident that our investments in private capital indexes will help create significant value both for clients and for MSCI. Moving on to banks and broker-dealers. MSCI delivered 9% subscription run rate growth, including a record level of Q3 recurring sales. This was driven primarily by Index, which also posted its highest Q3 ever for new recurring sales. Our most notable Q3 business win was a global index renewal deal with one of the largest banks in Europe that highlighted the mission-critical role of MSCI Index data sets in their trading, index rebalancing research and product creation capabilities. Turning finally to asset managers. We achieved subscription run rate growth of just over 6%. MSCI is working intensely to increase our growth trajectory with this segment, and our efforts had a meaningful impact in Q3. In fact, we delivered our highest Q3 on record for new recurring sales to asset managers in Index, which helped drive 11% overall new recurring sales growth with asset managers across MSCI product lines. For example, we landed a 7-figure deal with one of the world's largest asset managers in support of their wealth management strategy. MSCI is providing financial advisers with ever more sophisticated analytics tools such as stress testing, which helps them grow their business and support their own clients. We also completed a large deal with a top European asset manager to help them develop a centralized program for their risk, performance factor and sustainability analytics across investment teams in different global locations. This was another great example of our ability to expand and deepen existing client relationships using our One MSCI integrated solutions. Looking ahead, we are encouraged by MSCI's long-term opportunities and our ability to drive growth from recent areas of innovation and investments, all of which should help us remain the mission-critical provider of choice for clients across the capital markets. And with that, let me turn things over to Andy. Andy? Andrew Wiechmann: Thanks, Baer, and hi, everyone. Our third quarter results highlight the momentum we are building across product lines, a dimension on which I will provide some additional color. Within Index, where asset-based fee run rate growth was 17%, equity ETFs linked to our indexes captured $46 billion of inflows during the third quarter. We continue to see strong demand for ETFs linked to MSCI developed markets ex U.S. indexes and MSCI emerging markets indexes. And index subscription run rate growth was 9%, including nearly 8% growth with asset managers, an area where we saw some strength in the Americas. We recorded our best third quarter ever for Index recurring net new subscription sales, aided by our DM and EM modules and solid subscription run rate growth in the nonmarket cap category. We've been encouraged to see that new Index products launched since the beginning of 2023 generated about $16 million of new recurring subscription sales over the last 12 months. And the Index retention rate remained durable at nearly 96%. In Analytics, we had subscription run rate growth of 7%, driven by our highest Q3 ever for recurring net new sales. Recurring sales in Analytics benefited from 29% growth in Equity Solutions, with strength among hedge funds in the Americas and APAC. Additionally, we saw strong sales of our multi-asset class analytics, most notably with hedge funds as well. In Sustainability and Climate, we saw 8% subscription run rate growth for the reportable segment, with roughly 6% subscription run rate growth from Sustainability Solutions and 16% subscription run rate growth from Climate Solutions. The Sustainability and Climate retention rate was almost 94%, slightly higher than last year's level of 93% and reflecting the must-have nature of our tools. Additionally, we are seeing solid demand for new solutions such as our geospatial offering, which is seeing traction across client segments, including in particular with banks. In Private Capital Solutions, we closed about $6 million of new recurring subscription sales in the quarter, with success across client segments including established segments such as endowments and foundations as well as newer areas for us such as wealth and GPs. Additionally, we continue to see strong momentum with our total plan offering. In Real Assets, recurring net new sales improved, aided by stabilizing retention trends. We're also driving sales from newly introduced product areas, including our data center offering, which has gained traction with GP investors. Across PCS and real assets, the retention rate improved slightly to 93.3%. Finally, turning to our full year guidance as we close out 2025. The increase in the low end of our expense guidance range is consistent with our past comments and driven by the strong growth in AUM levels linked to our indexes. As a reminder, interest expense guidance reflects the previous notes issuance during the third quarter, and the increase in free cash flow guidance reflects business growth and the impact of tax benefits. In summary, MSCI's strong Q3 results are reflective of our mission-critical, durable solutions and our accelerating pace of innovation. We are seeing solid momentum in delivering new products, capabilities and enhanced go-to-market efforts, and these are translating through to tangible results. We look forward to keeping you posted on our progress. And with that, operator, please open the line for questions. Operator: [Operator Instructions] And our first question will come from Manav Patnaik with Barclays. Manav Patnaik: Henry, I just wanted to ask kind of a bigger picture question on your strategy around private credit. There's clearly a scarcity of data assets out there, which is why some of the multiples these assets trading at seems to be very high. But just curious from your perspective, where do you feel like you have the missing white spaces or whatever you feel like you need to fill in? And how integral is the Moody's partnership to your strategy there? Henry Fernandez: Thank you for that, Manav. We are very bullish in our work on private credit. If you step back a little bit, the new banks in America and parts of the world are the private credit funds, the provision of private credit is moving, in addition to banks, to private credit funds. That is a secular trend. There may be some ups and downs, but that's a secular trend. It's structural. And those banks -- I mean, those private credit funds need to attract investors to fund the provision of credit. There is not enough institutional capital in the world to fuel the funds that are needed, the assets that are needed in this private credit funds. So they need to attract, in addition to institutions, large parts of the wealth management industry, the retail industry and now the 401(k) industry. In order for that to be viable and achievable in a sustainable and responsible way, they need the tools for these funds to demonstrate what's inside the fund, what's the credit worthiness of it, what's the market risk of it, what is the valuation of them, and so what are the terms and conditions on the underlying loans, et cetera, et cetera. So in the last 9 months, we've been very feverishly innovating on this. The first one was we created terms and conditions on -- we looked at our database, proprietary private credit database. We found 2,800 funds, private credit funds, that are not asset-backed. And we developed terms and conditions on 80,000 loans that are -- represent 14,000 borrowers, in these 2,800 funds. Then we moved on to create credit assessments of these funds with the Moody's. We licensed the Moody's credit risk models. We applied it to the MSCI database and we have launched the credit assessments of a lot of these funds, which are highly needed in this volatile environment in credit that we've been listening to in the media recently. Then we created a taxonomy of private credit in order to develop market risk measurements of these private credit funds, and we launched the factor risk models on them. So that's been another innovation. And now we're looking into how we develop evaluated prices in private credit in order to provide an independent, trusted source of valuation that can be basis of liquidity. So none of those things are yet translated meaningfully into high revenue, high sales, but they will. And we are incredibly needed in this space as the trusted source of information about the benchmarks. I forgot to mention that we launched, I don't know, 60, 80 different private credit indices as well in the last few months to basically make people understand the private credit fund relative to a market benchmark. So that's another innovation that we did. So we are very bullish in this space and we intend to be the leading provider of all these transparency tools. Operator: And our next question will come from Alex Kramm with UBS. Alex Kramm: So last quarter, one of the messages was really that you're going to start leaning in more into these other new client segments outside of the traditional asset managers. Obviously, Baer gave a lot of color already in terms of the growth rate there. But can you just talk about in the last 3 months like what you've been doing in terms of new products, but also I think you're kind of doubling down on marketing and sales? So any new things that we should be excited about? And when do you actually see this can make a material impact to you on results? Henry Fernandez: Thanks for that question, Alex. The strategy is really two-pronged. We believe strongly that the active asset management industry needs us in this difficult time. But it needs us not as a cost center to them and put more pressure on their financials. They need us as a company that can help them create new products. So we're very focused on creating that, especially in the active ETF space, so we can help clients do that. You saw the recent launch with Goldman Sachs Asset Management of the Private Equity Tracker Fund, which is a very innovative approach to look at the -- at our database of private equity, to understand the returns and the risk of all of that, and then replicate that through public equities in a way that provides liquidity. So that's an example of something that can generate revenues for the active asset management industry. So -- and we saw early signs of that recovery for us. The industry continues to be challenged. But if we can help them develop products and generate revenues, we're going to do very well with them. The second part, Alex, as you know, is the expansion into other client segments. And that's the reason we presented in these slides -- at the end of the slides, the 2 pages of the redefinition -- not the redefinition, but the breakdown of the client segments at MSCI on the subscription part. And you can see that we can benefit significantly by helping the asset management industry because we have 46% of our subscription run rate on that and we can benefit if we make it grow. Hedge funds are a very significant spot for us and other parts of what we call the fast money, which is market makers and broker dealers and all of that. We've done very well there. And one of the reasons is not only the risk tools that we sell, but what we have begun to realize is MSCI has a huge ecosystem of trading around its indices. It's $18 trillion benchmark to MSCI, of which $6.5 trillion or $6.4 trillion is passive. And that has a huge ecosystem that needs liquidity. So we're developing data sets and products for all these market makers and broker dealers to help fuel that liquidity. So we believe that we have a lot of opportunities with that segment, more than we even estimated in the past. So that's an area that we're focused on. Obviously, asset owners, it's always been our sweet spot in Index and Analytics, and now very intensely in what we call PCS, Private Client Solutions, because these are big investors in private assets, and they need more and more transparency, understanding of performance and risk and pacing models and all of that. So we're stepping up significantly our PCS efforts. And we believe that we've seen some softness in PCS. We are going to turn the corner, particularly with the institutional asset owner space. And then there's wealth management. The wealth management part, as I said before, needs us very significantly because a big part of the allocations into wealth management is into private assets, particularly in private credit, but they need to do it in a way that is responsible and compliant. And they don't run afoul of selling products that the individual investors don't understand. So we are gearing up significantly for a major expansion in private assets and wealth management, in addition to helping them build portfolios through what we call MSCI Wealth Manager. So that's a little bit of a rundown of where we are. So we're very optimistic that with the significant revving up and ramping up of the new product machine at MSCI in the last 9 months that this -- the softness that we highlighted in the prior quarter, last quarter, is beginning to turn, not necessarily because the investment industry is extremely bullish, the markets are bullish, but the budgets are -- may not be as bullish, but it's because we can create a lot of new solutions that are going to help these people solve a lot of problems. And that's the strategy: deepening and helping become a revenue center for the active asset management industry and obviously sell a lot of the things into the other client segments. Operator: And the next question will come from Toni Kaplan with Morgan Stanley. Toni Kaplan: Henry, you touched on in the prepared remarks that your teams are leveraging AI models, AI to help develop new products. And I was hoping you could give us an update on where you see the greatest opportunities to leverage AI, both on the revenue as well as on the cost side. And any quantification would be great, but also just what those products look like and what the cost savings opportunities are. Henry Fernandez: Thank you for that question, Toni. And let me start by saying that we in the past hasn't really talked a lot about AI because our style at MSCI is not to talk about intentions but to talk about actions and real tangible things. So that's one of the reasons you haven't heard us talk a lot about AI. But since ChatGPT was launched 3 years ago, we've been feverishly looking into and permeating every aspect of MSCI with AI. And the punch line is, AI is a godsend to us. Let me repeat that, AI is a godsend to us. Because what MSCI is, it's a company that collects large amounts of data, proprietary, unique data. AI is going to help us scale up dramatically, 1,000x more in the next 5, 7 years in data sets. Secondly, we then build a proprietary and unique investment and risk models to apply to that proprietary data. You can only imagine how much AI is going to help us do that. And then three, we're going to deliver all of that content to our clients in a way that they can consume in any way they want. So MSCI has never been a workflow software solution vendor. A lot of our proprietary sort of workflow systems like Risk Manager, BarraOne and all that, they're there to sell the content that we got. And it's almost like a necessary evil, right? So if we get the world to create every way, every type of access into our content by themselves, we don't have to spend any time on that or any money on that, and that's going to propel those to much higher levels. So we've been very busy in permeating every part of what we do. So if you start with the whole employee base, 6,250 people, almost 100% uses AI every single day. I actually made it a year ago a condition of employment that everyone needs to use AI tools every single day like using a phone, using word processing or Excels and things like that. So we're very proud of that. Then, we have permeated AI into all of our operations, especially data capture. We have basically saved hundreds and hundreds of employees -- new hires of employees by using AI in private assets, for example, in Private Capital Solutions, in Sustainability, in Climate. For example, this geospatial product that we have is all based on AI and the like. We are -- so that has created incredible efficiency for us, tens of millions of dollars, that are not yet -- that are just the beginning of what we can do. And then lastly and most importantly is that we have used AI to build products. So a lot of our custom index factory is built by AI-driven methodologies, that is not a human in research with -- as an artisan trying to build an index and it takes 6 months and all of that. No, we want to do this instantaneously using AI. So a lot of what we're launching in custom indices is AI-powered. As an example, the geospatial data sets that are being popular now that were built -- that we're selling, it's all AI-driven. And of course, a lot of the data that comes out of private assets and sustainability is AI-driven. So again, we haven't really talked a lot about this. We did -- we answer questions, but since you asked and there is so much focus on this, we might as well tell you exactly what we're doing. And in terms of products, I think there's somewhere between $15 million, $20 million of products that were sold this year out of 25 new products, that are all AI-powered. So that's the way where we are. So if anybody -- this is going to be a godsend to us. Now I cannot tell you enough that the biggest problem MSCI has is that we've got so many opportunities and so little investment money and we want to keep the profitability of the company the same. So that's not an easy thing to square. But if we apply AI dramatically and we can lower our operating run-the-business expenses by 5%, 10%, 15%, all of that money can go into investing into the change in the business, and that will create an incredible upsurge in product development for us. That's a goal that we have for '26. Operator: And the next question is going to come from Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: So in the quarter, we saw really strong momentum in the Index and Analytics net new subscription sales. There, obviously, you talked about some big deals there also with the asset manager and one of the largest banks in Europe. My question was much more focused on the pipeline. As we get into the fourth quarter, any comment on the pipeline as well as the sales cycle as we get into one of the highest -- seasonally highest bookings quarter? Andrew Wiechmann: Sure. Ashish, it's Andy. So definitely, as you alluded to, encouraged by the results in the third quarter. They've been fueled by the product innovation, the accelerating pace of product development that you've heard us talking about here. And so that's encouraging. In terms of the overall environment and market backdrop, I would say it's relatively stable. We've seen fairly consistent dynamics to what we've seen in the past. On the margin, the sustained favorable market momentum is constructive. And we have seen pretty good results in the Americas, most notably in Index and Analytics as we talked about. And so we are generally encouraged by the healthy product pipeline and acceleration in product development that is supporting a strong client engagement, as Henry alluded to, both across asset managers as well as the broader range of client segments that we're targeting. And so we are seeing a relatively stable dynamic across the business. I would highlight that we do expect the dynamics we've been seeing in sustainability to continue in the near term. So similar to what we've talked about in the past, those dynamics that we've been seeing there, the pressures we've been seeing there, we expect to continue in the coming quarters. But overall, I'd say dynamics across the business are fairly consistent and the performance is really being fueled by and driven by our product innovation. Operator: The next question is going to come from Alexander Hess with JPMorgan. Alexander Eduard Hess. Alexander EM Hess: I just want to touch briefly on the non-ETF and the fixed income businesses. On the non-ETF side, there's been pretty rapid growth in the ETF revenues, I think, about 19% year-to-date. And the non-ETF is tracking a good deal behind that. Was there any prior year sort of hurdles that are pushing down the non-ETF revenue growth? And then on fixed income, can you remind us what the AUM is there as of 3Q, and if there was any reason why, if my math is right, there was a little bit of a quarterly dip in the run rate for that business? I just wanted to sort of unpack that a little bit. So I know that it's a lot to ask you, but hopefully, we can... Andrew Wiechmann: Yes. Alex, it's Andy here. So on the non-ETF passive front, we -- to your point, we can have impacts from true-ups and true-downs which can skew the period-to-period comparability. And so as you know, there can be some lumpiness in any given period. We can also, at times, see some modest fee adjustments on the client funds, and that can lead to some lumpiness in revenue and revenue recognition as well as run rate. And so I wouldn't read too much into lumpiness in the growth rate there on the revenue side. This does continue to be a very important growth area for us. We've seen some very nice new fund creation on the custom side. This is an area where a lot of the efforts that we've made on our custom index capabilities and the growing focus on customization and customized outcomes manifest itself, and we're in a unique position to help these organizations that are really anchored to our frameworks and looking to achieve objectives around our frameworks. And so wouldn't dig in too much to the revenue growth on that front. On the fixed income side, the AUM and ETFs linked to fixed income indexes or fixed income indexes and partnership indexes is around $90 billion. And so it's been a nice growth area for us that's continued to grow. Similarly, I wouldn't read too much into revenue growth in any one period on that category. We are heavily focused on continuing to drive adoption, new innovation there and fueling the overall AUM growth across the fixed income category and continues to be an important area for us. Henry Fernandez: What I would add is that, obviously, we see the challenges in Sustainability and Climate -- in the segment of Sustainability and Climate at MSCI, as you see it. But a meaningful part of the monetization of all of that is happening in equity and fixed income indices. And it's in both, but in fixed income indices, the percentage is even more as a total. So we've been very successful in -- especially in Europe, in having clients come to us, and we've helped them design climate -- lower climate risk, fixed income indices that they can use as a portfolio either to give it to an institutional index manager or to turn it into an ETF. And we see that continuing. And a lot of our investment in climate is not only climate in its own, in order to sell it directly, physical risk, transition of energy and transition risk and all of that. But it's because we believe there would be a large monetization of a lot of this climate IP in the form of indices and index investing. So yes, when you look at the totality of Sustainability and Climate, it's a little challenged. But you also have to look at the One MSCI Sustainability and Climate franchise and see where the monetization is happening. Andrew Wiechmann: Just to put a finer point on that, I think Henry hit a critical item here. That $90 billion of fixed income ETF AUM, the large majority of that is Sustainability and Climate related. If you look at equity ETFs linked to our Sustainability and Climate indexes, it's about $360 billion. And within that, about $135 billion or so is climate-specific indexes. On the non-ETF front, relating to your question, where we are seeing incredible focus by institutions and asset owners to develop specific climate outcomes, the non-ETF climate AUM is about $316 billion. So these are big, becoming meaningful contributors in helping to fuel the growth of the business. Operator: And the next question will come from Kelsey Zhu with Autonomous. Kelsey Zhu: On active ETFs, could you just talk a little bit more about the economics of the products and services you provide in that area as well as your competitive advantages? Also, if the overall AUM continues to shift from active mutual funds to active ETFs, is that a net positive or net negative for MSCI? C. Pettit: Sure. So active ETFs are a quite distributed category with things which are really just quite literally putting an ETF wrapper on a purely active fund, through to things which are very rules-based and which are much more like an index or which are an indexed version of an active strategy. So the good news is that we are able to monetize across a lot of that spectrum, not merely in the Index business, but a fair amount of it also in Analytics with portfolio construction, et cetera. So in terms of the more specifically Index-linked component, we're now up to almost $30 billion of assets in that category, and the AUM was up 10% quarter-on-quarter, not year-on-year, quarter-on-quarter. So we think this is an extremely attractive category. We're very engaged in it. I think it's difficult to say exactly how that will play out over time in terms of the economics and the scale, but it's growing dramatically and it's certainly not cannibalizing at all anything we do today. It is literally new revenue, new money, new opportunity. So I think we're very excited about it, both, as I said, from selling of tools, selling of data and information and also from an index construction and licensing point of view. And we believe that we're going to see those numbers become more important in the future. Henry Fernandez: Yes. And as I said prior, I just want to emphasize this point, which is over the last year or so, we've been seriously analyzing the active asset management industry and how do we help the industry recover? How do we help the industry build competitive advantage and add value? And how do we benefit from that in increasing our growth? And therefore, one of the components, not the only one, but one important component of that is helping that industry go from mutual funds and other forms of investment vehicles to active ETFs. And we play a large role in there, as Baer indicated. So this will be one of the things we'll talk some more about in the future, which is how do we regain significant growth by MSCI in the active asset management industry? This is one of the components. Not the only one, but one of the components. Operator: The next question is going to come from Owen Lau with Clear Street. Owen Lau: I do have another question on AI. And Henry, I really appreciate your response to the previous AI questions. But I do want to ask this question from a different angle because there has been quite a lot of conversation about how AI has negatively impacted the whole sector. One concern is AI investment could compress margin if that investment couldn't bring in enough revenue. How do you get the confidence that you invest in, I think you called about 15 or 20 AI projects, but that can maintain or accelerate your revenue growth, but at the same time, you can still drive margin expansion? Henry Fernandez: The punch line, believe it or not, is that AI will dramatically increase our margins, really dramatically, because we'll be able to create a lot of new products, scale them faster to a lot of various participants and the various client segments, and it will significantly reduce costs to us as we use AI agents rather than humans to run. A lot of what we do at MSCI is systematic, and therefore, you can systematize that with an AI agent, in terms of methodologies, capturing data, running performance, running risk in our clients' portfolios, building models, building software. So it's literally going to chop off a lot of our operating expenses. The question is, how do we get there? And the benefit that we have is that we don't need to build large language models. We need to buy them and train them to apply to our data. So we don't have that cost. Secondly, we don't need massive data centers or any data centers. We have our own -- our clients are the ones that are running a lot of this. So we don't have to invest in chips or in data centers or in electricity, power and all of that. So we are going to be a major beneficiary of what is called apply AI to an industry, and our industry is made up of data, investment models, investment and risk models, and technology. And therefore, AI for us is we can build a lot more data, we can build a lot more models, and we can use a lot more technology and distribute it. So that's very important. And therefore, the investments required for us to achieve that are not significant. Let me repeat that. The investments for us to achieve that are not very significant. It's a question of retooling what you do to be AI compliant so that you can put a large language models on a data set that is already AI-friendly, so to speak. We need to hire AI people, AI experts that can help us. We just hired 2 managing directors in our research operation that are AI experts in helping us build AI agentic models, investment risk and performance models and all of that. So I do not see a reduction in margins in order to accommodate the investment that we need to make in AI. But having said that, I don't want you all to bank the increased margins that we're going to use, that we're going to gather in AI, because we want to put them back into investments in the company to grow faster. So that's the punch line, right? Operator: And our next question will come from Scott Wurtzel with Wolfe Research. Scott Wurtzel: I just wanted to go back to the asset manager end market. It sounded like it would be 11% sales growth, you're seeing some momentum there. But just wondering if you can maybe characterize if this sales momentum is around kind of incremental demand from asset managers or maybe more of a kind of release of pent-up demand in the pipeline. Andrew Wiechmann: Yes. I would say, going back to my comments earlier, the environment has been relatively stable, consistent with what we've seen in past quarters. And so the strength that we saw in the quarter, as we mentioned, was most notable in Index. We also had solid recurring net new within Analytics. This was particularly the case in the Americas. And a lot of this has been fueled by us selling more to our existing clients. So we've had success upselling additional content and services, particularly within Index, which has definitely been encouraging for us to see, and a lot of that's been enhanced by our product development pipeline. I would say performance with asset managers can be a bit lumpy. But generally, overall, we're seeing quite stable results, and we are also pretty encouraged by the solid retention rate with asset managers, which is about 97% across the company in the third quarter. And so I wouldn't call it a trend, but there are definitely encouraging results that we're seeing with asset managers and saw a solid quarter. Operator: And the next question will come from Craig Huber with Huber Research. Craig Huber: Henry or Baer, I want to ask you, a lot of school of thought out there with investors here in the last year plus that AI will be a net negative for your company and peers out there, other information service companies, in that it will allow new entrants to come into the marketplace and take significant share over time. I hear what you're saying about what you guys can do with AI, but I'd like you if you could just touch on more about the competitive moat you have, why others will not be able to come in here and take significant share across any of your major verticals, business lines at MSCI. Henry Fernandez: No. Thank you for that, Craig. I think, look, the -- one way to look at it is to split it into the 3 kind of processes, right? The first process is capturing data. The second one is applying investment and risk models on that data. And the third process is distributing the content to clients. So let's start with the last one. We are not a traditional sort of workflow software solution provider company. If anything, we've been criticized in the past that our workflow, the front end that we have is not as cutting-edge, not as advanced in BarraOne and Risk Manager and ESG Manager and all of that. And we've been hesitant to put a lot of money into that because we see that the industry is creating different ways of accessing the data like Databricks and Snowflake and people like that. So we let them invest the money in that, and then we provide the content to them and then the content -- or let the client develop their own workflow internally, which a lot of wealth management do, and we sell them the content. So that's that part. So we're not going to be disrupted there because we're not -- that's not where we are. On the contrary, to the extent that there are more ways that AI can help somebody access content, we are going to be there, right? So that's that part. At the other end of the spectrum is the capturing of the data. Remember, a lot of the data we capture is proprietary. It's -- and it has to be accurate, and it has to be trusted, and it has to be branded and the like. So it starts with client data. So today -- just to give you 2 examples, today, clients with over $50 trillion of assets use our MSCI analytics platform to run the risk and performance, right? So that is data that is sitting in our servers, that is data that we can access. There are not going to be too many firms that are going to be able to have that because these people are not going to put their portfolios everywhere. They have to put them in a trusted place that they believe it's secure, that they can do their computations safely and all of that. That's one example. Another example is our clients have given us $15 trillion of their portfolios in private assets. That's sitting in our servers. We have access to that to put models on top of that. Now we cannot disclose client A has the following portfolio, but we can use it to create products and we can use it to anonymize it and all of that, just like we can use the other one, the other -- the clients that have $50 trillion in assets. So that is proprietary data. Now that's in the back end. In the middle is the investment and risk models that we need to put on top of that data and then deliver that content. Yes, you could use ChatGPT to go look at something, and maybe the answer is right, maybe the answer is not as right. At the end of the day, we're not in the gathering information in order to have a political opinion, for example. We are -- our clients are in the business of getting accurate data, accurate models, accurate performance and all of that. They're not simply going to trust anybody. They're not simply going to get a large language model sitting on the side and go do that. They need a thorough, trusted, reliable branded product that puts its name and reputation behind it. That will be huge barriers to entry to a lot of people. So those are examples that I will give you, right? Operator: And the next question will come from Faiza Alwy with Deutsche Bank. Faiza Alwy: I just wanted to go back to the performance of net new sales in the quarter. I know, obviously, there can be a lot of lumpiness. And you highlighted strength in Americas and Index. Just curious what you're seeing in EMEA in particular because it sounded like net new sales declined. So I was just curious if there's -- if maybe some of the new product innovations that you highlighted is more catered to Americas? Or if there's something specific, maybe it's ESG related? So just some additional color there would be helpful. Andrew Wiechmann: Sure. Yes. So I would say similar to the comments I gave overall, we see relatively consistent dynamics. I've mentioned in the past that we've seen a bit of sluggishness with asset managers in EMEA. We continue to see a bit of that. I think they've been a little bit slower moving on the rebound of the market here. And so our results have been a little bit softer in the EMEA region. Our product development efforts are global in nature. And so a lot of the enhancements that we're making for not only asset managers, but all client segments are targeting tremendous opportunities within the European region. We actually, on the Index side, see a growing ecosystem around our indexes within the ETF community. And so we've seen tremendous growth in assets under management and ETFs linked to our indexes in Europe, particularly around the World Index, where we are becoming a standout in terms of largest ETFs, and that's perpetuating through to a whole host of additional opportunities. And so yes, we see some sluggishness from clients, some pressure -- outsized pressure relative to the Americas, but our position there is very strong and a lot of the innovations that we have across product lines are positioning us to continue to drive growth. And as I alluded to, that's not only on the Index side, but in areas like PCS. Many of the innovations you heard Henry talk about and Baer talk about it in the prepared remarks are positioning us well to unlock big pools of capital focused on the private asset market in Europe. And we continue to enhance our go-to-market effort across many of these additional client segments in Europe. So continue to believe it's an attractive opportunity, but we are seeing in the near term a continuation of some of the sluggishness that I've mentioned in the past. Operator: And our next question will come from Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: How are you thinking about the expected time line to utilize the $3 billion repurchase authorization? And to what extent would you plan to fund that with free cash flow versus incremental debt? Henry Fernandez: Thanks, Patrick. First of all, we love MSCI, and we love it even more when it's undervalued franchise. Clearly, we hit some soft spots in the last couple of years and the undervaluation of the company has increased. And therefore, we've been pretty active in buying the stock, $1.5 billion year-to-date. And we got the Board, obviously, to authorize another $3 billion to do that. We would like to be as aggressive as we can if the company continues to have undervaluation in the franchise and take advantage of that. And we are a strong believer in the medium -- in the short, but more importantly, medium and long-term prospects of the company. I, for one, have done the same, not just with the assets of the company, but personally. In the last 18 months, I bought $20 million worth of MSCI shares for me and my family. It's not because of pride of authorship. These are rational decisions that, given our opportunities, given the new product development machine this company can create, we will remember this period as a period of undervaluation that is a good opportunity to load up. So we're going to do the same with the assets of the company. Now I think that in terms of the split, yes, in order to do the $3 billion over some reasonable period, we'll have to do both, free cash flows and continue to lever up to 3.5x or close to 3.5x. That will provide us hopefully over $1 billion a year or something like that, and then we'll be opportunistic like we have always been. If the stock runs up way too much, we'll set it out, not because we don't believe it's attractive, but it's because, tactically, we can buy it cheaper. So that's our plan. Andrew Wiechmann: And just to be clear, no change to our approach to capital allocation, no change to our leverage targets. What Henry described as more of the approach that we've consistently taken, and so it's a continuation of what we've been doing. Operator: And the next question will come from George Tong with Goldman Sachs. Keen Fai Tong: Can you talk about how much pricing contributed to net new bookings growth this quarter, and what your strategy overall is around pricing? Andrew Wiechmann: Yes. So I would say across the company, the contribution of price increases to new recurring sales is roughly in line with what we've seen in recent quarters. So no major shift in the approach. It does vary a bit across product lines and client segments. In terms of that approach that we've taken, we're generally trying to align price increases with the value that we are delivering. So many of the enhancements and improvements that we make and innovations that we've talked about here, we will be monetizing through price increase. And so that's a key component to enable us to continue to drive price increase. But we also factor in the overall pricing environment. We do look at client health. Our approach can vary product segment to product segment, even client segment to client segment. But importantly, we are really focused on being a strong long-term partner to our clients, and we are focused on building that relationship. And so we want to be constructive around price increases and very mindful that we need to continue to deliver value to be able to support price increases over time. But across the organization, no major change on the contribution. Operator: And the next question comes from Jason Haas with Wells Fargo. Jason Haas: You've talked a bunch on the call about some of the improvements that you've been making to your offering. And I'm curious if you could talk about just the time line for when we should see that show up. I know it takes time to hit revenue. But maybe in terms of the net new sales, to what extent have you been benefiting from those introductions, and it sounds like there's more coming through? So over what time frame, even high level, should we think about those improvements coming through? And if I could slip in a second one, just on the AI benefits that you talked about and the efficiencies that you can gain. I'm also trying to think about the time line there in terms of when we might see that start to show up in improved margins from here. So if you could talk about the time, that would be very helpful. Andrew Wiechmann: Yes. I would say, overall, as you know, our financial model moves very smoothly. We -- I touched a little bit on this in my prepared remarks, but there is strong momentum in releasing new products, and that is starting to impact sales. We've seen roughly $25 million of sales year-to-date from recently released new products. I mentioned the $16 million on the Index side in my prepared remarks. And so we are starting to see these benefits and that pace of acceleration in product development is definitely additive and something that helps us across many parts of the company here and allows us to continue to drive growth across not only the asset manager client segment, but all of our client segments. And so it's one that we do believe is going to be an important driver of growth moving forward here. And it's something that you started to see, but hopefully continues to be a big contributor to our success in the future. Just on the impact on the financial model of AI. Henry touched on this, but I would say, overall, AI is enhancing to our financial profile. As you know, our business has tremendous operating leverage with high incremental margins. We are selling IP-based solutions that we produce once and sell to many users for many use cases, and that enables us to both invest in growth and drive attractive profitability growth on an ongoing basis. And so as Henry alluded to, AI enhances both of those dynamics even more. So we're creating even more scale, enhanced productivity, enabling us to invest even more in the business, enhance our solutions and drive attractive top line growth as well as profitability growth. And as Henry alluded to, we are not going to take the margin down with some massive elevated AI spend, but it's something that will be a key ingredient to continuing to fuel that dual mandate that we have with our shareholders, which is continue to invest in the business to drive long-term growth and continue to drive attractive period-to-period profitability and free cash flow growth. And so it's something that will be a smooth impact on the overall financial model here. Henry Fernandez: Let me just add that the virtuous circle that we will -- that we're trying to achieve over time is one in which we push higher and higher the operating leverage of the company to free up resources -- let me say, push higher and higher the operating leverage of the company, maintain the profit margins, and therefore, free up significant resources to invest back into the business. We have enormous opportunities in private assets, in index investing and in physical risk and climate, in wealth management, in GPs, in the faster money segments, hedge funds, broker-dealers, data sets, investing and creating new data sets and all of that. We do not want to make those investments by taking the profit margins down. But we need investment dollars. And the bigger the investment dollars, the more we can achieve higher growth in the company. So that's going to come from AI. That's what we're looking for. Operator: And the next question will come from Russell Quelch with Rothschild & Company. Russell Quelch: Just wanted to circle back to the discussion on active ETFs. I think, Baer, you said you've seen an impressive 10% quarter-on-quarter growth there. I think it would be helpful to unpack your response to Kelsey's question and maybe give a bit more detail on exactly why growth in active ETFs does not cannibalize your revenue growth with active asset managers. And also, I wonder if you could confirm the other part of the question, which was the difference between the economics between the active asset management benchmarks and the active ETF benchmarks, that would be helpful. C. Pettit: Sure. So I'm not being cute, but it's genuinely unintuitive to me why it would cannibalize it, right? So you think there's -- so there's an active fund. It's benchmarked. And it's previously likely wrapped in a mutual fund or perhaps some other type in some other way. So then that same active fund, let's say, holding everything else constant, it doesn't change its investment strategy, it stays the same, goes into an ETF wrapper. It's fundamentally pretty much neutral for us, right? But in fact, generally what occurs is the following things. One, in transferring into an ETF wrapper, it typically has a more rules-based approach, wants to be more transparent. It doesn't just want to move the fund into it. So there are many occasions. I'm not saying it doesn't happen. There are a lot of funds that go straight in ETF wrapper. But in many instances, the investment strategy is somewhat adjusted or you could say, quantified, quantification of the strategy, and we have a role to play there with our tools, factor models, et cetera. Then in turn, it may go a further step and it may be turned into an index. Maybe then those rules become more strict and hence, the strategy becomes an index. And in turn, many such strategies are being built from scratch today, and so we play the part in it. So I would say that -- and in turn, the people who are doing this are generally or not in the index or the passive as people say, we don't like to term that much, but the index business, they're not the traditionally -- there are some major index players doing in the active space, but many of these are purely traditional active managers putting an ETF wrapper on a fund. So honestly, it's just not a -- it's not a threat to the existing business and there's a lot of upside for us in the future. Henry Fernandez: Yes. And to add to the financial model is, in addition to the subscription fees, when that product is systematized, we charge assets under management fees on top of the data fees. So that's where the incremental revenue comes in. Operator: And our last question will come from Gregory Simpson with BNP. Gregory Simpson: I wondered if you could share more on MSCI's product offering, revenue and strategy with the GP client base given alternatives now make up over half of the revenue pool in asset management. I also wanted to ask this in the context of the 5.5% run rate growth in the private asset segment and the opportunity and time line to get this growth rate up. Henry Fernandez: So private assets, as you know, we have it classified at MSCI between real assets, real estate and infrastructure and what we call Private Capital Solutions, which has some real estate component on it -- in it, but it's -- a lot of it is private equity and private debt. So within Private Capital Solutions, which is the former Burgiss company that we acquired 3 years ago, a lot of the business there has been built in creating tools and transparency for the institutional LP market. So the model is that an institutional LP gets presented with a proposal by a GP to invest, they invest and they invest in hundreds of these things. And then they turn to us and say, "Can you help me understand all of this?" So we go to the GP and tell them that we're representing the LP. The GP gives us all their data, every single data that they give the LP. And therefore, we aggregate that data. And then we look at the funds, we tell the institutional investor, what's in the fund, what is the benchmark, how are they doing relative to the benchmark, how is the performance, how is the risk, when will the capital be called, when will the capital be returned, and all of that. So in that model, we get paid by the LP, and that's largely the business model today. So what we're doing is 2 things is we are we're creating the product line that is similar to the institutional LP so it can be used by the wealth LP, which is not a big transformation. It's just reprogramming the tools of transparency, of understanding, the benchmark, the performance, the risk and all of that in the portfolio, the credit-worthiness, the market risk and all of that, that I talked about like in private credit. And then serve it up to the wealth management organization so they have the same level of transparency and understanding what they invested in as still limited partners, because they are, instead of being an institutional limited partner, is now an individual limited partner or a pool of limited partners. So that's one part of the growth. The second part of the growth is to then, which we're doing right now, is to create products for the GPs because we are in the ecosystem. We're talking to GPs every day because of the role that we play for their -- with their investors. So we go into the GPs, and we launch a few products. Recently, we launched one, it's called Asset and Deal Information in private equities as to looking at every deal, at every asset based on our database, and provide that as a reference for the GPs to see who is doing what around the industry. So right now, our revenues coming from GPs directly on private assets and private capital solutions is minimal. A lot of the revenues that are coming from the GPs right now are in Analytics. We help them risk-manage their assets. We help them with certain -- with indices in certain parts of the business. We help them with Sustainability and Climate, but our revenues coming from PC -- from private assets of these GPs is minimal. I don't know, $5 million, $10 million, some number like that. That is a massive opportunity for us. So those are the 3 -- the 3 strategies are deepen our penetration on the institutional LP, expand to the wealth or individual LPs through the wealth management sector, and build products for the GP in which we have all the underlying information and the data and everything. It's just a question of building products. Operator: This does conclude today's question-and-answer session. I would now like to turn the call back over to Henry for closing remarks. Henry Fernandez: So thank you very much for attending. Obviously, a different tone from last quarter. I normally say to people, it's darkest before it's dawn. And we feel that the dawn has arrived and we're turning the corner here. It's not going to be a straight line. It's going to be lumpy. We're not in the kind of business that flares up and flares down. It's a consistent buildup and it could be a little lumpy, but we're very optimistic about our prospects now. So thank you, everyone, for joining. As you can see, we have an all-weather franchise, delivering significant performance and attractive margins. We're a mission-critical tool. Our footprint has largely been product-driven. And now we are very expanding more strategically in a lot of different client segments to link the ecosystem and benefit from that. So -- and that will bear value creation over time. We're a long-term compounder. We're not a flare-up, flare-down company. So our goal is to continue to build higher growth, higher profitability on a year in, year out basis, year in, year out basis to be a long-term compounder of EPS and growth. Thank you very much, everyone. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Commvault Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Michael Melnyk, Head of Investor Relations. You may begin. Michael Melnyk: Good morning, and welcome to our earnings conference call. Before we begin, I'd like to remind you that statements made on today's call will include forward-looking statements about Commvault's future expectations, plans and prospects. All such forward-looking statements are subject to risks, uncertainties and assumptions. Please refer to the cautionary language in today's earnings release and Commvault's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Commvault does not assume any obligation to update these statements. During this call, Commonwealth's financial results are presented on a non-GAAP basis. A reconciliation between the non-GAAP and GAAP measures can be found on our website. Thank you again for joining us. And now I'll turn it over to our CEO, Sanjay Mirchandani, for his opening remarks. Sanjay? Sanjay Mirchandani: Good morning, and thank you for joining today's call. Commvault had another strong quarter and an excellent start to the first half of the fiscal year. Highlights include: in constant currency, we added a record $47 million net new ARR. Subscription ARR rose 30% to $894 million. Total revenue grew 18% to $276 million. Additionally, we hit a major milestone earlier than expected. Total ARR grew 22%. And with that, we achieved $1 billion in total ARR 2 quarters earlier than our original March 2026 target. In Q2, SaaS ARR grew 56%, hitting $330 million. This was also 2 quarters earlier than projected. And for the fiscal first half, we achieved 42 on a rule of 40 basis. We couldn't have done it without the support of our customers and partners and the unwavering commitment to innovation and excellence from the Commvault team. Looking ahead, there are 3 key business drivers that continue to fuel our growth. One, strong demand for our Commvault Cloud Cyber Resilience platform from our hybrid cloud customers. Two, as I mentioned in prior quarters, the continued move to the cloud, which our platform is tailor-made to support. And three, customers rely on our innovation engine to meet their complex and evolving readiness and resilience requirements. I'll discuss each in more detail. First, hybrid cloud customers are embracing our Cyber Resilience platform. New attack vectors are constantly emerging. And with AI, data is more distributed and is being used in new ways which introduces more threat vectors for organizations to grapple with. The need for best-in-class detection, protection and recovery is paramount. Traditional data protection approaches don't cut. Customers need a platform that makes them ready to withstand the worst to keep their business continuous. We do this better than anyone else. This quarter, we saw strong momentum across our identity and data security focused offerings which grew double digits sequentially and represented nearly 40% of net new ARR. Our fastest-growing SaaS offering this quarter rapidly restores Active Directory and Entra ID to identity protection services. In Q2, a large bank in Asia Pacific chose Commvault's Active Directory offering to quickly recover its identity operations after a cyberattack. They also leveraged ThreatScan to validate clean recovery points and unified its hybrid workloads to close gaps and meet its regulatory requirements. This is cyber resilience in action. As we shared last quarter, we also continue to invest in our partner ecosystem, which makes our platform even stronger. This quarter, we announced a new partnership with BeyondTrust, a global leader in identity security. By integrating their capabilities with the Commvault Cloud platform, we can help joint customers advanced recovery while reducing unauthorized access to credentials, systems and data. We believe the momentum we're seeing across our identity and data security focused offerings will continue in the second half of the year, which brings us to our second growth driver, the continued move to the cloud. Cloud-borne and cloud-bound data is accelerating at a tremendous pace, and this is only going to increase with the rapid proliferation of AI. Today, Commvault has moved and protects approximately 8 exabytes of customer data into the cloud. This represents a greater than 40% CAGR over the past 5 years. We expect this rapid pace of growth to continue fueled by the fact that customers are increasingly storing AI data in the cloud. It makes our Clumio portfolio of offerings for AWS more relevant than ever. Over the past year, we introduced Clumio backtrack for F3 and brought Clumio's unique recovery capabilities of DynamoDB and Apache Iceberg. We are transforming the speed, scale and efficiency in which cloud data can be restored. This quarter, we saw healthy sequential growth in ARR from Clumio and continue to add new customers to the platform, including 3 Fortune 1000 customers and 2 Fortune 500 customers. And BBVA, one of the world's largest financial institutions chose Commvault to reduce its cloud-native complexity, strengthen its DORA compliance requirements and protects its mission-critical AWS data. Commvault cloud unified its data protection across 3 major hyperscalers, and Clumio unlocked a 40% cost savings. Additionally, we made tremendous progress with cloud-bound enterprises. In Q2, the number of SaaS customers grew nearly 9,000, representing a 40% increase year-over-year. Net dollar retention remains healthy at 125%. And we continue to see strong adoption of our SaaS offerings from existing customers. A global Fortune 1000 system manufacturer chose Commvault to support its hybrid cloud journey. Today, Commvault safeguards is virtual machines, databases, file systems and Microsoft 365 data. The customer also leverages Air Gap Protect and our integration with Azure Government Cloud to streamline operations and support its compliance initiatives, which brings me to our third growth driver, Commvault's Innovation Engine. Our innovation engine has never been better. Time and again, we've been first-to-market with unique capabilities that address our customers' most critical use cases. Innovations like Cleanroom Recovery, Active Directory and Cloud Rewind are closing the gap for customers evolving readiness and resilience requirements. Top industry analysts are taking notice. We are one of the few companies to be named a leader in the Forrester Wave, the Gartner Magic Quadrant and just this quarter, the IDC Marketscape on cyber recovery. The IDC MarketScape report highlighted our platform's comprehensive cyber recovery architecture, broad workload support and deep data security integrations for delivering enterprise-grade resilience. This is why customers choose Commvault. As enterprises embrace AI, we will help them address evolving resilient requirements. That's why we acquired Satori Cyber, which closed during the quarter and is being integrated into our Commvault Cloud platform. This acquisition is timely as it provides monitoring and front protection for large language models as well as automated discovery, classification and access management for structured data. We will discuss the evolution of resilience in the age of AI and introduce a richer set of innovations ever at Shift, our premier customer event on November 12 in New York City. I hope you can join us. And with that, I would like to turn the call over to our CFO, Jen DiRico, to discuss our results in more detail. Jen? Jennifer DiRico: Thanks, Sanjay. Good morning, and thank you for joining us today. Our solid Q2 results confirm that data is moving to the cloud at an accelerating pace. Our Commvault Cloud platform is well situated to benefit from this Shift. Case in point, in Q2, we set new records by adding $47 million in net new ARR and $29 million in net new SaaS ARR on a constant currency basis and we exceeded $1 billion in total ARR, reaching this milestone 2 quarters earlier than our initial target. Now I'll discuss our Q2 results and operating metrics followed by an update on Q3 and FY '26 guidance. Please note that all growth rates are on a year-over-year basis unless otherwise specified. On a reported basis, total annual recurring revenue increased by 22% to $1.04 billion or 21% on a constant currency basis. Subscription ARR increased 30% to $894 million, representing 29% growth on a constant currency basis. This was led by 56% growth in SaaS ARR to $336 million. And I'm excited to share that we exceeded our original $330 million SaaS ARR target 2 quarters earlier than planned. Subscription ARR now constitutes 86% of total ARR compared to 81% 1 year ago. Subscription ARR is the best indicator of the company's growth. Now I'll discuss Q2 revenue trends. Total revenue grew by 18% to $276 million led by a 29% increase in subscription revenue, including 61% growth from our SaaS platform. Term software revenue rose 10% to $93 million. Strong double-digit growth in transaction volume was tempered due to a shift in term duration, which reduced average deal size. In Q2, customers chose shorter contract duration to maintain flexibility between software and SaaS as they evaluate the timing of their transition to cloud. Q2 SaaS net dollar retention was steady at 125%, benefiting from both successful up-sell and cross-sell initiatives. We saw solid momentum across our identity and resilience offerings such as Air Gap Protect, Active Directory, Cleanroom, Cloud Rewind, Risk Analysis and ThreatScan, which collectively grew double-digit percentages sequentially and represented almost 40% of net new ARR. Active Directory, a mission-critical identity tool for an effective resilient strategy saw usage more than triple year-over-year as IT leaders adopt our data and identity recovery solution. In just 2 years, Active Directory is on pace to become one of our largest SaaS offerings. For example, we expanded our footprint with a large U.S.-based health care services customer who sought to address concerns around identity and resilience as one of its largest competitors suffered a crippling cyberattack. With the addition of Cleanroom, Active Directory enterprise and M365 backup, we are securing this customer against accidental deletion, corruption and providing peace of mind in being able to rapidly recover in case of an event. Additionally, we closed several 7-figure SaaS transactions during the quarter. Further evidence that Commvault Cloud is the gold standard for enterprise-grade resilience at scale. SaaS customers over $100,000 in ARR grew 55% year-over-year outpacing growth of the overall SaaS base. Due to the complexity of their requirements, this segment typically demonstrates a higher rate of multi-product adoption than our overall SaaS base. Now I'll discuss our profitability and free cash flow. Fiscal Q2 gross margins were 80.5%, which reflects the acceleration in the mix of SaaS and Shift in average software duration. Operating expenses of $170 million represented 61% of total revenue, consistent with the prior quarter and prior fiscal year. Q2 operating expenses reflected continued investments to support our strong ongoing growth trajectory. Non-GAAP EBIT was $51 million. resulting in a margin of 18.6%, which reflects the increased mix of SaaS bookings and the integration costs from Satori. For the first half of fiscal '26, we achieved a 42% on a rule of 40 basis, reflecting a healthy balance between revenue and profitability. Turning to key balance sheet and cash flow indicators. On September 5, we closed a private offering of $900 million of convertible senior notes with a coupon of 0%. This capital raise allows us to optimize our balance sheet and provide additional flexibility for capital allocation decisions. We achieved very favorable terms on this financing, reflecting strong investor demand against a solid market backdrop. We repurchased $131 million of stock during the quarter, of which $118 million was executed in conjunction with the convert. We ended the quarter with a diluted share count of approximately 45 million shares. Q2 free cash flow grew 37% year-over-year to $74 million primarily driven by continued strength in deferred revenue from SaaS contracts and strong cash collections against Q1 sales. We ended Q2 with over $1 billion in cash. Now I'll discuss our outlook for Q3 and our updated outlook for fiscal year '26. For fiscal Q3 '26, we expect subscription revenue which includes both the software portion of term-based licenses and SaaS to be in the range of $195 million to $197 million. This represents 24% growth at the midpoint. We expect total revenue to be in the range of $298 million to $300 million with growth of 14% at the midpoint. At these revenue levels, we expect Q3 consolidated gross margins to be in the range of 80% to 81%. We expect Q3 non-GAAP EBIT margins of approximately 18% to 19%, which reflects continued strong growth from our SaaS platform and ongoing shift in term software duration. Now I'll discuss our updated fiscal year 2026 guidance. As a reminder, ARR guidance is in constant currency using FX rates as of March 31, 2025. For a historical comparison, please refer to Page 30 of our Q2 earnings presentation. We now expect constant currency fiscal '26 total ARR growth of 18% to 19% year-over-year. This will be driven by subscription ARR, which we now expect to increase by 24% to 25% year-over-year. That represents an increase of 50 basis points at the midpoint for both metrics. From a full year fiscal '26 revenue perspective. We continue to expect subscription revenue to be in the range of $753 million to $757 million, growing 28% at the midpoint. Our guidance assumes a continued shift in term duration during the second half of the year. We reiterate total revenue of $1.161 billion to $1.165 billion, an increase of 17% at the midpoint. Moving to our full year fiscal '26 margin, EBIT and cash flow outlook. We now expect gross margins to be 80.5% to 81.5%. This range reflects continued growth in our SaaS platform, which carries a different gross margin profile than software. We now expect non-GAAP EBIT margins of approximately 18.5% to 19.5%. Non-GAAP EBIT margins reflect our ongoing investments in additional growth driving initiatives. We are raising our full year free cash flow outlook to a range of $225 million to $230 million. This guidance reflects benefits from recent federal tax law changes. To summarize, our first half results are evidence of strong market demand that we believe will continue throughout the year. Thanks to our leadership in innovation, our growth-focused investments and strong execution, we are well positioned to continue taking share of the expanding Cyber Resilience market. Now I will turn it back to the operator to open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: I guess maybe to start, Jen, can you talk a little bit about -- a little bit more about the Shift in term duration? I guess -- if I look at the guidance and the reiterated guidance for the full year, it kind of implies a deceleration of growth, call it into the 11% total range. Can you just unpack that a little bit why we would expect to see growth decelerate in fiscal 4Q? And maybe that's tied back to that shift in term? Jennifer DiRico: Absolutely. Thanks for the question, Aaron. First, let me just start by saying, I would say this is the -- this is our second best term software ARR quarter and that was coupled by the fact that we saw strong volume as well. So this is the second best net new customer addition quarter for term software. When we unpack the kind of variance in subscription revenue, it really came down to that shift in term duration and effectively back to the levels that we saw a couple of quarters ago. And so when we double click, what we really saw was customers wanting to maintain their flexibility, as I thought about the -- their anticipation move to the cloud. But ultimately, what we were really pleased with was the volume that we saw in our software term business. From a volume perspective, deals greater than $100,000 actually increased 17%. So ultimately, that's really where we see the strength coming from an ARR perspective, and we do believe that is the best indicator of growth. As we zoom out and think about the second half of the year, right, what we have seen is the continued acceleration of SaaS really meeting the moment from where customers are, and we have the best platform to do that. And ultimately, when we look at the pipeline for the second half of the year, we've been prudent as we think about the pipeline and ultimately have carried through the same trends that we saw in Q2 through the year -- rest of the year. But I would just end by saying the growth in our business really is dictated by the ARR that we see, and we've raised both the subscription ARR and total ARR by 50 basis points. Aaron Rakers: Yes. And then as a quick follow-up, I'm curious, kind of sticking on the growth theme a little bit. The slide deck highlights your expectations on a TAM growing, I think it's 12% CAGR over the next couple of years. I guess as we think forward, I mean, Commvault seems to be in a pretty good position is still possibly a share taker. Can you talk about the competitive landscape and whether or not we should think 12% kind of a baseline, and there's the ability to continue to grow above that? Sanjay Mirchandani: Sure. Aaron, it's Sanjay. Let me just take me the competitive landscape. So when you look at our growth, healthy double digits has been for a few quarters. This quarter included overall both SaaS and software and when you break down the TAM at least on the more classic data protection side, you'll see that the SaaS market is growing double digits and we're fast outpacing it at 55%-ish ARR growth this quarter on just our SaaS product. And when you look at the software TAM, that's probably growing 0 to low single digits and has been again for a while. Our software business is growing at a healthy double digit, which brings you to -- we're taking share and we continue to take share. So I would say that the way we're growing, at least on the software side is our customers are consolidating, desperate platforms over the years. They're rethinking their resilience strategy with us in the wake of all the ransomware and cyber attacks, and we continue to innovate on our platform. I'll let Jen flesh out the rest of your question. Jennifer DiRico: Yes, sure. And in response to the TAM growing 12%, I would point you back to our overall ARR growth and our subscription ARR. So fundamentally, we still believe we have the continued opportunity to take share in the market and grow faster than the TAM. Operator: Our next question comes from the line of Jason Ader with William Blair. Jason Ader: So some investors have asked whether we might be seeing the backup modernization cycle kind of winding down after a few years of elevated investments. How do you respond to that, Sanjay? Do you feel like we are sort of, call it, in the back 9 of some of that modernization activity in response to ransomware? Sanjay Mirchandani: I don't think so, Jason. I think we haven't seen a slowdown in cyber attacks or new threat vectors and/or the scale at which this is happening. So there's a lot of work to do. It's -- and we're working with customers around the world on very similar types of cyber resilience programs. I don't think so. You may see different implementations in the -- as we go into what I'm affection to calling the AI era. And there'll be different needs. There will be different threat factors. And we're working really hard to make sure that we're one step ahead of what customers are going to encounter. In fact, shameless plug at our Shift event on the 12th of November, we're going to unveil probably the most rich set of capabilities on our platforms ever. And so you'll see a lot more of where we believe the world is headed. And I don't want to give it all the way. Jason Ader: Okay. Okay. Good. And then just as a follow-up for you, Sanjay. Could you offer any comments on the deal announced last week between Veeam and Security AI? Sanjay Mirchandani: I guess Anand will be the right person to ask that question. But the way we look at it is, we've been saying this for a while. What we've been saying, if you -- I mean, I'm going to guess I've said this for the past 3 years, where the world of data security and the world of data protection as we know it has to come together if you want to be truly cyber-resilient. And what you're seeing with our acquisition, for example, of Satori Cyber was along the lines, I think, of what we may have done with their acquisition. The -- where identity, observability, okay, policy enforcement on all things within your enterprise when it pertains to data, all of these things have to work together because as cyber attacks get more sophisticated, if there's like between your data security elements and your data protection elements, you're exposed. And this is the bringing together of it. We announced our acquisition last quarter. Operator: Next question comes from the line of Eric Heath with KeyBanc Capital Markets. Eric Heath: Yes, I would say just looking at some of the net new ARR, it does look like it's still accelerating over the last quarter. So it doesn't really seem like a slowdown, but -- maybe a question for you Jen. Just curious what's giving you the confidence to kind of make the step up in investments and maybe how you're thinking about that trade-off and what is a 50 basis point raise to growth, but a 150 basis point reduction in margin relative to your prior guidance? Jennifer DiRico: Yes. Thanks for the question, and it's the right one. Ultimately, what we look at is what has and hasn't changed for the year as we think about guidance and our ability to continue to invest. And fundamentally, what has not changed is our ability to continue to take share. We see that in the fact that the volume and ARR is up, the volume number of customers and our overall rep productivity continues to increase. We're also seeing the fact that our net new offerings continue to contribute more and more to our ARR, right? So across the board, when I think about the opportunity to invest, when we go back and when we started this year, there were a couple of key things that we needed to see. And effectively, we're continuing to see them, right? And so ultimately, we said '26 is going to be a year of investment, and we're going to continue on that path because all signals say that the market has not changed. Sanjay Mirchandani: And Eric, this is Sanjay, it's a very competitive landscape. We have to be ahead of what is going on in the market. We run a very responsible business as you're probably tired of hearing me say, where we worry about the top, we worry about the bottom, we want to make sure that we build a sustainable company. So within those constraints, we continue to invest both in product. We're seeing a lot of accolades on our platform, and you haven't seen what we're bringing out yet. And obviously, we have to be where the customers are. So that's the thinking. Eric Heath: And just on that point, I mean, and a follow-on to Jason's earlier question, but do you perceive the competitive landscape getting more competitive? And how do we think about that high in terms of legacy displacement opportunities? Is it starting to shrink, and that's driving a more competitive environment? Sanjay Mirchandani: It's always been competitive, and it's just getting -- now with cyber being more relevant, more visible in boardrooms and with AI, it becomes a spot where -- it becomes more -- it just becomes more visible and more competitive. Now what we've always done -- and we -- and the reason we've been in business for 30 years and continue to get accolades on our platform is we out-innovate our competitors. And it's the formula that's worked for us and we meet our customers exactly where they are, whether it be on-premise, on the edge, in the cloud, back and forth, and we want to make sure that we deliver the technology to keep our customers protected. And that's how we win. I think there is still ample opportunity to consolidate and there's ample opportunity for us to get customers more resilient. Operator: Next question comes from the line of Howard Ma with Guggenheim. Howard Ma: Congrats on reaching the $1 billion ARR milestone earlier than you expected. For Sanjay, can you remind investors of the drivers of your term subscription business? You mentioned the share gains and the TAM earlier, but I imagine on-premise data growth is still the single biggest driver and perhaps under-appreciated by investors. You gave the 40% CAGR for data growth in cloud. Not sure if you have a sense of the on-prem data growth? And one more piece, too, is the identity and data security stat you gave, that's 40% of net new ARR. I wonder to what extent is that also benefiting the on-premise part of your business? . Sanjay Mirchandani: Yes. So Howard, good to hear from you. Our play has always been from the day we dreamed up Metallic, our SaaS offering. Our dream has always been to have the singular platform for hybrid customers. And I've said it over and over again, I don't know how fast the dial will turn on where they move things to the cloud but we want to give them that complete flexibility to be able to do that as well. And as the platform has evolved, we continue to see customers whose primary disposition is on-premise. So we work with our partners whether it be HPE, whether it be Pure, whether it be NetApp to continue to work with our customers on-premise for their workloads that matter there. And as they start moving more workloads or doing more things with the public cloud, our platform is the natural journey. It's a natural platform. It's the way in which they move things over and protect them on the other side. So for us, on-premise continues to be, and we're very proud of it, continues to be a growth driver. Now if you look at your second part of your question, on identity and security, that has to be -- that is a malleable thing, that has [ port. ] You don't have separate things going on in the cloud versus on-prem, especially when you have a hybrid environment. And our offerings, whether it be Active Directory or our partnership with Beyond Trust or the other things we're doing around that allows customers to have an integrated protection capability for their identities as they move more workloads into the hybrid growth. Now it's very important because when your identity is integrated closely with your protection, resilience is a lot deeper. It's a lot better. And we've been doing this for a while. And yes, we're seeing our AD and Entra ID and our identity capabilities, we're starting to become a significant contributor to a net new ARR. So that is a positive sign. Howard Ma: A follow-up for Jen, given the appreciation for Commvault's hybrid strength, are you seeing increased cross-sell between your term customers and SaaS customers? I recall you all gave us that it's probably from 2 years ago, I think it was like 40% of SaaS customers are also term customers. So I wonder if that percentage has gone up. And then specifically with respect to the change in term duration with compression, are higher mix of SaaS customers influencing the -- those that also use term, is that causing them to drag down the contract duration? Jennifer DiRico: Yes. So first, let me answer your first question around the mix between software customers also using SaaS. The stat we gave a little while ago was about 30% that continues to tick up slowly, right, but we're seeing that traction. And as Sanjay and I both shared in our script around the fact that customers are really wanting to maintain their flexibility, right? Whether they're starting with us on software or SaaS, the most important thing is that as customers continue to transition their workloads, we have that opportunity. So I think we're seeing that in the numbers. Sanjay, you can add. Sanjay Mirchandani: And Howard, we obviously help customers with the workloads logically. So there are some that overlap like virtual machines between cloud-driven, SaaS-driven or on-premise driven, that's a choice to give our customers, but things like protecting Microsoft 365 is all cloud driven. So what ends up happening is, as customers -- as we work closely with customers on their journey on their workloads, on their priorities, on their timing, we meet them where they are. And that's just how it works. And sometimes there's a Shift where they make the cloud a priority over on-premise. But the good news part all the way -- the good news all the way is that they commit to our platform, and then we enable them all the way, whether they're on-premise, on the cloud or on the edge. So I look at this movement as something we've been expecting and something that we're ready for with a tailor-made platform for our enterprise hybrid customers. Operator: Next question comes from the line of Rudy Kessinger with D.A. Davidson. Rudy Kessinger: Congrats on a strong quarter. When I look at ARR which obviously matters much more than revenue. Obviously, record net new ARR, and by my math, organic ARR growth at constant currency accelerated a point to 19%. Jen, you talked about ongoing investments in growth initiatives as part of the reason for the EBIT margin guidance coming down in addition to the gross margin compression. Could you just talk about where you're making those incremental investments? And could we see further ARR growth acceleration over the next year or so as a result of those investments? Jennifer DiRico: Yes, sure. So let me start by saying what we did was continue to keep operating expenses at about 61% of revenue that's consistent with prior quarter and prior year. The overall gross margin pressure that we saw really came down to the fact that our SaaS business continues to accelerate, which as we all know is a -- is a great thing and ultimately just has a different margin profile. And then overall, the Shift in term duration. So ultimately, this quarter, the pressure really came down to gross margin. As we think about the back half of the year, ultimately, what I would say to you is the investments we started out with the year in terms of continuing to accelerate our SaaS motion, right? We're still making those plays. As evidenced by the guidance for the back half of the year implies a $45 million of net new ARR on a constant currency basis, which, as you remember, is above that $40 million that I first started the year with. And so ultimately, our investments are paying off, and we're going to continue to [ execute ] it. Rudy Kessinger: Got it. And then any parameters, I guess, for the second half, obviously, you have the total implied net new ARR guidance. But just any parameters in terms of what we should expect from SaaS. I think the prior commentary was $20 million plus. Obviously, you did, I think, $29 million in Q2. Should we expect $25 million plus in SaaS net new ARR now in the second half? Or just any kind of guardrails around the SaaS and term license split in the second half? Jennifer DiRico: Yes. As you think about the split, the best way to think about it is approximately 60% of our net new ARR will be SaaS. Rudy Kessinger: Very helpful. Congrats. Operator: Next question comes from the line of James Fish with Piper Sandler. James Fish: I wanted to go back on the contract duration. Is the shorter contract duration being seems more on the existing installed base is the assumption I'm making? Or are you seeing it on new deals as well, a combination of 2? Jen, is there a way to think about where we're at on average duration at this point? And is there a vertical or 2 that's sticking out with this such as, obviously, we're talking federal generally this quarter, but now we're talking about it even more so given the shutdown? Jennifer DiRico: Yes. So first, what I would say to you is it's actually across the board, where customers are really wanting to maintain that flexibility as they think about either accelerating or just anticipating their journey to the cloud. Quantifying that, we were down 9% from a Shift to term quarter-over-quarter. But again, I would go back to really normalize to what we were seeing 3 or 4 quarters ago. And so ultimately, I think that is the -- that's how we're thinking about it. Did you have a second part of your question? James Fish: I was asking you guys historically have talked about duration here and there, and it used to be about 3 and then you start talking about new customer lands being, I want to say, 2 to 3, Mike can correct me. But where is average duration now? Trying to understand like how much of a headwind duration is right now to term license? Jennifer DiRico: Yes. I think, I would say I would just go back to the fact that I think we've shared that in the new deals, it kind of creeping up towards 3 years. Overall, we've seen that go down about 9% ultimately. And that's how we're quantifying the impact. Sanjay Mirchandani: James, I'm Sanjay -- one second, I just want to add to that. I understand that the other metric that I look at very closely or we look at very closely is the number of new deals that we're bringing into the business, okay. And this was the second the largest number of deals of -- new deals that we brought in on term software, okay, in this quarter. So if you look at that, the volume and it's significant, okay, and as customers move to hybrid, it's very logical that they have different implementation plans, and you have to meet them where they are. And then -- I look at this as is something that the transition customers have to go through, and we are ready for it, and we help them while they're going through it on the on-premise side, and we pick it up completely on the cloud side. And that's the way to think about it. James Fish: So look, I understand that there's greater SaaS mix and some term duration headwind here. But if I look at the gross margin, SaaS being sort of mid-60s at this point, the other kind of gross -- I'll say the remainder gross margin was down decently sequentially. Why isn't this just competitive pressures or further discounting in the space? Jennifer DiRico: Really, I would just go back to what I shared. It really is around the fact that, the bulk of this is very much the acceleration of SaaS and the shift to terms. There's really nothing else to talk about there. Sanjay Mirchandani: Nothing major. Jennifer DiRico: Nothing major. Operator: Next question comes from the line of Junaid Siddiqui with Truist Securities. Junaid Siddiqui: Great. Sanjay, as the pace of innovation increases and the cadence of new products that you launch accelerates, and I'm sure we're going to hear a lot more in a couple of weeks at Shift. What are some of the things that you are doing on the pricing and packaging front that can help customers consume more of that platform? Sanjay Mirchandani: Junaid, great question. And without giving it all the way, there is -- maybe we -- maybe you and I meet in 2 weeks and I take you through some of the innovation and how we're thinking about it. But the bottom line, there's a lot of work we're doing in there to make it super easy for customers to take additional services and capabilities as they get the core. So I mean, it's a very logical approach. In other words, if they start with software, we're going to make it super easy for them to consume any service that we have inside of the platform, be it delivered through the cloud or on-premise or on the edge. And we've given customers -- we've always given customers because of our architecture, the ability to really run our control plane the way they want. And so if you extrapolate what I'm saying into packaging and ease of consumption, we're working really hard behind the scenes to make this super easy for customers to land some place and then continue to logically build their resilience with new services over time. What's implicit in what we're doing, which is not your question, but I think it's important to understand is we're building a ton of testing tasks that customers have to do to be ready in the face of a cyberattack or an event and making sure that we're building that capability, that automation into the product platform and into the packaging, and that becomes really important. So without getting into the details, and I'm happy to spend time with you at Shift and walk you through it. But when you see the portfolio, I think it will be quite logical how it all comes together. Junaid Siddiqui: Great. And Jen, just in terms of capital allocation, I know you mentioned you bought some shares, especially in conjunction with the convert. But historically, I think you've talked about allocating north of 75% of free cash flow to buying back shares. Is that still the case? Is that how should we should think about in terms of buyback? Jennifer DiRico: Yes. Thanks for the question. So I would say our capital allocation strategy remains consistent. It's on the 3 pillars of share buybacks, M&A, investment and organic investment back into the business. As it relates to share buybacks, you're right, we purchased $118 million of share buybacks with -- conjunction with the convert. Year-to-date, that's been $146 million we've repurchased. We have not had a specific guide, but what I will tell you is that we expect to be opportunistic and active. And ultimately, what we said is from a modeling perspective, that share count should remain approximately flat at about 45 million shares. Operator: [Operator Instructions] There are no further questions at this time. I would like to turn the call over to Mr. Michael Melnyk for closing remarks. Michael Melnyk: Thanks, Desiree. I just want to remind everyone that the invitations to Shift, which is happening on November 12 in New York City have been e-mailed. If you didn't have registration or opportunity to register, you e-mail me at mmelnyk@commvault.com. We look forward to seeing you. You'll be able to see a very innovation-rich day and to hear from our customers, partners and spend some more time with management. So we encourage you to attend, and we look forward to seeing you in New York. Thankyou. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good morning, and welcome to the Travelzoo Third Quarter 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions] The company would like to remind you that all statements made during this conference call and presented in the slides are not statements of historical facts constitute forward-looking statements and are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir. Now it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel; its Chair, General Counsel and CEO of Jack's Flight Club, Christina Ciocca; and its Financial Controller, North America, Jeff Hoffman. Jeff will start now with an overview. Jeff Hoffman: Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun, our Chief Accounting Officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations site at travelzoo.com/ir. Let's begin with Slide 4. Travelzoo's consolidated Q3 revenue was $22.2 million, up 10% from the prior year. In constant currencies, revenue was $21.9 million, up 9% from the prior year. Operating income, which we as management call operating profit, decreased as we invested more in growth of Club Members. Q3 operating profit was $0.5 million or 2% of revenue, down from $4 million in the prior year. Let me explain the rationale for our significant increase in marketing expense, which lowered EPS. Slide 5 shows that investments in the acquisition of Club Members are attractive as they have a quick payback. On the left side, you see that the average acquisition cost for full paying Club Member was $28 in Q1, $38 in Q2 and $40 in Q3. On the right side, you see that we get this money back fast. The member pays in the U.S. case here, their $40 annual membership fee right at the beginning of the membership period. Additionally, we generated $15 in revenue from transactions in the same quarter. This full payback doesn't even consider an increase in advertising revenue and future membership fees and other revenues. Now Slide 6 shows as a reminder, that with subscription businesses, membership fee is recognized ratably over the subscription period, whereas acquisition costs are expensed immediately when incurred. Slide 7 shows the effect. While we have a quick payback, reporting -- the reported EPS is different. Higher member acquisition expenses, coupled with only a portion of revenue recognized in the quarter reduced EPS this quarter. In the case of Q3, that effect was a reduction of $0.15. As shown on Slide 8, our strategy is fueling member growth at a rate of 135% year-to-date. New Club Members come roughly half from Legacy Members and half from those new to Travelzoo. On Slide 9, we break down our main categories of revenues, advertising and commerce and membership fees. Advertising and commerce revenue was $18.6 million for Q3 2025. Revenue from membership fees increased to $3.6 million. Membership fees, which are more stable and predictable, are adding revenue and are becoming a larger share. Next year, we expect them to account for about 25% of revenue. On Slide 10, you can see that revenue growth came from all reporting segments. With favorable ROI on member acquisition in the U.K., we invested heavily there. Jack's Flight Club revenue increased 12%. Operating profit was lower in both our North America and Europe segments and was slightly less in our Jack's Flight Club segment. On Slide 11, you can see that GAAP operating margin was 2% in Q3 2025. Acquiring more club members has the effect of lowering GAAP operating margin. Still, given the favorable ROI, our goal is to further grow the number of Club Members to accelerate Travelzoo's growth. Slide 12 shows the investment in Club Members occur in all key markets. Over time, we expect margins to return to previous levels or even exceed them. On Slide 13, we provide information on non-GAAP operating profit as we believe it better explains how we evaluate financial performance. Q3 2025 non-GAAP operating profit was $1.1 million. That's approximately 5% of revenue compared to non-GAAP operating profit of $4.9 million in the prior year period. Slide 14 provides information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to Slide 15. As of September 30, 2025, consolidated cash, cash equivalents and restricted cash was $9.2 million. Cash flow from operations was negative $0.4 million. We reduced merchant payables by $0.7 million and repurchased 148,602 shares. Now looking ahead, for Q4 2025, we expect year-over-year revenue growth to continue. We expect revenue growth to accelerate as a trend in subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months, as we acquire new members and as more Legacy Members become Club Members. Over time, we expect profitability to substantially increase as recurring membership fees revenue will be recognized. In the short term, fluctuations in reported net income are possible. We might see attractive opportunities to increase marketing. We expense marketing costs immediately. Now I'm going to turn the discussion over to Holger. Holger Bartel: Thank you, Jeff. We will continue to leverage Travelzoo's global reach, trusted brand and our strong relationships with top travel suppliers to negotiate more club offers for Club Members. Travelzoo members are affluent, active and open to new experiences. We inspire travel enthusiast to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do. Today, I would like to share a bit more information about the Travelzoo Club membership. Please turn to Slide 17. The Travelzoo is becoming the must-have membership for travel enthusiasts. Membership empowers you to live your life as a travel enthusiast to the fullest while respecting different cultures. Membership provides access to high-quality and highly valuable club offers. Our global team negotiates and vets them rigorously. These offers cannot be found anywhere else. Membership also provides complementary access to airport lounges worldwide in case your flight is delayed. Culinary travel deals curated for the travel enthusiast coming soon. Slide 18 shows a few of the many exclusive club offers that we created for Club Members during Q3. For example, Travelzoo members could head to an all-inclusive vacation in the Caribbean for $499 (sic) [ $399 ], which even includes round-trip flights or attend the Futuristic ABBA Voyage show in London at a special member price. In Rome, Travelzoo members would pay EUR 99 for 2 nights at the 4-star hotel while the general public would pay 3x as much. Trips to high-end luxury resorts like the Fairmont Mayakoba here are particularly popular with members. These are all offers that you can only get as a Travelzoo member. You will not find them anywhere else. Slide 19 shows the worldwide complementary lounge access in case of flight delays. It's perfect for the travel enthusiasts. Slide 20 provides information about Travelzoo members. Travelzoo is loved by travel enthusiasts who are affluent, active and open to new experiences. Slide 22 provides an overview of our management focus. We are working to grow the number of paying members and accelerate revenue growth by converting Legacy Members and adding new Club Members. Retain and grow our profitable advertising business from the popular Top 20 product. Accelerate revenue growth, which drives future profits in spite of temporarily lower EPS. Grow Jack's Flight Club's profitable subscription revenue, and develop Travelzoo META with discipline. Now Christina, will provide an update on Travelzoo META and Jack's Flight Club. Christina Ciocca: Thank you, Holger. We continue to work on the production of the first Metaverse travel experiences. They will be browser enabled. As stated in previous earnings calls, we are conscious of developing Travelzoo META in a financially disciplined way. We will provide additional updates in due time. For Jack's Flight Club revenue increased 12% year-over-year, and the number of premium subscribers increased 8%. We continue to invest in the growth of premium subscribers. We expect to see a greater increase in premium subscribers year-over-year in Q4 due to promotional activities that took place in Q3. I'm now handing over to the operator for questions for Jeff, Holger and me. Operator: [Operator Instructions] We'll take our first question from Theodore O'Neill from Litchfield Hills Research. Theodore O'Neill: I'm looking at Slide 9. And it's clear here that if I look at the advertising and commerce revenue on a rolling 4-quarter basis, the numbers are rising. And obviously, the fees are rising on the same basis. So clearly, this is all working in your favor, and I was wondering what do you think is driving the popularity of these the options that you're providing out there for travel and experiences? Because in light of economic uncertainty, I think a number of us would have thought these numbers would be going in the other direction. Holger Bartel: I think the slide that shows the offers that we are negotiating for our members shows that very well. The travel opportunities you receive from Travelzoo, and they are exclusive to our members are so much better than what the regular person can get that they motivate people to travel. They motivate people to travel even more. They make it also more affordable. And even they allow our members to go, as you saw with this example from Fairmont Mayakoba to go on luxury vacations, when they normally could only afford a relatively inexpensive trip. So travel enthusiast are people who love to travel. They can't get enough of it. And I think the Travelzoo membership is what enables them to live that to the fullest. And I think that's why we are seeing the popularity of the membership continuing to increase. Theodore O'Neill: And looking at the membership numbers, which are clearly increasing here, is that -- how does that reconcile with your expectations for that growth? Holger Bartel: It's in line with expectations. And please remember that the number that's shown on this slide includes also Jack's Flight Club. Jack's Flight Club is not growing quite as fast as Travelzoo membership. Travelzoo membership is even growing much faster than what you might think when you look at this data on the right. But in general, we're in line with what we are expecting. We obviously always want to grow faster, and we are very optimistic with the return that we are receiving on our marketing investments that we can even accelerate the growth more because as we say here, we expect next year membership revenue to account for at least 25%. Membership revenue is recurring, it's attractive and the combination of membership revenue and a continued strong advertising business will ultimately create a Travelzoo business that is more profitable than in the past. Operator: Our next question comes from Michael Kupinski from NOBLE Capital Markets. Michael Kupinski: I see that the cost of customer acquisition has gone up a little bit. And I was just wondering if you could just talk a little bit about what's driving that? And at what price would you say that you're not getting the benefit? I know $40, you're still getting a benefit from the membership. But at what price do you think that you're not -- would not see an attractive return from that? Holger Bartel: Sure. It didn't change that much from $38 to $40. I think it's just minor fluctuation, but I'll let Christina comment a bit more on what's driving the success in member acquisition. Christina Ciocca: Sure. So I agree with what Holger said. It hasn't gone up too much. The only reason that I believe it would have gone up even the $2 is just we're scaling and spending more and that's kind of just what naturally happens as you start to scale up and spend more on member acquisition on certain channels. But we are doing everything we can to counteract that by finding optimizations that will enable us to not have that kind of cost per acquisition go up to much more. And yes, I think in general, we have been finding ways to optimize the channels that work for us. And it also helps that we have such strong club offers, to what Holger said previously, that's really what's working for us as people see these amazing club offers and they want to join, and that helps us to get to our efficiencies. Holger Bartel: Also also, Michael, 4 times a year, we have Member Days. Member Days, what special about the offers on Member Days are these are offers that only Club Members can see. You could see other offers if you just get a preview of the offer, but these offers on Member Days are offers that you can only see once you are a paying Club Member. They drive member acquisition. But on the other hand, what's important here is these are offers that some of our travel partners like to create and make even more aggressive because they know these can only be seen by a very, very small select and very close group of members. So put yourself into the shoes of this luxury hotel. And do you want to name out to millions of people on Expedia that you're offering a discount? No, you don't want to. Travelzoo provides the opportunity here for these luxury hotels and similar travel partners to create offers that are hidden away from the public but that can be enjoyed by people who love them. So that's why, for example, these Member Days have been quite critical in driving member acquisition and what we are seeing is that during those periods, and we are looking to boost these even more during those periods, CPA is even substantially lower than the $40 we see here. So in short, it's really the strength of offers and the better the offers are, that's what's impacting the CPA. And of course, over time, our marketing efforts will also become more efficient. So we also think there's a good chance that we can drive CPA in certain quarters, even lower than the $40. But as long as we see this attractive payback, which we illustrated a couple of times before, we will continue to invest because if we get the money back within a quarter, if the profitability is there long term, even if it's in the short term -- even in the short term, we see a hit on profitability, it's the right thing to do, and we're actually quite happy that we are in this situation. Michael Kupinski: Thanks for the color there, Holger. Can you talk a little bit about the current advertising environment? I would have thought that it would have been a little bit stronger in the quarter. But can you just talk a little bit about how you see that and whether or not it might be improving, especially now in the North America given that we're seeing the Fed rate cuts and so forth. Do you anticipate that it will improve? Or do you think that -- just kind of give us your general thoughts about the advertising environment? Holger Bartel: Look, we have a good eye, Michael. Yes, this quarter was a bit slower on the advertising revenue side as it normally be. Q3 is generally our slowest quarter, but yes, there were a couple of advertisers who pulled back. But we have these fluctuations from one quarter to the next all the time. Sometimes it's more, sometimes it's less. In general, the feeling in the U.S. is quite good, where we really see hesitance is in the U.K. and not just us, and I'm hearing this from other companies as well, travel companies and any kind of consumer company in the U.K., there is probably an announcement about quite aggressive tax hikes at the end of November. But until people hear what exactly is going on, they are hesitant. The businesses are hesitant to spend. Consumers are hesitant to buy. So yes, there, I would say we are seeing a relatively soft advertising business in general. In all the other markets, what we are seeing, I would not overinterpret that, it's just a natural fluctuation from one quarter to the next. Operator: Our next question comes from Patrick Sholl from Barrington Research. Patrick Sholl: Could you maybe talk a little bit on some of the retention efforts around subscribers that became paying members in either Q4 of last year? I realize that's a really small cohort or the legacy members that became paying members at the start of this year. Just any sort of like commentary around like retention metrics or how you would expect like the retention costs relative to initial acquisition costs? Holger Bartel: Really good question. Christina, do you want to respond to that one? Christina Ciocca: Sure. Of course, we're constantly tracking retention and renewals. I will say that the volumes have not been massive just yet, and we expect much more renewals, especially for the Legacy Members that joined in Q4 of last year. They actually did not start their membership until January 1. So I think we'll be expecting to have many more renewals starting in Q1 of next year. So we're working on implementing different strategies to kind of ensure they renew. But the main thing is just making sure we get them content and information about the club membership while they are a member and hit kind of their preferences so that they see value in the membership and want to stay. And so far, we are seeing fairly good renewal rates, especially coming from Legacy Members that became Club Members. So we're hoping that trend will continue next year when we have larger quantities of renewals. Patrick Sholl: So isn't like they're actively opting in to make sure that it's renewed because they wouldn't have -- they would have until end of year to cancel. I guess, how do you... Christina Ciocca: For the ones that joined -- that's a good point. For the ones that joined previously, not necessarily on any specific promotions, we're starting to see some renewals. I guess, many of them are not Legacy Members, but new to Travelzoo. But we are seeing other kind of conversion rates and things for Legacy Members that are trending in the right direction. Holger Bartel: If I understand Pat's question might be about renewal itself. It's an automated renewal. They don't have to actively renew. So they will automatically renew unless they cancel. And then as you mentioned, Pat, as you mentioned very correctly, we have a very large group of renewals coming up at the end of this year and then again at the end of Q1. Those are really large numbers of renewals, and we can see already from like we can already see a little bit -- we can forecast renewals rates quite well because we can look at how many of these members have already deactivated their automated renewal. On these 2 groups it's actually very, very small because they've been with Travelzoo for a long time. But the reason I also mentioned it at that point of time when they renew the membership fee comes in, and that's why we are expecting also quite a nice income of cash at the end of this year and then again at the end of Q1. We're also looking and will most likely increase the membership fee in certain markets next year, maybe already at the beginning of the year because the $40 just seems maybe a little bit too low. And people who use the membership really love it. And from what we are hearing is we have an opportunity to increase the membership fees there. It's not decided yet, just to be clear, but we are looking into it very seriously. Patrick Sholl: Okay. And then just on the advertising and commerce components of revenue, could you maybe talk about like maybe just how the mix of that has shifted maybe over the last 4 quarters? Holger Bartel: It's really a relatively small portion where we have the opportunity to buy travel inventory, for example, hotel rooms in advance, which is where that then has an impact on cost of revenue, but it's a relatively small -- relatively small part, and it hasn't really changed dramatically nor do we expect it to change dramatically. Patrick Sholl: So like that goes into cost of revenues, and that was about like a $2 million increase year-over-year. So is that kind of like that component that we should be thinking about that as being relatively lower margin and that would kind of be the, I guess, delta on the advertising side then? Holger Bartel: Yes. Patrick Sholl: Okay. And then just on like the overall travel environment, are you seeing like any like kind of difference between the types of travel services offered in terms of what's more, I guess, active in offering deals, whether it's like flights or hotels? Holger Bartel: We are not seeing any changes. It's still the same. Consumers in general, and particularly our travel enthusiast, they're looking for value. They're looking for amazing offers, and they're looking for experiences and they want to do something new. They are not looking for something boring. They are looking for locations that reward them, that are exciting for them. But most of all, they are really looking for great value, as I said, and that's where the Travelzoo membership comes in and offers them exactly that and offers them more opportunity to travel because that's what they would like. Operator: Our next question comes from Steve Silver from Argus Research. Steven Silver: Holger, the presentation cites additional advertising revenues as a potential incremental value driver over time. I'm curious whether there's any color you can provide on your thinking just in terms of the time line for reaching some of the thresholds to reach that critical mass or whether you think that those opportunities might be either more near, immediate or longer term based on the current member acquisition rate? Holger Bartel: In the past, we've seen a roughly time delay of 1 year. It's difficult to predict this, Steve, and that's why we didn't put a number on it. So we just illustrated on the slide as, obviously, if I have more members, if I have a bigger audience, I can increase my advertising fees. But right now, it's not something we are so focused on incredibly, probably more maybe 2026 or 2027, because right now, our main focus is really on getting the number of Club Members up and providing them a service that they absolutely do not want to give up on. Steven Silver: That's helpful. And one last one, if I may. There's been a lot of chatter, particularly in North America, just in terms of flights being delayed, whether it's the shutdown or a shortage of air traffic controls, all of those types of issues. Curious as to whether there is the risk of any capacity issues at these airport lounges, if there was an increase in flight cancellations, those types of things? Or whether like airport lounges are equipped to take on a higher number of potential people if flights are delayed at that kind of pace? Holger Bartel: So far, we haven't heard about any issues or problems. Our members would certainly let us know. Well, Thanksgiving is at the end of November is the big travel period. So hopefully, all these travel issues will be resolved by then and people can travel safely and without too much interruption. But it's nice for our members to know that this service and this benefit exists when they need it. Operator: Our last question comes from Ed Woo from Ascendiant Capital. Edward Woo: Yes, a little bit more on what you're seeing out in the travel environment with all the economic issues and stuff. Are you seeing any change in the consumer, either they want to travel spending down or traveling less? And also on the supply side, are you steering much from your hotel or travel providers that they are having issues filling seats with consumers or they have to lower their prices? Holger Bartel: Last week, I read a report that there's increasing disparity between more affluent consumers who continue to travel and travel even more. And those really, really have to watch their budget. Luckily, our luckily, our members, Travelzoo members are very affluent. I mean you saw like a really high percentage of them that have incomes over $200,000. So our members are not cheap. They are not on the low income side. So they are more in the group of people who travel more. So as long as we provide them with excellent opportunities and with fantastic offers they will continue to travel. Edward Woo: Great. Are you hearing any concerns from the travel suppliers, either that they feel like they have to advertise more to fill their rooms? Or are there any concerns? Or do they feel optimistic heading into the holidays and next year? Holger Bartel: We haven't heard anything that really changes how they are looking at it. I think they are more focused now on keeping occupancy rates high compared to the COVID period when it was just normal that the hotel was not busy. So yes, I mean, I would not say it goes much more beyond what we seasonally have seen in the past. But the economy in the U.S. particularly is still doing well, and let's see what happens in 2026. As we said in the past, if we have more travel suppliers for example, hotels, as you say, that have trouble being full, they come to us and they will create offers for us. And now that we have disclosed user group that allows them to do this very discretely we are really positioned to be a great partner for them. Operator: Okay. This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks. Holger Bartel: Great. Dear investors, thank you again for your time and support today. We look forward to speaking with you again next quarter. Have a great day. Operator: This concludes today's Travelzoo Third Quarter 2025 Earnings Call and Webcast. You may disconnect your lines at this time, and have a wonderful day.
Operator: Welcome to the Regeneron Pharmaceuticals Third Quarter 2025 Earnings Conference Call. My name is Shannon, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ryan Crowe, Senior Vice President, Investor Relations. You may begin. Ryan Crowe: Thank you, Shannon. Good morning, good afternoon and good evening to everyone listening around the world. Thank you for your interest in Regeneron, and welcome to our third Quarter 2025 earnings conference call. An archive and transcript of this call will be available on the Regeneron Investor Relations website shortly after our call concludes. Joining me on today's call are Dr. Leonard Schleifer, Board Co-Chair, Co-Founder, President and Chief Executive Officer; Dr. George Yancopoulos, Board Co-Chair, Co-Founder, President and Chief Scientific Officer; Marion McCourt, Executive Vice President of Commercial; and Chris Fenimore, Executive Vice President and Chief Financial Officer. After our prepared remarks, the remaining time will be available for Q&A. I would like to remind you that remarks made on today's call may include forward-looking statements about Regeneron. Such statements may include, but are not limited to, those related to Regeneron and its products and business, financial forecast and guidance, development programs and related anticipated milestones, collaborations, finances, regulatory matters, payer coverage and reimbursement, intellectual property, pending litigation and other proceedings and competition. Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found in Regeneron's filings with the United States Securities and Exchange Commission, including its Form 10-Q for the quarter ended September 30, 2025, which was filed with the SEC this morning. Regeneron does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, please note that GAAP and non-GAAP financial measures will be discussed on today's call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our quarterly results press release and our corporate presentation, both of which can be found on the Investor Relations website. Once our call concludes, the IR team will be available to answer any further questions. With that, let me turn the call over to our President and Chief Executive Officer, Dr. Leonard Schleifer. Len? Leonard Schleifer: Thanks, Ryan, and thanks to everyone for joining today's call. For my remarks today, I will summarize our third quarter top line performance provide an update on EYLEA HD regulatory matters, briefly discuss our recent pipeline progress and close with some comments regarding our discussions with the United States government to lower drug costs for American patients while preserving innovation. I'll then hand the call over to George, who will provide more details on our pipeline progress. From there, Marion will review our commercial performance. And finally, Chris will detail our financial results and guidance. Regeneron delivered a solid third quarter, driven by double-digit net sales growth for 3 of our leading products. Compared to the third quarter of last year, worldwide net product sales for Dupixent increased by 26% and Libtayo by 24% at constant exchange rates, while EYLEA HD in the United States grew by 10%. Regeneron had Dupixent global net sales for the third quarter were $4.9 billion as recorded by Sanofi, with strong growth continuing across approved indications and geographic regions. In the United States, Dupixent net product sales grew 28% compared to the third quarter of last year, while maintaining its leadership position in both new-to-brand prescription share and total prescription share across all indications approved prior to this year. Dupixent is now approved in the United States to treat 8 distinct diseases driven by underlying type 2 inflammation, including diseases of the skin, gut and respiratory system, spanning age groups from infants to the elderly and with more than 1.3 million patients globally being actively treated. Dupixent is one of the most widely used biologic medicines. Dupixent's approved indications could potentially address more than 4 million patients in the United States alone, positioning it to remain a strong growth driver over the near, medium and long term. Global Libtayo net product sales were $365 million, up 24% on a constant currency basis compared to the third quarter of last year. In the U.S., net product sales grew 12%, where Libtayo continues to be the market-leading immunotherapy for advanced non-melanoma skin cancers while building share in lung cancer. Earlier this month, the FDA approved Libtayo in high-risk adjuvant cutaneous squamous cell carcinoma, making Libtayo the first and only PD-1 antibody indicated for this setting. While it only has been a few weeks since approval, our launch is already off to a great start, and we look forward to treating the up to 10,000 addressable patients in the United States. who could benefit from this medicine. Moving to EYLEA and EYLEA HD. Affordability issues continue to dampen branded anti-VEGF category growth. As announced in June, we initiated a matching program for up to $200 million in contributions to the Good Days Retinal vascular and Neovascular disease fund. But I am disappointed to report that the match in the third quarter was under $1 million due to lack of donations from other potential contributors. We remain committed to matching future donations to this fund through the end of the year. Despite affordability headwinds, EYLEA HD had a strong performance in the third quarter with U.S. net product sales reaching $431 million, an all-time high, driven by robust physician unit demand growth, partially offset by a lower net price. We continue to believe that future product enhancements such as a 4-week dosing interval, the inclusion of macular edema following retinal vein occlusion, or RVO, and a prefilled syringe administration are needed to fully unlock EYLEA's HD commercial potential. Earlier this month, we were notified by Catalent Indiana, LLC, an affiliate of Novo Nordisk that the FDA classified their facility as official action indicated or OAI. And to date, the issues identified during the July 2025 inspection have not been completely resolved. On that basis, the FDA issued a complete response letter yesterday for the prefilled syringe supplemental BLA with the sole approvability issue relating to unresolved inspection findings at Catalent. We continue to execute on our previously announced plan to submit an application to add an alternate prefilled syringe filler by January 2026, which would trigger a 4-month FDA review. We have also been diligently working with an alternate vial filler and have already submitted an application to include them in the EYLEA HD BLA with a PDUFA date in late December. This would provide an additional opportunity for the FDA to approve the sBLA for every 4-week dosing and RVO, given we believe there are no other outstanding review issues for this application. Moving briefly to our pipeline, which George will soon discuss in more detail. We continue to make significant investments in R&D that have yielded notable progress across several key programs. In just the past 3 months, we have announced positive Phase III or registration-enabling data for 6 distinct programs spanning immunology, neurology, allergy and rare diseases. Over the next several months, we look forward to rapidly expanding pivotal programs in hematology/oncology, thrombosis, obesity and other metabolic diseases as well as allergies, all of which we believe represent an impressive next wave of innovative medicines discovered or developed by Regeneron. Finally, I'd like to take a moment to address our ongoing progress toward reaching an agreement with the U.S. government to help lower the cost of medicines for American patients. We are having constructive discussions with the administration, and I'm pleased to share that our priorities are closely aligned. Both Regeneron and the administration are deeply committed to ensuring that American patients have timely and affordable access to groundbreaking medical breakthroughs. We likewise share the goal of preserving the United States position as a global leader in biotech innovation and manufacturing. For more than a decade, George and I have argued that foreign governments have benefited from American innovation without sharing the burden of its cost. We are hopeful the efforts of this administration can level the playing field and convince high GDP nations to contribute their fair share rather than relying on the United States to shoulder the vast majority of this responsibility. By addressing this imbalance, we can ensure a more equitable global system that supports continued advancements in medicine while improving affordability for U.S. patients. Furthermore, we agree that investing in U.S. manufacturing is not only vital for creating jobs and strengthening our economy, but for safeguarding national security. In fact, in testimony before Congress in 2014, Regeneron highlighted the importance of prioritizing biotech manufacturing and innovation in the United States. Regeneron has already made significant commitments in this area, including our plans to invest over $7 billion in infrastructure and manufacturing facilities in New York and North Carolina over the coming years. We remain optimistic about finding common ground with the university -- with the administration, excuse me, that strikes the right balance between achieving our shared priorities while advancing Regeneron's mission of harnessing the power of science to deliver life-changing medicine to patients. In closing, Regeneron's business continues to perform well with impressive commercial execution driving strong financial results in the third quarter. Our pipeline is poised to deliver scientific breakthroughs that can potentially help treat millions of patients and translate into meaningful commercial opportunities. The commercial team remains focused on maximizing growth drivers from our in-line brands while successfully launching new products and indications. Finally, we continue to prudently deploy capital with the goal of delivering long-term value to shareholders. With that, I'll now turn the call over to George. George Yancopoulos: Thank you, Len. Over the last few months, as Len just mentioned, we have delivered multiple important data readouts, showcasing the strength of our robust pipeline and the potential to drive future growth with positive pivotal data for Dupixent for our C5 program, our cat and birch allergy programs as well as in our rare disease programs. I will also update progress in oncology, anticoagulation and other programs. Starting with immunology and inflammation. Dupixent continues to deliver remarkable outcomes in addressing indications driven by type 2 inflammation, potentially adding to its existing approvals for 8 diseases in the United States. We are anticipating the FDA's acceptance of our submission for Allergic Fungal Rhinosinusitis, or AFRS in patients aged 6 years and older based on positive data that we plan to present shortly. This represents yet another potential opportunity for expanding Dupixent's label. Moving to our IL-33 antibody, itepekimab, which was studied in COPD for which it met its primary endpoint in 1 of 2 replicate Phase III trials. We and Sanofi are contemplating another Phase III trial for itepekimab in COPD pending feedback from regulators. Itepekimab development is also advancing in other respiratory diseases, most notably our ongoing Phase III studies in chronic rhinosinusitis with nasal polyps, where our genetic evidence is compelling. Moving to our innovative and multipronged allergy program. As previously announced, our Phase III studies of our antibodies for cat allergy and for birch allergy have yielded statistically significant and clinically meaningful outcomes on primary and key secondary endpoints. These results represent the first proof of principle that targeting allergens with highly specific monoclonal antibody cocktails can achieve improvements in both ocular itch and redness. Importantly, in prior clinical trials, our cat and birch allergy approaches have delivered impressive and durable therapeutic benefits across nasal, respiratory and skin allergy symptoms. In the coming months, we plan to present these results at an upcoming medical meeting and initiate confirmatory Phase III studies for these programs. In the U.S. alone, these therapies could help approximately 1.6 million people suffering from severe cat allergies and the approximately 1.4 million people suffering from severe birch allergies. Regarding our innovative severe food allergy program, enrollment and dosing are progressing well in our small proof-of-concept trial combining linvoseltamab and Dupixent. The first 3 patients have responded remarkably with greater than 90% rapid reductions in the allergy-causing immunoglobulin E levels following a short course of linvoseltamib treatment, which are then maintained and continue to decrease with ongoing Dupixent maintenance. Full enrollment of this small initial study is still expected over the next few months. Based on insights gained from the program so far, we are advancing the development of next-generation agents designed to specifically and safely deplete allergy-causing plasma cells, the first of which is expected to enter clinical trial next year, alongside several other promising novel candidates in immunology and inflammation. Moving on to oncology and starting with Libtayo, which was recently FDA approved as the first and only immunotherapy for adjuvant treatment of high-risk cutaneous squamous cell carcinoma following surgery and radiation based on the only successful clinical trial in this setting, the CPO trial data that showed a notable 68% reduction in risk of disease recurrence or death. This approval expands and extends Libtayo's leading position in non-melanoma skin cancers. Moving to fianlimab, our LAG-3 antibody study in combination with Libtayo. Our pivotal trial in metastatic melanoma is ongoing with enrollment for our progression-free survival cohort completing in last January, and results are now anticipated in the first half of the coming year due to slower rates of event accrual. Lynozyfic, our BCMAxCD3 bispecific has been approved in the United States and the EU for relapsed/refractory multiple myeloma. Lynozyfic has the potential for best-in-class efficacy in this late-line setting compared to the other approved BSMAxCD3 bispecifics with almost double the rates of complete responses as reported in the respective label. This is the basis for our enthusiasm for studying Lynozyfic in earlier lines of myeloma and even in precursor settings as a monotherapy or in limited combinations. Consistent with this, we've recently presented promising Phase II results in high-risk smoldering myeloma patients with Lynozyfic monotherapy, demonstrating a 100% objective response rate in 19 evaluable patients with all 6 patients who have been followed for at least 1 year, achieving a molecular complete response. A Phase III head-to-head study against Darzalex is planned to start in the coming months with Darzalex having demonstrated a 9% complete response rate in this setting. In addition, we have observed rapid normalization with Lynozyfic monotherapy in previously treated light chain amyloidosis patients, including patients who have previously received and failed a Darzalex-containing combination chemotherapy. Finally, I would like to highlight that Lynozyfic has demonstrated an 83% overall response rate as a monotherapy in newly diagnosed multiple myeloma patients with responses deepening over time. Updated results will be reported at a medical meeting later this year. Altogether, these data give us confidence in terms of pursuing Lynozyfic as a monotherapy or in simplified combination in early lines and precursor settings of myeloma. Though I won't go into detail on odronextamab today, I want to highlight that our Phase III study evaluating odronextamab as first-line monotherapy against the standard of care in follicular lymphoma patients is fully enrolled. Similarly to Lynozyfic, odronextamab demonstrated potentially best-in-class efficacy in late-line patients, driving our enthusiasm for this approach in the earlier line settings. I'd also like to remind you that in the lead-in cohort for this Phase III study in first-line follicular lymphoma, odronextamab monotherapy demonstrated a 100% complete response rate, further reinforcing the potential of odronextamab in this setting. Moving on to our C5 and complement inhibitor programs. Let me remind you that in Paroxysmal Nocturnal Hemoglobinuria or PNH, where deep blockade of C5 seems critical to prevent breakthrough hemolysis and potentially catastrophic events, the lead-in cohort for our Phase III study demonstrated that our once-monthly subcutaneous regimen combining a C5 antibody with a C5 siRNA may provide the best-in-class disease control with the best-in-class convenience. For PNH patients, we have also just initiated our first-in-human study of our siRNA targeting complement factor B, primarily intended for the 20% to 30% of patients who remain anemic despite optimal C5 therapy due to so-called extravascular hemolysis. Moving on to our C5 program in generalized myasthenia gravis. In the third quarter, we announced positive Phase III results for our C5 siRNA, cemdisiran. This sRNA conveniently dosed subcutaneously every 3 months showed statistically significant results for the primary endpoint, improvement in the MG-ADL score compared to placebo and numerically better results compared to other C5 inhibitor therapies in cross-trial comparisons. The convenience advantage for patients currently being treated with regular intravenous infusions, together with its efficacy and safety profile, position cemdisiran as a potential best-in-class treatment option for this debilitating neuromuscular disorder. We are planning on submitting a U.S. regulatory application for cemdisiran monotherapy in the first quarter of 2026, pending FDA discussions with global submissions to follow. Finally, for our C5 program in terms of our efforts in ophthalmology, we are hoping to complete enrollment in the first quarter of 2026 for the leading cohort of our first Phase III study in geographic atrophy with initial results expected by the end of 2026. Additionally, in ophthalmology, I'd like to note that we are initiating a clinical trial in active noninfectious uveitis of an intravitreally delivered CD3 monoclonal antibody, which is designed to locally block autoimmune T cell activity in the eye, marking the first in a new series of novel ophthalmology targets that we will be progressing to the clinic over the next year. Turning to our anticoagulation efforts, and in particular, to our Factor XI program involving 2 different antibodies designed to tailor anticoagulation therapy for each individual patient's needs. Pivotal studies in postoperative venous thromboembolism following total knee replacement surgery are in progress with data anticipated in 2027. Pivotal studies in other anticoagulation indications are set to launch in the coming months. On November 10, we will kick off a new investor event series called the Regeneron Roundtable, which will spotlight our various innovative pipeline programs, starting with our Factor XI story, in which we will provide for the first time, exciting new clinical data in trials exploring the Factor XI antibodies in catheter-associated thrombosis in a provoked subclinical GI bleeding study. Upcoming Regeneron roundtables will spotlight our opportunities in hematologic and solid tumor oncology, obesity and other areas. Moving to our growing siRNA portfolio coming out of our research collaboration with Alnylam. I'd like to highlight our ongoing clinical studies, including our PNPLA3 and CIDEB siRNAs in MASH, our SOD and HTT siRNAs in amyotrophic lateral sclerosis and Huntington's disease. And in addition, we plan to begin clinical trials for our alpha-synuclein sRNA for Parkinson's disease and our MAPT Tau siRNA for Alzheimer's in the coming months. Finally, I'd like to highlight our commitment to developing innovative new approaches in the ultra-rare disease space. In the third quarter, we announced unprecedented clinical benefit using garetosmab in our Phase III OPTIMA trial in fibrodysplasia osticans progressiva or FOP. Individuals suffering from this tragic genetic disorder progressively replace their muscle and soft tissue with abnormal bone formation encasing themselves in a horrific osseous cage. Remarkably, in the OPTIMA trial, we're able to demonstrate a greater than 99% reduction in abnormal bone formation at 56 weeks, offering great hope for this ultra-rare genetic disorder. Regeneron plans a U.S. regulatory submission by the end of 2025. We are also providing new hope for children suffering from another ultra-rare genetic disorder in which absence of the OTOF gene results in profound genetic hearing loss. As we recently described in the New England Journal of Medicine, our novel gene therapy approach provided meaningful hearing gains in 11 out of 12 treated children with several achieving normal hearing levels. The FDA recently announced that this program was the first new molecular entity selected for a commissioner's national priority voucher, and we are finalizing preparations for a U.S. regulatory submission this year. This program highlights Regeneron's commitment to advancing the leading edge of biotechnology. In summary, Regeneron has delivered a quarter filled with positive clinical readouts, advancing our pipeline and reinforcing our leadership in scientific innovation from groundbreaking advance in addressing some of the most common medical conditions to transformative innovation in the ultra-rare disease space. With that, let me turn it over to Marion. Marion McCourt: Thanks, George. Our third quarter performance highlights the strength of Regeneron's commercial portfolio. Today's results demonstrate our ability to drive growth of in-line brands and to accelerate launch opportunities, delivering our transformative medicines to even more patients. Beginning with EYLEA HD and EYLEA, total combined third quarter U.S. net sales were $1.11 billion, comparable on a sequential basis as a decrease in EYLEA net sales was offset by an increase in EYLEA HD net sales. EYLEA HD net sales grew 10% quarter-over-quarter to $431 million, again growing faster than any other innovative medicine in the category. EYLEA HD unit demand grew 18% quarter-over-quarter, which was partially offset by ongoing competitive pricing pressures within the category. As EYLEA HD grew, EYLEA's third quarter U.S. net sales decreased 10% quarter-over-quarter to $681 million, reflecting a commensurate decline in unit demand driven by the ongoing conversion to EYLEA HD, patient affordability issues and competitive dynamics. We expect a similar demand decline in the fourth quarter for EYLEA, along with ongoing pricing pressure. Together, EYLEA HD and EYLEA lead the branded anti-VEGF category based on best-in-class efficacy, safety and with EYLEA HD durability. And EYLEA HD now represents approximately 40% of Regeneron's U.S. retina franchise. Looking ahead to the fourth quarter for EYLEA HD, we anticipate sequential demand growth to moderate to high single digits as we await label enhancements. Once approved, we believe these enhancements have the potential to generate a significant positive inflection in demand. Now to Dupixent. Third quarter worldwide net sales reached $4.9 billion, growing 26% on a constant currency basis compared to the prior year. In the U.S., Dupixent's net sales reached $3.6 billion, reflecting 28% year-over-year growth. Dupixent leads the market across all established indications, including atopic dermatitis, asthma, nasal polyps and eosinophilic esophagitis. In addition, Dupixent is the main beneficiary of competitor market growth efforts based on its proven efficacy, safety, ease of access and ability to address unmet patient needs. Our recent launches in COPD, chronic spontaneous urticaria and Bullous Pemphigoid are progressing very well. Across all launches, Dupixent's differentiated clinical profile and growing physician experience are driving strong uptake. In COPD, prescribers see Dupixent's benefits across a range of appropriate patient types and recent market research found pulmonologists expected to substantially increase their prescribing of Dupixent over the next 12 months. In lung cancer, Additionally, there has been rapid uptake among chronic spontaneous urticaria patients as both dermatologists and allergists embrace Dupixent. In Bullous Pemphigoid, Dupixent is the first biologic medicine addressing a critical unmet need. Physicians are eager to transition elderly patients off steroid therapy with Dupixent offering them a safer and more effective alternative. In summary, Dupixent continues to transform the lives of patients across indications, geographies and age groups from as young as 6 months. There are currently more than 1.3 million patients worldwide benefiting from Dupixent for multiple type 2 diseases. Turning to oncology and hematology. In the third quarter, Libtayo delivered $365 million worldwide net sales, growing 24% on a constant currency basis compared with the prior year. In the U.S., Libtayo net sales grew 12% year-over-year to $219 million based on strong demand across all approved indications. In non-melanoma skin cancers, Libtayo's strong performance is based on established market leadership and ongoing category growth. We are making encouraging early progress with U.S. launch in adjuvant CSCC, where physicians are already embracing Libtayo as a new treatment option. We estimate that up to 10,000 eligible patients may benefit from Libtayo in this setting. And now in lung cancer, Libtayo is now the second most commonly prescribed immunotherapy for newly diagnosed patients. Physicians increasingly recognize Libtayo as an important treatment option based on clinical experience, versatility as a monotherapy or in combination with chemotherapy and an increasing body of clinical evidence, including recent 5-year survival data. Outside the U.S. Libtayo sales reached $146 million, growing 47% year-over-year on a constant currency basis, supported by sustained demand and ongoing launches in international markets. Moving to our new hematology therapy, Lynozyfic. We have made strong early progress in commercializing this important bispecific for fifth-line multiple myeloma patients. Positive launch indicators include physician feedback, formulary listings, pathway inclusions, completion of REMS requirements and payer coverage. While we expect modest revenue contribution in this heavily pretreated population, Lynozyfic is an important therapeutic advance to the hematology community, and we look forward to additional clinical data supporting its potential use in earlier treatment settings. In summary, in the third quarter, Regeneron delivered ongoing growth across EYLEA HD, Dupixent and Libtayo and made important progress in several launches. Our commercial portfolio is well positioned to capitalize on many near-term growth opportunities, enabling us to deliver more treatments to more patients. With that, I'll turn the call to Chris. Christopher Fenimore: Thank you, Marion. My comments today on Regeneron's financial results and outlook will be on a non-GAAP basis unless otherwise noted. Third quarter 2025 total revenues of $3.8 billion grew 1% compared to the prior year, reflecting higher Sanofi collaboration revenue, driven by strong Dupixent sales growth, and continued growth in net sales of Libtayo globally and EYLEA HD in the U.S., partially offset by lower net sales of EYLEA in the U.S. and lower Bayer collaboration revenue. Third quarter diluted net income per share was $11.83 on net income of $1.3 billion. Beginning with the Sanofi collaboration, revenues were approximately $1.6 billion, of which $1.5 billion related to our share of collaboration profits. Regeneron share of profits grew 34% versus the prior year, driven by volume growth for Dupixent and improving collaboration margins. The Sanofi development balance was approximately $900 million at the end of the third quarter, reflecting a reduction of approximately $300 million since the end of the second quarter and approximately $730 million since the start of the year. Dupixent's continued strength has enabled a rapid reimbursement of the development balance in 2025, and we now expect this balance to be fully reimbursed by no later than the end of the third quarter of 2026. Moving to Bayer. Third quarter net sales of EYLEA and EYLEA 8 mg outside the U.S. were $854 million, inclusive of $232 million of EYLEA 8 mg sales. Total Bayer collaboration revenue was $345 million, of which $312 million related to our share of net profits outside the U.S. Other revenue in the third quarter was $198 million, which included $165 million of profit share and royalties associated with license agreements. The increase from the prior year was driven by higher royalty income from Alaris and growth in our share of profits from ARCALYST. Now to our operating expenses. R&D expense was $1.3 billion in the third quarter, reflecting continued investments to support Regeneron's innovative late-stage pipeline, including our pivotal programs for Lynozyfic and Ordspono in earlier lines of myeloma and lymphoma, our Factor XI program in anticoagulation indications and our ongoing efforts in other clinical programs. Third quarter SG&A was $541 million, down 12% from the prior year, primarily driven by lower charitable contributions to an independent nonprofit patient assistance foundation. Third quarter 2025 gross margin on net product sales was 86%. The lower gross margin versus the prior year reflects a change in product mix and higher ongoing investments to support our manufacturing operations. Regeneron generated $3.2 billion in free cash flow through the first 9 months of 2025 and ended the quarter with cash and marketable securities less debt of approximately $16 billion. Through the first 9 months of 2025, we have repurchased approximately $2.8 billion of our shares, the most ever allocated to open market repurchases in any full fiscal year in our history. We continue to be opportunistic buyers of our shares and anticipate returning approximately $4 billion to shareholders through dividends and repurchases in 2025. Moving to guidance for 2025. We have updated and narrowed the ranges across our financial guidance, which can be found in our press release issued earlier this morning. Finally, as we turn to 2026, we continue to make significant progress across our innovative pipeline and anticipate advancing multiple large registrational programs in myeloma, lymphoma, anticoagulation, obesity and other hematology and solid tumor oncology programs as well as several new assets into the clinic. We believe investing in these programs can drive significant long-term value and to support these efforts, we currently expect a mid-teens percentage increase in R&D expense in 2026 relative to 2025. We will provide details on 2026 guidance for other line items early next year. In conclusion, Regeneron's third quarter results demonstrate the ongoing strength of our business and enable us to continue investing in our differentiated pipeline to deliver significant advances for patients and drive long-term value for shareholders. With that, I'll pass the call back to Ryan. Ryan Crowe: Thank you, Chris. This concludes our prepared remarks. We will now open the call for Q&A. [Operator Instructions] Shannon, can we please go to the first question, please? Operator: [Operator Instructions] Our first question comes from the line of Akash Tewari with Jefferies. Akash Tewari: It seems like your team has retooled your commercial strategy on EYLEA, and it seems related to kind of price. What are you doing on a ground level when it comes to volume-based discounts that's allowing you to take share from Roche and Amgen? And are you seeing more price erosion on EYLEA? Or are we also seeing that discounting on high dose? And maybe just lastly, should we continue to see volume gains and revenue gains ahead of the label enhancement potentially midyear? Leonard Schleifer: Well, I think you may have set the record for the number of questions we're not going to answer. And not because we don't want to, Marion would be love to. But I think that there's so many competitive issues ongoing there in terms of our strategy on the ground, our rebates and so forth. So I'm not sure we're able to really help you out there. Marion, I don't know if you want to add. Marion McCourt: I think I would just add that when we look at the EYLEA HD performance in the quarter, the favorability that we're seeing certainly is related to EYLEA HD, the product and the science. And retina specialists see the clinical efficacy, the safety and now durability with EYLEA HD, and that is making a big difference. Leonard Schleifer: We do see that until we get these enhancements in place, we can't, I think, see a significant upswing. Marion McCourt: Len, if you like, I can highlight what I shared a moment ago, but just to answer the question a bit more completely for EYLEA HD, I mentioned we anticipate sequential demand growth to moderate to high single digits as we await label enhancements. And we also made a comment on EYLEA that we anticipate similar levels of demand reduction in the coming quarter. And as I noted today, we saw a 10% reduction in EYLEA 2 milligram, and that was in terms of the lower demand quarter-over-quarter. I hope that's helpful. Operator: Our next question comes from the line of Geoffrey Meacham with Citi. Geoffrey Meacham: I guess for Chris or Len, on utilizing the balance sheet, you guys haven't historically done larger-scale BD, and it seems like that's going to be the case going forward. But in manufacturing, what's the appetite to further expand your plans that you've announced just so you own all elements of the -- of manufacturing. Obviously, that would be viewed pretty favorably by the Trump administration as well. Leonard Schleifer: Yes. Great question, Geoff. Just on whether or not we would use our balance sheet for large deals, we certainly have no allergy to doing that if we saw the right opportunity. So it's not a question of philosophy there. It's really a question of what would make sense where we think we could create additional value. In terms of investing further in manufacturing, and as I said during our remarks, we've been talking about the need for domestic manufacturing since 2014, I think, in testimony before Congress. We mentioned the over $7 billion investment plan. But I think you do highlight one piece of the whole puzzle that we do not have adequate positioning in is the filling. But I'm pleased to say that we would expect our filling plant to come, which we've invested quite a bit in, Jeff, -- it's now ready to go, and we expect it to come online during the coming year. So that's a great question, and it should help us sort of control all aspects of the standard biologics manufacturing. Operator: Our next question comes from the line of Chris Raymond with Raymond James. Christopher Raymond: Just maybe a question on EYLEA HD. Marion, I think I've heard you talk a lot about the importance of the labeling enhancements. And Len, I just heard your comment. about share and how important they are. But I think we've come to understand maybe the primary need here and the reason for these enhancements and why they're important is for certain clinics to have dosing flexibility so they can center their inventory around one drug. But just maybe, Marion, as you've seen this market evolve, can you talk about how that clinic inventory policies have evolved over time and especially how private equity in the space may be influencing this? Or is this really more of a -- as you're looking for share with clinics that don't necessarily have relatively aggressive inventory policies? Marion McCourt: So Chris, my comment would be that the retina community and certainly retina KOLs look for the ability to select the right product for their patients. And I'm not an expert in inventory, but I can share with you that EYLEA HD is a newer branded product in the category, 2 years in the market now, certainly availability, not only inventory-wise, but payer coverage-wise. And then as I mentioned a moment ago, the most important characteristics of the product is this element of profound clinical efficacy, safety that people really can count on. And then, of course, with EYLEA HD, they're getting for appropriate patients, the ability to have durability that is very, very important for the patients and their caretakers. Operator: Our next question comes from the line of Terence Flynn with Morgan Stanley. Terence Flynn: George, you mentioned it sounds like likely you and Sanofi are going to do another Phase III trial here for IL-33 in COPD. Can you just talk about any new insights you might have learned that drove the differential outcome in the prior 2 Phase III trials? And then what you think you can change or optimize in a third trial here to improve the likelihood of success? George Yancopoulos: Well, due to competitive issues, I'm not going to really comment on most of your questions there. And as you said, we're going to have a meeting with the FDA, and that's going to help us decide on our strategy going forward. Operator: Our next question comes from the line of Tyler Van Buren with TD Cowen. Tyler Van Buren: Congratulations on the quarter. Can you elaborate on the probability of the late December decision on the RVO and every 4-week dosing filing with the new filler resulting in an approval? And just a quick follow-up would be, is this the same alternate filler that you used for the recent Libtayo adjuvant cutaneous squamous cell carcinoma approval? Leonard Schleifer: No, it's a different filler. It's a complicated sort of time line here because the new filler has to undergo its review and probably an inspection and review. And it's unclear when that would get done. Ideally, if that could get done before our November time line for the approval for the PDUFA date for the RVO that would really be perfect, and we could get it all wrapped up in late November. If it turns out that they have to go to December to get the filler approved, hopefully, that would be as far as it have to go. But of course, the FDA looks at all these things pretty carefully. This filler has a very good track record, but it's got to undergo the inspection and so forth. So I suspect that if they got through that in December, then we could rapidly resubmit or maybe the application would still be on file. We don't know exactly. We're going to have discussions with the FDA. But we believe that there is nothing left to do on that application other than to get the filler in place. So we think we've had very good discussions about label and indications and all that's fine. But it's not over until it's over, obviously. But ideally, to summarize, if we could get the filler online before the late November date, it could all be wrapped up then. If not, we would expect and hope that, that filler would get approved in December. And then rapidly, we would immediately resubmit and the FDA hopefully could act immediately. That's sort of -- that's to date that we can tell you. Ryan Crowe: A lot of complicated situation. Operator: Our next question comes from the line of Evan Seigerman with BMO Capital Markets. Evan Seigerman: Just taking a step back, can you walk me through some of the internal changes you've made with your regulatory manufacturing teams to prevent the CRLs that we've seen of recent and ensure that the products that should be approved get approved and get to patients as quickly as possible? Leonard Schleifer: That's a very pointed question. And I really want to address it head on. The issues that we have had have not been internal regulatory problems. We have a terrific relationship with the FDA. Our regulatory team includes people who used to work at the FDA or people who've been in the industry doing this for decades. there's no shortage of expertise or relationships on a regulatory front. We've certainly asked that question. The Board always asked that question, and there's no issue there. On the manufacturing front, we recognize that it would be more ideal if we could have our own filling. We would have expected to have that by now, but we got delayed dramatically during COVID because of supply chain issues in manufacturing. As I said, we hope that filling will come online next year. In terms of getting backups and what have you, it's a relatively complicated situation. We've been working on backups for quite a long time now. The problem, as you might imagine, is that for good reason, the FDA is very finicky about showing where you're going to make the product, literally what equipment it's going to touch and then you have to do stability testing and all that over and quality testing, all that for a given filler. And that takes quite a bit of time, quite a bit of resources. So in summary, I don't want to sound defensive at all. We have looked at this. It is not a regulatory problem for us. It is, in some respects, a manufacturing issue in terms of getting online our own filling. Having backup fillers in place is complicated. We're trying to do that. And -- but our biggest problem, frankly, is the FDA has now paid quite a bit of close attention. And I might point out that the biggest companies in the world have had the same issue with fillers, even with the same filler, and they've called us to know how is it going. But they just don't talk about the CRLs that they get, and we know that they're out there. So I'm not sure that we're worse off in that regard. But wherever we are, I'm not happy about it, and we're not happy about it, and we're trying to rectify the situation. I hope that gives you a glimpse into our thinking. Operator: Our next question comes from the line of Brian Abrahams with RBC Capital Markets. Brian Abrahams: Just on the pipeline front on the Factor XI antibody program. I don't want you to front run your roundtable, but I know you guys recently started a large Phase II study for the antibodies in Afib. So I'm just curious what you guys are looking for out of that study and maybe out of other Factor XIs in development to move into registrations in that and other large indications and really accelerate that program. George Yancopoulos: Well, the Phase II study is a run-in study into what we anticipate to be our Phase III pivotal program there. And we are in pivotal programs in other settings where anticoagulation can be important. And of course, what are we looking at? We're trying to understand as well as we can, the benefit-risk ratio for our 2 distinct antibodies. We think in this program, it's all going to be about benefit risk. We think that, frankly, in some ways, decreases in bleeding risk are going to be, frankly, more important than, in some cases, the anticoagulation effect. As long as you have anticoagulation effect, but if you have really a safe way of achieving it, we think there's a plethora of settings where these 2 antibodies can respectively find their place and particularly in places maybe even much larger than the SPAF indication, where right now, use of anticoagulants is very limited because of the bleeding concerns. That's what's really limiting the utilization of anticoagulants more widely across many, many, many more settings. And so we think that our approach using 2 antibodies is going to allow us to really customize and tailorize how individual patients are treated, where we can optimize, we can pick the antibody perhaps with the least bleeding risk for the patients who are most concerned about that while providing a different antibody with maybe higher anticoagulation capability when that's needed. So we think there's a lot of opportunities here beyond staff. We think that's where the major opportunity is today. We do not think that's where the major opportunity is going to be going forward in the future. We're going to where we think the future is, not necessarily where the current is right now. Leonard Schleifer: And in the future, you'll be having a roundtable to tell them about that. Ryan Crowe: Correct. November 10. Operator: Our next question comes from the line of Carter Gould with Cantor. Carter Gould: Len, you highlighted the sort of the meager matching thus far for -- with the foundation and you sort of -- I guess you framed it remaining committing to that funding until the end of the year, which I guess sort of alluded to a potential terminus. At some point, maybe at the start of the year, does it warrant taking a different tack if you don't see any other people match your commitment? Leonard Schleifer: Yes. I mean I'd like not to tell people don't bother make a commitment because we're going to take care of it. That's not our approach. Our approach will be that we will look at it fresh next year and see what the best strategy is to help patients. Good question, though. Operator: Our next question comes from the line of Cory Kasimov with Evercore. Cory Kasimov: So on the heels of your positive Phase III data for cemdisiran, I'm interested, can you outline how you see the commercial opportunity evolving for gMG and what your plans are in Europe with this asset? Leonard Schleifer: So before we get to that, maybe, George, could you just remind everybody what's out there and what the limitations of the current therapies are because I'm not sure everybody is on the same page on that. George Yancopoulos: Right. Well, right now, there are 2 major classes that are being utilized in this space. One, of course, is the C5 class. The other is the FcRn class. In terms of the C5 class, as we know, most of those are administered using these large intravenous infusions, which are very inconvenient for the patients. And in terms of the FcRn class, those are given via also intravenous infusions approaches right now or ultimately, they may move to large volume subcutaneous approaches that are also somewhat difficult to self-administer. But in any case, the issues also have to do with safety and efficacy. The thing that's exciting about our program is unlike the FcRns, which either when you use weekly treatment, you get less benefits, at least cross studies from these standard scores or with the episodic treatment where you have a U-shaped curve where the patients respond deeply, but then almost revert back to baseline before you give them their next dose. The C5s allow you to have stable, deep control through the entire dosing period. And cross-study comparison, our agent seems to have in terms of the standard measure that is being used to evaluate these the best cross-trial efficacy that's stable and continuous throughout the dosing period. Now one important feature of all these agents, obviously, is they all work by suppressing the immune system through various degrees, either the FcRns or the C5 via their inhibition of the complement cascade. They both result potentially concerns with efficacy in the case of the C5 is mostly meningococcal infections. As you've probably seen with the FcRn class with longer usage, they've seen serious infections, for example, resurgence of EBV and even fatal EBV infection. So those are concerns with everything that's available in the class. The thing that's exciting about our program is not only do we seem to have at least potentially best-in-class and stable efficacy with dosing using the most convenient dosing regimen, which is subcutaneous once every 3 months. Nothing like that has ever been seen for this class, delivering this sort of efficacy. But because we only partially inhibit the complement pathway, there is the potential, which we will have to get data to support going forward that it may offer certain safety benefits for patients. So the exciting thing about the program is we certainly have the most convenient dosing regimen. We seem to have the most consistent efficacy with cross-study comparisons, the deepest control and the fact that we don't completely inhibit the target in this class, there is the long-term opportunity that we may be able to show that we may have better safety for patients as well here. So it's a very exciting profile, I think, to potentially be able to deliver for these classes -- these class of patients who are really needing better treatments in terms of convenience, in terms of efficacy, but also in terms of safety. Marion? Marion McCourt: Sure. So everything we're doing in the launch strategy for commercialization is based on the very encouraging clinical profile that George is describing. So we're very excited about this opportunity. We will be launch ready, and we do feel for this really important category in patients with unmet need. that we potentially have a very highly differentiated product to bring into the marketplace. Operator: Our next question comes from the line of Simon Baker with Rothschild & Conpany, Redburn. Simon Baker: My first ever question on the call. I just wanted to go back to your comments, George, on intravitreally delivered CD3. You're trying it initially in uveitis. I just wonder what the scope of your ambition was in that setting, given the role of T cell infiltration in glaucoma, which obviously be a much bigger indication. Any thoughts on where this could go would be much appreciated. George Yancopoulos: I didn't hear what you said about glaucoma. What in glaucoma? Simon Baker: So there's some evidence that glaucoma is caused in greater or less a part by T cell infiltration in the eye. So I just wondered if using CD3 antibodies in this setting would potentially encompass that indication as well as uveitis? George Yancopoulos: Yes. So we're very excited about our CD3 antibody program, as you mentioned. We believe that this is the world's first complete blocker of CD3 or T cell function that's ever been evaluated in the clinic. There have been partial blocker, partial agonist to date. We think that going into the eye in uveitis, which a lot of data suggests that most, if not all of these uveitis are related to T cells. If we can block the T cells locally without because the doses that we're going to be using are very low, they're not going to be having systemic effects. you can have really profound benefit in this high unmet need without subjecting patients to any sort of global or systemic immunosuppression. So we really think this is a very novel, very different approach to active noninfectious uveitis. We think this is the perfect setting to try our CD3 antibody. We have been working a lot on glaucoma. I'm glad that you brought it up. We I believe, based on our Regeneron Genetics Center, which are world leaders in understanding the genetic basis of disease, we've, I think, uncovered the most important drivers genetically of glaucoma. And we will be rolling out in the very near future, our strategy and our programs in a very near clinical program in glaucoma as well. So I'm glad you brought it up. I'm glad you're interested in it, but these are going to be 2 very different distinct programs. We're going to have our CD3 program for noninfectious uveitis, and we're going to be rolling out a very special and very exciting program in glaucoma based entirely on our internally discovered genetics capabilities. We think that these programs really have the opportunity to create entirely new franchises in ophthalmology. The way we think about it, one could be the EYLEA for uveitis, the other could be the EYLEA for glaucoma. So stay tuned. Ryan Crowe: Thank you, George. Very exciting. I think we have time for 3 more questions, Shannon. Operator: Our next question comes from the line of Alexandria Hammond with Wolfe Research. Alexandria Hammond: On the upcoming Libtayo LAG-3 readout, it seems like the goal is to outperform Opdualag. But could you share your confidence in demonstrating a static benefit against KEYTRUDA? And as a follow-up, can you tell us a little bit more about the open-label Phase III trial you have ongoing against Opdualag? Is it just another show of confidence that your combo can be more potent than the currently approved option? George Yancopoulos: A lot of questions in there. But first and most importantly, -- our study is ongoing. As you said, we are trying our combination versus KEYTRUDA. Our hope is that the KEYTRUDA will behave as it has more or less historically. And our hope is that -- remember, we have 2 arms in the study, a low dose and the high dose that the 2 arms, at least one of them will behave better than the KEYTRUDA arm. What -- the way we powered the study is that we powered it to not only hit PFS and OS and with the minimal expectation that if we have Opdualag-like activity, we powered the study so that we can win in both PFS, but also where Opdualag failed in OS. If, as you mentioned, we have better data than Opdualag, then obviously, we will significantly win even more than that. So we've powered the study for a minimal Opdualag life benefit, but so as to have a large enough OS signal so that we will win with comparable data there. Of course, the data will speak for itself. We'll see whether or not we end up having better efficacy than KEYTRUDA, better efficacy cross-study comparison than Opdualag and so forth. But we continue to be excited, obviously, about this program. There's obviously a high need here. There was very exciting earlier trial data using our fianlimab antibody. And so we are anxiously but excited about awaiting the data readout next year. Ryan Crowe: Yes, first half of next year, the timing on that. Operator: Our next question comes from the line of Chris Schott with JPMorgan. Christopher Schott: Just a quick one on the launch of linvoseltamab. Just how is that progressing versus expectations? And can you just elaborate a bit on the time lines of when you could actually get this product into some of those earlier lines of therapy given the profile that seems to be shaping up here? Is that -- is there an ability to pull that forward or accelerate that all in terms of working with FDA, et cetera? Marion McCourt: So I can take the first portion on the launch, and then I'm sure George will comment on the rest. But certainly, it's early days. But as I mentioned, the progress has been very, very good. We've seen the typical indicators when you have a successful launch ongoing. Physician feedback has been very favorable on formulary listings, pathway inclusion, REMS requirements, payer coverage. So we are pleased with what we're seeing so far and certainly the enthusiasm of the hematology community for Lynozyfic is high. Keeping in mind, this is the fifth-line setting for multiple myeloma patients, so a heavily pretreated population. But to George for earlier lines. George Yancopoulos: Well, we believe that if one looks at the totality of the data, certainly, if it was me or somebody that I cared about giving the late-stage patients any of these treatments, I think Lynozyfic would be the choice based on all the available data out there. And importantly, what this says, if it looks like it has the potential for impressively more benefit in the late-line patients, that, of course, suggests that it should have also the best benefit for the early-stage patients. Because of that, we've taken on a lot of very aggressive programs in the early stages, not only in first-line myeloma and in second-line myeloma, but in the pre-malignant settings, as I summarized, we now have data in most of these settings, either as monotherapy or in very limited combinations, most of which we've now presented to varying degrees. And the data really is stunning and unprecedented. We're having high rates of seeing molecular complete responses in smoldering in amyloidosis, a premalignant condition, but where the protein made by the abnormal cells can cause problems. Once again, unprecedented monotherapy activity in the first-line setting, we've described that. And in later line settings with new combinations that we're also trying, unprecedented levels of activity. So we think that this program really has the potential to change the face of treatment for this disease indications in all of its manifestations, whether it be pre-malignant precursor settings, whether it's early line disease, whether it's second-line disease or whether it's for the late-stage patients. So I think this is an exciting time for the field. And I just want to remind you that in many ways, our odronextamab program is quite similar in that particularly in follicular lymphoma, where we look like we have the best late-line data, we're going aggressively in earlier line disease. And once again, we've released the data leading cohorts of Phase IIIs as monotherapy and so forth. Once again, unprecedented efficacy in these small initial cohorts that we're looking at, which really get us excited that these bispecifics really have the chance to really change the hematologic oncology space in their respective settings. Leonard Schleifer: So let me just add that before we go to the next question. One is, I think inherent in what George is saying there is that all bispecifics are not created equal. The team spends an enormous amount of time with all the technology at hand to select and create bispecifics that we think are different. fundamentally different, and that's why we think we're seeing better data. I just also want to emphasize, we're making a huge commitment here. We expect to conduct as many as 10 registrational trials for Lynozyfic, including, as George outlined, a broad registrational program in frontline or even earlier myeloma patients, both for transplant eligible and ineligible. This is a big space. It's a $30 billion market potential. Darzalex alone is annualizing at $15 billion. You saw some cross-study data that suggests that we can outperform. We've had some success where Darzalex has already failed in the IGA space, and we've had some success in cross-study comparisons in the smolder -- so I think this is pretty exciting, as George outlined. It's a huge commitment. You expect to spend a lot and go very -- as fast as we can. Somebody asked about can we accelerate with the FDA. We're certainly going to talk with the FDA and advise them that we think we have the best program, how can we work together. George Yancopoulos: You meant the amyloidosis, not IgA. Leonard Schleifer: Sorry, I meant amyloidosis. Ryan Crowe: Thank you, George. We also look forward to having a Regeneron roundtable on lenozpic in December of this year. So let's move to our final question, Shannon. Operator: Our last question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: You spoke to novel targets here in I&I and ophthalmology. On the GA program, in particular, can you speak to what the FDA may be looking for in potential study designs, whether it's slowing GA lesion growth or vision improvements and whether you need to evaluate against current agents? And just remind us on the I&I side when we might hear about these novel targets. George Yancopoulos: Well, in terms of GA, we've already designed and planned our pivotal readout study for geographic atrophy. We are able to go against placebo, and we're primarily looking at slowing down of growth together with, of course, vision control. And as I said, we have data from our -- the cohort A from our Phase III trial, where we expect readout in the second half of 2026, which really will help inform whether this novel systemic approach, which have a lot of advantages in terms of the issues of having to bilaterally inject 2 eyes multiple times as opposed to being able to systemically treat we'll know whether there's a real opportunity there or not from that data. I think that in terms of our I&I programs, I think you'll probably be hearing about one of the first one -- additional ones additionally to the CD3 program, which is obviously a related I&I and ophthalmology program. You'll be hearing it roll out over the next couple of months with hopefully a new clinical program initiating next year. Ryan Crowe: Okay. Appreciate everyone's patience. We went a little over time, and I appreciate your interest in Regeneron. I apologize to those who remain in the Q&A queue who do not have a chance -- you do not have a chance to hear from today. As always, the Investor Relations team here at Regeneron is available to answer any remaining questions you may have. Thank you once again, and have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American Tower Third Quarter 2025 Earnings Conference Call. As a reminder, today's conference call is being recorded. [Operator Instructions] I would now like to turn the call over to your host, Spencer Kurn, Senior Vice President of Investor Relations. Please go ahead. Spencer Kurn: Thank you, and good morning. Welcome to our Third Quarter Earnings Call. I'm Spencer Kurn, Head of Investor Relations for American Tower. Joining me on the call today are Steve Vondran, our President and Chief Executive Officer; and Rod Smith, our Executive Vice President, Chief Financial Officer and Treasurer. Following our prepared remarks, we will open the call for your questions. Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties described in American Tower SEC filings, and results may differ materially. Additional information as well as our earnings materials are available on our Investor Relations website. With that, I'll turn the call over to Steve. Steve? Steven Vondran: Thanks, Spencer. Good morning, everyone, and thanks for joining the call. As you can see from our published results, we completed a great quarter that delivered double-digit growth in attributable AFFO per share as adjusted. Leasing activity remained robust across our tower and data center businesses that was complemented by near-record services revenue. These top line trends, combined with focused execution of our strategic initiatives, have enabled us to increase our guidance for the year across all of our key consolidated metrics. At the midpoint of our revised guidance, we now expect to deliver attributable AFFO per share as adjusted, growth of approximately 7%. Net of FX headwinds and financing costs, our outlook implies attributable AFFO per share as adjusted, growth of approximately 9%, which reflects the fundamental strength of our core operating model. Before turning the call over to Rod to review our detailed financial results and updated outlook, I'd like to spend a few minutes discussing the industry backdrop and what it means for American Tower. The past few months have been an interesting and active time in our industry, with spectrum moving between key players and signals of a more consolidated U.S. carrier market. During my 25 years at American Tower, I've navigated many instances of carrier consolidation and spectrum deals, and our experienced team has a strong track record of delivering market-leading solutions that meet the needs of our customers while enhancing our strategic positioning. Although each transaction has been unique, there's been one consistent trend. The tower industry benefits when its customers become healthier. Financially strong customers tend to invest more heavily in their networks to keep pace with demand for mobile data consumption, which in turn drives greater demand for our best-in-class tower portfolio. Demand for mobile data, the backbone of our business model, continues to rise at a torrent pace. In the U.S., the most recent CTIA survey showed that mobile data consumption in 2024 increased approximately 35% year-over-year for the third straight year; driven by growth in mobile customers, 5G-enabled devices, usage per device and fixed wireless access. To put this into perspective, at this pace, mobile data consumption would continue to double every 2 to 3 years. Experts believe that the rapid growth in mobile data consumption will require a doubling in overall network capacity over the next 5 years, which in turn will require a significant increase in cell sites that benefit our tower business. We, therefore, remain quite optimistic about the opportunities that this industry landscape presents even before considering the likely tailwinds from AI-driven mobile data demand. We're also paying close attention to developments within satellite-based networks. We have a firsthand view through our board representation at AST SpaceMobile and regularly evaluate satellite capabilities with engineers and technology consultants. Our assessments are deeply rooted in data and firmly endorse the view that satellite-based networks will remain complementary to terrestrial towers due to the capacity and economic constraints inherent to the satellite model. And these challenges are only magnified with considering the evolving nature of wireless communication technology as growth in mobile data consumption compounds. In the U.S., this demand continues to drive robust levels of leasing activity. Application volumes in the third quarter remained elevated and heavily weighted towards amendments, but with a growing share of colocations. On average, approximately 75% of our towers have been upgraded with 5G equipment. So there's still considerable runway for growth as carriers complete their 5G coverage rollouts and shift their attention to network quality with densification activity. We also see positive trends across our other tower portfolios, where data consumption has grown at a CAGR of roughly 20% to 25% since 2020. 5G mid-band coverage is still progressing and stands at an average of roughly 50% in Europe, 20% in Latin America and 10% in Africa, with emerging markets lagging developed markets and cell sites per capita. Our international customers, especially in our emerging markets, continue to invest in 4G and newer 5G networks, and we're well positioned to capture future upside as our less mature markets lease up over time. Strong industry tailwinds also continue to propel our data center business. This quarter, CoreSite signed record retail new leasing revenue and experienced healthy growth in our larger deployments as well, driven by strong demand for hybrid cloud and multi-cloud deployments and positive pricing actions amidst tight supply dynamics. We're also seeing significant new demand from early-stage AI-related workloads like inferencing, machine learning models and GPU as a Service for neoclouds. It's becoming increasingly important for AI workloads to be co-located with hybrid installations. Our CoreSite facilities are perfectly suited for this as they have a rich ecosystem of network and cloud interconnection, coupled with purpose-built capacity design to support AI and other high-density deployments with features like liquid cooling. All of these positive trends in demand and pricing reinforce our expectation for CoreSite to achieve mid-teens or higher stabilized yields and to achieve these targets faster and with better visibility as pre-leasing and sales pipelines accumulate. I'm confident that American Tower is well positioned to benefit from these demand drivers across our tower and data center businesses. Our portfolio of assets is unmatched in quality, scale and operational excellence, and we focused our company around four strategic priorities to optimize long-term value creation, maximize organic growth, expand margins, allocate capital with discipline and position our balance sheet as an asset. We maximize organic growth as the best operator of towers and distributed real estate in the world. Our contractual and asset management expertise continues to deliver industry-leading organic growth while passing along superior service, operational benefits and efficiencies to our customers. We expand margins by leveraging our global scale and world-class teams to drive cost efficiency. We've generated approximately 300 basis points of adjusted EBITDA margin expansion since 2020, and we see room for continued expansion as we streamline operations. We look forward to communicating more details on future efficiency initiatives as part of our 2026 outlook presentation during our fourth quarter call. Our capital allocation philosophy optimizes long-term shareholder value creation. After funding our dividend, we evaluate internal uses of CapEx, inorganic opportunities, debt repayments and share buybacks against each other to drive the highest possible risk-adjusted returns for our business. This approach has recently prioritized developed tower markets and CoreSite to improve the quality of our earnings and durability of growth. And as you saw in our results this morning, it informed our decision to repurchase $28 million of shares since quarter end. And our balance sheet with an investment-grade credit rating and leverage now below 5x, which is the lowest among our tower peers, provides a cost of capital advantage and superior financial flexibility to pursue our growth objectives. Taken together, our strategic priorities are designed to deliver our goal of industry-leading AFFO per share growth. Since assuming the CEO role last year, I'm increasingly impressed by my team's ability to execute these priorities and deliver value for all of our stakeholders. I'd like to thank our incredible employees for delivering yet another impressive quarter. I'm confident that our team will continue to expertly manage our best-in-class assets and provide unmatched service for our customers in the future. With that, I'll hand the call over to Rod to discuss our detailed third quarter financial results and updated 2025 outlook. Rod? Rodney Smith: Thanks, Steve, and thank you all for joining the call. As you saw in this morning's press release, we delivered another strong quarter and raised our full year outlook. Before diving into our third quarter results and our revised full year outlook, I'll share a few highlights. First, total revenue grew nearly 8% year-over-year, driven by steady consolidated organic growth in the mid-single digits, another strong quarter of U.S. services contribution and double-digit growth from CoreSite. Second, adjusted EBITDA also grew nearly 8% year-over-year as strong revenue growth was complemented by 20 basis points of cash margin expansion. Third, attributable AFFO per share as adjusted grew approximately 10% year-over-year as strong adjusted EBITDA growth was enhanced by disciplined management of below-the-line costs. Finally, we are raising our full year outlook across property revenue, adjusted EBITDA, attributable AFFO and AFFO per share. The outlook raise is supported primarily by FX tailwinds, U.S. services outperformance and net interest benefits as compared to prior outlook. Our expectations for organic growth and CoreSite revenue growth remain in line with our prior outlook. Now let's dive into our results. Turning to third quarter property revenue and organic tenant billings growth on Slide 5. Consolidated property revenue grew nearly 6% year-over-year. U.S. and Canada property revenue was flat year-over-year and grew approximately 5% when excluding noncash straight-line revenue and Sprint churn. International property revenue grew approximately 12% year-over-year and nearly 8% when excluding noncash straight-line revenue and FX impacts. Finally, data center property revenue grew over 14%, driven by a record quarter of retail new leasing and consistent pricing growth. Moving to the right side of the slide, we delivered consolidated organic tenant billings growth of 5%, in line with expectations, driven by solid demand across our global portfolio. Our U.S. and Canada segment grew approximately 4% organically and greater than 5% when excluding Sprint churn. As a reminder, this was our final quarter of Sprint churn. Organic growth in our International segment was nearly 7%, reflecting double-digit growth in Africa and APAC, steady mid-single-digit growth in Europe and low single-digit growth in Latin America as expected. Turning to Slide 6. Adjusted EBITDA grew nearly 8% year-over-year as strong revenue growth was enhanced by disciplined cost management. Moving to the right side of the slide, attributable AFFO per share as adjusted grew approximately 10% year-over-year, supported by robust EBITDA growth and prudent management of below-the-line costs. Now let's turn to our revised full year outlook. As I mentioned, we are raising guidance across all of our key consolidated financial metrics. Starting with property revenue outlook on Slide 7, we are raising our outlook by $40 million at the midpoint, which implies approximately 3% year-over-year growth or approximately 5% when excluding noncash straight-line revenue and FX impacts. We are reiterating organic growth assumptions across all regions and continue to expect organic tenant billings growth of approximately 5% and data center growth of approximately 13% year-over-year. The increase in outlook was driven by $50 million of FX tailwinds, a $5 million increase to pass-through revenue and $5 million of incremental non-run rate revenue in the U.S. This was partially offset by $20 million of revenue reserves in Latin America, primarily related to our previously disclosed legal dispute with AT&T Mexico over the calculation of tower rent. As we disclosed in September, we reached a positive interim agreement with AT&T Mexico, whereby AT&T Mexico has paid American Tower the majority of withheld payments and will resume monthly payments of the majority of tower rents owed going forward. The remainder of the rents not paid to American Tower are to be deposited into an irrevocable escrow account administered by an independent trustee. The funds in escrow will be released in accordance with the final ruling of the arbitration or by mutual consent of the company and AT&T Mexico. We remain confident in the terms of our master lease agreement with AT&T Mexico and expect to prevail in the arbitration. Per our conservative reserve policies, our 2025 outlook assumes approximately $30 million of revenue reserves for the full year, of which $19 million are already reflected in our results through the third quarter. We expect future reserves of approximately $8 million to $10 million per quarter until the arbitration is settled. The arbitration is scheduled for a hearing in August of 2026, and the final ruling may come at a later date. Moving to adjusted EBITDA on Slide 8. We are raising our adjusted EBITDA outlook by $45 million at the midpoint, which implies approximately 4% growth year-over-year or approximately 7% growth year-over-year, excluding noncash net straight-line and FX impacts. The increase to outlook was driven by $30 million of FX tailwinds and $15 million of upside from consolidated operating profit, primarily driven by U.S. services outperformance. And finally, moving to our outlook for AFFO on Slide 9. We are raising our attributable AFFO outlook by $50 million, which now implies growth at the midpoint of approximately 7% year-over-year on an as-adjusted basis or approximately 9%, excluding financing costs and FX impacts. The increase to outlook was driven by $20 million of FX tailwinds, $15 million of cash adjusted EBITDA and $15 million of upside from other items, consisting of $15 million of upside from net interest expense and $5 million of upside from cash taxes and minority interest, partly offset by $5 million of higher capital improvement CapEx. Turning to Slide 10. Our 2025 capital plan remains consistent with our prior outlook. We continue to expect to distribute approximately $3.2 billion to our shareholders as a common dividend in 2025, subject to Board approval and expect $1.7 billion in capital expenditures. $1.5 billion of our capital expenditures are related to discretionary projects of building approximately 2,150 new towers at the midpoint and $600 million of data center spend. Importantly, we expect 80% of our discretionary projects this year to be in developed markets, consistent with our capital allocation philosophy that Steve reiterated earlier. Moving to the right side of the slide, our balance sheet remains strong. With our net leverage now at 4.9x, $10.7 billion in liquidity and low floating rate debt exposure, we have significant financial flexibility. We'll remain disciplined in how we utilize our balance sheet and allocate capital to optimize long-term shareholder value creation. Subsequent to quarter end, we have executed $28 million of share repurchases, and we will continue to be opportunistic in utilizing the remaining $2 billion that the Board has authorized for share repurchases. Turning to Slide 11. And in summary, we are pleased with our results year-to-date, which demonstrate the fundamental durability of our business model. Robust mobile data consumption growth and demand for our interconnection-rich data centers underpin a long runway of growth opportunities for American Tower. With our best-in-class portfolio of towers and data centers and strong balance sheet, we are well positioned to capture these growth opportunities and deliver on our goal of the industry-leading AFFO per share growth. And with that, operator, we can open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Funk from Bank of America. Michael Funk: So Steve, a quick one for you. So services revenue continues to come in above expectations, ours and the Street. Typically, that was a leading indicator for domestic deployments. So I would love to hear your thoughts on how that potentially factors in deployments in 2026. And then maybe to feather in another one, any thoughts you can also offer on how the AT&T EchoStar spectrum acquisition might impact deployments from AT&T and your expectations with that company? Steven Vondran: Sure. Thanks for the question. So I'll start with the services piece. We've had a healthy pipeline of activity this year in services, and it has -- it's a near record year. You have to go back to when we actually own construction management firms back in the early 2000s to find a better service to the year for us. So we're very excited about the activity levels that we've seen. We also have a larger construction management component this year than we've had in prior year. So that's a little bit of what's kind of feathering into that. But that's indicative of the carrier activity that we're seeing. And as we said from the beginning of the year, we're seeing robust activity across the board. And that's continued build-out of the 5G mid-band spectrum throughout the networks and also some early phase densification that we're seeing as well. So we're excited about the activity levels that we're seeing there. We'll refrain from guiding to 2026 until February on that. But we do see a healthy pipeline building, and we do think that our services business will be a good robust contributor in 2026 as well. So we're feeling very good about what we're seeing and hearing in terms of how that pipeline is building next year. In terms of the spectrum sale, again, we'll learn more about that and share more about that in February in terms of 2026. What we've typically seen with the carriers is that when they buy spectrum, they want to deploy it. And there is certainly a lot of opportunity to continue to deploy mid-band 5G on our sites. And so we're looking forward to working with AT&T and helping them in what they decide to do next year. But until they've announced their build plans, it's probably not appropriate for me to comment in terms of what we think they're going to do on that. Operator: And your next question comes from the line of Nick Del Deo from MoffettNathanson. Nicholas Del Deo: First, on the spectrum front, the FCC now has marching orders to auction a lot of spectrum over the coming years. Some of it at potentially much higher frequencies than the mainstream spectrum that we've seen deployed to date, I think potentially as high up as 10 gigahertz. Obviously, it's going to depend on what bands are ultimately selected. But broadly speaking, how are you thinking about the relevance of your tower portfolio for potentially supporting some of these much higher frequency bands given their propagation attributes? Steven Vondran: Yes. Thanks for the question. Look, I'm excited to hear that those bands are coming to market because towers are going to be the primary way those bands are deployed even up into that 7, 8, 9, 10 gigahertz. And that really underpins the beauty of the tower model and the long-term growth that we're going to see on the portfolio. And so when I see what's kind of been identified by the government, some of that, there's a little bit more mid-band to support 5G. But a lot of those spectrum bands that you just referenced are the 6G bands that need to be freed up and allocated for the U.S. to be competitive in the 6G market. So we're excited to see that, that's been identified that they're working on making that available. And we're looking forward to seeing how that plays out. As we've seen in the past, the higher the frequency, the lower the wavelength, which means you will need some densification of sites. So as we look out across the landscape of the remaining tranche of 5G and also 6G, we think that, that bodes very well for long-term growth for us because carriers are going to densify their networks. It will give them more bandwidth. You'll see new use cases coming out. And there's some really exciting things coming out in kind of the early discussions about 6G and what it supports. So we're very supportive of those bands coming to market and being auctioned, and we're looking forward to working with our customers to get those deployed as soon as they can. Nicholas Del Deo: Okay. Great. Can I ask one on CoreSite as well? I saw your pre-lease share was down to 6% this quarter. I think historically, that's been driven by sort of larger customers taking big flows of space. I guess should we think about the 6% is, again, just the product of the ebb and flow of larger deals? Or are you kind of purposefully saving the space that you're developing for more of a retail SKU? Steven Vondran: There's no slowdown in the deal flow. We are still seeing incredibly robust demand. What you're seeing in that dip on pre-leasing is us putting some stuff that was in construction to service. So you're really just seeing that move from pre-leasing to actual leasing. And that pre-leasing [Technical Difficulty] new projects to build new sites. So that's just a function of the flow of the construction, not a deal flow at all. Nicholas Del Deo: Okay. Okay. So no underlying changes there. Good to hear. Steven Vondran: Yes, we're still seeing huge demand drivers in CoreSite. Nicholas Del Deo: Yes, Demand across the space is strong. I was wondering more if it was more of a purposeful shift on your part to hold space for retail where you don't see as much pre-leasing, but it doesn't sound like that's the case. Steven Vondran: No. Still sticking to our knitting in terms of how we do business. Operator: The next question comes from the line of Jim Schneider from Goldman Sachs. James Schneider: I was wondering if you could maybe -- understanding that the cost optimization program, you can give us more details when you report Q4 results. But can you maybe give us a sense of how you would frame the opportunity in terms of rough order of magnitude? Directionally, how that when you do announce it should flow through the model? Would that be sort of a onetime thing or something that would layer in over the course of several quarters? And then maybe directionally, what are the considerations you're thinking about in terms of the sizing that opportunity? Are you trying to sort of get a sense about what is happening with the churn activity on your potential customers? Or is there any other considerations that are kind of top of mind as you scope that out? Rodney Smith: Jim, thanks for the question. So I'll start off by highlighting the fact that cost efficiencies is one of our strategic priorities. You've heard Steve and I talked about that over the quarters and the years as well. So it's something we've been focused on for a while here. I would point to a couple of things that have resulted from the work that we've done over the years. If you go back to 2020, since that time period, we've been able to expand our EBITDA margins by about 300 basis points. That comes from solid, steady organic growth. It includes absorbing the Sprint churn, but it's complemented in a material way by the cost efficiencies that we've driven into the business over that time period. You've seen a couple of years where SG&A actually stepped down multiple years in a row. This year, it's about flat. So we're holding things very steady after reducing SG&A quite a bit over time. So we've got a very efficient business globally as it stands today with strong margins and as I pointed out, expanding margins. So we do see the future opportunities as incremental improvements to an already efficient business, not necessarily a step function change. With that said, Steve has talked about, and we did hire or create a new role of Chief Operating Officer. That is a global role, but no fills that role. And it's focused on simplifying our operations across all areas in areas like supply chain technology, service delivery, network operations. And the goal there really is to improve service quality across the board by making things simpler and bending the cost curve down over time, particularly in the direct cost area. That should help us continue to maintain strong margins out into the future in a way to complement steady organic tenant billings growth. With that said, we do look forward to our next earnings call when we finish up 2025, talk about the fourth quarter results and get into the '26 outlook. At that point, we will have a little bit more detail around cost efficiencies and improvements that may come from the COO position. James Schneider: That's helpful. And then maybe as a follow-up, your data center business, I think you're guiding effectively to the midpoint of your prior guidance. A lot of your peers have sort of taken up their guidance. And obviously, the data points, as you pointed out in terms of new business are very, very positive across the whole ecosystem. So can you maybe give us a sense about whether there's anything happening under the hood that would sort of mute the upside you're seeing at least in the current business for the next couple of months into the end of the year? Steven Vondran: Yes, I'll take that one. No, there's nothing that would mute our expectations for the business. We continue to believe that sustained double-digit growth is possible as long as we can keep building the capacity to absorb the demand that we're seeing out there. And we continue to see increased demand for the space in CoreSite from our core customer, which is the enterprises that need to be colocated in that facility for hybrid cloud deployments. And what's exciting about the way that customer is evolving is they're actually also expanding their installations to put inferencing there. So a lot of those key enterprise customers are expanding their installations to have their inference colocated with their hybrid cloud deployments. And so there's a very long tail of that activity. So I think all the trends that we're seeing in the space reinforce the fact that there's a huge growth path there for us. So there's nothing muting that. I think we were just pretty close on our expectations for the year. And we pride ourselves on being pretty accurate on that. So nothing to be concerned about there. And in fact, we're excited about the future of CoreSite. Rodney Smith: Jim, I would also just complement Steve's answer here with a couple of pieces. We are seeing strong double-digit growth. You see that in our numbers. And of course, Steve outlined that, that was in line with our expectations certainly. I'll highlight the fact that, that is well above the underwriting assumptions that we made when we originally purchased CoreSite. So the business is performing exceptionally well, driving upper teens in terms of stabilized yields on assets. That's why you're seeing a little bit more CapEx going into that business. We're up to a little over $600 million of CapEx. And we -- not only are we seeing a robust pipeline, and we're able to be selective in terms of who we bring into these facilities, we're also seeing strong pricing ability on our end, which is driving a cash mark-to-market well up at the end -- the top end of the range that we had outlined. A couple of other things that I'll highlight here. The business is well positioned going forward. We have about 296 megawatts of power available and held for future development. That's a nice runway as we look out into the future to be able to provide condition space to meet the demand that we see coming. We also have about 42 megawatts under construction currently. That's the highest we've seen in CoreSite in quite a while here. So we're building a lot of facilities to meet the demand that we've already taken in. Those couple of record years of sales and new business that we've seen over the years, we're now delivering on that. That's another reason why you're seeing a little bit of a touch down in terms of pre-leasing because we're just building so much into this curve. So these CoreSite assets, interconnection-rich, network dense, they're really well positioned for the future, not just from a demand perspective, but from a pricing perspective as well as making sure we're in a good position to meet the demand going forward. Operator: Your next question comes from the line of Ric Prentiss from Raymond James and Associates. Ric Prentiss: Steve, I appreciate your comments in the beginning. Obviously, it's 25 years, you've seen a lot of spectrum deals and M&A. I wanted to just touch on one, UScellular T-Mobile deal is closed. Can you remind us again your exposure to UScellular? And then also, interestingly, T-Mobile on their earnings call talked about a charge where they were going to be reducing some cell sites that were not UScellular. That's one of the first times I've seen kind of carriers without a deal kind of saying they're reducing things. Do you have any extra color on what T-Mobile was talking about there? Steven Vondran: On the second question, I don't have any color on that, Ric. In terms of the UScellular portfolio, it's pretty modest. They represent a little bit less than 1% of our U.S. revenue, a little bit less than 0.5% of our global revenue. And there is a chunk of that, that's up for renewal next year, which we've talked about previously. We haven't given a specific percentage, but there's a good chunk of that up for renewal next year. And so we'll give more guidance on what we expect on that in February in terms of churn coming from that. But just given the overall exposure, we'll still be in that 1% to 2% historical range for churn, we believe. Ric Prentiss: Okay. And then on the DISH EchoStar AT&T deal, are you guys open to like doing a negotiation with DISH to kind of get an NPV value because we're watching that just trying to see how long Charlie Ergen wants to keep making tower payments, but you have good contracts, it seems. So just trying to get a sense of openness to trying to say, can we resolve this sooner rather than over 11 years. Steven Vondran: Yes. Well, Rick, we've got a long track record of maximizing the value to our shareholders through our contract structures and any negotiations that we do. And so you can assume that we're going to retain the discipline we've always had on that. I think it'd be premature to speculate on what something might look like on that. Now what you will see in our 10-Q when we file it is you'll see that we did receive a letter from DISH saying that they believe they're excused from making payments under the MLA based on the spectrum sale. We disagree with that. And in fact, we filed suit. We filed a declaratory judgment action to ask the court to confirm that we own the remainder of the rent under that agreement. And just to remind folks, that agreement goes through 2036. And this represents about 2% of our total property revenue, about 4% of our U.S. and Canada property revenue. And so we're focused on defending our contract and making sure that everyone acknowledges that it's a valid and enforceable contract through 2036. And then we will have whatever discussions make sense that are going to maximize long-term growth. But again, we feel good about our contract. We feel good about the collectibility on it, and we will continue to do the right thing for our shareholders for the long term on that. Ric Prentiss: Makes sense. One last one for me. Obviously, nice to see stock buybacks come in and kind of an endorsement of where you feel your stock price is at. Also finally, your leverage is below 5.0000. How should we think about the M&A environment out there for external growth, stock buyback and where are we at as far as private versus public multiples, which is kind of the capital allocation question between stock buyback and M&A? Rodney Smith: Yes. Ric, thanks for the question. So you hit all of the relevant topics, of course. And let me start out by just highlighting our capital allocation philosophy here. As you've seen over the years that you've followed us, it's very consistent and a disciplined approach to capital allocation. Everything we do in capital allocation is really centered around optimizing long-term shareholder value. With that said, the first priority in capital allocation is dividending out 100% of our REIT taxable income, which this year will represent about $3.2 billion. Of course, that's subject to our Board approval. Next is the internal CapEx programs. We invest roughly $1.5 billion to $2 billion a year historically in internally generated capital programs. And we focus those on the highest risk-adjusted returns we can put that money into at the time. And in today's environment, that is mean we're more heavily focused on prioritizing developed markets, U.S., Europe on the tower side as well as CoreSite, of course. Then it comes to evaluating M&A up against share buybacks and also just continuing to pay down debt. All three of those are options for us. Today, we don't see anything compelling that's material on the M&A side. We have been slightly over our leverage target recently for the last couple of years. As you know, Ric, we've been working diligently to strengthen the balance sheet, improve the credit quality of the business. We're now BBB+. And in this quarter, we're below 5x. That is helped a little bit by the services contribution to EBITDA, which you can see in our numbers the full year implies a step down in EBITDA for Q4. That will put a little pressure on our leverage number certainly. And depending on how the euro and the U.S. dollar react, that could move around our U.S.-denominated total value of our European debt. With that said, it is possible that we could go back up to 5x later in the year. But we are around 5x or below 5x in what we believe is a sustainable way. So that gives us more flexibility. And share buybacks are certainly an option. You saw us buy back about 28 million shares. We put that up against M&A opportunities around the globe. We're still seeing in developed markets specifically, private multiples on the M&A side for towers are still elevated relative to the multiples of public tower companies. But there's more than that, that goes into our decision-making. We just think we have a really compelling set of assets. We think buying back shares in this environment makes a lot of sense for us given our ability and confidence in this business generating upper single-digit AFFO per share growth over time before you account for the impacts of FX and interest rates. So we've got a really solid portfolio. We're improving the quality of earnings, so it's getting better along the way. So that's how we think about it. The share buybacks are completely opportunistic. As we continue to delever, we will have even more and more financial flexibility to allocate capital in that -- in a way towards either M&A or share buybacks, and you kind of know what we favor at the moment. Operator: The next question comes from the line of Eric Luebchow from Wells Fargo. Eric Luebchow: Just curious, there's been some chatter around some of the new spectrum sales and your ability to monetize them, for instance, the 3.45 that AT&T is getting, which they already have in the network just requires software upgrade. Any just kind of high-level commentary on how you think some of this additional spectrum could impact future densification demand that you're starting to see in your footprint, as you mentioned? Steven Vondran: Yes. Thanks for the question. So generally speaking, when carriers get more spectrum, that's good for us because they end up deploying that spectrum, and it typically requires them to do network augmentations that are monetizable events. Now on any given site, depending on the specifics of the site, there could be a software push that may not be an event at that moment. But over time, what we've seen is that more spectrum results in more leasing revenue for us. Even if they're able to do it with software pushes and kind of as an initial instance, that doesn't necessarily mean that they won't be able -- won't need to densify over time. If you think about the growth of mobile data in the U.S., the latest CTIA report had it at about 35% year-over-year. And all the experts we talk to believe that mobile data usage will continue to rise at a robust percentage and the needs for the networks to augment themselves that you're going to basically twice as much capacity in 5 years as you have today. And everyone that we talk to believes that, that will come in part through spectrum, in part through efficiencies in the technology, but mostly through densification. So even the spectrum that's being considered by the FCC to be auctioned plus the spectrum that's kind of out there in the market, we think that plus technology will solve about half of the issues that they need to solve in terms of quantity of data produced. The other half is going to have to come from densification. And so over time, we believe that, that densification is going to be right in line with what we originally thought. We always thought there'd be more spectrum that came to market. It could affect the timing a little bit in the near term, and we're kind of watching that to see how that plays out. But we don't think it changes the medium- to long-term outlook for growth in our business or the need to densify the networks over the medium to long term. Rodney Smith: Eric, I would just add on the application volume that Steve mentioned, we see our overall applications up about 20% year-over-year. That's supporting the good news that we've had in services, but it also reflects kind of the activity level that we're seeing in the marketplace. We're seeing a higher growth rate in the applications for colos. That's up more like 40% or so. So we are seeing the beginning of this shift or an increase in colocations, which could be the beginning of densification. Now with that said, our colocation applications still represent a modest percentage of our overall apps, but we are experiencing an increase in a faster growth rate than the overall applications, which we think is good news. Eric Luebchow: Yes. I appreciate that. And I guess just to follow up on one more question. I know you had one customer that came off their MLA earlier this year, they're on like an à la carte type of leasing arrangement. Any update on them? It sounds like things are progressing as planned. I think there was some revenue contribution that got shifted into 2026. And is there any kind of active discussions on maybe putting them back on a holistic MLA? Or are you kind of happy with the current arrangement you have with them? Steven Vondran: We've always been agnostic as to whether we're under a comprehensive MLA or not because the underlying business that they need to do with us doesn't change, whether they're on a comprehensive agreement or not. And we've proven over a couple of decades now that we're successfully able to monetize those deployments, whether they're holistic structure or an à la carte structure. You can assume that we're always talking to every customer all the time. I mean the ink doesn't even dry on a contract before you're talking about the next iteration of it. So those are always ongoing discussions, but there's really nothing to report on that. We're there to support the rollout. And the only real difference for us is it makes a little bit of a timing difference sometimes under the comprehensive agreements. It's kind of more fixed and more predictable, and it's a little bit more variable on an à la carte basis. But if you're thinking about the medium to long term, we're going to get that revenue either way, because it's just -- it may come in a little bit more fits and starts versus that kind of cadence that we can lay out in the contract. Operator: Your next question comes from the line of David Barden from New Street Research. David Barden: It's great to be back. So I guess two, if I could. So the first one for you, Rod, would be just to follow up on Ric's question, which is to just make sure that DISH is current. And under what circumstances would you guys contemplate beginning to take a reserve given the fact that there's this ongoing lawsuit between the two of you? And then on a happier note, I would guess -- I don't know how to phrase this question, but what are the tower implications potentially for a space-based player that now owns terrestrial spectrum to see some new deployments that we weren't contemplating in our multiyear model in the past? Steven Vondran: I'll actually take those just because we're already talking about DISH. So at this point, DISH is current. And so we wouldn't take any reserves because they're current today. And we expect them to pay. And that's the reason we kind of preemptively filed the lawsuit is to make sure that there's no interruption in that. So it's premature at this point to even talk about or think about reserves on that. When you think about the space-based player, it really depends on how -- if they're just complementary to the other carriers and they're reselling to the other wireless carriers, then they probably won't deploy a lot on the ground themselves. Now there may be some teleports or there's a few things that are ground-based to support those networks, but that wouldn't be of any scale to be material in terms of the opportunity. If they decide to offer direct service, then they might well decide to complement their satellite network in terrestrial sites because the satellites don't penetrate buildings well, they don't work in dense and urban areas. So that certainly could be an upside that none of us have even contemplated. But at this point, we're not forecasting any of that. We're not putting that in any of our guidance going forward. So our long-term algorithm that we've laid out for you guys does not contemplate that extra carrier in there. That would be all upside for what we've laid out. Rodney Smith: David, I'll just welcome back. It's great to have you back on the call. David Barden: Thanks, Rod. And I'll use that as an opening to ask one follow-up. I appreciate it, guys. So just as we think about SpaceX deployments, the growth of fixed wireless access with growing spectrum availability, the BEAD funding kind of pushing fiber out, the WISP Marketplace is under threat. I know that they can, in rural markets, be a customer. Is there any reason to believe that kind of the threat to the WISP market is a threat to churn as we look forward in the business model? Steven Vondran: Look, we have a lot of great customers that are WISPs, and that's been a component of our vertical market segment for a long time. So they do comprise a very small percentage of our overall revenues. Some of those WISPs have struggled for a long time. So we do see churn every year in that, and that's kind of taken care of in our normal churn, that 1% to 2% that we see it as normal churn. So it wouldn't surprise me for some of those guys to have some trouble, again, consistent with what we've seen in the past. But I don't see anything in there that would make me think we're going to fall outside that normal range of churn, 1% to 2%. Operator: The next question comes from the line of Michael Rollins from Citi. Michael Rollins: Just given the comments on EchoStar, I just had a couple of other follow-ups. The first one is you mentioned it's about 4% of domestic revenue currently. How much is EchoStar anticipated to contribute to growth over the next couple of years based on the contractual minimums that you've established? And then secondly, you referenced, I think, the long-term guidance just a few moments ago. Do you still believe American Tower is on track for its long-term domestic leasing growth guidance? And if you pull out EchoStar from that, can you share what the organic growth looks like ex EchoStar? Steven Vondran: So in terms of the contributions for the future years, we haven't been specific about that, and that's not something I want to get into the specifics of. Again, we'll issue guidance for next year in February on it. When you think about our long-term U.S. organic growth guide that we put back -- put out back in 2021, we're seeing a robust pipeline of activity from the three major carriers, and we're feeling very good about the activity levels that we're seeing there. And if you think about that guidance was put out more than 5 years ago, and we've been pretty spot on in terms of the guidance for the first several years of that. Now looking out toward the last couple of years, there are a couple of events that were not in our viewshed when we put that guidance out in 2021. We did not expect T-Mobile to buy UScellular, and we didn't expect DISH to sell the spectrum and kind of exit the network market. And we'll be factoring those into our guidance that we think about next year. But in terms of how that affects '26 and '27, I don't want to get specific about that until we actually issue guidance in February on that. But again, the long-term growth perspectives, the medium- to long-term view of our business, our U.S. business contributing mid-single digits, that doesn't change with the changes in DISH. And we'll get more specific about those last 2 years of that multiyear guide in February. Michael Rollins: Can I just follow up to that with one other? So when I think about when you gave that multiyear guide several years ago, there was significant change going on in the industry. And so you kind of gave us this north star, if you would, of where you think growth is going over an extended period of time. Do you think that conditions have changed enough and the timing is there where maybe not just giving a view for the next couple of years, but maybe giving new multiyear guidance when you come out with the fourth quarter results. So kind of giving us a more extended view, an updated view of where that's going. Steven Vondran: Look, we'll figure out what we're going to say in February on that. What I would say is we've given you guys a long-term growth algorithm that we think is kind of directionally what you should be thinking about for the longer term with our business. And nothing in the recent events really changes that long-term growth algorithm. What drives growth of the tower rents and the equipment on the towers is the growth in mobile data consumption. So as long as we continue to see mobile data growth in the U.S. and abroad at the types of clips that we're seeing, then we believe that the need to augment networks is going to continue to roll out just the way we've foreseen it that supports that algorithm. Now it's possible that you're going to see even more data growth than that because all the assumptions that are out there and the historical growth we've seen doesn't include much AI. So as AI becomes a larger component of our daily lives and that makes its way on to the mobile devices, it's possible that growth is going to be even higher. But in terms of our kind of long-term growth algorithm, we believe that somewhere in the mid-single digits is where you should see the organic growth in the developed markets, a little bit higher in the emerging markets. And that's probably as specific as we're going to get from a long-term guide on that. And again, we'll give you guys more color on the next year in February. Operator: Your next question comes from the line of Richard Choe from JPMorgan. Richard Choe: I just wanted to follow up on the U.S. business quickly. What is driving the $5 million in incremental non-rate revenue there? And then a second question on the U.S. data center business, I guess, the quarter-to-quarter growth was kind of a little bit lower than what it's done recently. Was there some churn there that was a little bit higher than normal? Rodney Smith: Richard, thanks for the question. Regarding the $5 million, that's just small non-run rate type activity. So nothing really to worry about and nothing specific that I would point to as well. And that really is the same issue with the differences in the data center business, really just onetime items here and there. There's always fluctuations quarter-over-quarter, but nothing material. Richard Choe: Got it. And then on a bigger picture one with the cost efficiency review that you're going to talk more about next quarter, could that also kind of lead to some strategic changes and also kind of, call it, CapEx changes and priorities? Steven Vondran: I'll take that one. Right now, we're really looking at how we can get the efficiencies in the business through things like supply chain, kind of getting a little bit some of the best practices across borders, automation, there's some AI opportunities in there. There's nothing specific in terms of the capital. Now we do spend capital in the U.S. in particular, to buy our land. And that does help manage the land cost on it, and we also get very good returns on the capital. It's possible that we could find some opportunities to do that more aggressively in other geographies, but that's something that would come later down the line. That's not one of the near-term things that we're focused on. But that's the only thing I can think of that would be any kind of a shift in capital. And that really wouldn't be a shift, that might just be flexing up a little bit more on that opportunity if we found the right chance to do that. Operator: And the final question comes from the line of Benjamin Swinburne from Morgan Stanley. Benjamin Swinburne: Maybe just one more on EchoStar. I know that maybe there will be more info in the queue, Steve. But are there anything we should be thinking about in terms of what's next? It sounds like you expect them to continue to pay you. But is there any, I don't know, court date or any other process info you want to share with us at this point as we think about the situation moving forward? Steven Vondran: No, we just filed it. So there's nothing on the docket yet to point to on that. And again, we think this is very straightforward. We think that we have a valid enforceable contract. We don't think that anything has changed in the marketplace that would hamper the enforceability of that through the remainder of the term. And like I said, we just preemptively filed that because we think it's the right thing to do to protect our shareholders' interest on that. Benjamin Swinburne: Okay. And then just one more. You guys obviously went in and bought back some stock. The stock has been under pressure. I think the multiple we're seeing towers trade at, including AMT, at the lower end of where it's been in a long time. And actually, the spread between data center stocks and towers has widened out significantly as well. I guess it's a long wind up just how you think about CoreSite's and the value of this asset. Is there -- do you look at that sort of the value of data center assets in the public and private markets relative to what's embedded in your stock? It seems like you're not getting credit for it today. Is that a relevant factor as you think about the right ownership structure for this business? And are you seeing more synergies between the two businesses? And you've talked about that over the years and whether that's starting to come together in your mind more? Steven Vondran: Yes, I'll take that one. Look, we think that CoreSite is a great fit with American Tower. And we still believe the long-term synergies of having towers and a highly interconnected ecosystem will ultimately play out with opportunities at the edge for us. So we believe in that future. And in the meantime, we have an asset that's performing phenomenally well. And as to the components of the stock price and things like that, we're in this business for the long term, and we're thinking about the long-term value creation for the shareholders. We're not looking at a kind of a snapshot of where that valuation falls. And so we're -- our focus is maximizing the value of that asset and continuing to work with the industry partners to prove out the edge over time. So when we're thinking about a stock buyback, that's really us being opportunistic. We're just looking at the value of the stock and our other available uses of our capital, and we think that's a good use of our capital. And so we made the decision to buy some. And so it really has nothing to do with CoreSite or that business. It's really all about what we think the value of the enterprise is. And with CoreSite, we're committed to growing that thing as fast as it can grow as long as we're sticking to our business model and our return profile. And we'll look forward to proving out the edge over time. Rodney Smith: Benjamin, I don't think I mentioned this earlier, but I would just highlight that we do have a Board authorization for a buyback program up to $2 billion. So we're just beginning to tap into that. So we do have capacity there already approved by the Board in terms of buybacks. Operator: This concludes today's question-and-answer session. I will now conclude today's conference call. Thank you for participating. You may now disconnect.
Annukka Angeria: Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 2025 Results Webcast. My name is Annukka Angeria, and I'm working at Nokian Tyres Investor Relations. Together with me in this call, I have Nokian Tyres' President and CEO, Paolo Pompei; and Interim CFO, Jari Huuhtanen. As usual, Paolo and Jari will start by presenting the results. And after that, there will be time for questions. With these words, I will hand over to you, Paolo. Please go ahead. Paolo Pompei: Thank you, Annukka, and good afternoon also from my side. Let's start this presentation with our headline, which is a stronger operating profit improvement in quarter 3, driven by announced pricing in passenger car tire, actions ongoing to further strengthen our financial performance. We are closing an important quarter. And I have to say that I'm very pleased to tell that we are really moving in the right direction. As we said in the headline, our operating profit increased significantly. And obviously, this is very encouraging for the future journey that we have ahead of us. But what we are going to do this afternoon, we are going to talk about our quarterly highlights, the financial performance. Jari will comment on the business unit performance. And then, of course, we will close the presentation with assumptions and guidance. Now let's go to the quarterly highlights. In Slide #4, we had double-digit sales growth. We were able to grow in all the regions. The sales growth was 10.8% in comparable currency. The operating profit improved significantly, plus 427%, and this was mainly driven by our effort in improving our pricing in the passenger car tires. We still have a lot to do. There are still a lot of actions going on in order to improve our financial performance. We're also very pleased about our ramp-up of the operation in Romania that are progressing extremely well, and we are now actually running 24/7. This -- in the month of September, we were also expanding our product offering and brand partnership. We will tell something more in a minute. And of course, there is also starting from the 1st of September, a favorable tariff development in North America for Nokian Tyres. Moving to Slide #5. Let's talk about our new factory in Romania. We are very pleased to say that we are in line with our plan. We will reach 1 million pieces by the end of this year, and we started now operating 4 shifts 24/7. We have now all the people we need to carry on our journey and to make sure we will be able to achieve the target of this year of 1 million pieces. We also released a few weeks ago a new product line that is completing the summer product range at this stage after the all season range that we released only a few months ago with the start-up of the operation in Oradea. Moving to Slide #6. This is also an important step forward for the factory, but also for Nokian Tyres, in particular, for our business in Central and South Europe. We released our Powerproof 2 a few days ago. This is our premium offering in the ultra-high performance segment summer tire. This range is performing extremely well, has been certified in terms of performance and tested by the TUV SUD. And we were able to launch in this new product in the beautiful scenario of our test center in Spain, HAKKA RING, together with more than 160 customers and journalists coming from Central and Southern Europe. This obviously will support our growth in the Central European market, together, obviously, with our winter tire range as well as our all-season tire range. Moving to Slide #7. We're also pleased to tell you that we received once again several testimonies of our premium performance in the winter tire segment, in particular in the Nordics, where we were able to be tested in several magazines or by several associations being scored as #1 tire or on the podium when we talk about studded and not studded winter tires. So we keep our leadership, and we still have new projects coming up in the next few months that will actually reinforce our leadership in the winter tire segment. But we have also some good news related to the heavy tire business. We will receive in a few days silver metal for our Intuitu 2.0 smart tire technology that is going to be fitted in our agricultural tires. This is a very important step forward in terms of connecting the tire to the machine and the operator of the machine, measuring the load of the machine or the pressure and optimizing the operating performance of the machine at the right pressure. Moving to Slide #8. We're also reinforcing our effort in terms of communication. We signed an important agreement for 2 years with the IIHF Association, which is actually Federation, sorry, which is actually going to support the world competition in the Ice Hockey segment in Switzerland in 2026 and in Germany in 2027. We are very pleased to be partner of this important sport because it reflects our value and also it is giving the possibility to Nokian Tyres to be visible to millions of Ice Hockey fans that are obviously happy to view and to support this nice competition. Moving to Slide #10. We are going to look at our performance. Quarter 3 was in some way, stable in Europe, a little bit down in North America. When we look at the performance now year-to-date, we have the market pretty stable in Europe, and we see the market gradually declining in North America when we talk about passenger car tires. The market in truck tires or in the agri tire has been stable in truck tires, while in the agricultural segment is still down compared to previous year, both in the replacement market as well as in the original equipment market. Moving to Slide #11. Despite the, I will say, difficult market condition or stable market condition when we talk about Europe, we are very pleased to say that we were able to grow by 10.8% with comparable currency in the quarter, and we were able to grow in all the regions. But we did really an exceptional good performance in the North American market in a declining market environment. So we are finally doing extremely well in North America, and we are very pleased about the journey that we have done so far. Our EBITDA as well has been increasing up to EUR 65.4 million. This is actually now 19% in percentage of sales. And our segment operating profit has been growing by over 6% to EUR 32.4 million. It's very important to remember that the comparability when we talk about segment operating profit is heavily affected by EUR 13.3 million exclusions or write-down related to the write-down of the contract manufacturing product that we did last year in quarter 3 2024 that are in some way impacting the comparability. This is why we are very pleased about the extremely important growth of over 427% in the operating profit performance that is reflecting really the performance of the company at 360 degrees. Moving to Slide #12. As I mentioned before, we are growing in terms of net sales in all the regions in Europe by 4.6%, in Central Europe and Southern Europe by 9.2%, and we're growing by 27% in North America, supported by good pricing and mix. Moving to Slide #13. We move to the cash flow, in particular, we were able to improve our cash flow performance. This was mainly driven by lower investments, but also by improved working capital as we will see in the next slide. Overall, year-to-date, we are growing in terms of sales by more than 9.4%. And of course, we are improving our segment EBITDA as well as our operating -- segment operating profit. Looking a little bit deeper to the cash flow. You will see that, obviously, the improvement of cash flow was coming, obviously, from the EBITDA improvement of EUR 33 million, then, of course, by an improvement of the working capital, we've been able to grow, reducing our inventory level in our operations. We are also obviously investing less. We are getting step-by-step to a normal level of investments. And of course, we have higher financial expenses. And obviously, we had a lower dividend, but obviously higher debt. So overall, year-to-date, we are improving. And obviously, our target is to become cash positive, meaning generating positive operating cash flow already next year. As we mentioned, we are now guiding EUR 180 million investment level at the end of 2025. This will basically close a long cycle of approximately 3 years that was necessary to reinforce our operations and to build our new manufacturing footprint, in particular, with the latest investment we did in Romania in Oradea. The CapEx are expected to return then next year to a normal level. And of course, we -- as you know, we are entitled to get state aid from the Romanian government up to EUR 100 million, and we are expecting to receive the first part of this incentive by the end of the year or in quarter 1 next year. Moving to Slide #16. I would like to pass the stage to Jari for the performance of the business units. Jari Huuhtanen: Okay. Thank you, Paolo, and good afternoon. I'm moving to Page Passenger Car Tyres. In third quarter, we continued sales and profit growth. Net sales was EUR 234 million and the increase in comparable currencies plus 13.2%. Our average sales price with comparable currencies improved and the share of higher than 18 inches tires increased significantly. Segment operating profit was EUR 38.9 million or 16.6% of the net sales. And the segment operating profit improved due to price increases and favorable product mix. Moving to Page 18. Here, we can see Passenger Car Tyres net sales and segment operating profit bridges in third quarter. Net sales improved from EUR 210 million to EUR 234 million. And clearly, the biggest positive contribution is coming from the price/mix, plus EUR 35 million. Sales volume was slightly down comparing to last year, minus EUR 7 million. And in addition, we had some currency headwind coming mainly from U.S. and Canadian dollars. In segment operating profit, you can see that there are 2 components which are clearly coming visible. First of all, this positive price/mix, EUR 35 million. On the other hand, in supply chain, we have a negative impact of EUR 25 million. Here, the reasons are mostly related to non-IFRS exclusions what we had in last year third quarter. Contract manufacturing inventory write-downs and Dayton ramp-up related exclusions. In material costs, we still had a slightly negative impact, minus EUR 3 million. However, we can say that we are very close to previous year cost level at the moment. Sales volume, minus EUR 3 million, but otherwise, it's very stable performance comparing to prior year. Moving to Page 19, Passenger Car Tyres net sales components, quarterly changes. In price/mix, we can see a significant improvement comparing to last year, plus 16.5%. This is due to implemented price increases and better product mix comparing to last year. In sales volume, minus 3.3% and in currency, minus 1.7% in the third quarter. Moving to Heavy Tyres. In third quarter, we had lower volumes, which affected the net sales and profitability. Net sales was EUR 55.4 million and the change in comparable currencies, minus 4.4%. Net sales decreased mainly due to lower volumes in truck and agri tires. Segment operating profit was EUR 5 million or 9% of the net sales. Profitability declined in Heavy Tyres, mainly due to lower volumes and inventory revaluations, which had a positive impact in last year's third quarter numbers. And in Vianor, in third quarter, we reported improved sales and operating profit. Net sales was EUR 74.9 million and the increase in comparable currencies, plus 7%. Segment operating profit seasonally negative minus EUR 6.4 million or minus 9% of the net sales. However, we can see an improvement both in operating and business profitability. Then I'm handing over back to you, Paolo. Paolo Pompei: Moving to Slide 23 to the assumptions and guidance. Well, we have a very good news in quarter 3 coming from the North American market. As you know very well, we are exporting all-season tire from our factory in Dayton in United States to Canada. And this -- there were obviously counter tariff implemented by Canada in quarter -- at the end of quarter 2. Those counter tariffs have now been removed. So obviously, today, we are in the ideal situation to deliver tires from U.S. to Canada without duties. Anything else remains as it was before 85% of what we sell in the United States is made in United States, and this is making the company much less vulnerable, being -- having a business model that is local for local. And the winter tire business that is going to Canada is supported by our factory in Nokian based in Finland. So moving to Slide 24. Our guidance for 2025 remain exactly the same. We are expected to grow and segment operating profit as a percentage of net sales to improve compared to previous year. We are assuming a stable market to remain at the previous year level. And of course, we are like anybody else, we observe the development of the global economy as well as the geopolitical situation since trade and tariffs are creating some uncertainty and may create some volatility to the company business environment. Of course, we follow our own journey. We have opportunities to grow also in a changing market environment, also supported by our new manufacturing footprint in Romania that is supporting our Central and South European market. We close this presentation. And obviously, we are happy to reply to all your question and answer. Annukka Angeria: [Operator Instructions] The next question comes from Akshat Kacker from JPM. Akshat Kacker: Three, please. The first one on price increases that you implemented, -- congratulations on a good quarter. If you could just put that into context for us, could you just talk about a few regions or product ranges where you've increased these price increases? And specifically, how do you think about the sustainability of these price increases going forward? Because a couple of your peers, the bigger Tier 1s have actually taken down their price/mix assumptions in the last quarter based on the inventory situation and the price mix trade down that they are seeing from the consumers in the market. So just the first question on the price increases and the sustainability of that going forward. The second question is on volumes. I noticed on the passenger coverage that volumes have declined by around 3.5% in the quarter. It's the first quarter where we've seen that volume decline, obviously, somewhat explained by the price increases. But just could you talk to us about overall expectations for volume growth going forward given that the business has been in a supply-constrained mode? And the last one on passenger car margins, please. Again, a very strong development in Q3. Margins have improved to 12% versus the 2% that we saw in Q2. Could you talk about your expectations into Q4? Should we still expect improving mix, improving margins as we go into Q4, please? Paolo Pompei: Excellent. Thank you very much for your question. And obviously, I'm happy to reply to at least the first 2 questions. Talking about price increase, this is a journey that we started already at the end of quarter 1, as you may remember. It was necessary, first of all, to compensate the raw material cost increasing in quarter 1 compared to previous year. And that was mainly valid for all the regions, in particular for Nordics. Then, of course, we combine these price increases also to necessary to gradually reposition our products in Central Europe as well as in North America. The question is if this is sustainable? Of course, we cannot keep increasing pricing. It was extremely important for us, again, to compensate the increasing rising raw material costs and at the same time, to gradually repositioning our products in Central Europe and in North America. Is this affecting volume? Going to the second question, in reality, in a very small part. What I mean is that this important improvement is also related to the strong write-off and consequent sellout of a lot of tires that we did in quarter 3 last year. This is what is affecting the comparability of segment operating profit, but at the same time, it's improving significantly our profit. So this 3% in reality is extremely -- if we take away the action that we did last year in order to release quickly the slow-moving inventory accumulated due to the crisis in the Red Sea, then of course, we can still calculate an important growth for the company. And that is really where the volume effect is coming from. So we are not expecting the price increase to affect volume at this stage and minus 3% is well by the comparability with the previous year due to the action we made in order to release the slow-moving stock that we have accumulated due to the crisis in the Red Sea channel. The margins are improving, obviously will keep improving because at the same time, we are not only improving in terms of prices, but we are also operating more efficiently with our own factories. So obviously -- and now we are moving to the last part of the season, meaning that we will sell in this quarter more winter tire. And so by definition, our margins will keep improving in quarter 4. I hope I replied. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 3 as well, please. The first one is on your planned adjustment measures, the personal negotiations that may lead to 80 permanent white collar job cuts. Could you put that in perspective? Is that part of your better or more efficient operations? Or is that coming on top of what you were describing with the new Romanian plant and the substitution of your offtake by your own production? Second question will be on the EUR 180 million CapEx guide. Could you confirm that it does not include any Romanian state aid that may or not happen in 2025? And finally, you had a tough quarter for your ag and trucks business or what I would call the specialty business or industrial tire business. Could you tell us whether you already see a trough coming for that business and when that would be or whether it's still not visible yet when that would be? Paolo Pompei: Thank you very much for your question. I start with the negotiation. Obviously, this is part of our journey when we want to improve efficiency and productivity. So -- and this is necessary to support the company in this journey, in particular, when we talk about SG&A development. So we start the negotiation. And obviously, we will inform you about the progress. But in general, I mean, it's part of our journey to improve our efficiency and productivity within the company. When we talk about the state aid, I confirm that within the EUR 180 million, there is nothing about the state aid. So this -- at the moment, we are not including the state aid in any calculation when we talk about CapEx as well as cash. About the agri and truck business, well, this is a million-dollar question. However, I believe the agri business, in particular, is subject to cycles. And cycles can be long or short. But in general, obviously, we are now landing at the end of second, I would say, almost second years of downturn. So obviously, I'm expecting the agri business at the OE level in particular, to recover pretty soon in the next 6 to 12 months. Obviously, this is not scientific. I'm just observing the history and the cycle that were affecting the agricultural, in particular, tire business in the last 20 years, and you will see there is a growing trend if you take the last 20 years, but this growing trend has gone through up and down with cycle that were lasting in a positive or negative way 2 or 3 years. I hope I replied to all your questions. Annukka Angeria: [Operator Instructions] The next question comes from Artem Beletski from SEB. Artem Beletski: So I also have 3 to be asked. So the first one is relating to the price/mix development in Passenger Car Tyres. And I guess it's also volume related given the fact that it was a bit messy comparison from last year. I think you agree with it. And maybe just a question on pricing side. So could you maybe comment whether there has been some further price changes, what you have done, for example, during Q3, which are not yet visible in the numbers? Then the second question is related to net debt. So I understand that Q3 seasonally is the peak, what we always see in your case. Maybe you can provide us with some type of indication where you see net debt landing by the end of this year. And the last one is just relating to winter tire season. So how you have seen the demand picture so far when it comes to Europe and also North America? Paolo Pompei: All right. Thank you for the questions. And I start with the first question about price and mix development. I agree with you. Obviously, the comparability with last year is affected by the write-off and consequently by the sale of the slow-moving tires in the Central European market. However, we can say that the price and mix development was good for the company also without this effect. Clearly, we have implemented pricing action in quarter 2 and in quarter 3. There will be a carryover in quarter 4, and that is pretty clear. Then of course, we will not make any comment about future price development for obvious competition rules. Regarding the second question was -- sorry, the third question was about the net debt. As you know very well, considering our seasonality, quarter 3 is always the period of the year where obviously our debts are getting to a higher level. So we are expecting the level of net debt to go down in the next quarter. And about the winter tire season, we can say that obviously, the weather was actually a little bit too warm, let's say, in September, but now it's getting colder, both in the Nordics as well as in North America. So we are expecting the winter tire season to basically start as I speak in this moment in November. We had also a good presales activities, obviously, in the previous month. So the market -- we see the market is still growing. So obviously, we are pretty positive about the development of the winter tire sales. Operator: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'll take the opportunity to ask some follow-up questions, please. First, I'd like to discuss a bit about your working capital, if that's possible. I mean your inventories declined, but receivables increased. Could you indicate whether you see any risk of write-down? And could you talk about your exposure to [ ATD ] Whether it's new, how much it increased? I mean this company went under recently. Did you have any exposure as it moved into Chapter 11 or not? And when I look at your payables, they are higher than usual. Could you explain why and whether this will be a headwind on the working capital front in Q4? And my last question will be on your net interest charge. I mean your net debt obviously has gone up the last 3 years because of your investment program. We've seen the net interest charge in your P&L and your cash flow statement going up. Could you give us some indication about what we should expect for '25, both on the P&L and on the cash flow statement and whether it will already be declining in '26 or be flat in '26 and '25? Paolo Pompei: Okay. Thank you. I will reply to the first one and maybe Jari can also support the discussion on the last 2 topics. About the working capital, the working capital is improving with growing sales year-to-date. So we are very pleased about this development. And obviously, this is really driven in particular by the reduction of the inventory that we have implemented in -- basically during the whole year, in particular now in quarter 2 and quarter 3. The receivables are growing because we are growing in terms of sales. And about ATD, obviously, is a new partnership. I think ATD today is very well supported by strong equity funds, extremely strong from the financial point of view. Of course, our exposure is relative low since we are at the beginning of the journey. So we will grow together with ATD, and we will support -- ATD will support our growth in North America. They are by far the largest national distributor in North America, and they are able actually to very well support our sales in any corner of that country. Payable are higher, obviously, because we are growing in Oradea. But please, Jari, would you like to comment the payable and net interest? Jari Huuhtanen: Yes. Thank you. So first of all, payables, of course, we have multiple different actions ongoing to get a little bit better performance in payables. Unfortunately, at the moment, we are not -- have not been able to see, but of course, we will continue and we want to improve in that respect. And I think the second question was related to net debt and interest expenses in our P&L. Of course, we have more net debt as we discussed earlier and interest expenses are higher than what we had in last year. And then on top of that, you can notice from the report as well that we have some hedging costs, which are related to our Romanian operation and especially to the project to build a new factory in Romania. It's quite difficult to comment anything related to '26 at the moment. So let's come back to that later. But that -- those are the main kind of answers or reasons behind. Annukka Angeria: The next question comes from Rauli Juva from Inderes. Rauli Juva: Rauli from Inderes. A question still on the passenger car tire margins. You touched this already, but just want to be clear, you posted in Q3 now around 16% EBIT margin as in last year and then your Q4 last year was really weak. So I guess you should be improving from that year-on-year. But how do you see the dynamics on the passenger car tire margin from between Q4 and Q3? Paolo Pompei: I think the level of margins that we are reaching today are rewarding really the strong effort of the team globally in improving pricing and at the same time, improving our cost when we talk about manufacturing. So they are a natural consequence of what we are doing around the company. And obviously, we should expect that we are improving because this is what we are here for in order to reach our financial targets. Pricing, as I told you, already has a strong impact, but we should not underevaluate as well the improvement that we are having also from the manufacturing point of view, also considering that last year, we were excluding in quarter 3, the part of the cost that we had in North America in Dayton, while this year we don't have those kind of exclusions. So in terms of comparability, I believe that we are really progressing in the right direction, and this is really encouraging. So you should see step-by-step margins improvement. Akshat Kacker: The next question comes from Akshat Kacker from JPM. A couple of follow-up questions, please. The first one, when I think about your production capacity and your footprint, could you talk about your overall plans for capacity additions going into next year, please? Are you adding more capacity at Dayton or in Finland, please? And the second part of the question is, could you just clarify the contribution from the Romanian plant in terms of commercial tires in this quarter? And how should we expect offtake agreements to progress going into next year? Just a total overview on overall capacity planning, please? Paolo Pompei: Thank you very much. As I mentioned several times, and this is very important, I will focus -- we will focus as a company on profitable growth. So capacity now is there. We were able to build this capacity. We are very pleased about what we were able to do so far, but now it's really time to focus on profitable growth. So the capacity that we have today, it's enough to support our strategic term objective for the next 3 years. So we will not need to implement additional capacity at this stage in -- both in Central Europe as well as in North America. Clearly, we will do specific adjustments on specific lines since we are going, for instance, in terms of mix. So we are producing bigger and bigger sizes. So we will need to do some adjustments in order to increase eventually the capacity on bigger sizes. But in general, I would say, overall, I think it's now time to harvest what we did in the last 3 years and to make sure that we are able to saturate our existing capacity. So answering briefly to your question, we don't see the need to add additional capacity in the next 2 years at this stage. When we talk about offtake, of course, we are reducing the level of offtake. We have indicated that from the strategic point of view, in average, 10% of our total volume will remain in offtake to keep flexibility and to make sure we will be able to get the support of somebody else for product lines that we believe is not strategic to produce internally within the company. Romania start to contribute to the sales in the Central European market. And that is already ongoing since May, June this year. And obviously, we can expect that in the future, more than 80% of what we sell in the European market will be supported by our Romanian factories for Central Europe as well as Southern Europe. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'm sorry for coming back in slot time, but just to come back on the previous question. I just want to make that clear because right now, you're talking about 1 million Romanian capacities, and you said you don't want to increase capacities, but you still aim to have substantially higher production levels in Romania if you plan to be able to supply 80% of your European sales with Romania. So you mean -- I just want to clarify what you said. You mean you're not going to have to add incremental CapEx, but you're still able to increase the absolute level of production in Romania, 2 million, 3 million, 4 million in the next couple of years, knowing that the investment is behind you, right? Paolo Pompei: Thank you very much. And you don't need to apologize if there are questions. So this is really what this section is all about, answering to your question. So we're happy to do it. We need to distinguish about production and capacity. By the end of this year, we will produce 1 million tires, but we have already capacity to produce up to 3 million tires. Step by step, we will during 2026, complete this expansion and obviously, adding semifinished product lines more than curing or building machineries. So this is why we say the investment in Romania for the next 3 years will be really limited because we are at the end of the process. So in total, we will have 6 million pieces capacity already by, let's say, the end of next year, eventually, obviously, we -- this is really how the factory works. So 1 million is the production, but the capacity already by the end of the year will be up to 3 million pieces and up to end of next year up to 6 million pieces, reinforcing areas that are not strictly related to curing and building, but mainly about mixing and semi-finished products. I hope I replied to your question. Annukka Angeria: The next question comes from Artem Betsky from SEB. Artem Beletski: Yes. Also one follow-up from my end. And it is relating to PCT profitability. So what we have seen during years '23 and '24 and also beginning of this year is that margins have been extremely volatile on a quarterly basis. Looking ahead, do you anticipate this type of volatility will be clearly lower? And maybe just coming back to past development, what have been the key reasons in your view that margins have been swinging so much in that segment? Paolo Pompei: For sure. Thank you for your question. Clearly, again, we need to look at the history of this company in the last 3 years. So we came out from the storm, and it was difficult to reach stability when we had obviously the necessity to switch and to change completely our production footprint, moving out from Russia quickly and then building our new footprint, reinforcing our factory in Finland as well as in North America and at the same time, building a new greenfield in Romania. So it was really difficult for the team to manage all this transition. And in some way, we are still managing this transition. But of course, we see finally good progresses, and we see finally a gradual stabilization of our performance and continuous improvement. So answering to your question, of course, you will see more stability in the development of the margins moving forward because now finally, we can leverage our increased capacity. We can leverage efficient and efficient manufacturing footprint. And at the same time, we are improving day by day, as I mentioned, already in placing our product in the market and improving pricing capabilities around the company. I hope this will reply to your question. Annukka Angeria: There are no more questions at this time. So I hand the conference back to the speakers. Operator: If there are no further questions, it is time to end this call. I want to thank you, Paolo and Jari and especially all of you who participated in this call. We wish you a nice rest of the day. Paolo Pompei: Thank you very much, and looking forward to the next call. Jari Huuhtanen: Thank you.
Operator: Thank you for standing by. Welcome to the Kiniksa Pharmaceuticals Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jonathan Kirshenbaum, Investor Relations Officer. Please go ahead, sir. Jonathan Kirshenbaum: Thank you, operator. Good morning, everyone, and thank you for joining Kiniksa's call to discuss our third quarter 2025 financial results and recent portfolio execution. A press release highlighting these results can be found on our website under the Investors section. As for the agenda for today's call, our Chief Executive Officer, Sanj K. Patel, will start with an introduction and overview of our business. From there, Ross Moat, our Chief Corporate and Commercial Officer, will discuss our IL-1 inhibition franchise and provide an update on ARCALYST commercial execution. Then Kiniksa's Chief Financial Officer, Mark Ragosa, will review our third quarter 2025 financial results. And finally, Sanj will share closing remarks and kick off the Q&A session, for which Dr. John Paolini, our Chief Medical Officer; and Eben Tessari, our Chief Operating Officer, will also be on the line. Before getting started, please note that we will be making forward-looking statements today that are subject to risks and uncertainties that may cause actual results to differ materially from these statements. A review of such statements and risk factors can be found on this slide as well as under the caption Risk Factors contained in our SEC filings. These statements speak only as of the date of this presentation, and we undertake no obligation to update such statements, except as required by law. With that, I'll turn it over to Sanj. Sanj Patel: Thanks, Jonathan, and good morning, everyone. Year-to-date, in 2025, we've continued to execute and meaningfully advance our commercial business and clinical development portfolio. The use of IL-1 alpha and beta inhibition with ARCALYST has increasingly become the preferred treatment for recurrent pericarditis, driving significant ARCALYST revenue growth and positioning our franchise for long-term success, both with ARCALYST and KPL-387. We continue to be excited about the potential of our IL-1 inhibition franchise and fully intend to remain the market leader in recurrent pericarditis. Given the fact that as last reported, we were only 15% penetrated into the multiple recurrence patient population, we expect to continue to grow ARCALYST revenue. To this point, as announced this morning, we've raised our full year net sales guidance to between $670 million to $675 million from our previous guidance of $625 million and $640 million. We also believe KPL-387 could be an important advancement in the treatment of options available for patients, potentially increasing penetration and growing the recurrent pericarditis market. We remain on track to report data from the Phase II dose focusing portion of the Phase II, Phase III trial in the second half of next year. Additionally, we are pleased to report that early this month, the FDA granted KPL-387 Orphan Drug Designation for the treatment of pericarditis, which includes recurrent pericarditis. Importantly, we have maintained a robust financial position while continuing to create value without relying on the capital markets. Turning to the growing adoption of IL-1 alpha and beta inhibition with ARCALYST, we've introduced and advanced a fundamental shift in the treatment paradigm for this disease. Ross will share more details about this in a moment. In the third quarter, ARCALYST revenue grew to $180.9 million, which represents a growth of approximately $24 million over the previous quarter and approximately $69 million compared to the third quarter of 2024. While we're pleased with this growth, we continue to believe in the significant opportunity for additional growth ahead. As of the end of the second quarter, we were only 15% penetrated into the multiple recurrence opportunity, and we continue to see ARCALYST utilized earlier in the course of the disease. As previously stated, approximately 20% of ARCALYST prescriptions have been written for patients following their first recurrence. For patients who failed NSAIDs and colchicine, physicians are more readily turning to targeted IL-1 alpha and beta inhibition with ARCALYST rather than risk on an unnecessary flare by treating patients again with a previously unsuccessful treatment. Overall, the progress we've made reflects the medical community's growing adoption of IL-1 pathway inhibition and speaks to the future value creation of our IL-1 inhibition franchise. With that, I'll turn it over to Ross. Ross Moat: Thank you, Sanj. The growing understanding of recurrent pericarditis being driven by the cytokines, interleukin-1 alpha and beta has been a key driver behind the growth we've seen in the adoption of ARCALYST. As an increasing number of health care professionals update their approach to how to treat recurrent pericarditis with targeted IL-1 immunomodulation, we've seen a substantial increase in the number of active commercial patients on ARCALYST. Specifically, this is a result of our team driving increases in 2 key areas. Firstly, in Q3, new patient enrollments grew by their highest level in a quarter since launch. This is represented in the growth of prescribers of more than 350 in the quarter, leading to a total prescriber count launched to date of more than 3,825, including around 28% or more than 1,000 prescribers who have written ARCALYST for 2 or more patients. Secondly, once on treatment, patients are staying on ARCALYST for longer, which speaks to both the duration of the disease and patient satisfaction on ARCALYST. At the end of Q3, the total average duration of therapy increased to approximately 32 months. These two levers increased the number of active commercial patients and contributed to our ability to raise our revenue guidance for the full year 2025. Our commercial organization has been highly focused on evolving the treatment landscape for patients suffering from this chronic, highly debilitating disease by increasing education and driving the utilization of interleukin-1 alpha and beta inhibition towards becoming the new standard of care for recurrent pericarditis. We have built a highly effective commercial infrastructure and built upon many years of established relationships with the recurrent pericarditis community to improve the care for patients. In the 4.5 years since the launch of ARCALYST, we've continued to hone our messaging and we've improved our effectiveness through utilization of AI and digital marketing to inform which physicians to visit and importantly, when they're most likely to see a recurrent pericarditis patient. Thanks to the compelling clinical and real-world data generated in RHAPSODY and RESONANCE, our payer approval rate remains very high, and we continue to be focused on delivering excellent support to patients through Kiniksa OneConnect, our patient services program. This combination of robust data, access and support enables health care professionals to feel confident that their patients will get on to therapy, be well supported and receive the type of efficacy we've seen in the published literature. As a result of the continued growth in patients on ARCALYST, today, we raised and tightened our full year 2025 ARCALYST net sales guidance from between $625 million to $640 million to now between $670 million and $675 million, which is a $40 million increase in guidance between the midpoints. Our increased guidance reflects the robust trajectory of ARCALYST revenue in 2025, while also accounting for typical year-end industry dynamics, which is consistent with our historical fourth quarter performance. As you've heard, we're pleased with our solid execution and progress and are incredibly excited about the opportunities we have ahead. As we continue to focus on maximizing the growth of ARCALYST, we are also excited about the opportunity to advance the care of recurrent pericarditis patients in the future with KPL-387, our development program. This is our fully owned monoclonal antibody antagonist targeting the IL-1 receptor to inhibit both IL-1 alpha and beta. The totality of data show that inhibiting the activity of both of these key cytokines is a core component of delivering a highly efficacious treatment for recurrent pericarditis. With this program, we're advancing a validated mechanism with the potential to address key patient needs and expand penetration into the addressable market by enabling a convenient monthly subcutaneous dose in an auto-injector. Surveyed patients and health care professionals have indicated a preference for a highly efficacious IL-1 alpha and beta inhibitor with this target profile. Specifically, approximately 75% of all surveyed recurrent pericarditis patients report that they would prefer the KPL-387 target profile over those of available commercial and current investigational therapies. On the physician side, more than 90% of health care professionals stated a high likelihood of prescribing KPL-387 for new patients as well as being receptive to switching current patients upon a patient's request. It's also worth noting that health care professionals broadly agree that the introduction of KPL-387 would expand the IL-1 alpha and beta inhibition market overall. As we've previously announced, the dose focusing portion of the Phase II/III development program of KPL-387 is currently underway, and we expect those data in the second half of 2026. With that, I'll turn the call over to Mark Ragosa to review our third quarter financials. Mark? Mark Ragosa: Thanks, Ross. This morning, I will cover our third quarter 2025 financial performance. Our detailed results can be found in the press release we issued earlier today. There are several items on this slide that I'd like to call your attention to. Starting with our income statement on the left-hand side. First, ARCALYST revenue grew 61% year-over-year in the third quarter to $180.9 million with adoption of IL-1 alpha and IL-1 beta inhibition for recurrent pericarditis continuing to drive significant gains in active commercial patients and duration of therapy. Second, operating expenses grew 29% year-over-year in the third quarter to $156.8 million, primarily due to collaboration expenses, which were driven by continued strong ARCALYST collaboration profit growth. And third, due to strong revenue growth against more moderate operating expense growth, net income was $18.4 million in the third quarter of 2025 compared to a net loss of $12.7 million a year ago. Next, the right-hand side of this slide provides the calculation of ARCALYST collaboration profit, which drives collaboration expenses. ARCALYST collaboration profit grew a significant 118% year-over-year to $126.6 million in the third quarter as profit split eligible COGS as well as commercial and marketing costs held steady against higher sales. Lastly, at the bottom of this slide, we continue to expect our current operating plan to remain cash flow positive on an annual basis. And in the third quarter, our cash balance increased by approximately $44 million to $352.1 million. As you've heard from Sanj and Ross, we further advanced our commercial business and clinical portfolio as well as maintained a strong balance sheet in the third quarter. As a result, Kiniksa added to its significant momentum and remains well positioned to continue to help patients as well as to create additional value in both the near and long term. With that, I'll turn the call back to Sanj for closing remarks. Sanj Patel: Thanks, Mark. As you've heard, Kiniksa continues to execute both commercially and clinically, and we are well positioned to build significant future value as we grow our IL-1 alpha and beta inhibition franchise. As ever, we are committed to bringing additional treatment options to patients that are suffering from debilitating diseases with unmet need. I'll now turn the call back to the operator for questions. Operator: And our first question comes from the line of Geoff Meacham from Citi. Mary Kate Davis: This is Mary Kate on for Geoff. So you're seeing duration increase here for ARCALYST, which is encouraging. Could you comment on maybe the patient and physician feedback you're hearing from these longer users? Sanj Patel: John, do you want to take that? John Paolini: Sure. So in general, what we're seeing certainly in terms of the academic literature is an appreciation of the duration of disease and therefore, the necessity of treating to that duration of the disease in order to minimize the amount of recurrences that patients experience. So what we know from the literature is that the median duration of disease is 3 years with 1/3 of patients still suffering disease at 5 years and 1/4 at 8 years. And so the other data that we have, in fact, which we recently showed at the European Society of Cardiology meetings is that continued treatment without interruption resulted in a 99.5% reduction in event rates post treatment compared or on treatment compared to pretreatment. So that creates a very powerful message, if you will, for clinicians that treating to the duration of the disease is the best way to manage the disease. Ross Moat: Thanks, John. And maybe just to add on top of that as well in terms of the health care professional patient feedback that we get, generally, we received very positive feedback for those patients that have been on therapy for quite some time and a growing amount of time up to now 32 months and an average total duration of therapy. What we see on the health care professional side is generally due to the high access rates that we get, the health care professionals see their patients get on to therapy reasonably quickly and easily, thanks to that higher approval rate. So that kind of provides confidence that their patients are going to get on to therapy and helps them to then look for future patients, knowing that their patients will get on to therapy. And then for the patients themselves, the fact that they've been on therapy for longer, I think, is also part of the evidence of doing well on therapy. We continue to hear very high satisfaction from patients on therapy. And I think that backs up what we've seen both in the clinical world and the real-world evidence of how highly efficacious and well-tolerated this drug is. And as a reminder, it's been designed to be used over the course of the treatment -- the duration of the disease and to match that duration of the disease with the treatment duration. So this has really been designed as a long-term therapy to address what is a chronic multiyear and highly debilitating disease for most patients. So the feedback has really been very good from both health care professionals and patients overall. Operator: And our next question comes from the line of Anupam Rama from JPMorgan. Anupam Rama: Congrats on the quarter. Can you talk a little bit how you guys have sort of incorporated the updated ACC guidelines into your sort of marketing efforts? And what the early innings -- what you've learned from the guideline update? Because I think that was just a couple of months ago, right, in August of this year. John Paolini: Anupam, thanks for the question. I'll start off with a brief summary of the concise clinical guidance and then hand it over to Ross regarding your question about incorporation of the guidance into the field work. So specifically to the concise clinical guidance, yes, this is really -- this came out in August and represents an affirmation of what we've seen from the literature and actually driven by the data that we've helped to generate, which is positioning IL-1 pathway inhibition as second line after NSAIDs and colchicine, which is a real advance in the treatment paradigm to be truly steroid-sparing. And so that was driven by the initial data from the RHAPSODY program, where half the patients were treated second line after NSAIDs and colchicine. And then that was then picked up from our RESONANCE registry showing year-on-year after the approval of ARCALYST, a reduction in the use of corticosteroids and a rise in IL-1 pathway inhibition led by ARCALYST in the treatment of these patients. And so that was then picked up by JAK advances and JAK imaging in the thought leader literature. But then ultimately, it culminated, if you will, in the concise clinical guidance, which is a real affirmation from a practice entity to provide guidance to clinicians. So that creates that strong foundation that Ross and his team have been building on. So Ross, over to you. Ross Moat: Yes. Thank you, John. So I think it was really much needed guidance that we were pleased to see given that this is really the first U.S.-focused guidance publication that's really out there. We're utilizing it certainly within a promotional perspective and incorporated it within promotional materials. And as John said, it's really an affirmation of the type of messaging that we've really been providing since launch, so it's wonderful to have further publications from experts in the field, affirming the type of approach and a new approach to managing this disease compared to historic available drugs and in particular, around the utilization of corticosteroids, which we've always promoted ARCALYST as really a steroid-sparing agent and a drug which should be utilized ahead of corticosteroids. And having this type of publication out there, say, which we have incorporated within our materials now as well from a promotional perspective is a huge help, knowing that the use of corticosteroids is probably not the most advanced way of treating this condition now that there is a targeted immunomodulation approach, specifically looking at the key driver of this disease, which is interleukin-1 alpha and beta and being able to inhibit that, we really see as the modern way of treating this disease, and we hope will become the new standard of care. Operator: And our next question comes from the line of Roger Song from Jefferies. Jiale Song: Great. Congrats for the quarter. My question is related to the first recurrence. It seems your revenue is driving very well, penetration continue to be very good. And then how should we think about the first recurrence if that's a population you will start to think more about it? And then what could drive further penetration into that population? Ross Moat: Yes. Thanks, Roger. This is Ross again. Yes, as you noted, we have seen an increase over time in how physicians are utilizing ARCALYST within the first recurrence of recurrent pericarditis. And as a reminder, that really is the breadth of the label. The label is completely agnostic to the number of flares a patient must have gone through and suffered from before they become eligible for this targeted immunomodulation therapy. So we have promoted it to recurrent pericarditis overall. But certainly, early on in the launch, we did see that physicians were utilizing it more within the 2-plus recurrence group, which is a 14,000 patient population in any given year. We've seen a lot of utilization there. But I think as physicians become more and more comfortable and familiar with how to prescribe the drug and then going back to the first question that the physicians and patients have a good experience when they're on the drug despite they get access to therapy and see the type of results that we've seen in the clinical world, that provides greater confidence of using it earlier on in the disease. And I think what we're seeing is physicians taking mindset of why should we let patients continue to suffer from additional flares before they become eligible for this targeted treatment. So we have seen now around 80% of our patients that have prescribed ARCALYST within the 2-plus recurrence group and around 20% of all of those that have prescribed ARCALYST within the first recurrence group. And obviously, that has grown in percentage terms over time. But as we said in the prepared remarks, we are incredibly excited about the future opportunity, knowing that we announced midway through this year that we were around 15% penetrated into the 2-plus recurrence group without even taking into account those patients in the first recurrence. So the opportunity ahead to serve many, many more patients while we're happy with our current commercialization, the future is certainly there for us to address and help many more patients in the future. Operator: And our next question comes from the line of Eva Fortea-Verdejo from Wells Fargo. Eva Fortea-Verdejo: Congrats on the quarter. Two from us. First on ARCALYST, can you discuss the gross to net dynamics for the quarter? And second, on KPL-387, what are the -- what will be the drivers of your decision on the Phase III dose given that, if I recall correctly, the Phase II is powered to demonstrate a statistical difference? Mark Ragosa: Thanks. I guess first on the gross to net for the quarter year-to-date, it was 8.9%, down from 9.5% year-to-date in the second quarter. So lower and in line with our historical pattern where we see it highest in the first quarter due to industry dynamics such as benefit plan resets and co-pay support and then lower in the second and the third quarter and then moving slightly higher in the fourth quarter as industry dynamics begin to play a factor again. John Paolini: And Eva, thanks for the question about KPL-387 dosing. So importantly, the Phase II portion of the study is a dose focusing type study rather than a formal dose-ranging type study. And that is because our modeling has shown that the 300-milligram subcutaneous dose, which in healthy volunteers last for almost 2 months, should provide sufficient coverage for monthly dosing. And so therefore, the Phase II study is designed really anchored on that 300 milligrams subcutaneous every month dose and then looking to see that 300 milligrams given every other week, so does not provide additional efficacy and that lower doses exhibit weakness, which would then all affirm the use of the 300-milligram subcutaneous dose level. And so that's how we will look at that information and move forward into Phase III. Operator: And our next question comes from the line of Nick Lorusso from TD Cowen. Nicholas Lorusso: Congrats on the great quarter. Can you discuss what drove the strong increase in the number of prescribers this quarter compared to last quarter and what the plan is to continue this uptake? Also, what proportion of recurrent pericarditis patients do the 3,800 current ARCALYST prescribers actually see? Ross Moat: Sorry, Nick, can you just repeat the last part of the last question? I just. Nicholas Lorusso: Yes. What proportion of recurrent pericarditis patients do the 3,800 prescribers see? Ross Moat: Okay. So thanks very much. Let me answer the question, and please come back if he doesn't answer it fully. Yes, so we've seen that there's been a significant increase in the number of prescribers. This is actually in Q3, the highest increase that we've seen in any quarter launch to date, and that's more than 350 new prescribers coming in who have never prescribed ARCALYST before prescribing it for recurrent pericarditis that takes the total to more than 3,825 and about 28% of those -- of that total group have written for 2 or more patients. I think the things that lead into that is just more confidence, more awareness of ARCALYST as a treatment choice. I'm sure the ACC guidance has also been somewhat of a help towards that, just providing more validation, if you like, of the way of how to treat this disease. But our team have been very targeted in their approach, both our sales team in the field calling upon health care professionals. We've done a lot of work to really try to understand where the patients are presenting into. And as a reminder, this is a disease space where it's actually the patient population is pretty widely dispersed. So there's the opportunity to go into many physicians. There's the opportunity for recurrent pericarditis patients to go into many physicians. So I think we're getting better at both honing our messaging as well as understanding the patient throughput and not only which physicians these patients are going into, but also using more innovative technology to play through when we believe those patients are going to be visiting health care professionals. So we're using a lot of kind of AI and digital innovation approaches to guide our field team. On the other side of that, we're also very focused on digital marketing and making sure that our messaging around ARCALYST and recurrent pericarditis goes far and wide across the population outside of our in-person resources. So there's a lot of tactics that we have to try to drive that. I mean we've seen some substantial growth, and that's certainly a big part of the Q3 results that we've seen. But as we know, there's still a significant opportunity ahead for us. So we're very focused on continuing the breadth -- growing the breadth of prescribing as well as being very focused on once someone has prescribed once, helping them to support and find the second patient and the third patient and onwards because we know there's a significant population out there who unfortunately still get a very high level of either underdiagnosis or misdiagnosis as evidenced in our Harris poll, which showed that there was an average of 2.7 misdiagnoses before patients end up with a correct diagnosis of recurrent pericarditis. So we have an awful lot of work still to do, but the opportunity to grow the breadth and depth is pretty significant. Operator: And our next question comes from the line of Paul Choi from Goldman Sachs. Kyuwon Choi: Congratulations on the quarter. I have a few questions. My first is for Ross, and thanks for all the details on the slides. For the 45% of patients who restart versus the other sort of half or 55% who don't, can you maybe walk us through why they're not restarting and just sort of what the commercial efforts are to chase these patients? My second question is for Mark. Both the collaboration expense and tax rate came in higher than I think the Street we were modeling. Can you maybe just remind us if there are any one-offs on both those line items for this quarter? And if that should be the sort of the run rate going forward in terms of our modeling? And my third, maybe for John is a competitor will have Phase II proof-of-concept data in RP in the not-too-distant future. Can you maybe just remind us of how you're thinking about this? Are you assuming clinical success and how you think the data might compare to Rhapsody? Ross Moat: Thanks very much for those questions, Paul. I'll make a start on the first one then hand over to Mark and then to John for the final question. So thank you very much for that. So your initial question on ARCALYST is around the 45% restart rate in those patients that are not restarting and why is that? Actually, we have a slide that provides a bit of detail on the duration of therapy on our corporate deck as well. And this ultimately shows that the average time of the initial treatment is now around 17.5 months, up from 17 months at our last earnings call. The median is around 12 months. So the fact is that depending upon when a patient starts on therapy and how long they've suffered -- suffered with the disease prior to the initiation of ARCALYST is one of the several factors that goes into a health care professionals' judgment call on how long a patient needs to be on therapy for. So when patients stop, as I say, on average initially of 17.5 months, there's around 45% of those patients that come back on to therapy. As a reminder, when patients do come back on to therapy, it's generally very quick in terms of around 8 weeks or within an 8-week time period for the vast majority of the patients that restart, which makes perfect sense when you think around the washout time and the tenacity of the underlying disease. For those patients that don't restart therapy, obviously, we don't collect very much data on that. So it's difficult to know precisely why patients don't come back on to therapy other than to make assumptions on that, which could be around the fact that they are just through the disease and they stop and don't suffer from symptomology again and don't come back on to therapy. But the good news is when patients do come back on to therapy, whether it's within the 8-week time period or indeed much longer, which is for a minority of patients. But when they do come back on to therapy, it's generally a very easy and quick process for them to do so. Generally, there's a payer approval already in place. It's quite easy to get the next shipment of ARCALYST ready. And we know that when patients go back on to therapy after suffering symptomology again, they come back under control very quickly with ARCALYST. So that's what we've seen around the initial and the restarts. And obviously, that's the totality of adding up the treatment periods, which for some patients is several stops and restarts over time. That's what takes us to the average total duration of therapy now of 32 months, up from 30 months last reported. Mark? Mark Ragosa: Great. Yes. And thanks, Paul, for the question. As it relates to sort of your P&L questions, we don't provide specific guidance, but clearly, collaboration expense was up quarter-over-quarter and year-over-year and largely due to ARCALYST sales growth. As we kind of detailed in the prepared comments, collaboration expenses are largely driven by continued ARCALYST sales growth, which is very strong in the quarter. I would say regarding tax, the drivers remain the same as they have in past quarters as well. So tax on income earned in the U.K., Switzerland and the U.S., net of [indiscernible] , R&D and stock-based comp credits. John Paolini: And Paul, this is John. Thanks for your question about the competitive landscape. So yes, the field is awaiting data from an inflammasome inhibitor Phase II data. And so in that sense, not so much Rhapsody, but rather those data are structured in some way similar to the Phase II data that we had reported for rilonacept back in 2019 at the beginning of the program, which is relatively short-term therapy and mostly single active arm. And so in that sense, yes, you would expect with near-term short-term therapy, especially if you have an inflammasome inhibitor and an inflammasome is, of course, the driver of IL-1 beta, which then causes IL-6 production, which goes to the liver, which is where the C-reactive protein comes from, you might expect to see a good inflammasome inhibitor, just like colchicine should bring C-reactive protein down. But the point is that the inflammasome is relatively downstream in the pathophysiology of recurrent pericarditis. So as you know, when the pericardiocyte is injured, IL-1 alpha is released as a preform cytokine as an alarming. And that sets off a localized inflammatory response, which itself causes pain and damage. It does then trigger the inflammasome, which then causes the recruitment of that broader inflammatory response. But that's why we're really focused on blocking both IL-1 alpha and IL-1 beta in order to control the disease. And that's what we showed in RHAPSODY in a longer Phase III program where you have continued treatment initially over 9 months, but ultimately over 18 months and then ultimately out to 3 years, where we showed a 99.5% reduction in events once patients were on treatment. And that the only events that occurred were during the setting of brief study drug interruptions. And so in that sense, a drug like ARCALYST is designed to be given long term, and it remains to be -- to control the disease, and it remains to be seen whether other strategies could be successful. But that kind of sets the bar, if you will, for what effective therapy looks like. Operator: And our next question comes from the line of David Nierengarten from Wedbush Securities. David Nierengarten: I had one on the transition arm of the 387 study. And I was just wondering if you were biasing the study to different prior therapies. So are half the patients going to be previously treated with steroids? Or is it just an even split among prior therapies? John Paolini: Thanks, David. I appreciate the question. So your question is about the transition to monotherapy dosing and administration study, which is a supplemental study as part of the total filing package. Yes, so this study is designed to help inform clinicians how to move patients on to KPL-387 from other prior therapies. And so that includes really the totality of therapies that are available, so NSAIDs and colchicine, corticosteroids and other IL-1 pathway inhibitors. And it's a global study. So it covers those practice patterns across the world. And so how the study is designed is to capture that information and to test the efficacy and safety of those dosing paradigms that are used in order to make that transition to KPL-387 monotherapy and is designed to capture the necessary information for each one of those types of transitions in order to provide critical information, if you will, for the label to advise clinicians. But there is not necessarily nor does there need to be any type of prespecified hypothesis or specific population balance other than giving the necessary information to inform regulatory authorities, physicians on how that works. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Sanj Patel, Chairman and Chief Executive Officer, for any further remarks. Sanj Patel: Thanks, operator. Thanks, everybody, for joining the call today and for the questions, of course. We look forward to the remainder of the year and providing additional updates in the future. And in the meantime, we will crack on. So thank you. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Hello, and welcome, everyone, to the ATI Third Quarter 2025 Results Conference Call. My name is Becky, and I'll be your operator today. [Operator Instructions] I will now hand over to your host, David Weston, to begin. Please go ahead. David Weston: Thank you. Good morning, and welcome to ATI's Third Quarter 2025 Earnings Call. Today's discussion is being webcast online at atimaterials.com. Participating in today's call to share key points from our third quarter results are Kim Fields, President and CEO; and Don Newman, Executive Vice President and CFO. Before starting our prepared remarks, I would like to draw your attention to the supplemental presentation that accompanies this call. Those slides provide additional color and details on our results, capabilities and outlook and can also be found on our website at atimaterials.com. After our prepared remarks, we'll open the line for questions. As a reminder, all forward-looking statements are subject to various assumptions and caveats. Those are noted in the earnings release and in the accompanying presentation. Now I'll turn the call over to Kim. Kimberly Fields: Good morning, everyone, and thank you for joining us. Q3 was another strong quarter for ATI, delivering results ahead of our projections, advancing our long-term strategy and strengthening our leadership in aerospace and defense. Our teams continue to perform at a high level, meeting growing customer needs and driving sustained value. Let's start with a quick overview of our Q3 results. Revenue was up 7% year-over-year, once again exceeding $1.1 billion. Adjusted EPS was $0.85, $0.10 above the high end of our projected range. Adjusted EBITDA totaled $225 million. Excluding approximately $10 million related to the sale of oil and gas rights, $215 million of adjusted EBITDA exceeded the high end of our guidance by $5 million. Adjusted EBITDA margin exceeded 20%, our highest since the pandemic and almost double 2019's margin. Both segments delivered excellent profitability. Our High Performance Materials & Components segment margins were above 24%. And Advanced Alloys & Solutions segment above 17%, driven by strong pricing, mix and increasing aerospace and defense content. Cash generated from operations year-to-date reached $299 million, a $273 million improvement from last year. We also returned $150 million to shareholders this quarter through share repurchases, with $120 million remaining under our current authorization. Given this performance and our outlook for Q4, we are raising our full year guidance across the board. Adjusted EBITDA for 2025 now forecast between $848 million and $858 million, a $28 million increase at the midpoint. Adjusted free cash flow now forecast between $330 million and $370 million, a $40 million increase at the midpoint. Don will share more details on this in a moment. With 1 quarter left in 2025, I want to highlight three key themes driving ATI's continued momentum and future outlook. First, we have strong demand in our core markets, with aerospace and defense leading the way. Total A&D revenue rose 21% year-over-year in the third quarter, fueled by record defense performance and sustained demand in jet engines. This quarter, A&D reached an all-time high of 70% of total revenue, marking an important milestone in our strategy. Long-term agreements and differentiated materials are supporting consistent growth through 2026 and beyond. I'll detail what I see in these markets. Our largest market, jet engines, now 39% of total revenue, grew 19% year-over-year in Q3, with MRO representing about 50% of total engine sales. Next-generation programs such as LEAP and GTF continued to accelerate with strong production and aftermarket demand. You probably heard OEMs make those forecasts in their recent earnings calls. This sustained momentum supports long-term growth for ATI's proprietary alloys and forged turbine discs. Our order book extends into the mid-2027, underscoring tight supply and the strength of our customer partnerships. As a priority supplier, we've gained additional share in content where others have faced execution challenges while maintaining pricing that reflects the value of our capabilities. Looking ahead, we expect Q4 jet engine revenue growth in the high single to low double digits. For the full year, jet engine growth is expected to exceed 20%. With multi-decade customer agreements and increasing platform demand, ATI is well positioned for continued share gains and profitable growth through this aerospace cycle. Airframe sales grew 9% year-over-year and 3% year-to-date this quarter, supported by the ongoing ramp in Boeing and Airbus production and timing of customer orders. Boeing's production rate increase of 42 per month on the 737 and Airbus' A320 target of 75 per month by 2027 signal healthy sustained demand. We expect Q4 airframe revenues to finish modestly above 2024 levels as airframers adjust their inventory to production needs. ATI's expanded titanium capacity and advanced processing capabilities are driving share gains and improved pricing across OEM platforms, enhancing our mix of higher-value structural components and supporting continued margin expansion. Next year, we anticipate high single-digit growth in airframe revenues, driven by steady production ramps, increased ATI content and favorable pricing under new long-term contracts that start at the beginning of 2026. Beyond 2026, as build rates rise, ATI's airframe business is poised to grow faster than overall industry volumes, reflecting our differentiated titanium portfolio and deep customer alignment. Defense markets remain exceptionally strong. Revenue increased 51% year-over-year and 36% sequentially, reflecting broad-based strength across naval nuclear, rotary craft, missile and armored vehicle programs. Our diversified product base benefits from both U.S. and allied spending growth. We continue to qualify our new programs entering early production. ATI's defense business has now delivered 3 consecutive years of double-digit growth, outpacing defense spending. Highlights this quarter include being named Supplier of the Year by General Dynamics U.K., underscoring customer trust and ATI's performance and reliable delivery. Missile and propulsion programs are expanding rapidly. ATI's advanced materials are increasingly specified in [ THAAD ] and PAC-3 systems, where production is accelerating to meet recapitalization demand. We're also supporting emerging initiatives like Golden Dome, positioning ATI for above-market growth into the next decade. Emergent naval nuclear also contributed meaningfully to Q3 performance, showcasing the resilience and scale of our defense portfolio. With expanding qualifications, multiyear visibility and growing international participation, defense is set for continued record performance as modernization and replenishment programs ramp worldwide. Bottom line, A&D remains the foundation of ATI's growth. My second key theme, operational excellence and disciplined execution are the backbone of our performance. This quarter, the team delivered strong productivity gains. Across ATI, we're delivering what we call the triple threat: higher uptime, improved first pass yield and expanding manufacturing capabilities. We have examples across the company. In our nickel remelt operations, output increased by double digits. In the isothermal flow path, heat treat cycle time improved 3x. Accelerated throughput is lower in cost and freeing capacity for our crucial jet engine products. At our Specialty Materials business, we also expanded powder atomization capacity by over 25%, improving yield and quality. We expect to see the benefits of this improvement in our first half 2026 shipments. Our Specialty Rolled product business achieved a new record for monthly coil shipments, another demonstration of increased throughput and efficiency. Specialty Alloys and Components unlocked more than 20% additional capacity in the zirconium sponge process. This was accomplished through standard work and maintenance optimization requiring minimal capital investment. As a reminder, ATI is the leading producer of high-purity zirconium at scale in the Western world. This material is important to national defense, energy and aerospace. It's a small but highly profitable part of our business today, with significant growth potential ahead. Collectively, these initiatives have expanded available capacity by roughly 10%, with the greatest impact in our differentiated [ mode ] products and contribute to our margin gains. These are not just operational wins, they enhance reliability, increase asset utilization and drive long-term earnings growth. By securing additional customer qualifications on new equipment and products, we're building the foundation for ATI's next chapter of performance and profitability. My third theme this quarter, our strategy and investments continue to drive long-term value. Our strategy is working. With 70% of revenue now coming from aerospace and defense, ATI is firmly focused on our most differentiated, high-value materials and markets. Our nickel investment expands differentiated capacity at the top of the value chain. You'll recall, we're the sole-source producer for 5 of the 7 most advanced super alloys in the jet engine. Before we decide to invest, each project undergoes a disciplined review process, requiring projected internal rates of return above 30% and clear alignment with long-term customer contracts. In many cases, our customers are funding alongside us, reinforcing shared confidence in the demand outlook and guaranteeing needed capacity is in place for the future. We'll continue deploying capital with focus and discipline, prioritizing differentiated products, high-return investments and strategic partnerships that sustain ATI's leadership and create long-term value. I've been recently asked by a few investors whether investing in nickel melt capacity will negatively impact our pricing. The short answer is no. Our focus is on our most differentiated products. This is about expanding the competitive moat while supporting the engine ramp and our customers' ambitious growth targets. In summary, strong aerospace and defense demand, a relentless focus on operational excellence and a strategy that's creating long-term value resulted in Q3 being ATI's strongest quarter of the year. We're well positioned to extend our momentum to finish 2025 strong. And with that, I'll turn it over to Don. Donald Newman: Thanks, Kim. I'll provide some additional detail on our financial performance and discuss our outlook for the fourth quarter and full year. In Q3, we once again delivered results ahead of expectations. Adjusted EBITDA was $225 million, including a $10 million gain from oil and gas rights sales. Excluding that, EBITDA of $215 million represents a 19% year-over-year and 6% sequential improvement, with margins at 20% or 19.1% excluding asset sales. Strong price, mix and volume performance, particularly in defense and jet engines, drove this outperformance, resulting in nearly $10 million of operational upside versus our prior guidance range midpoint. Year-to-date, our sales are up 7% and adjusted EBITDA is up 19% over the prior year, excluding asset sales. This reflects improved mix, cost discipline and incremental margins, which remain near 50%, demonstrating the leverage of our business model. Segment performance was strong. HPMC EBITDA margins expanded to 24.2%, up 50 basis points sequentially and 190 basis points year-over-year. AA&S margins improved to 17.3%, a 290 basis point increase sequentially and a 250-point increase year-over-year. This reflects gains from ongoing transformation and efficiency efforts. Cash generation also remained strong. Through the third quarter, we have generated nearly $300 million in operating cash flow, supported by working capital improvements and strong earnings. We continue to monetize noncore assets, including the oil and gas rights sale and a small noncore machining divestiture, all while keeping capital investments focus and discipline. Gross capital expenditures year-to-date totaled $188 million. Managed working capital as a percentage of sales remains around 36%, with opportunity to improve. We expect a strong finish to the year. The seasonal working capital release and projected strong Q4 performance position us for robust fourth quarter cash generation. Now let's look at our guidance for the fourth quarter and full year. Building on Kim's comments, we are raising full-year guidance to reflect stronger performance and visibility through year-end. Adjusted EBITDA, $848 million to $858 million, up $28 million at the midpoint. Adjusted EPS, $3.15 to $3.21. Free cash flow, $330 million to $370 million. CapEx, $260 million to $280 million. That's unchanged from prior guidance. Q4 adjusted EBITDA is projected at $221 million to $231 million, a sequential 5% increase, excluding oil and gas gains. The midpoint of $226 million is driven by continued growth in jet engine forgings, improved price and mix and sustained strength in defense programs. Turning to margins. Based upon our continued strong performance, I expect consolidated margins in Q4 will exceed 19% and full year margins will be in the range of 18.5%. At the segment level, HPMC Q4 margins should continue to increase, exceeding Q3 margins of 24.2%. AA&S Q4 margins are expected to be between 16% and 16.5%, consistent with sales mix expectations. We expect another strong quarter of cash generation supported by collections and improved working capital efficiency. We are on track for $330 million to $370 million in adjusted free cash flow this year. This is a $40 million increase to the midpoint of the range. Gross capital expenditures will stay within the planned range of $260 million to $280 million, partially funded by proceeds from sale of noncore assets. Cash generated from sales of noncore assets and businesses totaled approximately [ $30 million ] year-to-date and $76 million in 2024. Our focus remains on high-return, customer-supported investments that enhance mix, margin and long-term competitiveness. Each quarter this year, we have increased EBITDA, margins and cash generation. Q4 will build on that performance, creating momentum that we will carry into 2026. With that, I will turn the call back over to Kim. Kimberly Fields: Thanks, Don. As we shared on September 11, Don has elected to retire from his role as CFO following our fourth quarter call. We'll have more to say about Don and his outstanding career next quarter, but I want to take a moment now to thank him for his leadership and many contributions that help put ATI in the strong position we're in today. The search for Don's successor is well underway. We're considering both internal and external candidates to identify the best possible leader. I'll share progress on the search in the months ahead for a seamless transition. Our disciplined financial strategy will continue. Before we turn to Q&A, I want to reflect on what makes ATI a compelling aerospace and defense story. When we began this transformation several years ago, ATI served a wide range of products and customers with limited concentration in our most differentiated materials. Fast forward to today and the transformation is clear. ATI is an aerospace and defense leader with more than 70% of our revenue coming from these high-value markets. In 2019, our margins were roughly half the 20% we delivered this quarter and our growth rates were more susceptible to price and input cost swings. Today, we are structurally stronger, anchored in differentiated materials, long-term customer relationships and sustainable pricing power. We've made tremendous progress, but we're not finished. The path forward centers on three levers: First, strategic pricing and mix optimization. Demand continues to outpace supply in key markets like jet engines, defense and specialty energy. We're optimizing our product mix at our most valuable assets to capture higher-value opportunities. Our long-term agreements and strategic pricing actions capture the value we deliver, securing the price, terms and pass-throughs that reflect our differentiated materials and the reliability our customers depend on. These long-term partnerships also underpin future investments and joint technology development, ensuring we expand capabilities in alignment with customers' needs. Our second lever is operational excellence and productivity. Across ATI, yield and throughput improvements are expanding capacity without adding capital. Product and process innovation drive efficiency and reliability, supporting record margins and cash generation across both segments. Our third lever is focus and simplification. We apply an 80-20 mindset, investing where ATI creates the most value and exiting where we don't. We're redeploying capital to high-value, high-growth areas. ATI is more agile, more profitable and better positioned to deliver long-term value. These levers are driving continued margin expansion, strong cash generation and higher returns on capital. Customers recognize ATI's reliable track record, long-term contracts and technical expertise, reinforce the surety supply our partners count on. ATI's foundation is strong. We're profitably growing, expanding margins and generating robust cash flow, trends we expect to continue well into the next decade. We're ahead of schedule on our 2027 growth and margin targets, and our business model provides clear visibility through 2030 and beyond. Even as customers build schedules fluctuates, ATI continues to gain share across A&D, optimize its asset base and deliver consistent growth and increasing returns. Our differentiated materials, technical expertise and integrated capabilities create a durable competitive moat, one that aligns closely with our A&D partners. We've accomplished a lot, and we're just getting started. With that, let's open the line for your questions. Operator: [Operator Instructions] Our first question comes from Richard Safran from Seaport Research Partners. Richard Safran: Don, congrats to you on the retirement, and thanks for all the help over the years. I appreciate it. Okay. So Kim, I heard your opening remarks, but I'm not exactly sure I understand what's changed since 2Q to drive the revised outlook and the guidance increase. So maybe you could discuss what's changed in your outlook and going to the moving pieces that drove this guidance increase we see today? Kimberly Fields: Sure. Thanks, Rich. So let me start with the guidance is reflecting that stronger-than-expected A&D performance. Particularly in defense, we had a tremendous quarter. And we see the A&D growth and momentum in third quarter continuing through the rest of this year and frankly, into 2026. We delivered $225 million adjusted EBITDA. And excluding the oil and gas rights, that's $215 million. HPMC was over 24% in margin, AA&S was over 17%. And the operational productivity that I talked about is really starting to flow through, and we're seeing that in those margin numbers. Free cash flow continues to be a standout at $299 million year-to-date, up $273 million from last year. So as we look at the momentum that we built in the third quarter, we see that. We anticipate that strength going into Q4 across A&D and frankly, continuing into 2026. So overall, strength in markets and strength in our position and the returns that we're getting on the investments from an operational mix and pricing. Richard Safran: This next one is a somewhat related two-part question about nickel and titanium. You have a lot of single-source nickel alloys, I'm talking about things like Rene 65. On the OE side, you're facing [ rate 52 ] at Boeing, [ rate 75 ] at Airbus. There's aftermarket demand. So first part, what are you doing to manage this melt capacity you discussed in your opening remarks? Second part, Kim, I think you recently said ATI is now the #1 source of flat-rolled titanium products to Airbus. What actually does that mean? And how does that translate eventually to the P&L, if you would? Kimberly Fields: Sure, sure. So you're right. We continue to see record demand for premium nickel alloys, especially those used in next-generation engine products like LEAP and GTF as well as defense, which, as I just mentioned, we had a fantastic quarter. So we're seeing demand across all of those market segments. And meeting that demand this year has really been focused around that productivity and reliability, higher melt yields, more downstream processing, the increased testing capacity in our Forged Products business. Those actions are delivering these strong results that you're seeing in how we supported that more than 20% jet engine growth this year as well as the margins at HPMC over 24%. So we're going to continue to focus on expanding process efficiency and customer co-funded projects. And as I mentioned in my remarks, these investments will exceed 30% IRR, our internal rate of return targets and ensure that supply assurance without adding unnecessary melt capacity. But at the same time, as you said, this demand that we're seeing this year is going to continue to grow. The other OEMs have said on their earnings calls, they're expecting this to continue to build and accelerate through the decade. And so we're also looking at selectively expanding our melt capacity to support that long-term growth, particularly in these high priority -- or I'm sorry, proprietary alloys, those hot sectionalities I talked about 2 quarters ago, those 5 of 7, not the standard nickel alloys. So we're doing very purpose-built type of capital expansion. And these projects are being developed in partnership with our customers. They're backed by long-term agreements, they have co-funding to ensure the new capacity and capabilities align with the future needs of this market. And as I mentioned, all these products are well in excess of the 30% target. So it's important to remember, those proprietary alloys, in many cases, we are sole sourced on those 5 of 7 in the hot section with very, very long qualification times and difficult learning curves and are under LTAs for decades. So we're managing it in the short term, both from a productivity standpoint to continue to improve our output from our current asset base and then in the long term, selectively investing purpose-built assets for those hot section alloys where we have those sole-source and long-term agreements. On the second question, you asked me around Airbus. Yes, that's, like I said, is a great success story. I'll just remind everybody before COVID, we weren't shipping anything to Airbus at that time. We had just signed our first contract with them, we hadn't even started shipping. We went into COVID, Ukraine was invaded. And quickly, they need to engage and get us up to speed became an imperative. And today, as I mentioned, when I say we're the #1 flat-rolled supplier in the industry -- or I'm sorry, in the product portfolio that we're selling them, that means we're the majority supplier today. The share-based contracts allow us to expand that share in content as they continue to ramp and grow. There's mechanisms for pass-through for metal, inflation, tariffs. And we effectively, starting next year, doubling our Airbus revenue and expanding those margins. So the benefit, as you asked to the P&L comes through that stronger mix, consistent volume, expanded content and share and the higher margins from the premium titanium plate and sheet. Yes. I just want to mention here, there's been -- go ahead, sorry. Richard Safran: Just on your melt comment, are you effective -- if I understood you right, are you effectively saying you're managing to the high-margin products, is that what... Kimberly Fields: We are, yes. In both the short and the long term, yes, we are optimizing the mix. So you see that in some of our aero like and other categories and growth. So we are managing to the highest value mix in the short term and optimizing the throughput and output and then in the long term, putting purpose-built assets in partnering with our customers for that. Operator: Our next question comes from Myles Walton from Wolfe Research. Myles Walton: I was hoping to dig a little deeper into the engine mix that you have going on with MRO being 50% of total engine sales. How much of that do you have a sense is in-production MRO work or in-production engines being MROed versus out-of-production engines being MROed? Kimberly Fields: Well, for us, as I look at our mix, we have a higher content on the next-gen engines that are out, the LEAP, the GTF. So what we're seeing is continued MRO and continued heavier shop visits, where, as I've mentioned, those forge discs that we make are typically the #1 place that they're going to start looking if they're coming in for -- either for just a typical upgrade as they're continuing to increase life and efficiency as well as the normal scheduled maintenance visit. So I would -- for us, it's mainly the next-gen engines that we have the higher content. That's where those powder alloys and those proprietary alloys that I just talked about really are predominant. And that's what drives that increased efficiency and life in those engines. Myles Walton: Okay. And a lot of the engine OEMs are talking about mid-teens type growth into next year. Is that something that would be in line with the level of growth you'd expect in your engine end-market? Kimberly Fields: Yes, I'd say that's in line with how we're thinking about it. We do see -- as you said, they are sharing, and we see that continued growth in demand, not just in the short term but through the whole decade. And because of our LTA or long-term agreements and our relationships, customers -- we have very transparent communications, we're aligned. These alloys in their hot section being a sole source or proprietary supplier really affords us the opportunity to partner closely. And to your point, we do see the growth, as they're saying, next year, but also through the decade. And then we're looking at investments to ensure that we're continuing to support that. Operator: Our next question comes from Phil Gibbs from KeyBanc. Philip Gibbs: Good morning. So excluding the oil and gas rights, you were ahead of the midpoint by about $10 million in the quarter for your adjusted EBITDA, should we think about that based on some of the comments you were providing earlier that maybe half of that is operational and half of that is due to the stronger or strong defense sales you had in the quarter? Kimberly Fields: Yes. I mean, I think that's fair. We've done work across all of our assets. Defense, like I said, that was really a bright spot, and the team did a fantastic job. We had -- defense continues to grow at double digit for us and that pace across missiles, nuclear naval and rotary programs. But we had some demand come in last quarter, that is going to continue through the rest of this year and into next year, that really allowed us to focus. And you saw some of the numbers moved around a little bit as we prioritize those shipments to those customers. But we expect that double-digit growth in defense to continue into 2026, missiles, like systems like [ THAAD ] and PAC-3 are continuing to expand. And we were blending those mature programs we have with some of these new cutting-edge programs like the MV-75 and the F-47. So yes, it comes from both, the productivity, which we'll continue to keep focusing on, so that we can keep meeting the demand that from an A&D standpoint, does continue to come in very strong. Philip Gibbs: So Kim, the defense sales levels overall, do you expect those to continue in the fourth quarter? Or was some pulled into the third quarter? Kimberly Fields: No. I mean -- so we did have some significant shipments from the forging business in the third quarter, and we will see that moderate a bit as we go into the fourth quarter. But as I look forward, the strength and momentum of the demand coming from these defense programs are going to continue to build as we come through the fourth quarter and into 2026. Now that said, jet engine overall, you will see that uptick in the fourth quarter. As like I said, we prioritized some of our assets and shipments in the third quarter for some immediate defense needs. That will start to come back, and it will be up. Philip Gibbs: And then lastly, on the net working capital side, that was a pretty strong improvement in terms of the free cash flow bridge. Where is that coming from predominantly? Is it mostly inventory? Or is it some inventory and payables? Just curious on that. Donald Newman: I'll tell you, I'll take that question. Part of the improvement that we saw in working capital really throughout the year, but especially in Q3, was tied to our management of accounts receivable. Now we are making progress certainly on the inventory side of the house, we've improved our efficiencies and our intensity there. But for accounts receivable, we put in place a securitization facility. And that securitization facility, we did execute some of the AR factoring in the period. And so that benefited some of our working capital efficiencies in Q3. But as you take a step back, though, and you look at the full-year guidance when it comes to free cash flow, clearly, we're making progress, both operationally and the cash that's generated through operations. And we are making progress across the working capital, especially AR and inventory, to improve that part of our cash generation. Operator: Our next question comes from Gautam Khanna from TD Cowen. Gautam Khanna: Congrats, Don. I know we have you for a little longer, but congrats. Guys, I had a couple of quick questions. You did mention, in 2026, you expect airframe sales to be up high single digit. And I wanted to ask if you had any other preliminary color you could provide on 2026 with respect to other end-markets, like jet engine? Maybe if you could just opine generically on incremental margins at HPMC? Any sort of parameters you'd give us as we start to pencil in '26? Kimberly Fields: I'd say, as you mentioned, I'll just -- I'll talk about the guidance. I'll let Don talk a little bit about the incremental margins, which we do see expanding. But for 2026, as you mentioned, we're expecting that airframe growth to be steady throughout the year, maybe start modestly and grow as we get to the back half of the year and accelerate as the planned increase rates start to take effect. From an engine standpoint, we do see, as I mentioned, continued growth and strength in that space. We're not giving specific guidance on every market. We wanted to share some things around airframe because there was a lot of questions on that last quarter. But as we're finalizing our plans, we'll give official guidance in the first quarter and share all of those numbers. But that said, we are seeing and anticipate demand for jet engines to remain exceptionally strong through next year and into 2027 based on our order book and what we see already today. Don, do you want to talk about margins at all? Donald Newman: I would love to. So to your point, yes, we've been seeing some really excellent performance around our incremental margins. Year-to-date, we're approaching 50%. And so we're really pleased with that. It's not a surprise to us. We've talked in the past about what our expectations were over time when it comes to incrementals. The standing rule that we've shared with -- or the standing guidance that we've shared with you guys is assume incrementals live in the 30% to 40% range, think about 40% as aligned to HPMC expectations, 30% more aligned to the AA&S part of the house. But we expected, as our mix was improving, as price was being captured, as efficiencies were being delivered; that our incrementals would improve. Now we've seen that in the first several quarters of this year. And the question -- the basic question is, "Okay, is this an indicator of a new incremental that we should be modeling to?" I would say at this point, we would continue to recommend the 30% to 40%. In the future -- in the near future, I would expect management will share with investors and analysts if that margin needs to be increased to a higher level. But I can tell you from my standpoint, while I'm really happy with the performance we're seeing. When I'm modeling the business, I still use that 30% to 40% range. And -- but I do expect that we will see the improvement that we have indicated as time unfolds here. Operator: Our next question comes from Andre Madrid from BTIG. Andre Madrid: Don, congratulations. Again, I'm glad we have you for one more, but it's been a pleasure. So you called out naval nuclear is one of the main drivers at defense, but maybe could you just give us a status update there on the zirc supply chain and how things are going there vis-a-vis China? Kimberly Fields: Yes. So obviously, the news continues to change, depending on if we have a trade deal or not. But I'd say, from the supply chain side on the zirc product, it's been very stable. We haven't seen any impacts or anything that is concerning from our standpoint. I will mention that -- I think I've mentioned this in the past, we've also built stockpiles, both the raw materials as well as finished products, to make sure if there's any intermittent impacts that as we can see through some of these trade negotiations, that we're able to maintain that and manage that. And so we're in a really good position from the supply chain side of things. When I look at the market, though, I'm expecting positive momentum as we go into Q4. We used these last couple of quarters, frankly, to upgrade some of our equipment with some customer-funded capital because again, our customers are looking at some of our capabilities and seeing tightness with the demand that they've got coming both nuclear, defense as well as energy, gas turbine energy. So we did put some upgrades. So we do anticipate to see some of those benefits starting to come through. And the demand fundamentals are solid. So we're working on new qualifications and new material to get qualified for those applications as well. Andre Madrid: Got it. Got it. And in terms of the stockpile, if you can share -- I mean how much -- how long of demand does that reflect those stockpiles? Like how? Is it like a year or 2? Kimberly Fields: I would say, we generally -- on finished products, we have almost 2 years, probably around 2 years of inventory. And on the raw material side, we have over a year of materials. You have to remember, these raw materials are not -- especially the raw materials for zirc, it's not a very high -- and it's only half. So let me [ quantify ], it's only half of the raw materials that we put in to make our zirc product, and it's not a very high dollar amount. And so we're able to hold large amounts of inventory in that raw materials. And as I said, we haven't had this jump to pull into that or use any of that. We're actually -- we're maintaining and managing it. We haven't seen disruptions this year. There's been good flow, and it hasn't been threatened as of yet. But again, if there's any bubble or any momentary disruption, I think we're in a good position to maintain through that. Andre Madrid: Got it. Got it. And if I could just squeeze one more in, I mean, you said MRO is roughly half of engine. What was that percentage previously, pre-COVID and whatnot? Kimberly Fields: Yes. Pre-COVID, I would say, typically, what our [indiscernible] 20%, 25%. And we've seen that accelerate rapidly. And you know all of these things, Andre, as you look at shop visits and the airlines waiting on planes to get delivered to some of those older planes are staying in service longer. I think the other aspect is the next-gen engines. They're continuing to drive [ lifing ] and efficiency, so they're doing upgrade packages. So all of those are coming to bear. And again, they all hit squarely into that hot section, those forge discs, that have so much wear that basically provides a threat for the engine and the plane to get off the ground. And so we are seeing, like I said, a substantial increase. And I won't talk for the OEMs. They're sharing it publicly, but they're sharing with us that they're seeing this to continue through the decade as we go forward and these engines get into their first and second shop visits. Andre Madrid: Kim, that's super helpful color. I'll leave it there. Operator: Our next question comes from Seth Seifman from JPMorgan. Seth Seifman: Thanks very much. Nice results and nice remarks. And Don, thanks for everything. So I guess just starting out, you mentioned in the HPMC business kind of a change in the structure of a contract, I think, something that goes -- that moves it more towards just recognizing your value-add on work rather than all the materials. Is there -- do you anticipate more happening there? And kind of -- what kind of determines when that happens and when it doesn't? Donald Newman: Seth, it's Don. So let me take that one. You're right. In the quarter, we highlighted because we were wanting to explain the movement in our jet engine revenue sequentially. We highlighted that we had a contract, a particular contract that we had converted from a materials and conversion structure, which means we would buy the material and convert the material and sell the product to our customers. We converted at the request of our customer, that contract to a conversion only. What that means is if we don't buy the material, they provide the material. And the long and the short of that is you have less revenue that you recognize. It doesn't negatively impact your bottom line, and it can actually be a help to your margins. So that's the background there. Is it a trend? Well, it's not unusual in our business to have conversion contracts. We don't see a trend that the material contracts will transition to conversion contracts. It was, I would say, generally an isolated situation where it shifted over. That particular contract had about a $10 million effect on revenue from Q2 to Q3. That particular contract will be with us through the end of this year. So you'll see that same effect in Q4. But no, not a trend and no messaging around this particular change. Seth Seifman: Excellent. Great. And then I think this probably follows up a little bit on Andre's question, but specialty energy in the slides, you talked about it being kind of a longer-term growth market. In recent years, there's been a little bit of growth, but not a lot and down this year. And so how do you think about the timeframe for that? And is it sort of linked to -- should we think about it more linked to developments in nuclear energy or anything else? Kimberly Fields: Yes. I would say we're going to start to see growth in that market segment next quarter, and that's going to continue to accelerate as we go into 2026. For us, and you're right to point that out, it's both. It's both gas turbine. And I'd say that is going to be in the immediate the next few quarters. You'll see that will be what's behind that growth, and you'll see that continue to increase. We are in the process of developing some new materials there and getting qualified. And so there is significant demand there. I'd say on the nuclear side, as you said, we are in a unique position. We're one of the only western suppliers of some of the zirconium in the [ tracks ] or tubing form that is really needed for the commercial nuclear facilities globally. And so that business, as I mentioned, we did some upgrades, we put some capacity, freed up some bottlenecks there. And so we're going to see that continue to grow. I know they're trying to fast track some of those nuclear facilities and bringing them back online. And we're seeing that demand come in now in orders for that today. So both of them, but I'd say the gas turbine really being driven by the data centers and the demand for energy. And for both, this is a market that we don't spend a ton of time. We talk a lot about aerospace. But it really leverages our differentiated materials, our breadth of materials, zirconium, hafnium, as well as titanium and nickel products. And those capabilities, I know we've mentioned it. I probably underemphasized the capabilities of our assets and the flexibility of those to be able to flex into some of these markets where there are very few, if any, in the Western world that have those capabilities in that product form. So we are seeing a lot of demand. I'm very excited about the future for energy for us. I do think it's a small part of our business today, but I do see that growing, and it's a very profitable part of our overall portfolio. Operator: We currently have no further questions. So I'll hand back to Kim Fields for closing remarks. Kimberly Fields: Thanks. Well, thank you, everybody, for the call today. As I said, we had a fantastic quarter. I'm very pleased with the results that we've demonstrated in the third quarter and the momentum that we see going into the fourth quarter and frankly, into 2026. Next quarter, we'll share our official formalized guidance. But just to close on, we're going to stay focused on where we're most differentiated, those advanced materials and forgings for aerospace and defense. The next phase is really around growing our content per platform, scaling those co-funded investments and improving operational leverage. We continue to see that mix grow. And A&D is going to continue to grow faster probably than our other markets, as we go into next year. And that momentum will continue from Q4 to 2026. Over time, like I said, the bottom line is our transformation is working. We're seeing that in both our margins, our mix and our overall growth. Now it's really about compounding that performance for the rest of this year and into 2026. Thank you guys for your time. I really appreciate it, and I'll talk with you later. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to the UnitedHealth Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial and earnings reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated October 28, 2025, which may be accessed from the Investor Relations page of the company's website. I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley. Stephen Hemsley: Good morning. Thank you for joining us today. Our enterprise continues to advance on the improvement paths first discussed with you in July. We've been introducing new leaders, strengthening underperforming businesses, identifying both opportunities and inefficiencies and importantly, recommitting to the mission and culture of this company. We're getting at the core of the underperformance issues with fresh perspectives, intent on positioning our organization as a positive and innovative leader helping to advance next era of health care. A keen sense of urgency in this effort is consistent throughout the enterprise. At the same time, recognizing the pace of progress varies across our businesses, depending upon their challenges and opportunities. Some efforts will require more time and investment. Others will show more immediate progress. Repricing within UnitedHealthcare is on track to drive solid operating earnings growth from margin improvement within that business in 2026. In our less mature businesses such as Optum Health and Optum Insight, our efforts to improve operations and make needed investments will show more measured progress in 2026 and will take more time to fully bear fruit. As Patrick Conway will discuss, our belief in the need for an impact of value-based care remains intact, as is our confidence in returning to expected performance standards. And throughout the company, we will ensure we are focused on activities that align with our long-term future and be very disciplined about moving on from those that do not. We're committed to returning to the consistent enterprise-wide performance levels you should expect of us. Within Optum Health, the team has taken concrete steps that will refocus the business back to its original mission, actions that will narrow networks with more emphasis on appropriately aligned physicians, geographies, the right clinical services and the right benefit offerings for the members we serve. We are also keeping sharp focus on the continued competitiveness of UnitedHealthcare as evidenced by our recent Medicare STARS scores showing improvement year-over-year, and that work remains intense now for payment year 2028 STARS performance. As we look ahead to the next few years, we will consistently emphasize the fundamental execution discipline that has long been a key trade of this company, and I'm gratified to see the quick and enthusiastic response to this enterprise -- to this emphasis from our leadership team. External challenges will remain, including continued headwinds in 2026 from the third year of nearly $50 billion in industry-wide Medicare cuts by the previous administration as well as Medicaid funding and program pressures. Even so, I'm confident we will return to solid earnings growth next year given the operational rigor and more prudent pricing. While we are still finalizing 2026 plans and intend to share full guidance with you in January, current analyst consensus captures a likely stepping off point for next year. We intend to balance our earnings growth ambitions in 2026 with investments and actions that will drive higher and sustainable double-digit growth beginning in 2027 and advancing from there. That is the perspective we're keeping front of mind. Our longer-term outlook will be refreshed as we continue to execute over the next year. As we've been doing these last few months, we will continue to engage actively with both investors and the broader stakeholder community and plan to convene our investor conference in the back half of 2026. This morning, Tim Noel and Patrick Conway will provide details on the progress of UnitedHealthcare and Optum, respectively. Our Chief Financial Officer, Wayne DeVeydt; will review third quarter results. I'm pleased to welcome Wayne to our leadership team. He has the right experience, values and expertise to help guide UnitedHealth Group at this moment in our development, and he's off to a fast start. So with that, Tim, you want to take it? Timothy Noel: Thanks, Steve. For the current year, overall UnitedHealthcare performance remains in line with the expectations we offered in the second quarter. Medical cost trends remained historically high but consistent with our second quarter guidance, and we expect that to continue throughout the remainder of 2025. Turning to our efforts for 2026, a vital element has been our pricing. Since our last update with you, we've repriced the vast majority of our UHC risk businesses, including Medicare Advantage and to varying degrees, our commercial fully insured and residual ACA offerings. Trend experience for the third quarter continues to validate the actuarial forecasts underpinning our 2026 pricing actions. Taken together, these actions position each of our businesses on a clear path towards margin growth in 2026 with the exception of Medicaid, which I will discuss in a moment. Our Medicare business continues to perform in line with the expectations we shared last quarter. That's true for care activity and medical cost trends, and importantly, for the mix of clinical activity and utilization across physician, outpatient and inpatient. We forecast a full year 2025 trend of approximately 7.5% in Medicare Advantage, consistent with our previous expectations. As we shared with you last quarter, trend remains elevated across Medicare overall with our Med Sup offerings still seeing medical cost trends in excess of 11%. In individual Medicare Advantage, we continue to believe an expected 10% medical cost trend for 2026 has us positioned appropriately. This trend assumes assumption reflects a continuation of the elevated care activity levels observed in 2025, known impacts from fee schedule changes and continued expansion of aggressive provider coding and billing practices. We have taken a similarly prudent view across all our Medicare product offerings for 2026, including Medicare Supplement, Group MA and stand-alone Part D. For Medicare Advantage, we're now about 2 weeks into the annual enrollment period and early results are in line with our strategic positioning for 2026. Our plan for next year reflects a conservative path focused on margin growth. We made significant adjustments to benefits and executed targeted plan exits and network reductions to offset elevated medical trends and government funding decreases. As a result of our planned actions as well as competitive market dynamics, we expect membership contraction of approximately 1 million members in total Medicare Advantage, including individual and group markets. We expect these actions will drive margin improvements in 2026 with potential for further advancements in 2027 that will position us to reach the upper half of our 2% to 4% targeted margin range, all of which is supported by strong STARS results. As Steve mentioned earlier, we already have shifted focus to the next STARS performance period including incremental investments made in the fourth quarter. Turning to commercial. We are focused on pricing and cost management efforts to support 2026 margin recovery. At this point, approximately 60% of our group commercial insured offerings have been priced for next year. Our commercial pricing reflects the elevated cost levels we've seen this year, which we expect to persist in 2026. While we expect our group fully insured business to contract in line with the broader market, we continue to see strong traction for our self-funded offerings. We expect the vast majority of our employer insurance businesses to be repriced for 2026 and to return to our normal margin range in 2027. Moving to ACA markets. We have submitted rate filings in nearly all of the 30 states where we participate that reflect 2025 morbidity and experience. These include average rate increases of over 25%. Where we are unable to reach agreement on sustainable rates, we are enacting targeted service area reductions. We believe these actions will establish a sustainable premium base while likely reducing our ACA enrollment by approximately 2/3. These actions should drive margin improvement in our employer and individual segment in 2026, though still below our targeted 7% to 9% range. In Medicaid, the path to recovery will be more challenging. States have not funded in line with actual cost trends. So funding levels are not sufficient to cover the health needs of state enrollees. While we're making steady progress in bridging this gap with states, the mismatch between rate adequacy and member acuity will likely extend through 2026. To date, we have received 2026 draft rates on almost half of our contracts, which have a January 1 rate cycle, and we continue to advocate for rate updates to better reflect our ongoing experience with elevated trends. Our team is focused on addressing drivers unique to these markets, especially behavioral health and will continue to push for appropriate funds. As I said last quarter, wherever states support responsible funding for Medicaid, we remain committed to serving people through that program and view this as integral to our mission. As we indicated in July, we anticipate Medicare margins will be breakeven for 2025. As we look to 2026, we expect margins to decline further as existing cost trends continue and the current rate environment does not change. Looking at UnitedHealthcare overall, the underlying business continues to perform well in serving consumers, plans and program sponsors. To give you some examples of how we're enhancing the experience for these cohorts. Nearly 85% of member inquiries are served digitally. When members call us, 90% of calls are answered within 30 seconds and 95% of members' questions are resolved in the first interaction. Some 95% of our claims are automatically processed immediately. We're delivering more value, ease, simplicity and guidance throughout the UHC member experience. We're also aggressively scaling AI and machine learning capabilities to enhance these experiences and optimize core performance. While 2025 remains a transition year, the pressure we experienced is largely a result of mispricing and suboptimal market positioning. We remain humbled by the challenges of this environment and the lessons we've had to learn once again, but confident that we are in solid footing to recapture our performance potential. With that, I'll turn it over to Patrick Conway, CEO of Optum. Patrick Conway: Thanks, Tim. I will spend the majority of my time today updating you on our efforts to restore Optum Health to its original intent around value-based care, which experienced continues to shows us is the optimal model to deliver the right care at the right time in the right setting for the best outcomes at the lowest cost to the people we serve, particularly in light of current cost trends and the market dominance of the large health systems. Over the last few years, through a period of rapid expansion, Optum Health's strategy around value-based care strayed from the initial intent of the model. 3 critical issues emerged. First, the provider network grew too large; second, the rapid pace of expansion and slower pace of integration resulted in operating inconsistencies exacerbated by relying too much on affiliated physicians who are less aligned with core VBC policies. And lastly, Optum Health was accepting risk in products and services less suited for a clinically oriented value-based model. Understanding these issues has helped us better pursue the steps needed to get back to the original intent of Optum Health and value-based care. Over the past 6 months, we have made significant leadership changes to better drive an integrated VBC provider model. Under the leadership of Krista Nelson, our Chief Operating Officer, we are focusing our efforts on 3 key connected areas to drive better performance. First, returning to the original intended clinical framework that best supports VBC. Second, moving towards narrower, more integrated and dedicated value-based care provider model and network; and third, focusing on the appropriate managed benefit product and patient base. Within this framework, our team has made solid progress, especially in bringing greater discipline to how we approach risk arrangements, which will benefit the business in 2026. This includes partnering with payers on benefit adjustments and appropriate rates to match the risk and mix of the populations we serve. At this point, we are close to completion and over 90% of our value-based payer contracts for next year and are on track to reach our goal of offsetting approximately half of the 2026 V28 headwind through payer contracting. We are also pursuing market and product exits, including from lower-performing PPO contracts. As indicated last quarter, we have finalized exits for 200,000 lives in 2026, the majority of which are PPO. While still early in the Medicare annual enrollment period, we expect total Optum Health value-based care membership to shrink by approximately 10% in 2026 before returning to growth in 2027. We also continue to intentionally shape our care provider network to prioritize high-performing partners who demonstrate strong patient engagement and consistently positive outcomes. We are moving to employed or contractually dedicated physicians wherever possible. We are separating from providers who are less aligned with the VBC model. The targeted network actions we've taken over the last 60 days will result in fewer providers in our networks starting in 2026. Within our markets and their related networks, we are working to more fully integrate our clinical practices to ensure greater performance consistency. The team is refining our portfolio and accelerating a consistent national operating model for regionally led high-performing Optum Health practices that reduces fixed cost, drives purchasing economies, align technology and most importantly, ensures continued high-quality care. These actions increase our confidence in our ability to meet our V28 cost reduction targets in 2026 and strengthen our operating foundations for the long term. Lastly, our engagements clinical work at Optum continue to track with our expectations for meaningfully reducing medical cost trends, engaging with over 85% of our high-risk members in 2025, which accounts for the remaining V28 pressure offsets in 2026. Bottom line, getting back to the basics of our VBC model will be good for the people we serve and for our business. As a point of reference, our 2026 CMS Star Rating projections show 80% of Optum at home members and 4+ Star plans and nearly 100% of our I-SNP members and 4-plus Star plans. Evidence of our quality of care is underscored by a strong NPS of 90 at our highest performing facilities. For the third quarter, Optum Health performance was in line with our expectations, reflecting the natural seasonality in our business and the pull forward of some investments. Within this, we expect to end 2025 with margins of just under 3%, which includes value-based care margins under 1%. We expect margin improvement across all of Optum Health in 2026 even in the face of the third year of the Medicare funding cuts. We believe these efforts will drive further acceleration in 2027 towards our long-term margin targets of 6% to 8%. Turning to Optum Health's fee-based care services, as we discussed last time, these were not performing to their potential. We are adopting more consistent and rigorous processes to better manage these practices for growth and appropriate profitability. We are seeing early results in our East region, which serves nearly 5 million patients, where we have generated a 3% per visit productivity increase quarter-over-quarter, driven by targeted improvements in scheduling, workflow efficiency and patient acquisition. We have similar undertakings in motion in our South and West regions. As for Optum Insight, we continue to perform solidly but not at the level of the potential for these services. Under the leadership of Sandeep Dadlani, we now see the alignment of our end-to-end technology and AI innovation efforts coming into formation. We will make the investments needed to accelerate the advancement of this distinctive platform that serves the expanse of the health system. We are confident in our plan will ignite top line revenue and operating earnings in line with our long-term growth targets. At Optum Rx, we continue to perform well with double-digit revenue growth in our pharmacies and a strong selling season for our pharmacy offerings. Our products are resonating in the market with stronger customer retention and new customer growth. At this stage, we expect new membership growth in 2026 will be more than offset by expected membership attrition from the UnitedHealthcare business. Importantly, our team remains disciplined around pricing, transparency and quality outcomes for our customers at a time when the pharmaceutical industry continues to drive cost ever higher. Today, we offer full rebate pass-through arrangements to all of our customers with nearly 85% of them participating. We were the first in our industry to announce this arrangement back in the beginning of the year and we expect 95% of our customers will be in these arrangements in 2027 with the remainder in full rebate pass-through by 2028. And we have increased payments on branded drugs to over 14,000 and independent retail pharmacies as part of our commitment to a balanced pricing approach. Thanks for your time today. I'll now turn it over to Wayne DeVeydt. Wayne DeVeydt: Good morning, everyone. I'd like to begin by expressing my sincere appreciation to Steve, Tim, Patrick and all of my colleagues at UnitedHealth Group for the warm welcome. It's truly an honor to be part of this team and to contribute to our shared mission. Today, I'd like to cover 3 important topics. First, I'll provide an overview of our quarterly performance and how it informs our outlook for the rest of the year. I will then discuss our capital and liquidity framework as we look ahead to 2026, particularly in terms of resuming share buybacks and strategic acquisition activities. And finally, I'll offer some insights into our expectations for 2026. Moving to the quarter. Today, we reported adjusted earnings per share of $2.92, which was slightly ahead of our expectations. These results reflect steady execution while we work through our longer-term improvement plans. We've balanced immediate performance with strategic investments that will support our future growth and natural diversification. Some details for the quarter. We delivered revenues of over $113 billion, reflecting 12% year-over-year growth driven by domestic membership expansion of over 780,000 lives year-to-date. We ended the third quarter with total domestic membership of more than 50 million. Our medical care ratio of 89.9% in the quarter compares to 85.2% in the same quarter last year, with the full year trending towards the lower end of the projections we offered last quarter. As Tim stated, medical cost trends, while historically high, remain consistent with our outlook for 2025 and align with our pricing actions for 2026. The operating cost ratio of 13.5% in the quarter reflects larger investments in technology and people than originally contemplated when guidance was set in 2Q. Specifically, we invested more than $450 million in broad-based employee incentives and in contributions to the UnitedHealth Foundation, both critically important for strengthening our relationships with our workforce and with local communities in the health system at large. And investments were proportionately greater in Optum Health and Optum Insight. Finally, our earnings were supported by strong cash flows of 2.3x net income and an overall increase in days claims payable of 1.7 days sequentially. Turning to our capital and liquidity framework. As previously communicated, we have paused our strategic acquisitions and share buyback while we dedicate our cash to returning to a long-term debt-to-capital ratio around 40% and interest coverage ratios in line with historic levels. In the third quarter, our debt-to-capital ratio remained stable at 44.1%, reflecting continued actions to improve cash efficiency, offset by the completion of the Amedisys transaction late in the third quarter which represented a net cash disbursement of $3.4 billion. We expect our debt-to-capital ratio to trend closer to 40% in the second half of 2026. Accordingly, while we have not finalized plans for 2026, we anticipate we may be in a position to reinstate our historical capital deployment practices later in the year. Finally, we generated operating cash flow from operations of $5.9 billion. We still expect to close this year with $16 billion in operating cash flow or 1.1x net income. Looking ahead to 2026. As Steve mentioned, we will provide formal guidance with our fourth quarter results in January. We are comfortable with current consensus and within that, we are making the requisite investments needed to accelerate our returns in 2026 and to position our company for meaningfully stronger growth in 2027 and beyond. We are optimistic in our ability to execute on our 2026 plans, but there are remaining headwinds we will have to overcome. Items to keep in mind include, we're entering the final year of V28, which represents a more than $6 billion headwind to the overall enterprise. As you heard from Tim and Patrick, we've taken numerous actions around benefit design, cost control and member engagement to substantially offset this impact. Further investment in Optum Health and Optum Insight is needed and we are accelerating some of those investments as noted in our third quarter results. We are also accelerating our pace of AI applications to fundamentally advance a vast spectrum of processes and capabilities we expect will structurally improve our enterprise performance. Our effective tax rate is expected to return to a more normalized level in 2026 as compared to 2025. And finally, investment income should continue to move lower as interest rates decline. From a tailwind perspective, our repricing efforts will be a catalyst for earnings growth as we begin returning to our long-term target margins with particularly solid year-over-year results expected in our Commercial and Medicare businesses. We also expect stability and a measured return to growth in our Optum entities, with aspects of that growth being reinvested in the business, specifically Optum Health and Optum Insight. These investments may slow 2026 growth, but should accelerate growth in 2027, more in line with historical expectations. We will be paying down debt and identifying opportunities to further reduce our interest expense as a result of the declining rate environment. And finally, we're taking an aggressive step on affordability initiatives that should improve overall medical trend relative to our pricing. While we have a number of moving parts to manage for the remainder of this year, we also have concrete plans to execute on all the items we discussed this morning that will position us for the type of growth you've come to expect from UnitedHealth Group. Thanks for your time this morning. I'll now turn it back to Steve. Stephen Hemsley: Thanks, Wayne. As I hope you clearly -- you heard clearly, this team and our 400,000 colleagues are focused on delivering on all fronts for the people we're privileged to serve and for our shareholders. As I said in the outset, we're being very disciplined. This plays out day to day as this management team recognizes the need to manage our costs, both in the short term as well as structurally. And through another lens, throughout the quarter, we have continued to evaluate the company's businesses with fresh perspectives and with continued confidence in our progress and our overall direction. We expect to complete that assessment in the fourth quarter as we position for 2026 and the years ahead. A few themes emerge from these efforts. We are dedicating our energies to serving U.S. health care needs and we'll be reducing our footprint in international markets that do not support these needs. We will be finalizing our initiatives for recovery of the remaining outstanding loan balances from the care provider support programs associated with the 2024, Change Healthcare cyberattack. For Optum Health, we are consolidating locations and completing plans addressing the geographic markets in which we will serve patients all intended to operationally advance and scale the leading value-based clinical care business of Optum Health. And we are realigning Optum Financial Services within our Optum Insight Services platform. While we have not yet finalized these plans, many of these actions are underway, and we believe they will improve both our focus and long-term performance. We are in the process of quantifying the accounting, tax and cash implications of our plans. At this stage, our preliminary work would imply a non-GAAP substantially noncash low single-digit billion-dollar charge. We will provide further details on our fourth quarter call as we conclude these efforts. Simply put, we will end 2025 well positioned for a return to solid growth in 2026, acceleration in 2027 and a clear focus on our long-standing mission and strategy. An important reason for my confidence in our outlook is the way I see our people embracing a renewed focus on the mission, culture and values of our company. How we go about things in the sensitive area of health care is as essential as what we do, and we are bringing new energy to that imperative each day. Now operator, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from Josh Raskin with Nephron Research. Joshua Raskin: I appreciate all that detail this morning. I was wondering if you could just give us a more updated view or a more specific view on the sub businesses in Optum Health. I'm specifically looking to understand how much of the revenue base is coming from capitated premiums from health plans and within that, how much from your biggest customer, UHC. And then how much of the remainder is fee-for-service billings from your employed physicians and then maybe some of the moving parts, I heard a little bit of the membership details as you think about stepping into 2026, at least directionally. Stephen Hemsley: Sure. Why don't we just start with Patrick and then finish with Chris? Patrick Conway: That's great. So thanks, Josh, for the question. High level, the breakdown on revenue is as we described last quarter, 65% VBC, 15% care delivery fee-for-service and 20% are payer, employer services. Within VBC, it's about 2/3 of our book of business is serving UnitedHealthcare, the rest of diverse array of payers. Within growth potential as we close out this year, as you heard, we plan to close 2025 just under that 3% margin with VBC margins under 1%. And then we're taking the actions this year to set us up for '26, and I'll let Krista cover that portion. Krista Nelson: Yes. Thanks for the question, Josh. So I think as we are pacing into 2026, we remain anchored and committed to the long-term potential of this business, the 6% to 8% margin that we outlined in the second quarter. And within that, the 5% commitment to our value-based care agenda. We continue to work a robust set of actions and opportunities with clear line of sight and frankly, a lot of the ambition to the work ahead. And again, just remain optimistic on our positioning for the long term. Operator: And we'll take our next question from A.J. Rice with UBS. Albert Rice: Thanks, everybody. Maybe just I'll stick on the Optum theme. I appreciate the comments on Optum Insight and the comment about need for investment. Can you just sort of comment a little more deeply on your view of where Optum Insight sits competitively at this point? Where are those investments need to go and the time frame for seeing a reacceleration of growth there? Stephen Hemsley: Sure. I actually think that Optum's competitive position is actually pretty strong. We have a really nice base of business and continue to grow that. But I think the potential is much greater. So Sandeep, do you want to offer some views? Sandeep Dadlani: Sure. Thanks, A.J. Look, 4 weeks into the role, I'm super impressed with the talent, the domain knowledge, the customer franchise and the mission. I'm particularly excited by the momentum of some of our AI first new products in the portfolio. I mean just last week, you must have seen we launched Optum Real, which was inspired by innovation at UnitedHealthcare. This is the first real-time platform for claims and reimbursements anywhere in the industry. And just our early pilots are showing dramatic results in streamlining what I think is one of the most complex pain points for payers and providers. I'll give you another example. We recently launched Optum Integrity One. This is the most advanced AI auto coding tool in the market, and it's driving demand among health systems and hospitals looking to improve middle revenue cycle automation and performance. I mean just some metrics for ambulatory outpatient claims coding, this showed 73% productivity over prevailing solutions. And for hospital inpatient coding, it showed 23% increase in productivity. A third one is Crimson AI. This is an AI first clinical analytics platform that has created 6 wins in the last 90 days itself. This helps providers with their surgical costs and operating room optimization, just the average return on investment for any provider system investing in Crimson AI has been 13:1. So look, in my first few interactions with our top clients, they've expressed tremendous excitement and anticipation for our new AI-based offerings. They've also provided feedback on where we can do better. But it's clear that our traditional services in Optum Insight have to evolve to AI-first services, then to products and eventually to platforms. We are well on our way with this journey. We're beginning to build powerful AI products like the ones I mentioned. We are rationalizing and modernizing some of the existing legacy products that have great market presence. And then finally, we're investing in an AI-first workforce. Remember, I come from the tech role where we built 10,000 AI builders and we're building AI for sales teams. So we are investing, as earlier noted, in building, growing new products and offerings, and I'm incredibly excited about the possibilities. We want to simplify health care with AI and Optum Insight is the best company to do it. Thank you for the question. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: Thanks. First, let me congratulate and welcome Wayne back to the sector. Good to have you back. My question here is for Tim. Wanted to confirm, you talked about getting your commercial margins back to the 7% to 9% target range for 2027. Just wanted to make sure I heard that right. And then in terms of the current baseline for '25, I'm kind of backing into a margin in the 3% to 5% range for Commercial, Tim. Is that in the right ballpark? Timothy Noel: Yes. Thanks, Justin, for the question. So the commercial business, as we've talked about for 2026 and as a result of our pricing actions, we'll make meaningful progress as you think about the work being done across the ACA and the other commercial products to chip away at a return to that 7.9% long-term margin. We view 2026 as a year where we're probably still 150 basis points below that low end of the margin. But again, given how the pricing is being received in the marketplace, some of the opportunities that we see around controlling our costs in the future. We still feel as though that longer-term margin range of 7% to 9% is attainable. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Just wanted to ask for some additional color on the membership declines you're expecting in Medicare Advantage in 2026. Can you help us think about the breakout between individual duals and group? And then at the industry level, CMS is expecting enrollment growth to be pretty flat in 2025, I guess, first, does the company agree with that assessment? And second, how are you thinking about the type of industry growth you might see as we move into 2027 and beyond? Stephen Hemsley: I think Bobby Hunter is best for this? Robert Hunter: Yes. Great. Thanks, Stephen. So I'll hit the membership item first. Tim mentioned in the prepared remarks, approximately 1 million membership contraction for 2026 across MA. That does include both group and individual. Obviously, we've been pretty clear about the fact that we're exiting products impacting about 600,000 members. So think about that as kind of your first core element of how you build to that 1 million. And I would say the balance of the bridge to the full 1 million is pretty evenly split between the pressure inside of our group MA business as a result of taking a really disciplined approach to pricing there and some dislocation that will exist in the group customers as a result of some other more aggressive competitor actions. And then the other kind of 50% of that bridge from the 600,000 to the 1 million representing a pretty even split across our individual MA business. Obviously, really early in AEP at this point, but that's kind of the way I see it from this distance. When you think about growth overall, I would expect 2026 to be probably more in line with the general progression and growth that we're seeing in 2025. and that's largely a result of continued benefit cuts in the marketplace, continued plan closures and then some disruption in the broker community related to pretty broad commission changes. I absolutely believe in the long-term growth potential of MA, and I think we can grow above those levels as you step out further. Ultimately, right now, though, medical trend pressure is increasing the cost of health care and the funding cuts of the program are degrading choice, access and value to the consumer. And that's a real impact on the 35 million Medicare eligibles who rely on MA right now to make health care affordable. So still absolutely believe in the differentiated value proposition of MA but can I underscore the importance of stability in the program as we look to the longer-term growth rate and opportunity for MA. Thanks for the question. Operator: Next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: I was wondering if you could talk a little bit more about Optum Health. The pullback in retrenchment, I guess, and the refocus on certain types of plans, I guess, if we went back a number of years, I would have thought that value-based care could potentially serve the majority of MA lives. I mean is there a TAM that you're thinking about? Like what -- if you look at the market today and the markets you want to focus on, what percentage of MA really lends itself to a successful value-based care model? And I guess, how penetrated is that today? Stephen Hemsley: I'll have Krista respond to this, but I think we remain very positive and actually think MA should move more to value-based care and those themes just picking up exactly what Bobby said. So Krista, maybe you want to talk a little bit about the future of value-based care. Krista Nelson: Yes, absolutely. Kevin, thanks so much for the question. So as we mentioned in our opening remarks, we are deeply committed to value-based care and research continues to validate the impact that it can have. We know fee-for-service rewards volume. We know that value-based care aligns incentives. And when you look across Optum Health, we've got an incredible set of assets that really enable an integrated delivery system to create value in the market that we are focused in. And so I just think about the potential. It really is limitless. I think what you're seeing from us is a focus and operating discipline and really kind of getting back to some of our core so that we are able to expand and grow in the future. And we're really deepening our presence in the markets. We're focused on the appropriate network, on the appropriate providers, on the appropriate risk, footprint portfolio so that we are positioned for long-term success inside value-based care. Stephen Hemsley: Which implies you have to have it aligned to the right products, you have to have it aligned to the right processes and disciplines, and that alignment is literally what we're returning to. So good question. Operator: Our next question comes from George Hill with Deutsche Bank. George Hill: We saw a pretty significant step up in what I would call discretionary expenses in the quarter compared to Q2. You talked a lot about the need for investment in a lot of the business lines. I guess as you think about those numbers, can you talk about -- can you quantify the step-up in investments that were incurred in Q3? And how much of those should we think of as run rate investments versus onetime investments where we'll see leverage going forward? Stephen Hemsley: Sure. Wayne, just take it. Wayne DeVeydt: Yes. Thanks, George. I would say of the $450 million plus that we discussed, about 1/3 of that is a commitment to our foundation, which had not been funded at the levels that it should have been in the past and clearly puts us on a runway for multiple years of activities around the foundation. So view it as not necessarily run rate into next year, but nonetheless, something that we believe is part of our encore and core, and we'll continue to do it in the outer years. The delta of that then is all investments in our people. You heard Sandeep talk a bit about Optum Insight, and that cultivated with the number of resources we have there and aligning incentives around the execution that we expect. So I would view much of that as being recurring in nature, part of our core business and the investments we'll continue to make in the expansion that we see both in Optum Health and in AI specifically. Operator: Our next question comes from Lisa Gill with JPMorgan. Lisa Gill: I just had a question around utilization and how to think about it here in the back half of the year. Clearly, this quarter came in a little bit better than what we were expecting, but we're looking at what's happening with the exchanges, looking at the step-up in Part D. So can you maybe just talk about your expectation going into the fourth quarter? And specific to Part D, are you expecting a big step-up as we think about the fourth quarter? Stephen Hemsley: Tim, do you want to take this? Timothy Noel: Yes. Thanks, Lisa, for the question. So as I think about utilization, really tracking in line with the expectations that we called out in last quarter's call, really across all of the product lines, the general commercial business, including the ACA as well as Medicare and Medicaid. And also on the Part D portion of the business, also tracking in line with expectations. Clearly, there is quite a bit of seasonality that's always at play in the health insurance business. I think you can think of normal seasonality, first half to second half as 60% in the first half in terms of earnings contribution, 40% in the second half. This year, given some of the trends that we've seen, a little bit more of a bias towards earnings in the first half of the year versus the second half of the year, but really kind of trends tracking with how we expected them to track, consistent with what we guided in the second quarter and the seasonality really just kind of a byproduct of the business. And also some of the additional spend that we have on things like a seasonal ramp in AEP with respect to Medicare. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: I wanted to follow up on the Medicare Part D drug benefit for next year. It looks like the benefit for Tier 3 branded drugs changed from a co-pay to coinsurance across most of your MAPD and stand-alone Part D plans. Can you elaborate on your experience with the co-pay structure in 2025? And what drove that decision to change the benefit structure in 2026? Robert Hunter: Andrew, thanks for the question. So I would say just kind of big picture, we take a multiyear metered approach to our benefit planning that includes, as you can appreciate, managing and balancing many different variables, and that's particularly important given the dynamics around V28 and the phased approach there. The other element, perhaps, just to kind of call out as you think about how we decided the modifications to make the benefit design for Part D in particular. For 2026 with some uncertainty around the demo program and how that would continue to persist or not into 2026. So we took what we felt was an appropriately kind of cautious approach there, pulling all the levers available to us to ensure that we would be well positioned on the overall benefit design regardless of how the demo came into 2026. So as I look now kind of where we sit from a benefit design standpoint with the coinsurance we have on Tier 3, the deductibles that we have kind of broadly across MAPD and PDP. I feel pretty aligned to industry there. And I would expect us to have continued good performance as we step then into 2026. And as it relates to '25, really on the MAPD side, no concerns around selection, mix or outlook given the prevalence of deductibles that we put on our MAPD offerings. And on PDP, really kind of no material contributor or risk to rest of your outlook on that one either. So overall, feel pretty good about how we're stepping into '26 on PDP. Operator: Our next question comes from Ann Hynes with Mizuho Securities. Ann Hynes: Great. My question is focused on Medicaid. At the last call, I believe, you said margins should be in the negative 1% to negative 1.5% range. Is that still a good bogey. And just like looking with the One Big Beautiful Bill, is there anything that would prevent like a path to Medicaid margin recovery in 2007 and 2028? Stephen Hemsley: Mike, do you want to take that? Unknown Executive: Yes, Ann, thanks for the question. As Tim indicated, our view for Medicaid has not changed from last quarter. We expect breakeven in 2026 or in 2025. As we think about 2026, we expect some margin degradation due to the continued dislocation of premium funding and what we're seeing in terms of elevated medical cost trends. But we do see 2026 as the trough for that performance. Our elevated trends are driven as the industry has by specialty pharmacy, behavioral health and also as we look at home health services. We think, over time, the One Big Beautiful Bill, there will be some transformation and work as we collaborate with states. But we see over time about an 18- to 24-month period, we will be able to return to a rate of margins of around 2%. Operator: Our next question comes from Lance Wilkes with Bernstein. Lance Wilkes: Could you talk a little bit about the employer market? And specifically, what's the medical cost trends you're seeing this year and next? And given the pressures on employers, what are some of the strategies they're looking at for the '26 and looking out to '27 on the selling seasons, in particular, any interest in adoption of value-based care? Are they using more Surest, things like that? Stephen Hemsley: Dan? Dan Schumacher: Yes. Thanks, Lance, for the question. Trends for 2025 and our outlook for 2026 remain in line with what we shared in the guidance last quarter. Trends are approximately 11%, and that is how we have priced into 2026, and I'll just share that with 50% of our January insured business resolved at this point, encouraged by both the yield on persistency and rate to deliver the margin expansion that Tim spoke about in light of that trend of approximately 11%. You're right, health care affordability is top of mind for all employers and we hear that this selling and renewal season, as we always do, but even a little bit louder given the trends and the pricing associated with it. Employers are evaluating a host of considerations, you referenced, Surest and Surest continues to be a leading product for us, continuing to capture share. And that has continued to grow and has a robust pipeline already as we look toward the jumbo selling season of 2027. I might highlight some additional things that employers are looking at as well. Integrated advanced advocacy solutions that we sell in our product portfolio continue to capture employer attention as they help us bring together more synergistic approaches to care. That includes value-based care, as you referenced, tighter coordination between medical benefits and Rx benefits which employers are continuing to do on an increasing basis as we see more and more employers moving to combining medical and Rx benefits and satisfied very much so with how we're advancing in that way with Optum Rx. So those are a couple of highlights that I would offer that are on top of mind for employers certainly for 2026 and already as we look forward into 2027. Thanks for the question, Lance. Operator: Next question comes from Scott Fidel with Goldman Sachs. Scott Fidel: I appreciate the update on the capital deployment timing returning to the normal plan. Can you also just update us on sort of the dividend and what your view is on the dividend and that looking forward. And then curious just around -- I know that there's going to need to be possibly some portfolio rationalizations occurring in Optum Health and other businesses as you pursue the new approach. Is there a way that you can sort of frame that for us in terms of, I don't know, whether it's sort of revenue or just more philosophically, how you're thinking about the asset base in OH and maybe more broadly around where -- and around potential rationalizations that could occur? Stephen Hemsley: Sure. The dividend, we'll start with Wayne and then I'll start with the Optum and give it to Krista and to Patrick. So Wayne? Wayne DeVeydt: Thanks, Steve. Scott, there are no changes in our historical dividend practices nor do we expect those to change going forward. We will maintain the dividend as we've done. The next prioritization as we're paying down debt will then revert back to the buyback program and then our strategic acquisition. So view it as no changes and then hopefully back into our normal capital deployment activities back half of next year. Stephen Hemsley: And then just broadly, related to Optum Health, helping people understand, we are very much committed to this. We are just reshaping it back to the way we had originally conceived it and believe that it has the most impact on value and we're really just taking the right steps to bring that back into form so that we can really move and grow and advance it in the construct of that disciplined model we had going forward. So Krista, do you want to talk a little bit about that? Krista Nelson: Yes, I can just add to that. Thanks for the question. So yes. So Scott, as Steve mentioned, we are really kind of taking a look at the whole like integrated delivery system. We have a combination of value-based care assets, some assets that are focused more on fee-for-service, but truly enable that value-based care agenda. And it's really important to ensure that kind of integrated model can deliver the best outcomes. And so as we're thinking about the portfolio rationalization, we taking into account a combination of things like where we have the right clinical quality, where we have the best operating cost performance, where we have the right engagement and where that model can really be brought to life for both value-based and those kind of fee-for-service service lines as well. And so I think those are the ways in which we're kind of looking at the model. So it's a market focus. We are looking at rooftops. We are again looking at the populations, the risk, the products, and I think through all of that, there will be an output of some actions that we'll take in the near term to position us for long-term success of that integrated model. Stephen Hemsley: Likely withdraw from a few geographic markets, likely reshape the practices within certain markets where we remain, likely shape the, let's say, the primary delivery system along line with the complementary services, things along those -- that nature, all very logical, all actually more constructive, but to be constructive, sometimes you have to take some things away, right? Patrick Conway: In the -- to add one point across Optum and connect a couple of questions. In the face of escalating cost trends, what we hear from our payer partners, from employers and from patients and providers as they want a value-based care system that delivers better quality, better experience and lower cost of care. And that's what Optum is delivering to our various customers. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: So I have a follow-up on that front. Is there anything you can quantify or break down for us in terms of those steps to turn around Optum Health? Like how much is just walking away from risk? How much is fixing the fee-for-service business? And presumably, that could be addressed a little bit quicker, right? And how much is just integrating into a consolidated operating model? And then what sort of incremental investments that you can quantify at this point that needs to go into that business as well? Presumably, does this all get you to 6% to 8% margin in 2028 and that's just back end weighted. Is that the right way to think about it? Stephen Hemsley: I think directionally, I don't think we can achieve the level of precision you might be looking for something like that just because this does blend together. But Krista, do you want to respond? Krista Nelson: Yes. Yes, thanks for the question, Erin. So let me just kind of start where you ended, which is likely more back half weighted, but you should expect progress throughout here. And while we might see faster progress in some fee-for-service improvement, Patrick highlighted whether that's kind of productivity or scheduling or improving access or collection rate, you will also start to see some progress on our value-based portfolio as well. So think of things like medical management, the work we're doing with our payers, the work we're doing to curate our network, also the work we're doing to manage operating cost discipline. So these things really all come together in this integrated model, but maybe some faster progress in certain areas while you'll still continue to see kind of progress against the holistic model. Stephen Hemsley: But for example, you kind of -- a little bit of further ahead in the Eastern region on this and seeing some impact on that, and that's a good example of how this will progress, right? So a pickup in terms of volume there, greater capture, greater reach. Operator: Our next question comes from Dave Windley with Jefferies. David Windley: My question is related somewhat. But I think earlier in the call, you quantified that half of your headwind, I think the V28 headwind for 2026, you plan to mitigate through recontracting. And I wanted to make sure I understood, is that across the portfolio of payers? Are you mostly harvesting that from the UHC portion, the non-UHC portion? And then is the -- did I hear correctly that VBC lives you expect to decline by 10%. Is that interwoven in that at all? Stephen Hemsley: So Krista, do you want to respond? Krista Nelson: Yes, absolutely. So yes, so -- like Patrick mentioned, so we sought to overcome half of the V28 headwind through our payer contracting efforts, which would include all payers. And we have completed that, and we're about 90% complete with our contracting with line of sight to the rest by the end of the year. So I feel good about that. That encompasses rates as well as product and benefits. And we've talked a little bit about some market exits inside of that. So exiting more than 40% of our PPO footprint was also kind of part of that exercise, but again, across all of our payers. And then you asked about membership as well with the approximately 10% reduction as we pace into next year. Again, we probably will see even some additional PPO exit as part of the work we continue to do with all of our payers and the work that we're going to do to finish that work. But then that would be just really a direct result of actions we're taking to optimize our portfolio. So again, products, market, footprint and the risk that is appropriate for this model. Stephen Hemsley: Leaning to products that lend themselves to management. Krista Nelson: Exactly. Operator: Our next question comes from Jessica Tassan with Piper Sandler. Jessica Tassan: Can you describe just the tone of any recent conversations you may have had with CMS, their receptivity and posture towards MA. What do you think CMS is focused on from a STARS risk adjustment and MA rate perspective? And what is UHC lobbying for? Stephen Hemsley: You guys can decide which -- want to respond to that. We're not lobbying for anything in particular. So, please? Timothy Noel: Yes. Thanks, Jess, for the question. As I think about CMS receptivity, we've been encouraged and continue to be very encouraged of the receptivity of this administration to have conversations with industry about ways to modernize and ways to improve this already very popular program. This is in direct contrast to what we experienced over the previous administration. And we've always enjoy and appreciate the efforts to be able to have these fact-based conversations around how to modernize the program and feel like that's the best way to get to constructive answer and a constructive way to move forward. So encouraged again on just the level of activity and the level of conversation that we have with the administration, and we'll continue to do that and continue to bring to them ideas that we think are ideas that are the best path forward that provides some level of stability for beneficiaries and also modernize the program in the process. Stephen Hemsley: Yes, absolutely. So we have time for one question remaining. Operator: Our last question comes from Whit Mayo with Leerink Partners. Benjamin Mayo: All right. Tim, I was just hoping that you could comment more on the provider coding stuff that you were talking about. We hear pushback on that for many health systems. And then maybe any observations that you could share on the independent dispute resolution process and actions you're taking there or the impact on trend. Timothy Noel: Yes. Thanks for the question, Whit. So when I think about some of what we're seeing in trend, there certainly is a meaningful portion of it that is related to more service intensity per encounter being built by health systems and by providers. Some of the ways that's coming through are higher-cost sites of service where lower costs are available, think lab, think ER and surgery. I'm also seeing more services being attached to ER visits and hospital visits, an increase in the number of specialists that are rounding per inpatient stays and then a bias towards some higher DRG weighting than we've seen in the past. And it is happening fairly consistently across the country, but then also have some fairly, very significant outliers. And one part of what we're doing is we are addressing these outliers. We have to. We have to keep medical costs and health care affordable for consumers, affordable for states, the federal government. So we will be taking some network actions where we need you to keep health care affordable. We're also using -- making more use of AI in our payment integrity programs, increasing some of our payment policy efforts as well as our clinical affordability programs to address some of what we're seeing. As I think about the IDR process, it's not something that would spike out in terms of a material trend driver from this distance, but certainly something that we're keeping an eye on pretty carefully. Stephen Hemsley: Great. So thanks, great conversation today. That's all we really have time for. I want to thank you all for joining us, and we look forward to talking with you again and engaging with you before we get to January. And in January, we will provide both our year-end results as well as guidance for 2026. So thank you all for joining us this morning.
Operator: Hello, everyone, and welcome to today's presentation with Nolato. With us presenting today, we have the CEO, Christer Wahlquist; and CFO, Per-Ola Holmstrom. [Operator Instructions] And with that said, please go ahead with your presentation. Christer Wahlquist: Good afternoon, and welcome to the presentation of Nolato's Third Quarter 2025. This is Christer Wahlquist speaking. During the quarter, we saw organic growth in both our two business areas, approximately 2% if we adjust for currency. And that, in combination with the strong increase of our margins created a strong increase of our EBITDA. So the sales ended up at SEK 2.3 billion on some and the operating profit rose 20% to SEK 281 million, that includes a nonrecurring item of SEK 7 million corresponding to an insurance claim. But as I mentioned, we saw strong improvement of margins in both business areas. We have maintained a very strong financial position with a debt ratio 0.6x EBITDA, giving us opportunity and possibility to expand together with the right business cases from existing and new customers as well as executing on our acquisition strategy. The Nolato Group consists of two business areas, the Medical Solution, being the largest part at approximately 56% of group sales and Engineered a little bit less than 50% and the rest of the business. Starting out with Medical Solutions. Here, we see sustainable growth in global expansions. And on this graph, you will see a 20-year show of our sales over the last 20 years. So we've seen good growth over the years. We have a very spread business with six focused product areas, and there are also well spread sales across global leading customers, creating a strong foundation for continuous growth and focus on these six product areas. If we look into the third quarter for Medical Solutions, we saw a sharp margin improvement, a full 1.4 percentage points, ending up at 12.1% in the quarter. That, in combination with the increase of sales, 2% created, of course, an improved operating profit ending up at SEK 159 million. We are expanding our business, so we have expansions ongoing in Hungary, Poland and in Malaysia. And all of these are according to plan. And in our Hungarian facilities, we have, during the quarter, started validation deliveries during the third quarter. And we expect that these validation deliveries to continue on approximately the same level for the coming quarters. And then subsequently expected to increase somewhere in the late second quarter. Jumping into Engineered Solutions. Here, you also see a graph of the last 20 years, and we are now in a position where we have downsized our VHP business and our building a strong foundation in the focused product areas shown on this page. Here, we have a well spread business, different product areas with a little bit different if we specifically look into the materials, which is then, of course, based on our own recipes of raw materials. If we look into the third quarter for Engineered Solutions, we saw a very sharp margin improvement, a full 1.8 percentage points during this quarter and it's coming from implemented cost savings and increased capacity utilization and of course, some price adjustments. The business sales totaled SEK 1.035 million during the quarter, which was a 2% currency adjusted organic growth. We saw sales to the automotive industry increased through higher product invoicing and more normal vacation shutdowns amongst our customers. We saw a continuous growth in our hygienic area, thanks to investments in Mexico and also a positive performance for our consumer electronics particularly in Asia. Per-Ola Holmström: Good afternoon. Per-Ola Holmstrom commenting on group financial highlights. Net sales amounted to SEK 2.342 billion in the quarter, representing a 2% growth adjusted for currency. Operating profit EBITA increased by 20% to SEK 281 million. And the EBITDA margin for the group improved by 2.2 percentage points to 12.0%, including a nonrecurring positive item of SEK 7 million. The effective tax rate was 19%, which we expected to be for the full year as well. Net investments were SEK 183 million in the quarter, a higher level of CapEx than last year as planned, mainly for the expansion in Hungary. We foresee around SEK 850 million in CapEx for the full year 2025. And by then, we expect to have paid almost SEK 500 million of the total expansion of SEK 600 million in Hungary. Enhanced cash flow after investments was lower than last year, SEK 180 million compared to SEK 191 million. Earnings per share increased to SEK 0.8 million. Return on capital employed improved again to 14.1%, mainly driven by the margin improvement. Christer Wahlquist: Okay. Focusing on the current situation per business area, starting with Medical Solutions. Here, we have our maintained growth strategy, and we see high market activity. We have been focusing on margin, implemented cost adjustment and increased efficiency. Of course, innovation and sustainability based on a broad customer with long-standing close customer relationship. We also are now expanding in Asia, in Poland and also in Hungary. On the Engineered Solutions side, we have advanced our market position. We have a lot of focus on innovative and sustainable solutions. We see success in new market, which is positive for materials and of course, expansion of our operations in Malaysia. We will now open up for questions. Operator: [Operator Instructions] First, we have Adrian from ABG. Adrian Gilani Göransson: Yes, I'd like to start off with a question on the expansion in Hungary and the outlook you gave on deliveries related to that. Are you able to say anything more specific on when you will go from these sort of validation delivery phase that you're in to a more -- to commercial scale deliveries? Christer Wahlquist: Yes. These type of large programs always have a lot of validation and it's different steps of validation. So we foresee that we will have a validation deliveries during this quarter, next quarter and the first quarter in 2026. And then somewhere in the second quarter, we will start deliveries to the outside market to the patients. Adrian Gilani Göransson: Okay. That's very helpful. And a follow-up on that. Do you see any risk related to this contract, given that the customer in question has had a bit weaker development than recently than I think most people had expected. I mean, could this have an impact on the full run rate volumes for your contract? Christer Wahlquist: We are happy with our discussions with our customers that we have not mentioned who it is. But we have good discussions, and we anticipate this program to start serial deliveries in, as I mentioned, then somewhere in the second quarter of next year and then gradually grow from there according to plan. Adrian Gilani Göransson: Okay. Understood. Then on engineered, specifically on the materials business that declined slightly year-on-year. How much should we read into that? Is that just a normal quarterly volatility? Or are you a bit more cautious on the outlook now compared to sort of last quarter, I guess? Per-Ola Holmström: Yes. As we did mention, most of that is coming from the automotive side, which is a bit pressed right now as many areas within automotive, and we foresee that going forward the next quarter as well to be in a similar development. Adrian Gilani Göransson: Okay. Understood. And then when you mentioned the efforts on consumer electronics that are actually yielding results in Asia specifically, does that mean that this Chinese facility that has been on low utilization is back at satisfactory levels now? Or are there more improvements here to make? Christer Wahlquist: We have more capacity, and our ambition is, of course, to gradually fill that with serial deliveries, but it's been improving, and we are gaining new projects and building up. But it's not fully utilized yet. Adrian Gilani Göransson: Okay. Understood. And just a final one from my end, a detail-oriented question regarding this insurance claim of SEK 7 million. Maybe I should know this, but what is that related to? And are there any outstanding claims left that could be booked as income going forward? Per-Ola Holmström: We had a flooding situation in one of the factories we have in the U.S. And this is the financial outcome so far, and it could be that we have some additional money coming from that during the end of this year or the beginning of next year. But it's no major money coming from that left. Operator: Let's move on to Mikael Laséen from DNB Carnegie. Mikael Laséen: Yes. I have a question about the project in Hungary, the validation delivery, first of all, can clarify what you mean with validation deliveries? What this means in practical terms? Yes, that's the first one. Christer Wahlquist: Okay. As I mentioned, during ramp-up of these type of very large and complex programs, you have validation of different steps, so you validate individual component manufacturing, some assemblies and then it has to be validated in the filling side of the customer and so on. So there are a lot of products that need to be tested for different variations of tolerances and so on. And this is what we are running right now. And we sell those products and are getting paid for them. So that's a normal behavior in this type of programs. Mikael Laséen: Okay. So is this meaningful in any way or very small revenue that you get right now to understand what will happen in Q4 and Q1 next year? Christer Wahlquist: Yes. The sales from these validations is approximately 1% of business area sales during this quarter. Mikael Laséen: Okay. Got it. And then moving on here, could you also talk to us about the EBITDA margin development for the Medical Solutions segment? It has been relatively stable at around 12% plus two, three quarters now. So what will drive the margins higher than above 12% or well above 12%, which I guess you're targeting? Per-Ola Holmström: Yes. If we look forward, we do see possibilities in increasing the margin towards the 13%. We did have some years back. And One thing that should support that is, of course, the new program ramping up in Hungary. We have commented on that before. And of course, also moving into higher volumes for some of the expansions we're in right now, adding up capacity utilization. Mikael Laséen: Okay. And how is the U.S. side progressing for the medical side? Per-Ola Holmström: Sorry, the new? Mikael Laséen: The Medical segment, how are they doing in the U.S? Per-Ola Holmström: They are part of the long-term improvement we have made when it comes to margins but we would still see the U.S. operations as a possibility to move to improve margins compared to the rest of the business area. Operator: And now we'll give the word to Carl Ragnerstam from Nordea. Carl Ragnerstam: It's Carl from Nordea. A question from my side as well here. On the new contract, I mean, that you're ramping up in Hungary, could you give any flavor on the production efficiency you're seeing right now, potentially bottom mix versus your expectations? And so far, I mean, it's obviously, I mean, validation volumes, but profitability projection so far if it meets your previous expectations? Christer Wahlquist: Since it's validation, there is no sort of feedback on yield and those kind of things. Of course, you can look on the individual cycle times, and they are according to our expectations, but the full yield, it's too early to give any comments on that. Carl Ragnerstam: And the production you're ramping up now, is it covering the cost so far? Is it the burden? I guess it's a burden of margins at such early stage, right? Or -- because its contributed 1% to organic growth in medical. What is the EBIT impact or if any? Per-Ola Holmström: It's, of course, a small EBIT effect, but it is covering its cost right now. Carl Ragnerstam: Okay. That's very clear. And on IVD. I'm a bit curious to hear more about what you're seeing there. Because we've seen -- I mean, as you wrote a weak start to the year, we saw before that early indications of a recovery followed by declines. So it's been a bit back and forth, at least it is that -- how I look at it. So how do you view the current recovery in that segment? Christer Wahlquist: Yes. There is a lot of dynamics behind the IVD as we've been talking about of course, the volatility and the supply chain discussions after COVID, but also the change of one customer changing to our deliveries to an end customer is that. So there is a lot of changes. But we look positive on this market segment. We see possibilities, definitely. We see a growth opportunity going so we are very positive, but we have seen, as you mentioned, some back and forth in the delivered volumes. Carl Ragnerstam: So you see the growth in IVD to be here to say for now, at least what you see? And do you see an acceleration from here? Or what is your feedback from customers? Because they used to be quite a good earnings driver. Christer Wahlquist: Yes. I think the feedback we get from customers is that it's a long-term growth area. They see that and they are adding new test into this type of product. So definitely a long-term growth opportunity. But with some volatility still going on in the single deliveries over quarter-for-quarter. Carl Ragnerstam: Okay. That is very clear. And also, maybe you mentioned it, I didn't hear the full call. But in the materials, you've seen the sort of weakness in automotive. On the other hand, where you've seen telecom, I mean, offsetting it. How do you view the short midterm development here? Because we've seen the deceleration in telecom, if I remember correctly, right, from very favorable comparisons. So do you see it at low single-digit negatives ahead as well short, midterm before automotive picks up pace or how do you view the trajectory from here? Per-Ola Holmström: I think we should see a sequential development for materials, which is very similar as this quarter in the next quarter. That is the best view we can give. Long term, it is a good growth opportunity for us. But this quarter and also in the next quarter, we foresee a bit slower operations in that area. Carl Ragnerstam: And when you see sales sequentially, is it a minus 1? Or is it in absolute numbers or perhaps both? I don't have the comps on top of my head. Per-Ola Holmström: I would say, in absolute numbers similar to Q3. Operator: That concludes the Q&A session here. Thank you very much, Christer and Per-Ola for presenting here today. Thank you, everyone, for tuning into this webcast with Nolato and I wish you all a great rest of the day. Thank you very much. Christer Wahlquist: Thank you. Bye-bye.
Christopher Eger: Good morning, and welcome to Resolute Mining Q3 Quarterly Highlights. My name is Chris Eger. I am the CEO of Resolute Mining, and I'm joined today by Dave Jackson, our CFO; and Gavin Harris, our Chief Operating Officer. Moving to Page 3. Let's start with some of the key highlights of the quarter. So as you see on the page, we had gold poured of 59,807 ounces, just shy of 60,000. And for the year, that brings us to 211,000 ounces of gold poured. With regards to our group AISC, in Q3, we achieved a $2,205 per ounce cost. It's worth noting though that in Q3, we are paying a much higher royalty expense across the business because of the higher gold price environment. So we estimated that the AISC increased by about $125 in Q3 relative to previous quarters as a result of the higher gold price environment. The business generated a healthy amount of cash in Q3 of around $26 million. Therefore, we ended the quarter with a net cash position of $136 million. Overall, the gold price that we achieved in Q3 was $3,400, which also was an increase over Q2 as the Q2 gold price average was $3,261. Very pleased to say that our TRIFR reduced from the previous quarters, and we're now sitting at 1.95 for Q3. And one of the key developments that we had in the quarter was to increase our resource at the Doropo project in Côte d'Ivoire, and now we're sitting at 4.4 million ounces. As you also see on the bottom right side of the page, we have now narrowed our guidance as we're approaching the end of the year and have much better visibility of our activities in both our operating sites. Our original production guidance of 275,000 ounces to 300,000 ounces has now been narrowed at the bottom end of the range to 275,000 ounces to 285,000 ounces, predominantly from a decrease at Syama, which again, I'll explain in the upcoming slides. Also on the all-in sustaining cost, which was originally guided at $1,650 per ounce to $1,750 per ounce, we have now increased the AISC by $100, really to reflect the higher gold price environment, which is increasing royalty rates, royalty costs, as we say, across the business. But again, this will become clearer as we talk about both Syama and the Mako operations. Moving to Slide 4. I wanted to recap what we believe is a very exciting and attractive organic profile that we put in place at Resolute Mining. As you can see, in 2025, our updated guidance provides a production profile of 275,000 to 285,000 ounces. In the next 2 years, we expect similar type production levels as we will be continuing to process stockpiles at Mako. But with the ramp-up in Syama as a result of the SSCP, we expect to start hitting numbers closer to 300,000 ounces, probably more in 2027 than 2026. But very excitingly, from 2028 and onwards, once we bring Doropo into production, we feel very confidently that the business will start to achieve production levels above 500,000 ounces. But moving beyond 2029, I'm very pleased with the amount of work that we're doing in exploration that the business has real potential to dramatically increase its production profile beyond 500,000 ounces. So in summary, the business is very much on track for this growth profile, and I'm very pleased with the progress that we've made year-to-date with the substantial transformations that have happened in the business throughout 2025. Now let's move into each of our country activities to give a quarterly update on the key progress that's been made across the group. So starting with Mali, let's turn to Page 6. As previously highlighted, Syama unfortunately continued to have operational challenges in Q3, mainly due to supply chain disruptions from explosives. So gold poured was just shy of 40,000 at 39,918 ounces, slightly down from Q2, which was around 41,000 ounces. We saw all-in sustaining costs increasing quite a bit to $2,358, but one of the key contributing factors to increasing AISC was that for the quarter, we saw an increase in royalty rates as a result of the high gold price, and that impact of higher royalty rates resulted in a higher AISC of about $160 relative to our original guidance at the beginning of the year. CapEx was as expected for $26 million for the quarter. And so look, talking about the site, we made some good progress on supply chain disruptions, whereby we have now increased suppliers with regards to explosives, but explosives continues to be the Achilles heel of the operation. Today, we're sitting around 100 tonnes of explosives, which is only about 1 month's worth of stock, not even, to be honest. We have activities in place today to try and get an additional 400 tonnes, which will take us to the end of the year. But unfortunately, the explosives and supply chain situation continues to be very delicate, and we're managing the best possible by trying to bring in as many new suppliers as possible as well as to work with the government in the logistics of those explosives. We're making good progress on the underground even with the explosives that we have. Today, we're starting to mine continuously 8,000 tonnes per day relative to what was half of that at the beginning of the year. So look, the activities on site are going well. We're making some good inroads in reducing costs. We're right now also in the budget season for 2026. And so I'm pleased with how the team is coming together. But unfortunately, like I said before, the explosive situation is really a key contributing factor to the reduced production levels. In Q3, we also made quite a few management changes on site. And today, Gavin, who's here with me, is effectively acting as a General Manager as we are completely restructuring the management team at Syama in order to prepare for a much more profitable 2026 and beyond. The oxide production is also reduced in Q3 because we're very much at the end of the life of the oxide production. And so we experienced expected lower grades as a result of diminishing oxides. So unfortunately, as a result of the challenging year that we've had at Syama, we have decided to reduce the full year production guidance to 177,000 ounces to 183,000 ounces. And I could say probably the vast majority of the reduction in ounces as a result of the lack of explosives, which, as I said before, has been a real frustration for us. Therefore, with the lower production and the higher gold price, we've needed to increase the all-in sustaining costs by roughly $200 to reflect the changes in the business environment. But what I want to highlight is of that $200 increase, probably 2/3 of it relates to the higher gold price environment that we sit in today relative to the beginning of the year. All in all, at Syama, it's been a very challenging year, but I am quite confident that as we look to 2026 and beyond, we are putting in the right people and the right infrastructure in place to start to achieve our historical targets. On to Page 7. One of the key projects that I believe may have gotten lost in the investment thesis of Resolute Mining has been the Syama Sulphide Conversion Project or as we call it, the SSCP. To recap, this is a very exciting project that was commenced back in 2023. And what we're doing here is converting our oxide line to process sulfides. It's roughly $100 million project that is now in the final stretches of completion. This project has run extremely smoothly. It's been on budget, on track. And I'm very pleased to say that after close to 1 million man hours spent, we've had no LTIs. As explained, the project is well on track. This year, we've spent just over $20 million of the planned guidance of $30 million. In Q3, we added 2 additional CCIL tanks that you can see in the top left part of the picture as well as commissioned the pebble crusher. Both of those achievements will add a bit more flexibility to the business with increasing a bit more recovery as we are starting to have increased residence times in the CCIL tanks. However, the main benefit will come next year once the secondary crusher and the ball mills are commissioned as well as the roaster upgrades. So moving into 2026, the site will be fully operational to process 100% sulfide ore, which will dramatically increase the flexibility of the operations and expect to increase the production back over 210,000 ounces for this foreseeable future. So this has been a great project that we've completed or near completion, and it shows the capabilities of our business in building projects on time and on budget, which I think speaks to the team as we're starting to enter operations and constructions at Doropo next year. On to the next slide, Slide 8. I wanted to highlight a few other activities that have been important in Mali. As some of you may know, back in October, early October, I visited Mali and had a chance to meet with senior government officials. Most namely on October 10, I was able to meet with both the Prime Minister and the Minister of Mines in Bamako. This was my first trip to Mali as CEO of Resolute Mining, and I have to say it was a very productive trip. The discussions with both the Prime Minister and the Minister of Mines focused on historical challenges of the business, activities that we're facing today, but most importantly, trying to create a platform for constructive growth. So we had a very open discussion around what's happened in the past, what are the challenges that face the industry today and how to try and work together for the future. It was an initial conversation that will lead to many more discussions, but I have to say, pleasingly, it was a step in the right direction. Other activities at Syama have been focused on exploration, although in 2025, exploration has been less of a priority at Syama relative to other areas in the business. We have targeted a few potential oxide ore bodies, but I have to say they have not come back with meaningful results. Moving into 2026, though, we will look to increase our exploration activities at Syama, but most likely with a focus of really developing additional sulfide ore in order to fill the plant considering the flexibility that's been implemented in 2025. So in summary, before I move to talk about our operations and activities in Senegal, in summary, activities in Mali this year have been very complicated. We've had a lot of changes. We've made a lot of significant management changes, but I'm confident that now we are putting in the right pieces, the right people, the right infrastructure in order to have a much more successful year in Mali in 2026 and beyond. What will be key to the success of Syama will not only be our people and our operations delivering their targets, but maintaining a constructive and productive dialogue with the government, which I'm confident will result in a win-win solution for Resolute Mining, our employees, the community as well as our stakeholders. Now let's move to our activities in Senegal, starting first with our Mako operations on Slide 10. I'm very pleased to say that in Q3, the site produced just shy of 20,000 ounces at 19,939 ounces. And year-to-date, we've achieved 82,000 ounces of gold poured. So as a result of the very strong first 3 quarters of the business and what we expect for the remaining quarter for 2025, we believe that full year production will fall somewhere between 98,000 to 102,000 ounces at this stage. Therefore, we've increased guidance to these levels. As we look at AISC, with the higher production from the site, but a slightly higher AISC as regards to the higher royalty, we believe that AISC will remain unchanged from a guidance perspective between $1,300 and $1,400 per ounce, although I will probably say that we'll end up being at the lower end of that guidance. So all in all, the activities at Mako have had a very robust year. The site has been performing extremely well, and I'm very pleased with the activities at Mako. However, there's a lot of other activities in Senegal that are worth noting, specifically as it relates to our mine life extension projects. Looking on Page 11, as you can see, we have 2 key projects that we are in the process of developing in order to add additional ore and mine life to the Mako operations. As discussed in the past, the 2 projects are Tomboronkoto and Bantaco. Today, both deposits have over 600,000 ounces of known gold that we believe will add at least 5 to 10 years of additional mine life to the Mako operation. But there's a lot of work that needs to happen in order to develop these 2 satellite deposits, which I'll go through in detail in the next couple of slides. Starting with Tombo, on Page 12. In Q3, we had a very key milestone with regards to the fact that the ESIA for the Tombo development was lodged with the government, and we're in active dialogue in discussing that ESIA with the government to get hopefully their approval by the end of this year or in Q1. Having the approval of the ESIA is a key milestone in order for Resolute to file for its mining exploitation permit planned for some time early next year. The other key activities at Tombo was ongoing community engagement to educate the folks that are involved around the benefits of developing Tombo as people remember, we have to move a village. And finally, the other key activities at Tombo was regards to completing the technical reports, namely the DFS required in order to file for that mining application in the beginning of next year. So in summary, I'm very pleased with the activities at Tombo in Q3. Again, I congratulate the team and the filing of the ESIA and looking forward to getting the government's comments so that we can maintain our time line, which you can see in the bottom left of the page. So there's still quite a lot of work that needs to be done. The permitting and licensing will probably be the biggest risk to the overall time line. Once we have the exploitation permits in hand, we can start to really develop the project by moving the village in order to get into mining the ore body in sometime in 2028. Moving to Slide 13. The other key activity in Senegal has been our progress at Bantaco. If you remember back in July during my Q2 announcement, we provided initial MRE at Bantaco, and in Q3 of this year, the key focus for us has been to continue to drill at Bantaco with regards to doing infill drilling at Bantaco South, also at Bantaco West as well as some additional drilling to expand the resource. But really, the focus has been infill drilling. And as we look into Q4 and early next year, we'll be looking to expand the Bantaco resource. That infill drilling was needed so that we can complete the technical studies required as well as the ESIA for Bantaco and get that lodged with the government so that we can be in a position to file for an exploitation permit in Q2 of 2026. There's 2 pictures on this slide on the far right. The picture on the top is Bantaco South, and you can see some of the promising drill results that we've had in Q3 as regards to infill. We believe the deposit continues to extend at strike and also down dips, and we will continue to explore across this area, like I said, in the latter part of this year and into next year in order to make the deposit at Bantaco South bigger. The other picture that you see on the bottom right of the page shows Bantaco West. This is an interesting picture because you can see the Bantaco West potential ore bodies, and you can also see the Tombo ore body in yellow. The magenta line to the left of the Bantaco West ore bodies represents the planned road diversion that we'll have to undertake in order to develop the satellite deposits. So again, congratulate to the team for the significant amount of work that they've done in Q3 in order to progress both Bantaco and Tombo as these are key projects with regards to the extension of the mining activities at Mako. But again, I'm very pleased to say that all the activities are on track, on budget, and the team is doing a fantastic job. Now moving to Côte d'Ivoire. I'm very pleased to say that the Doropo project remains very much on track and on budget at this stage. A key development in Q3 was the fact that we updated the MRE to 4.4 million ounces based off of a more realistic gold price, and this was published in September. The increase in gold price has created a lot more optionality and flexibility for the development of Doropo, and we're in the process today of very much updating the DFS with regards to creating this additional optionality and flexibility. So key activities in Q3 across Doropo was the increase in the MRE, continued work on the updated DFS, community activities as well as permitting, specifically as regards to key activities in updating DFS. The main focus has been to think about increasing the capacity as regards to the fact that we know there's going to be a lot more gold than that was originally anticipated. We're also evaluating different power options. And most importantly, we're updating all the cost figures for more realistic assumptions based off today's environment. So today, we very much see that we are on track to provide an updated DFS at the end of November, early December, which will crystallize the value of the Doropo project. The other key activity in 2025 is around permitting. As flagged in the past, we are in the final stages of getting our exploitation permit granted. But what we knew would be a bit of a complication around the permitting process was the fact that there were elections in Côte d'Ivoire on Saturday, which thankfully, what we hear have gone very peacefully. But unfortunately, because of the elections and the politicking that occurred before the elections, the Minister of Mines office has been preoccupied with the elections at this stage. However, we believe that discussions will resume, and we should be able to get our permits granted by the end of this year, worst case, very beginning of next year. However, none of that changes the overall time line because we still envision that we will proceed with final investment decision post updated DFS and permits, either at the end of this year or early next year and then start early works, complete financing, all with an anticipation of being in production in 2028. So overall, very pleased with how the project is developing. There's been an awful lot of work. There continues to be an awful lot of work in getting all the steps completed. But at this stage, we're very much on track. Moving to Page 16. I wanted to talk to you about some of the other key exciting activities in Côte d'Ivoire, namely on exploration. So first, let's start with the ABC development project. ABC today has over 2.2 million ounces at 0.9 grams per tonne. But as you can see in the picture on the right, those ounces are dedicated to the Kona permit, which is in the middle of the 3 red boxes. In Q3, we did quite a bit of additional work on all the different permits in order to identify where we would like to drill next. And very pleasingly, we are going to start drilling in the permits in the north, the Faraco and Nafana permits with a planned 10,000 meters of RC drilling to commence in November, and that will continue into early next year. We're very excited about that area because, as you can see, it's just southeast of the Awale-Newmont joint venture license, which have had some very high-grade intercepts in the past quarters. However, we're not going to stop doing work at the Kona and Windou permits. We've done quite a bit of surface geochemistry and mapping. And as we've seen, we believe there's additional resources in order to expand and grow that deposit. And so we are targeting at least 15,000 meters of RC drilling in order to develop that deposit. So in combination between the 3 areas, we're very excited about what we see at ABC and has the potential to become a fourth mine for Resolute at some point in the future. And finally, before I turn the page, it's worth noting that we're still active in looking for new permits in Côte d'Ivoire as we find it to be a very interesting area for development. And as you can see on the bottom right side of the page, we were granted a permit called [ Gbemanzo ] which was actually granted in June of this year, and we still have permit applications for 2 others that we expect to receive in 2026. And moving to our final exploration projects in Côte d'Ivoire. On Page 17, I want to give you an update of the La Debo project. So to date, La Debo has over 400,000 ounces at 1.3 grams per tonne, but that resource is dedicated to the northeast of the deposit, which you can see in the bottom left picture between the G3N and G3S areas. In Q3, we finished our exploration activities at La Debo. And today, we're in the process of updating our MRE, which we believe will be a substantial increase in what was previously published, and we're on track to update that MRE by the end of this year. Moving forward, we will look to expand our drilling activities focusing on the middle to southwest parts of the deposit. So again, very pleased with the progress at La Debo. We believe that this project also has very exciting potential. But at this stage, it's a bit too small for us to say it will become a mine, but it has the potential to do so. So with that, let me turn it over to Dave Jackson to discuss the financials of our Q3 results. Dave Jackson: Thanks, Chris. Today, I'll walk you through this quarter's headline financial results, highlighting the key performance metrics. Overall, our Q3 metrics were in line with our expectations as we continue to strengthen our balance sheet and build cash in the business. Looking at the financial highlights, our year-to-date EBITDA was an impressive $293 million versus $225 million in the same period last year. This performance was underpinned by revenue of $664 million. This was generated from the sale of 209,000 ounces of gold at an average realized price of $3,175 per ounce. As previously noted, Resolute remains fully unhedged and continues to sell all of its gold at spot prices. At quarter end, net cash stood at $137 million, marking more than a $20 million increase from Q2. Included in the net cash figure is $58 million of bullion, representing nearly 15,000 ounces of gold that we have sold after the quarter closed. We had $32 million drawn on overdraft facilities at quarter end. These continue to be used locally to optimize working capital. The group has in-country overdraft facilities of approximately $100 million available as we continue to maintain financial flexibility for the group. The group all-in sustaining cost for Q3 was $2,205 per ounce sold, which represents a $500 per ounce increase from Q2. This increase was primarily driven by the expected reduction in gold production at Mako, the impact of supply chain issues, which impacted gold production at Syama and the increased royalties at both sites due to the rising gold prices. This has added approximately $125 per ounce in Q3 at the group level. At Syama, all-in sustaining cost was higher than Q2 due to lower production volumes as we continue to experience supply chain issues. As Chris already mentioned, while we are cautiously optimistic that we're addressing these issues, the situation in Mali continues to be unpredictable. Despite these challenges, we are focused on maintaining strict cost control across the group. Let me now walk you through the key components of our financial results that led to the cash and bullion position of $168 million at the end of Q3. We generated a solid $68 million in operating cash flow during the quarter. CapEx totaled $89 million year-to-date. This includes $20 million allocated to exploration, $28 million in sustaining capital across Syama and Mako and $41 million in non-sustaining capital at Syama, of which $20.7 million was spent on the SSCP. Overall, CapEx and exploration spend was in line with expectations, and we remain on track to deliver our 2025 guidance range of $109 million to $126 million. As previously noted, we made the initial $25 million payment for the acquisition of the Doropo and ABC projects during Q2. These projects represent exciting growth opportunities for the company and are expected to deliver meaningful long-term value for our stakeholders. VAT outflows at the end of Q3 totaled $20 million across Mali and Senegal. VAT remains a source of cash leakage for us, but we continue to engage actively with local governments to recover these amounts. Our recent discussions have been positive, and we remain encouraged by the progress being made. We recorded a $5 million working capital inflow for the year-to-date, primarily driven by a reduction in stockpile balances. Also, we have made solid progress in lowering consumable inventory levels as a part of our ongoing efforts to optimize working capital. Our ending cash and bullion of $168 million marks a $67 million increase from the beginning of the year. This leaves us with ample available liquidity of over $244 million at the end of September. As noted on the 15th of October, Loncor Gold entered into a sale agreement whereby subject to certain conditions, Chengtun Mining will acquire all the outstanding common shares of Loncor in an all-cash transaction. Resolute holds just over 31 million common shares of Loncor that are valued at around USD 31 million at the current exchange rate. The transaction is expected to close no later than Q1 2026, and Resolute expects no tax impact on its proceeds once received. In summary, we're in a very solid financial position and are excited about the growth potential of the business. And with that, I'll hand it back to Chris. Christopher Eger: Thank you, Dave. So look, in summary, I'm very pleased with how the business performed year-to-date, although we had a very difficult time in Mali with the explosive situation. So as such, we're still very much on track for full year group production guidance, albeit at the lower end of the range of 275,000 to 285,000 ounces. The business is performing well. We're producing cash, as you can see through our net cash generation of $26 million in Q3 and therefore, ending the quarter with a net cash position of $136 million. We continue to make good progress across the group, namely in Côte d'Ivoire with our development of the Doropo project. So we're very much advancing all our strategic initiatives across each of the countries that we operate, and we're very much on a pathway to deliver targeted annual production of over 500,000 ounces from 2028. With that, I'll hand it over for questions. Thank you very much. Operator: [Operator Instructions] We'll take our first question from Reg Spencer from Canaccord. Reg Spencer: Congrats on a good quarter. My question relates around what I'm sure is a frustrating issue on explosives in Mali. Can you tell me what you think the circuit breaker to this situation might be? Are we at a stage where we should be concerned about maintaining current levels of production? Or is there really any risk to near-term or medium-term production outlook due to the ongoing issues? Christopher Eger: Thanks for joining the call. So look, with regards to explosives, it hasn't been easy because I think I've highlighted before at the very beginning of the year, we lost our historical explosive supplier. We moved to a new supplier that has not been performing well throughout the year. And so now we've added a second supplier into the mix, which will help. But what complicates matters is the fact that there's been also fuel shortages in country, which you may have heard about from some of our other colleagues. That hasn't impacted ourselves with regards to our fuel activities, but it has impacted the generation of explosives. So that's been a major concern as well because the supply of explosives is just obviously low in Mali. And then look, the last component, which I've also highlighted in the past has been the complicated government regulations required to import and move explosives around. We are making no progress educating the government on this fact, and we've also highlighted to them that, look, we're down a meaningful amount of gold production this year because of their frustrations, and we've seen them react quicker to this. So the way we think about it today is that with additional suppliers, with additional education from us to the government, we do think we're in a better spot. We have more stock than we've had historically throughout the year. And like I said, we're probably building enough stock to get us to the end of the year. But it is unfortunately going to be an ongoing bit of a struggle to have, call it, ample stock for the 2026. So it's a risk, but I do think we've been heading in the right direction. Reg Spencer: I appreciate if you can really give much more color around the situation. I know some of the other operations in Mali may not be actually operating, but it sounds like a countrywide thing, it's certainly not specific to you guys, right? Christopher Eger: From what we see, yes. I mean, look, we are trying to buy explosives from our other -- to the other operators in country, and we're having a bit of progress. But in some cases, we're not having any progress, which just demonstrates that it's not -- there's not a lot of ample supply of explosives in Mali these days. Operator: We are now taking our next question from Will Dalby from Berenberg. William Dalby: Just a couple from me. I think in light of this explosive situation and obviously, the higher royalties, I'm just wondering if you feel there's much scope to improve your group AISC next year versus this year? That's the first one. Christopher Eger: Look, so in short, yes, because we think, look, next year, the production volumes at Syama will go up as we have effectively commissioned and will be commissioning SSCP. So we're obviously in the budget process now, but we expect to be back up above 200,000 ounces. So that will help on one aspect. But look, the gold prices is the other key component. Today, we're sitting at just shy of $4,100. And obviously, that has a meaningful impact in royalty expenses, which will impact the site. But look, on an apples-to-apples basis, we do expect AISC to decrease next year because of the higher production. But I just don't have an exact figure in my head because of the higher royalty expenses today. William Dalby: And then second, sort of just around the VAT receivables piece in both Mali and Senegal, that's sort of been an ongoing challenge there. I wonder if you can flesh out and give a bit more color on that situation? Are you seeing any kind of progress there? And how is that kind of unfolding? Dave Jackson: Yes. Thanks, Will. It's Dave here. Yes, the situations are very different in both countries. So we mentioned in the quarterly release, we are getting VAT back in Senegal, which we used to offset various government payments. So the situation is quite positive in Senegal. But in Mali, it still remains to be a point of cash leakage for us. I mean, we're engaging with the government discussing potential path forward. But as we stand right now, we continue to be not getting any of the VAT back. So there is quite a bit of cash leakage, as I said, in Mali. And until that's resolved, it will be a bit of an issue for us. Christopher Eger: And Will, it's worth noting that when I met with the government officials, namely Prime Minister and the Minister of Mines, we obviously put this as one of the key topics and said, "Look, not getting our VAT refunds is impacting the future growth of the business," and they understood it. So I think they're hearing the message from quite a few folks, but unfortunately, because of their economic situation, it continues to be very difficult to get them. And I'm not optimistic that we'll get any more in the rest of this year. William Dalby: And then maybe just a quick last one. I just sort of know in [indiscernible] on these very helpful development time lines that you have, you have plant modifications at Mako for Tomboronkoto. I just wondered if you could give a bit more detail around what's required there. I see it's in the time line for Tombo but not Bantaco. So is that sort of specific modifications for that deposit? And yes, I guess, how is that working? Christopher Eger: Yes. So look, the ore at Mako, the original ore was quite ore rock. But as we look to mine ore from both Bantaco and Tombo it's a lot softer, and so it's going to require additional capacity. The other key area of improvement in the plant is to increase overall throughput. So today, Mako has a throughput capacity of about 2.3 million tonnes per annum, and we're looking to increase it to 2.9 million tonnes per annum because we've been historically processing ore at probably 2.2 grams per tonne and both Tombo and Mako -- sorry, Bantaco and Mako are going to be closer to 1.1, 1.2. And so in order to try and maintain appropriate production levels, we want to increase the capacity. So that's the main reason for the plant modifications. Operator: [Operator Instructions] It appears we have no further questions. I'd now like to turn the conference back to Chris Eger for any additional or closing remarks. Please go ahead, sir. Christopher Eger: Look, thank you very much for joining the call. And look, like I said, it's been a challenging quarter. But in summary, we believe we're on track to deliver a very robust set of performance for 2025 and the platform for a very robust 2026. Thanks again. Have a good day. Cheers. Bye.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Herc Holdings, Inc. Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions] Now I would like to turn the call over to Leslie Hunziker, Senior Vice President, Investor Relations. Please go ahead. Leslie Hunziker: Thank you, operator, and good morning, everyone. Today, we're reviewing our third quarter 2025 results, with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release, our Form 10-Q and in our most recent annual report Form 10-K, as well as other filings with the SEC. Today, we're reporting our financial results on a GAAP basis, which include H&E results for June through September in the 9-month period for 2025. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, please mark your calendars to join our management meetings at the Baird Industrial Conference in Chicago on November 11, Redburn Atlantic Virtual CEO Conference on December 2, and the Melius Research Conference in New York on December 10. This morning, I'm joined by Larry Silber, President and Chief Executive Officer; Aaron Birnbaum, Senior Vice President and Chief Operating Officer; and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry. Lawrence Silber: Thank you, Leslie, and good morning, everyone. I want to start by thanking all of Team Herc for their incredible energy, focus and commitment throughout the third quarter. Integrating the largest acquisition in our industry is no small feat, but our team has truly risen to the challenge, driving alignment, accelerating progress, supporting one another, and accomplishing a large systems migration, all while remaining focused on scaling operations in a mixed demand environment. We continue to see robust activity across mega projects and specialty solutions, underscoring the strength of our strategic positioning. In the local markets, growth is limited as new projects in the commercial sector remain on hold due to the high interest rate environment. In this bifurcated landscape, our scale, advanced technology platform and diversification across geographies, end markets and product lines continue to be competitive advantages is enabling us to operate with agility and resilience. At the same time, we're executing against our integration road map with discipline, speed and a clear focus on unlocking both cost and revenue synergies within our 3-year time frame. Let's now turn to Slide #5 for an update on our progress. Since closing the transaction, we expanded our field operating structure from 9 to 10 U.S. regions, reorganized districts and added key leadership roles to ensure operational continuity and scalability. Our regional vice presidents and field support staff continue to relentlessly manage change and support our teams for growth. Early on, we completed a comprehensive sales territory optimization exercise to restructure coverage and deepen customer relationships given our much larger scale. And we equipped our new sales team members with a broader product offering and expert product support. They are now undergoing training on enhanced market and customer analytics and customer engagement tools. Together, these initiatives will further improve retention and strengthen the capabilities and execution of our sales force. Equally important in the quarter, we completed the full systems integration. We got this done in just 90 days, compared to a typical time line of 6 to 18 months for companies of a similar size and complexity. This accelerated execution reflects the strength of our internal capabilities, disciplined planning and deep experience with enterprise technology deployments. This integration included an enterprise platform consolidation, where we transitioned the H&E branch operations from SAP to our customized rental and front end system, and Oracle ERP framework. Our proprietary pricing engine also is now fully integrated with centralized controls in place to ensure consistency, protect margins and align pricing decisions with our broader business goals. Our logistics system called [indiscernible] is also now operational across the expanded network to improve delivery accuracy and optimize route planning at the lowest possible cost. As we deployed our business intelligence suite across the acquired locations, giving us real-time visibility beginning this month into combined performance metrics, customer behavior and operational KPIs. Finally, our industry-leading customer-facing technology, ProControl by Herc Rentals is now available to our entire customer portfolio, enabling equipment renting, tracking and asset management and control from any device anywhere. We view these systems integrations not just as a technical milestone, but as strategic enablers. They're going to allow us to scale faster, operate smarter and deliver more value to our customers and shareholders. The systems alignment marks a turning point. For the first time beginning in the fourth quarter, we have full visibility into our combined business and are now positioned to analyze the operations at a more granular district and branch level. Specifically this quarter, we're drilling down into three key areas. First, productivity. We're using the data to benchmark performance, lagging underperforming locations for deeper review and identifying top-tier branches where we can replicate best practices to drive operational improvement across the organization. Second, expense management. We want to pinpoint additional variable cost saving opportunities, discontinue activities that do not align with our strategic priorities, and eliminate inefficiencies at the local level. And third, fleet management. After having conducted a full audit of our combined equipment assets in the third quarter, we made good progress of disposing underutilized, off-brand and aged acquisition fleet. Aaron will share some of those details. But our focus on fleet management is ongoing as we rebalance our portfolio to match demand patterns, optimize mix and support scalable growth. Another way we're scaling the business for 2026 and beyond is by optimizing our network footprint. We've undertaken a market-by-market analysis of our combined branch locations with a goal of reducing redundancies and enabling better product allocation to further strengthen our market presence. Over the next 6 months, we expect to consolidate some general rental branches for cost and operational efficiencies. We'll repurpose certain of those branches into stand-alone specialty equipment locations. In other instances, we'll further expand access to our specialty solutions by co-locating specialty equipment within existing general rental facilities. These initiatives are expected to result in about 50 additional specialty locations, increasing our specialty network by 25% next year and supporting accelerated growth in these high-margin product categories. Overall, we're making excellent progress on the integration. Our teams are getting acclimated. Our systems are unified. Our customers are already seeing early benefits. We remain confident in our ability to deliver the full value of the acquisition both in terms of cost efficiencies and accelerated growth while continuing to deliver on our long-term growth strategies, which are outlined on Slide #6. As we said, integrating this acquisition is our primary focus, and therefore, we have paused other M&A initiatives for the time being, and are completing the remaining in-flight greenfields. Year-to-date, we added 17 greenfield facilities, of which 6 were opened in the third quarter, and we have roughly 10 more new location openings planned for the fourth quarter. Capitalizing on the secular shift from ownership to rental, particularly in the specialty market, and yielding greater value from mega projects through specialty solutions is a key focus for us. Further cross-selling specialty gear is an important component of the revenue synergies with H&E. In line with this strategy, we've continued to over-index our gross CapEx plans towards specialty, with the goal of increasing this category as a percent of our overall fleet composition long-term. And of course, re-purposing general rental branches into ProSolutions facilities, as I just mentioned, will support specialty equipment capacity for the 160-plus acquired locations. Finally, we continue to elevate our industry-leading ProControl by Herc Rentals technology offering with new efficiency features and controls, seamless navigation and tailored experiences all in a single app, addressing our customers' more complex and expanding needs. While we work through the integration of H&E, we'll continue to follow our playbook. Leveraging branch network scale, our broad fleet mix, technology leadership, and capital and operating discipline to position us to manage across the cycle and generate substantial growth over the long-term. We are committed to our goal of becoming the supplier, employer and investment of choice for the equipment rental industry. Now I'll turn the call over to Aaron, who will talk a little bit more about operating trends, and then Mark will take you through the third quarter financial performance and outlook. Aaron? Aaron Birnbaum: Thanks, Larry, and good morning, everyone. As we continue executing on this important integration, I also want to personally thank our teams for their incredible commitment and perseverance. Whether navigating change, supporting integration efforts, or pushing forward on growth initiatives, their resilience and focus have been exceptional. They have continued to show up for our customers, for each other and for the future we're building together. That dedication is what drives our momentum and it's what sets team Herc apart. Equally important to our success is our unwavering commitment to safety. Safety is at the core of everything we do and is an immediate integration priority. We onboarded 2,500 new Herc team members into our Health and Safety program in the third quarter. As you can see on Slide 8, our major internal safety program focus on perfect days. We strive for 100% perfect days throughout the organization. In the third quarter, on our branch-by-branch measurement, all of our operations achieved at least 97% days as perfect. Also notable, our total recordable incident rate remains better than the industry's benchmark of 1.0, reflecting our high standards and commitment to the safety of our people and our customers. Turning to Slide 9. We're operating in a disproportionate demand environment, where the local market remains affected by interest rate, sensitive commercial construction, while mega project activity continues to be robust. In the third quarter, local accounts represented 52% of rental revenue compared with 53% a year ago on a pro forma basis. On the national account side, private funding for new large-scale projects is still quite robust. We kicked off several new mega projects in the third quarter as the push for restoring manufacturing, along with increases in LNG export capacity and the expansion of artificial intelligence are continuing to drive new construction demand. We are winning our targeted 10% to 15% share of these project opportunities with even more new mega projects on deck and current projects still ramping up. As a combined company, we'll continue to target a 60% local and 40% national revenue split long-term, knowing that this diversification provides for growth and resiliency. Sticking with the topic of resiliency, let's turn to Slide 10, where you can see that despite the uncertain sentiment in the general market around interest rate -- interest rates and tariffs, industrial spending and non-residential construction starts still show plenty of opportunity for growth, built on a foundation of mega project development and infrastructure investments. Taking a look at the updated industrial spending for forecast at the top left, industrial info resources is projecting strong capital and maintenance spending through the end of the decade. Dodge's forecast for non-residential construction starts in 2025, is estimated at $467 billion, a 4% increase year-over-year, with 3% to 6% growth continuing in each successive year. Additionally, the mega project chart in the upper right quadrant gives you a snapshot of the total dollar value and U.S. construction project starts over the last 2 years, and a growth projection that exceeds $650 billion for 2025. We estimate we are only in the early to middle innings of this multi-year opportunity. We don't take the chart out beyond this year because visibility is less clear for actual start dates of those projects still in the planning phases. But there are trillions of dollars in the mega project pipeline that aren't accounted for here. Finally, there's another $346 billion in infrastructure projects estimated for 2025. That's a roughly 6% increase over 2024, and infrastructure construction activity is expected to further strengthen in the out years. Of course, there are some overlapping projects among these 4 data sets, but no matter how you look at it, for companies with a safety record, product breadth, technology and capabilities to service customers at the national account level, the opportunities for growth remain significant. Moving to Slide 11. Let me take a minute to walk you through how we're managing fleet levels and equipment mix in response to this dynamic and evolving landscape. First, we are rightsizing our acquired fleet and aligning brand consistency to drive operational efficiency and long-term value. At the same time, we're making targeted investments in specialty equipment to unlock revenue synergies, ensuring we're not just leaner, but also more capable and better aligned with high-value opportunities. Our fleet strategy is also calibrated to support the divergent operating environment scaling a repositioning fleet to meet national demand while maintaining flexibility in local markets. In the third quarter, we executed against the strategy, increasing gross CapEx seasonally and expanding our specialty equipment offering in line with our much larger branch network and our revenue synergy goals. We're still expecting gross fleet CapEx of $900 million to $1.1 billion for 2025. Also in the latest quarter, we nearly doubled disposals on an OEC basis versus last year, as we work to optimize our larger general rental fleet post acquisition. Realized proceeds were 41% of OEC on those equipment dispositions. Given the significant amount of fleet we were selling and the variance in brand quality, more sales went through the auction channel this quarter than in the recent past. Once we have the fleet in a more optimal position we'll resume our channel shift strategy to the higher-return wholesale and retail outlook. For the full year, we're still expecting disposals at OEC of $1.1 billion to $1.2 billion. We're tracking at about 75% of that target with the remainder coming in the fourth quarter. I know there's strong interest in our 2026 CapEx plan, but it's still early in the process. So we're not yet in a position to share specifics. But from a high level, I could tell you that we have an especially young fleet today as a result of the H&E acquisition. We'd like to get it back to Herc's historical average fleet age, so that's something that will be considered in our fleet plan. Also, we fully expect continued growth in national accounts and specialty solutions next year, we're planning our fleet by mix and geography to support that momentum. At the same time, demand visibility for local projects remains highly compressed, which reinforces the need for agility in both how we manage our existing fleet and the pace of planning for 2026. The scale we've gained bolsters our ability to respond to near-term trends in local markets while also leveraging efficiencies to prepare for the start of a cyclical recovery. But it's important to remember that a pickup in local demand typically lags interest rate reductions. Developers still need time to secure financing and contractors have to obtain permits and mobilize labor for planned projects. So we're being thoughtful and disciplined in our planning, balancing short-term responsiveness with long-term readiness. Turning to Slide 12. I'll continue to state the obvious. Diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc is diversified into new end markets, geographies and products and services over the last 9 years, we have reduced our reliance on a single industry or customer. We become more resilient to downturns and more adaptable to emerging opportunities like the mega project developments, technology advancements that support customer productivity, and the secular shift from ownership to rental, especially in the specialty category classes. We believe we are well positioned to manage dynamic markets and the acquired scale further bolsters our capacity and therefore, our opportunities. With that, I'll pass the call on to Mark. W. Humphrey: Thanks, Aaron, and good morning, everyone. I'm starting on Slide 14 with a summary of our key metrics for the third quarter, which includes Cinelease results for July. As you may have seen, we completed the sale of Cinelease on July 31 with proceeds used to pay down our ABL. For the third quarter, on a GAAP basis, equipment rental revenue was up approximately 30% year-over-year, driven by the acquisition of H&E, and strong contributions from mega projects and specialty solutions. Adjusted EBITDA increased 24% compared with last year's third quarter, benefiting from the higher equipment rental revenue, as well as used equipment sales. Adjusted EBITDA margin was primarily impacted by a higher proportion of our used equipment sold through the lower-margin auction channel as we work to align the acquired fleet. Also affecting margin with lower fixed cost absorption as a result of the ongoing moderation in certain local markets where H&E was overweighted, as well as acquisition-related redundant costs preceding the full impact of cost synergies. REBITDA, which excludes used equipment sales, was up 22% during the third quarter. REBITDA margin was 46%, impacted by the lower-margin acquired business. Margin improvement will come from equipment rental, revenue growth and a shift over time to a higher margin product mix, as well as delivery of the full cost synergies and improved variable cost management from the increased scale. Our net income in the third quarter included $38 million of transaction costs primarily related to the H&E acquisition. On an adjusted basis, net income was $74 million. Shifting to capital management on Slide 15, you can see that we generated $342 million of free cash flow, net of transaction costs in the 9 months ended September 30, 2025, which was in line with our expectations. Our current leverage ratio is 3.8x. Our goal is to return to the top of our target range of 2 to 3x by year-end 2027, as revenue and cost synergies drive higher EBITDA flow-through. And less capital will be required to achieve the revenue synergies due to scale benefits on the utilization of existing fleet. The combined entity will be capitalized to maintain financial strength and flexibility. On Slide 16, we're reiterating our 2025 guidance. When we set the guide a month into the integration, we modeled the back half of the year using the second quarter trends we were seeing for each of the legacy companies. Of course, in any large-scale acquisition, integrating the acquired operations and acclimating new team members as a phase an ongoing effort. We're starting to get a better read on the pacing of training, upskilling and re-engaging the acquired team. And we're making good progress on backfilling for the H&E sales force attrition that occurred, with strong patterns in place for recruiting candidates and onboarding and training new hires. Despite a lot of moving pieces with the integration overall, the guidance still feels about right based on current visibility. Two points I'd like to call out for the fourth quarter. First, unless something big happens in the next 2 weeks, we'll likely have a tougher comp from a U.S. weather standpoint, with last year benefiting from about 2 to 3 points of hurricane-related pro forma revenue upside for the combined company. Second, when it comes to fourth quarter adjusted EBITDA, you should expect that we'll continue to utilize the auction channel more than Herc typically would as we're still rightsizing the acquired fleet with a focus on dispositions of off-brand and aged general rental equipment. This shift in channel mix will continue to pressure proceeds and therefore, the used sales margin. With a completed systems integration now providing a uniform granular view of the entire company, we're putting action plans in place to address any underperforming areas or foundational inefficiencies. All of that will better position us as we planned for 2026. Longer term, based on all the opportunity we see, we remain confident in the strategic value of this combination, and our ability to achieve both the full revenue and cost synergies over the next 3 years. With that, operator, we'll take our first question. Operator: [Operator Instructions] And your first question comes from the line of Mig Dobre with Baird. Mircea Dobre: I guess my first question goes to this comment on the rightsizing of the fleet. And I'm kind of curious where you are in this process? Do you expect to be largely done with this in the fourth quarter? Or is this kind of stretching into 2026? And is there any way to maybe get us to better understand the magnitude of the work that needs to be done here, either in terms of amount of OEC that needs to be disposed, or any other way that you want to frame it? Aaron Birnbaum: Yes, Mig, this is Aaron. I'll take that question. A lot of the heavy lifting was done in Q3. We still have more work to do as we go through Q4. As long as the 2026 kind of landscape economic -- demand landscape is good, we'll be essentially kind of closing that part of it out. The Q3 -- higher disposals in Q3 was really related to just some rebalancing of the fleet. On the H&E side, they didn't do their normal cadence of disposals that they historically would have done in Q1 and Q2. So we had to catch up on that. And then just some of the brand mix, the operations are more efficient when you've got a standardized kind of manufacturer-type fleet. So that's what some of the shaping was done. And we feel good what we got done, but as we mentioned, a little more auction activity than we typically would do. And as we get into '26, we'll get back to our normal cadence of getting the higher retail wholesale channel. W. Humphrey: Mig, this is Mark. Maybe just a couple of other points there. I think when you think about what Aaron said. Going back to Q2 and the comments we made then, we thought that there was probably, call it, $250 million, $300 million of activity that needed to happen in the back half of the year to sort of rightsize or better rightsize that fleet for the territories it was going in. And I would say, as we sit here through Q3, probably half of that was completed, maybe a little bit more than that in the third quarter. And so the expectation would be better rightsizing the fleet as we get through fourth quarter, such that next year, we can lean on aging the fleet and disposing of less gear. Mircea Dobre: All right. That's helpful. Then maybe a question on your overall mix. The national accounts account for, if I'm not mistaken, pretty much a record as far as my -- back as my model goes. So a lot more business done with national accounts. I guess that would be consistent with your comment on mega projects being an area of growth. As you sort of think about 2026, I do wonder if this business, megaproject national accounts is to some extent, dilutive to margins. If this is something that we need to think about as we think about the margin framework for next year? And I'm not asking for guidance. I'm just asking for some color as to how this portion of the business is really impacting you? Lawrence Silber: Yes. Mig, Larry, I'll take that. Look, we're expecting, obviously, for the same type of activity to continue into '26 because as you know, until interest rates have a substantial reduction, which maybe we'll see tomorrow another 25 basis points, who knows. It usually takes 6 to 9 to as long as 12 months for that to trickle down into the local market to make that a more attractive business opportunity and certainly spur the activity for us in the local market, which remains somewhat muted. Overall, though, we don't find that there's any significant margin dilution. Because remember when we put equipment out at a national account or a mega project, you have minimal movement of that project. You're not having excessive delivery there. And we also have a larger volume of equipment out there, and we tend to also get a lot more specialty product out on those projects that are opportunistic for us as we go along. So we don't see much dilution at all relative to continuing in this trend. Operator: And your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: My first question is on the comment you made about combining some of the [ gen rent ] locations. I think you said you're going to have 50 additional specialty. Is it the right way to think about it that about 100 of the general rental locations would close and those would sort of merge and become 50 specialty? How should I think about the interchange between the two? Aaron Birnbaum: No, not at all, actually. Our branch count increased dramatically as a result of the acquisition. The way we want you to think about it is there were, hopefully, in two buckets. One, we have a strategy where we typically do a branch and branch, right? So that's how we kind of scale the business. We'll open a specialty business inside of a general rental branch and let it mature. And when it gets enough scale, then we'll pop it off and have its own stand-alone location. That's really what's the fuel with the 50 new locations as we go through next year's period. There were just a handful of locations that H&E where they're like 1 mile away from our brand, so we could consolidate those. And in those cases, we're turning those into another specialty branch right away sooner than we typically would. But we're not closing branches from H&E, that would be dilutive to what our strategy is. So we like the scale and it gives us a bigger footprint, which allows us to solve the market needs better. Tami Zakaria: Understood. That's super helpful. And my second question is now that your -- the two businesses are on the same platform, it gives you more visibility into the combined business. Would you consider revisiting some of the cost synergies and any -- the revenue synergy targets you had at the start of the journey? W. Humphrey: Yes. I mean, I think, Tami, I mean that's an ongoing process, right? I mean I think that from a cost synergy perspective, we originally laid out $125 million into buckets. So those buckets look the same today as they did yesterday? No. Will they continue to change and evolve? Yes. And then I think -- and probably good news here, as I mentioned in my prepared remarks, there's also efficiency reviews taking place now that we're on the same platform. And so whether you want to call that synergy or efficiency, I don't care. Ultimately, it's incremental margin and efficiency that we're going to gain. So that's how we're looking at it, and I think it will continue to evolve as we move forward. Operator: Your next question comes from the line of Kyle Menges with Citi Group. Kyle Menges: Yes, maybe following up on that. I guess, is there anything noteworthy or unexpected incremental coming from these efficiency reviews that are taking place now, now that you're on the same platform? W. Humphrey: Again, I mean, it's early innings, right? I mean it's just sort of completed at the end of Q3. I guess the way I would respond to that, Kyle, is that Herc has a fair number of operational KPIs. And so as we sort of rolled ourselves out of Q3 and had clear visibility really for the first time, right? Now it's about aligning our KPIs and our expectations to these newly formed, or re-devised territories on the consolidated platform. So I don't think there's anything of a surprise nature in that. I think it's just us running our playbook and our game plan and looking for efficiency along the way, and that's exactly what we'll do. Lawrence Silber: Yes. And keep in mind that we still -- while we have the IT integration completed, we still have a fair amount of training and education and development of people and aligning resources that needs to happen here in Q4 to prepare the organization as it goes into Q1. And we have a fair amount of work ahead of us still in addition to the movement of these branches that Aaron talked about a moment ago. So a lot of work ahead, and we'll continue to look for opportunities for improvement. Kyle Menges: Makes sense. And then it would be helpful just to hear an update on dissynergies and synergies. I guess, just what's giving you guys confidence that dissynergies are behind you? Are you continuing to see that stabilization in the sales force, any success bringing people back? And then just it would be helpful to hear an update on some of the earlier -- early revenue synergies that you're seeing as well? Lawrence Silber: Yes, I'll take the first part of that and saying, yes, look, we've been able to stabilize the sales organization. Now attrition is happening at or below normalized Herc levels that we've seen in the past. And a lot of that is behind us. There have been a couple of folks that we brought back into the organization. But we fill the vast majority of those holes with our team, with our Black and Gold team that have been in training in preparation for sales territories and we're looking to continue to keep with the training, with the education, with the introduction to our technology platform, that's an enabler for these salespeople to earn more money, and it's also a retention device. So we're excited about that being behind us for the most part. Aaron, do you want to? Aaron Birnbaum: Yes, we're seeing on the revenue synergy side, we're seeing -- it's early innings. We're just getting started with it. We're introducing some of the specialty products to customers that were on the H&E side, regional type customers, and we're getting some good traction, right? So it's -- some of the products we offer weren't offered at H&E and the customers were able to kind of move their share of wallet, our direction. So it's -- we're happy where the progress is, but we've got a lot more work to do. Operator: Your next question comes from the line of Kenneth Newman with KeyBanc Capital Markets. Kenneth Newman: Maybe for my first question, Mark, it seems like gross margins in the quarter came in a bit lower than I would have expected, but you did leverage SG&A a little bit stronger than my model. Is there any way you could help us just dimensionalize how to think about gross margin sequentially, third quarter to fourth quarter, just given all the moving pieces? Maybe also a little bit of help on how we think about SG&A dollars going forward. W. Humphrey: I guess, look, there was a little bit of noise, quite honestly, in the original view, at least the way that I was looking at this and we couldn't know the answers until we finished all of the mapping of their expenses into our general ledger structure. And so I think what -- and the way that I would sort of guide you here is that in totality, you probably had somewhere in the order of magnitude of 55% between DOE and SG&A in the quarter. And I think that, that's a reasonable proximity into the fourth quarter, recognizing that there's probably a little less coming through the funnel in the fourth quarter shoulder period. So I don't think that there'll be a ton of movement. But I think, generally speaking, you're probably a little less efficient in the fourth quarter just from an overall revenue sort of downtick as you get into the November and December time frame. Kenneth Newman: Okay. No, that's very helpful. I'm sorry if I missed it, but did you disclose how much H&E's contributed to rental revenue and EBITDA in the quarter? I'm just trying to get a sense of what core dollar you would like in the quarter? W. Humphrey: You didn't hear that because I can't give it. We wouldn't be doing our job, Ken, if I could still sort of pull apart and tell you the performance of H&E and Herc. I can't, and therefore, I won't. But I would tell you that sort of overall, the business on hold performed about the way that we thought it would inside of Q3. Operator: Your next question comes from the line of Rob Wertheimer with Melius Research. Robert Wertheimer: A couple of questions. Larry, you touched on it, if I didn't mishear, you touched on employee retention and you're kind of going in the positive direction now with hiring, rehiring, and then attrition has stopped. Customer attrition, can you talk about that on H&E kind of former accounts if we come through all the dissynergies as you kind of thought in recent quarters? And then I'll just bolt on my second one. When you've had a chance to look at the business more closely now, how does rental rates stack up and what do you need to do if it's below? What do you need to do and what time frame to kind of improve service levels or broaden out service levels and improve that? Lawrence Silber: Yes. Look, what I said and what I hope came through is that we've stabilized the attrition that had happened prior to close. And we feel that, that is now at a normalized level with no further significant attrition that we're expecting that would be any different from what we would experience with Herc on a normalized basis. So I think we're okay there. But remember, we have backfilled a lot of those positions with folks that have been in our Black and Gold, what we call our PSA program, Professional Sales Associate program. So they're going into new territories, they're on a learning curve, picking up new responsibilities and -- and we'll have some training and education to do over the course of the balance of the year and into early next year. But it will have to ramp up probably into Q2 when we see them become fully effective. And as you know, that usually takes over a 2- to 3-year period for a sales person to sort of really understand their territories and really perform at the levels we'd like them to perform at. I'll pass the other side over to Aaron relative to your comment on pricing and where it was, and what we're doing to get back to the overall Herc average. Aaron Birnbaum: Yes, Rob, so I'd say to Larry's point, the attrition and all that stabilized. As Q3 went through, we focused a lot on integration. We got the reorganization all done. And now we're back to kind of like performance management and developing our sales team with the go-to-market strategies we already have. When H&E came into the business, their pricing was lower than the Herc. So we're working on moving that to the needle upward with our tools and systems that we have. We talk about some of our pricing tools that are proprietary to Herc. So they're learning the tools. Our sales management is working with them. That's not going to happen overnight, right? That's a bridge that's going to happen over time to get them back to the Herc historical, kind of, rental rate performance. But we've done a good job with the customers. We've negotiated all the contracts H&E had into the Herc system. And the regional type H&E customers, as I mentioned earlier, have really embraced some of the extra fleet breadth that we have. And then the local customers where the market is not as strong and there were some disruptions with some leading up to the closing of the acquisition. Maybe that was because they weren't as busy or maybe because their sales rep moved on. So we've got all the data. We're moving forward with our CRM and our sales efforts to engage with those customers. And some of those engagements take 3 or 4 different -- 5 different cycles of connection. But we know that we've got a great rental operation, and we're confident those customers will come back over time. But we're happy where we are in the process right now. Operator: That concludes our question-and-answer session. I will now turn the call back over to Leslie Hunziker for closing remarks. Leslie? Leslie Hunziker: Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any further questions, please don't hesitate to reach out to us. Have a great day. Operator: That concludes our question-and-answer session. This concludes today's call. You may now disconnect.
Operator: Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Curbline Properties Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Stephanie Ruys Perez, Vice President of Capital Markets. You may begin. Stephanie Ruys de Perez: Thank you. Good morning, and welcome to Curbline Properties Third Quarter 2025 Earnings Conference Call. Joining me today are Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning, we have posted our quarterly financial supplement and slide presentation on our website at curbline.com, which are intended to support our prepared remarks during today's call. Please be aware that certain of our statements today may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and in our filings with the SEC, including our most recent reports on Forms 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-property net operating income. Descriptions and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's quarterly financial supplement and investor presentation. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes. David Lukes: Good morning, and welcome to Curbline Properties third quarter conference call. Let me begin by expressing my gratitude to the entire Curb team, not only for delivering another strong quarter but also for marking our 1-year anniversary as the only public company exclusively focused on acquiring top-tier convenience retail assets across the United States. We continue to lead this unique capital-efficient sector with a clear first-mover advantage. Before Conor walks through the quarterly results, I'd like to take a moment to reflect on what we've accomplished in our first 4 quarters since the spin-off of Curbline Properties. We've acquired $850 million in assets through a combination of individual acquisitions and portfolio deals. We signed nearly 400,000 square feet of new leases and renewals with new lease spreads averaging over 20% and our renewal spreads just under 10%. Importantly, our capital expenditures have averaged just 6% of NOI, placing us among the most capital efficient operators in the entire public REIT sector, an important hallmark of the convenience asset class. It's hard to overstate the strength of this business model, but 3 key attributes help explain why we're confident in our ability to deliver superior risk-adjusted returns. First, our investments align with real consumer behavior. Unlike traditional shopping centers built for destination retailers, our properties serve customers running daily errands. According to third-party geolocation data, 2/3 of our visitors stay less than 7 minutes on our properties, often returning multiple times a day. These properties serve large and elongated trade areas along major traffic corridors, not just local neighborhoods. In fact, 88% of our customers live more than a mile away and nearly half live more than 5 miles away. This is not a local business. That's why 70% of our tenants are national chains, eager to capture a share of the 40,000 cars that pass by our properties daily. In high-income markets, supply is limited and tenants are willing to pay a premium for access to this valuable traffic. Second, we invest in simple, flexible buildings. Rather than purpose-built structures, we favor straightforward rows of shops that support a wide variety of uses. This flexibility drives strong tenant demand, rising rents and minimal capital outlay. We don't do loss leader deals, we don't overinvest in tenant improvements, and we don't rely on one tenant to drive traffic to another. Our strategy is clear: provide convenient access to customers running errands woven into their daily lives and leased to tenants with strong credit who are willing to pay top rent to access those customers. The result is a highly diversified tenant base, with only 9 tenants contributing more than 1% of base rent and only 1 tenant more than 2%. Strong tenants drive strong sales which leads to high retention and rent growth with little or no landlord investment. This is the essence of capital efficiency and a key driver of our growing free cash flow. Third, our balance sheet is built to support our growth. We believe we currently own the largest high-quality portfolio on convenience centers in the United States, totaling 4.5 million square feet. The total U.S. market for this asset class is 950 million square feet, 190x larger than our current footprint. While not all of that inventory meets our standards, but our criteria are clear, primary corridors, strong demographics, high traffic counts and creditworthy tenants. Under John Cattonar's leadership, our investment team is underwriting hundreds of opportunities each month. We have the luxury of choice, the discipline to grow 1 asset at a time and the responsibility to maintain our leadership by acquiring only the best. Even in the top quartile of the convenience sector, it's 50x larger than our current portfolio and we've structured our team, our balance sheet and our operations to scale. Curbline has all of the pieces on hand to generate double-digit free cash flow growth for a number of years to come. And based on our implied fourth quarter 2025 OFFO guidance, we're forecasting 20% year-over-year FFO growth, which is well above the REIT sector average. In summary, Curbline has quickly built a track record that highlights the depth and liquidity of the convenience asset class. Our original 2025 guidance range included $500 million of convenience acquisitions. We've obviously significantly exceeded that pace and now expect 2025 investment activity of around $750 million, with potential for additional upside. I couldn't be more optimistic about the opportunity ahead for Curbline as we exclusively focus on scaling the fragmented convenience marketplace and delivering compelling relative and absolute growth for stakeholders. And with that, I'll turn it over to Conor. Conor Fennerty: Thanks, David. I'll start with third quarter earnings and operating metrics before shifting to the company's 2025 guidance raise and then concluding with the balance sheet. Third quarter results were ahead of budget, largely due to higher than forecast NOI driven in part by rent commencement timing along with acquisition volume. NOI was up 17% sequentially, driven by organic growth, along with acquisitions. Outside of the quarterly operational outperformance and some upside from lower G&A. There are no other material callouts for the quarter, highlighting the simplicity of the Curbline income statement and business plan. In terms of operating metrics, leasing volume in the third quarter hit record levels even after adjusting for the growth in the portfolio. Overall leasing activity remains elevated and we remain encouraged by the depth of demand for space, which we expect to translate into full year 2025 spreads consistent with 2024. In terms of the lease rate, the strong aforementioned volumes resulted in a 60 basis point increase sequentially to 96.7%, which is among the highest in the retail REIT sector regardless of format. To put some context around that, in February of this year, we acquired a 6-property 211,000 square foot portfolio for $86 million. Since acquisition, just 7 months ago, in that subset of properties alone, we signed 28,000 square feet of new and renewal leases, taking the lease rate up to over 96% from 94% at the time of acquisition. This leasing velocity speaks to the level of demand for high-quality convenience properties and the speed at which leasing can occur given the simple format of the property type. Same-property NOI was up 3.7% year-to-date and 2.6% for the third quarter despite a 40 basis point headwind from uncollectible revenue. Importantly, this growth was generated by limited capital expenditures with third quarter CapEx as a percentage of NOI of just under 7% and year-to-date CapEx as a percentage of NOI of just over 6%. For the full year, we continue to expect CapEx as a percentage of NOI to remain below 10%. Moving to our outlook for 2025. We are raising OFFO guidance to a range between $1.04 and $1.05 per share. The increase is driven by better-than-projected operations, along with the pacing and visibility on acquisitions that David mentioned. Underpinning the midpoint of the range is, #1, approximately $750 million of full year investments with fourth quarter investments funded with cash on hand. Number two, a 3.75% return on cash with interest income declining over the course of the quarter as cash is invested. And #3, G&A of roughly $31 million which includes fees paid to SITE Centers as part of the shared service agreement. You will note that in the third quarter, we recorded a gross up of $731,000 of noncash G&A expense which was offset by $731,000 of noncash other income. This gross up, which is a function of the shared services agreement and that's to 0 net income will continue as long as the agreement is in place and is excluded from the aforementioned G&A target. In terms of same-property NOI, we are now forecasting growth of approximately 3.25% at the midpoint in 2025, but there are a few important things to call out. Similar to our leasing spreads, the same property pool is growing but small and is comping off of 2024s outperformance. And it includes only assets owned for at least 12 months as of December 31, 2024, resulting in a larger non-same-property pool that is growing at a faster rate on an annual basis driven by an expected increase in occupancy. Additionally, uncollectible revenue was a source of income in both the third and the fourth quarter of 2024. As a result, uncollectible revenue will remain a year-over-year headwind particularly in the fourth quarter despite limited year-to-date bad debt activity and very strong operations. For moving pieces between the third and the fourth quarter as a result of the funding of the private placement offering in September, interest expense is set to increase to about $6 million in the fourth quarter. Interest income is forecast to decline to about $3 million, and G&A is expected to increase to just over $8 million. Additional details on 2025 guidance and expectations can be found on Page 11 of the earnings slides. Ending on the balance sheet, Curbline was spun off as a unique capital structure aligned with the company's business plan. In the third quarter, Curbline closed a $150 million term loan and funded a previously announced $150 million private placement bond offering, bringing total debt capital raised since formation to $400 million at a weighted average rate of 5%. Additionally, the company expects to fund an additional $200 million of private placement proceeds on or around year-end at a blended 5.25% rate. Curbline's now proven access to unsecured fixed rate debt is a key differentiator from the largely private buyer universe acquiring convenience properties. The net result of the capital markets activities information is that the company is expected to end the year with over $250 million of cash on hand and a net debt-to-EBITDA ratio less than 1x, providing substantial dry powder and liquidity to continue to acquire assets and scale, resulting in significant earnings and cash flow growth well in excess of the REIT average. With that, I'll turn it back to David. David Lukes: Thank you, Conor. Operator, we're now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Craig Mailman with Citi. Nicholas Joseph: It's actually Nick Joseph here with Craig. Maybe just starting on kind of your last point, Conor. Obviously, the balance sheet is in a very good position, but you did institute the ATM program or put one in place. So how are you thinking about equity from here, recognizing the balance sheet is in a good spot, but just given where the stock trades at least relative to NAV and where you're seeing acquisition cap rates? Conor Fennerty: Sure, Nick. So to your point, we put in an ATM on October 1. We also put in a share buyback on October 1. And if you recall from our press release, we simply stated that like all other public companies, we should have all the tools available to us at our disposal for equity at the risk of sounding like a broken record, for us, we look at the source and the use. And so if we had a use of capital that we thought was accretive to fund with equity, we would consider it similar to other public REITs. But outside of that, we're sitting on a significant liquidity position. We've got pretty significant embedded growth. There's a high bar there. So again, to repeat my point, we look at the source and the use at this point. We haven't issued anything to date, but that could be -- that could change depending on what we see from an investment perspective. Nicholas Joseph: And then what's the stabilized yield on the recent lease-up acquisitions? And how does that compare to the in-place cap rates at acquisition? David Lukes: Nick, I would say that our acquisitions this quarter, the going-in cap rate was a bit higher than last quarter. I would say, if you look at over the course of the year, we're still blending to the low 6s, which is a pretty good reflection of where the top quartile of the sector is trading. The stabilized yield, if you look out a couple of years, it's really dependent upon market rents, which appear to be continuing to grow. And you can see that in our spreads. So I hate to even put a number on what I think stabilized looks like in the next 2 to 3 years, but it sort of feels like the indications are that mark-to-markets are growing. Operator: And your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I just wanted to talk about the acquisition activity in the pipeline heading into '26. You talked about $750 million for the year. That's up from around $500 million. So an incremental $100 million or so here in the fourth quarter. How should we think about the pipeline beyond 4Q, how the pace of acquisitions may trend into '26 and whether you're seeing more product come to market as the company continues to be active in the space? David Lukes: Todd, it's David. The amount of inventory we're underwriting is definitely increasing every quarter. I think John's team has built relationships nationwide where we're starting to see things that we might not have seen in the past. I would say we're being highly selective on exactly what we want to transact with and what we don't. And if you think about the prepared remarks, I know you said the guidance was originally $500 million so far year-to-date, we're at $644 million, and we would expect that the full year is around $750 million, but there's potential for upside on that. And I think the pipeline going forward is really going to be more of a result of not only increased visibility and deal flow, but also the episodic nature of some of the portfolio deals that we've done. They're harder to project. They are out there, and we're building the relationships so that we feel like we're going to have the ability to take a peek at those when they come to market. Todd Thomas: Okay. So it sounds like maybe around $500 million is kind of the right target to think about on sort of a recurring basis. And then when you layer in some larger transactions, perhaps that could be kind of the needle mover moving forward? David Lukes: I don't think that's what I was implying. What I said is we feel confident that 2025 is going to be $750 million with potential for upside, and we'll see what happens next year, but we're pretty confident that we're seeing an awful lot of inventory that we like. Conor Fennerty: Yes. And Todd, to David's point, I mean, I think we've kind of built a machine now where we've got visibility on the fourth quarter and the first quarter of next year. And to David's point, it's -- our visibility is a lot higher than where it was when we set our initial bogey. So once we get to 2026 and talk about guidance, we'll provide more of a framework around how we should think about investment volume. But to David's point, I mean, we kind of have visibility now on the next call it, 5 or 6 months, which is a very different perspective than we had at the time to spin-off. Todd Thomas: Okay. And then as we think about '26 and sort of the growth algorithm for the same-store, which I realize is rapidly changing. You have blended leasing spreads have been in the low double-digit cash spread range. Can you just remind us what the portfolios blended annual escalator looks like? And then are there any other sort of considerations that we should think about moving forward? Conor Fennerty: No, it's a good question, Todd. And to kind of the genesis of the question, there is a significant pool change from 2025 to 2026. The good news is the net result is, to David's point, we're buying assets that have very similar characteristics. So there's no material differentiator in terms of structural growth or bumps between the 2025 pool and 2026. If you recall, at the time of spin-off, we said we felt our 2024, 2025, 2026 growth at average north of 3%. And you think about 2024 was 5.8%. 2025, our midpoint of our range is 3.25%, which imply that we would have pretty steady growth over the course of 2026 comparable to 2025. So there's no material considerations to your point on the growth algorithm. This is a really simple company with a really simple income statement. There's nothing for us to call out. There will be headwinds to next year, redevelopment opportunities, though headwinds, nothing like that. So I don't want to make it sound formulaic. There's obviously a lot of work to get there, to your point in terms of leasing and volume, et cetera. But it should be a growth level that's pretty steady on an occupancy neutral basis compared to any portfolio we're looking at in terms of same-store pools. Let me hope I answer your question there. Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: I just want to go back to sort of the cap rate conversation. Obviously, you guys are thinking about IRRs here which I appreciate that. But maybe if you could just double click, I think you said low 6s. Just wondering sort of what are the ranges of those and any difference between sort of larger deal and portfolio deals. And more importantly, as you're sort of a year in and more people are finding out about this business, how should we be thinking about the potential for cap rate compression as you're thinking about the next 12, 24, 36 months? David Lukes: Ron, it's David. I mean, cap rates, as you are aware and you alluded to, we underwrite for IRR, but of course, the result is a going-in cap rate. When the assets are quite small, the cap rate on year 1 can be pretty wildly different most importantly, if there's a vacancy. One of the things we noted last quarter was we had some assets that we bought that had 1 or 2 vacant units, but in a small format strip center, that means that the cap rate can be quite low to make up for that vacant space and the growth opportunity. On the other hand, there could be fully stabilized assets with strong credit that has a little bit less growth opportunity, but it's also a stable growing asset with not a lot of CapEx. So the net result is the cap rate range can be quite wide in this sector. I mean it can be low 5s to high 6s, even for the top quartile. If you're buying assets with worse demographics, pretty low traffic counts and kind of tertiary markets, you could end up closer to a 7%. But those aren't the assets that we've been interested in. And that's why I've kind of averaged it down to say that we're blending to a low 6%, but I'd say there could be a 100 basis point swing on 1 asset to the next just given the fundamentals of that rent roll. Conor Fennerty: Yes. To David's prepared remarks, Ron, so we were just over 6% in the third quarter to David's comments on buying some vacancy. Our fourth quarter blended to 6.25%. So again, that's pretty consistent we've been buying over the course of the year to David's point, vacancy could swing that 20 basis points on a blended basis, but it's been pretty steady. To your point on where they could go. I mean, it feels like that's a macro question as opposed to a sector question. There's a lot of interest in retail in general. I don't think that's unique to convenience assets. But I think it's going to be much more dependent on rates more than anything. Ronald Kamdem: Great. I think that's really helpful. And just going back to the same-store conversation. Look, occupancy has been building this year. So presumably, that's a tailwind for next year. But when you sort of look at the lease rate, where do you guys sort of think is the structural sort of cap that you can sort of get on that? Conor Fennerty: Ron, it's a really good question. So if you look for the total portfolio, we're at 96.7%, the same property pool is 97.1%. It feels like low 97s is probably the peak here. It doesn't mean there's not occupancy upside, though, because we've got a little bit wider lease occupied spread than we historically had run out over the last, call it, 7, 8 years that we've been tracking this for the portfolio. But David, I don't know if you feel differently. It feels like a couple of hundred basis points of structural vacancy is probably the right spread, and that's just churn of a tenant moving out and the time line to put someone back in. David Lukes: Yes. I think the only thing I would add to that is that the SNO pipeline and the amount of occupancy upside, you would typically see in a retail portfolio kind of gives the high watermark for growth. The difference with the portfolio where we're specifically buying a shorter WALT with a higher mark-to-market means that most of our growth going forward is going to come through renewals, not necessarily through occupancy. Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: So 2 questions. I guess, David, let me just go to that comment that you just made about the types of centers you're going for. Increasingly, it seems that just given the dearth of product, people are sort of eager to buy credit or vacancy issues to be able to get at availability to put tenants in. As you guys look at your target convenience centers in the deal flow, are you seeing a lot of opportunities where there is some potential credit or vacancy issues that would allow you to really drive rent increases by taking out a less productive tenant replacing it or convenience centers aren't really -- don't really offer that same potential that you've seen in a normal open-air shopping center. David Lukes: Alex, there's always going to be opportunities to upgrade credit. But I will say that in a larger format retail environment, you might be especially proactive because the benefits of upgrading tenant also have a strong traffic driver and you need that traffic driver to feed your other tenants. What's unique about this business is that there's really not much crossover traffic between the even adjacent tenants. The tenants are leasing space because they want to be near the customers on their errand runnings. So our desire to re-tenant buildings is pretty low. What's most important is that we have tenants that are able to generate enough profit to afford the rents that we want to charge. So I would say we're not going to be very aggressive on retrofitting and merchandising properties. What we are going to be aggressive on is raising rents at renewals. And that's part of the reason why I like the convenience center because you tend to have leases that don't have nearly as many options as a larger format tenant, so we can actually get to the market rents, which are continuing to grow. Alexander Goldfarb: Okay. And then the second question is you talk a lot about sort of the consistency of your earnings growth. And obviously, you're doing that with the balance sheet the way you're mutually funding using debt and cash. But as we think about the spreads to your implied cap rate, is it your view that you will always maintain a positive spread in order to be able to drive the sort of double-digit earnings growth that you aspire to? Or your view is that you could buy inside of your implied cap rate, but through rent outgrow and have that asset be accretive? Conor Fennerty: Alex, it's Conor. I'm going to attempt to answer and let me know if I address this. Our view, our kind of business plan, when we complete the spin-off was to invest over a 5-year period, it's $0.5 billion per year, and that led to double-digit growth, and that required no additional equity. If equity over the course of that 5-year plan was accretive, we would consider it, and that would extend that time line or add to that growth profile. Our view in terms of how we structure that growth algorithm to Todd's point was to say that we could buy at a call it, 100 basis point debt spread over the course of that 5-year period, which is consistent with the last 30 years and kind of the debt spread for high-quality assets. If that spread compressed, it obviously would impact that, but there's other levers we have to pull. And one of the unique and exciting things to David's point to Ron's question was, we can generate pretty compelling occupancy-neutral same-property growth and generate significant free cash flow relative to the enterprise. Those 2 pieces are pretty powerful growth drivers that lead us to, in our view, have the ability to generate better than average versus peers or the REIT sector occupancy neutral growth or leverage neutral growth kind of the genesis of your question. So if spreads compressed, it could impact things, obviously, in terms of relative growth, but we have some other levers that help. The last piece is on G&A, we are still scaling our G&A load over the back half of the 5-year business plan, we start to scale that G&A load, which is pretty impactful as well. So it's a really complicated question. Let me know if I'm addressing it, but there's a lot of levers we have to pull. But there's no doubt that investment spread is impactful to us as it is to other companies that are extremely growing. Alexander Goldfarb: But ultimately, Conor, what I hear you saying is your focus is on FFO growth, not same-store. The focus is on delivering double-digit FFO. Okay. Just want to make sure. Conor Fennerty: Yes, for sure. I mean look, I mean, they should be correlated and our same-property growth, remember, our whole pool is in there. There's no redevelopment pipeline. There's nothing an ebb or flow to growth. So of course, it's important to us, it's important to David's point, for us to express how powerful the organic growth profile is. But for the majority of the business plan, what drives the most -- the biggest proportion of FFO growth is external growth and scaling our expense load. So we're focused on it. It's important to us. But until we are a couple of years in this business plan, it is we're less reliant on organic growth. Operator: Your next question comes from the line of Floris Van Dijkum with Ladenburg. Floris Gerbrand Van Dijkum: Question on your options. I can't actually see what percentage of your leasing activity this past quarter was option renewals and what is that typically? And how do you think about that going forward in terms of limiting that ability for your tenants? David Lukes: I would say that, in general, the option rents for large national chains that do have options are consistent with the rest of the industry, which is 10% every 5. The difference is that they typically don't have as many options as part of the original term and so if a landlord does a 5-year deal with a 5-year option or a 10-year deal with 2 5-year options, by the time we buy the asset, if you look at our WALT, we're buying into that first option or even second option. And so we tend to be able to capture a lot more growth than if you had 5 or 6 options, which is fairly common for a much larger store. Conor Fennerty: Yes. And the only thing to just expand on that, Floris, so the reason the question might be why your spread is less than 10%. Remember, we're getting fixed bumps on an annual basis, which is different than an anchor tenant where you're just flat for a significant period of time, and then you get a big pop after 20, 30, 40 years. And so that's why we disclosed straight-line rents as well. And you can see we're closer to 20 there on renewals. So we're today its point, realizing some of the mark-to-market over the course of the lease. But then we got another bite at the apple earlier than you would from a lease that you signed and sit on it for 20 years. Floris Gerbrand Van Dijkum: Just -- so I think your peers are somewhere around 40% of all leasing activity each quarter is options. Is that something similar with your portfolio today? Or is that a little bit lower already? And do you expect that to trend even lower going forward? Conor Fennerty: Floris, I don't have the exact number off the top of my head. I mean we do skew towards the nationals. So I bet you, we're modestly lower, but I don't have the number available at my fingertips right now. Floris Gerbrand Van Dijkum: Conor. My second question, I noticed you had a couple of larger assets in your acquisitions. I think Mockingbird Central, which is like 80,000 square feet, and you had 1 Springs Ranch at 44,000 square feet. Could you talk maybe about the rationale behind those acquisitions? And are they different assets than the rest of your portfolio? David Lukes: Floris, it's David. The size of the asset in many cases is simply to do with what someone was able to get zoned in a certain submarket. So I think in general, you're looking at assets that we typically buy are significantly smaller. But there are locations, Boca Raton is another one, we have a large asset we bought a couple of years ago. If you're in a market that's highly supply constrained, a lot of the local kind of running errand and shop business is concentrated in certain zoned areas. So you do get larger properties in some of these higher-density markets. And honestly, the big difference for us is when we look at those types of properties, we're just very careful to understand why the consumer is coming there, what their trip generation is looking like and we want properties that have very little control from larger tenants. And so even if the property is larger, it's generally made up of smaller tenants. Floris Gerbrand Van Dijkum: So you're not concerned that you got too much shop space that you have to lease partly because of the supply constraints or... Conor Fennerty: Yes, it's more like if you think of a major thoroughfare through the United States, take Roosevelt Road in Chicago or think of in Phoenix, you're kind of up and down a long thoroughfare. A lot of the supply is just strung out along a long corridor. But in certain older markets where the zoning was different. Instead of being linear zoning, it's more like concentrated pocket zoning. You end up with having the same amount of inventory, but it's just concentrated at an intersection as opposed to an elongated thoroughfare. Operator: And your next question comes from the line of Mike Mueller with JPMorgan. Michael Mueller: I guess as the mix of institutional competition that you're up against for acquisitions, has it been changing materially, I guess, over the past few quarters? And then just for a second question. How sensitive is the competition to changes in interest rates, say, like the 10-year dipping below 4% again? David Lukes: Mike, I'll start with the second first. I think the competition tends to be very impacted by rates. Most of the competition that we're bidding against are levered buyers, and that's either small families, local investors, but it also could be private equity funds or even institutions that are using an adviser or an operator. The debt component is important. So I do think that they're more impacted than we are because we still remain to be one of the only cash buyers out there. And so I think on the acquisitions front, we're able to be pretty desirable as a counterparty, simply because we don't rely on rates. As far as competition goes, there's definitely competition in the space. I mean these assets are well attended when they come to market. I think I said last quarter, about half of our inventory is off market. And that's really coming through relationships where we have a chance to acquire asset before it's broadly marketed. That, I think, is an earned position if you've got a reputation for abiding by your word and closing. So I think the kind of premarketed or off-market deals are pretty important source of inventory for us. But we are seeing competition, whether it's significantly more than a year ago, I'd hate to say that. There's a lot of assets out there in the market. We tend to be focused on the top quartile in terms of quality. There are others that are focused on the middle or the bottom quartile. So the sector does get a lot of demand, but I wouldn't say there's been an amazing difference in the last 12 months with competition. Operator: And there are no further questions at this time. David, Lukes, I'll turn it back over to you. David Lukes: Thank you all very much for joining, and we'll talk to you next quarter. Operator: Thank you. This does conclude today's presentation. You may now disconnect.
Operator: Hello, everyone, and welcome to today's presentation with Nolato. With us presenting today, we have the CEO, Christer Wahlquist; and CFO, Per-Ola Holmstrom. [Operator Instructions] And with that said, please go ahead with your presentation. Christer Wahlquist: Good afternoon, and welcome to the presentation of Nolato's Third Quarter 2025. This is Christer Wahlquist speaking. During the quarter, we saw organic growth in both our two business areas, approximately 2% if we adjust for currency. And that, in combination with the strong increase of our margins created a strong increase of our EBITDA. So the sales ended up at SEK 2.3 billion on some and the operating profit rose 20% to SEK 281 million, that includes a nonrecurring item of SEK 7 million corresponding to an insurance claim. But as I mentioned, we saw strong improvement of margins in both business areas. We have maintained a very strong financial position with a debt ratio 0.6x EBITDA, giving us opportunity and possibility to expand together with the right business cases from existing and new customers as well as executing on our acquisition strategy. The Nolato Group consists of two business areas, the Medical Solution, being the largest part at approximately 56% of group sales and Engineered a little bit less than 50% and the rest of the business. Starting out with Medical Solutions. Here, we see sustainable growth in global expansions. And on this graph, you will see a 20-year show of our sales over the last 20 years. So we've seen good growth over the years. We have a very spread business with six focused product areas, and there are also well spread sales across global leading customers, creating a strong foundation for continuous growth and focus on these six product areas. If we look into the third quarter for Medical Solutions, we saw a sharp margin improvement, a full 1.4 percentage points, ending up at 12.1% in the quarter. That, in combination with the increase of sales, 2% created, of course, an improved operating profit ending up at SEK 159 million. We are expanding our business, so we have expansions ongoing in Hungary, Poland and in Malaysia. And all of these are according to plan. And in our Hungarian facilities, we have, during the quarter, started validation deliveries during the third quarter. And we expect that these validation deliveries to continue on approximately the same level for the coming quarters. And then subsequently expected to increase somewhere in the late second quarter. Jumping into Engineered Solutions. Here, you also see a graph of the last 20 years, and we are now in a position where we have downsized our VHP business and our building a strong foundation in the focused product areas shown on this page. Here, we have a well spread business, different product areas with a little bit different if we specifically look into the materials, which is then, of course, based on our own recipes of raw materials. If we look into the third quarter for Engineered Solutions, we saw a very sharp margin improvement, a full 1.8 percentage points during this quarter and it's coming from implemented cost savings and increased capacity utilization and of course, some price adjustments. The business sales totaled SEK 1.035 million during the quarter, which was a 2% currency adjusted organic growth. We saw sales to the automotive industry increased through higher product invoicing and more normal vacation shutdowns amongst our customers. We saw a continuous growth in our hygienic area, thanks to investments in Mexico and also a positive performance for our consumer electronics particularly in Asia. Per-Ola Holmström: Good afternoon. Per-Ola Holmstrom commenting on group financial highlights. Net sales amounted to SEK 2.342 billion in the quarter, representing a 2% growth adjusted for currency. Operating profit EBITA increased by 20% to SEK 281 million. And the EBITDA margin for the group improved by 2.2 percentage points to 12.0%, including a nonrecurring positive item of SEK 7 million. The effective tax rate was 19%, which we expected to be for the full year as well. Net investments were SEK 183 million in the quarter, a higher level of CapEx than last year as planned, mainly for the expansion in Hungary. We foresee around SEK 850 million in CapEx for the full year 2025. And by then, we expect to have paid almost SEK 500 million of the total expansion of SEK 600 million in Hungary. Enhanced cash flow after investments was lower than last year, SEK 180 million compared to SEK 191 million. Earnings per share increased to SEK 0.8 million. Return on capital employed improved again to 14.1%, mainly driven by the margin improvement. Christer Wahlquist: Okay. Focusing on the current situation per business area, starting with Medical Solutions. Here, we have our maintained growth strategy, and we see high market activity. We have been focusing on margin, implemented cost adjustment and increased efficiency. Of course, innovation and sustainability based on a broad customer with long-standing close customer relationship. We also are now expanding in Asia, in Poland and also in Hungary. On the Engineered Solutions side, we have advanced our market position. We have a lot of focus on innovative and sustainable solutions. We see success in new market, which is positive for materials and of course, expansion of our operations in Malaysia. We will now open up for questions. Operator: [Operator Instructions] First, we have Adrian from ABG. Adrian Gilani Göransson: Yes, I'd like to start off with a question on the expansion in Hungary and the outlook you gave on deliveries related to that. Are you able to say anything more specific on when you will go from these sort of validation delivery phase that you're in to a more -- to commercial scale deliveries? Christer Wahlquist: Yes. These type of large programs always have a lot of validation and it's different steps of validation. So we foresee that we will have a validation deliveries during this quarter, next quarter and the first quarter in 2026. And then somewhere in the second quarter, we will start deliveries to the outside market to the patients. Adrian Gilani Göransson: Okay. That's very helpful. And a follow-up on that. Do you see any risk related to this contract, given that the customer in question has had a bit weaker development than recently than I think most people had expected. I mean, could this have an impact on the full run rate volumes for your contract? Christer Wahlquist: We are happy with our discussions with our customers that we have not mentioned who it is. But we have good discussions, and we anticipate this program to start serial deliveries in, as I mentioned, then somewhere in the second quarter of next year and then gradually grow from there according to plan. Adrian Gilani Göransson: Okay. Understood. Then on engineered, specifically on the materials business that declined slightly year-on-year. How much should we read into that? Is that just a normal quarterly volatility? Or are you a bit more cautious on the outlook now compared to sort of last quarter, I guess? Per-Ola Holmström: Yes. As we did mention, most of that is coming from the automotive side, which is a bit pressed right now as many areas within automotive, and we foresee that going forward the next quarter as well to be in a similar development. Adrian Gilani Göransson: Okay. Understood. And then when you mentioned the efforts on consumer electronics that are actually yielding results in Asia specifically, does that mean that this Chinese facility that has been on low utilization is back at satisfactory levels now? Or are there more improvements here to make? Christer Wahlquist: We have more capacity, and our ambition is, of course, to gradually fill that with serial deliveries, but it's been improving, and we are gaining new projects and building up. But it's not fully utilized yet. Adrian Gilani Göransson: Okay. Understood. And just a final one from my end, a detail-oriented question regarding this insurance claim of SEK 7 million. Maybe I should know this, but what is that related to? And are there any outstanding claims left that could be booked as income going forward? Per-Ola Holmström: We had a flooding situation in one of the factories we have in the U.S. And this is the financial outcome so far, and it could be that we have some additional money coming from that during the end of this year or the beginning of next year. But it's no major money coming from that left. Operator: Let's move on to Mikael Laséen from DNB Carnegie. Mikael Laséen: Yes. I have a question about the project in Hungary, the validation delivery, first of all, can clarify what you mean with validation deliveries? What this means in practical terms? Yes, that's the first one. Christer Wahlquist: Okay. As I mentioned, during ramp-up of these type of very large and complex programs, you have validation of different steps, so you validate individual component manufacturing, some assemblies and then it has to be validated in the filling side of the customer and so on. So there are a lot of products that need to be tested for different variations of tolerances and so on. And this is what we are running right now. And we sell those products and are getting paid for them. So that's a normal behavior in this type of programs. Mikael Laséen: Okay. So is this meaningful in any way or very small revenue that you get right now to understand what will happen in Q4 and Q1 next year? Christer Wahlquist: Yes. The sales from these validations is approximately 1% of business area sales during this quarter. Mikael Laséen: Okay. Got it. And then moving on here, could you also talk to us about the EBITDA margin development for the Medical Solutions segment? It has been relatively stable at around 12% plus two, three quarters now. So what will drive the margins higher than above 12% or well above 12%, which I guess you're targeting? Per-Ola Holmström: Yes. If we look forward, we do see possibilities in increasing the margin towards the 13%. We did have some years back. And One thing that should support that is, of course, the new program ramping up in Hungary. We have commented on that before. And of course, also moving into higher volumes for some of the expansions we're in right now, adding up capacity utilization. Mikael Laséen: Okay. And how is the U.S. side progressing for the medical side? Per-Ola Holmström: Sorry, the new? Mikael Laséen: The Medical segment, how are they doing in the U.S? Per-Ola Holmström: They are part of the long-term improvement we have made when it comes to margins but we would still see the U.S. operations as a possibility to move to improve margins compared to the rest of the business area. Operator: And now we'll give the word to Carl Ragnerstam from Nordea. Carl Ragnerstam: It's Carl from Nordea. A question from my side as well here. On the new contract, I mean, that you're ramping up in Hungary, could you give any flavor on the production efficiency you're seeing right now, potentially bottom mix versus your expectations? And so far, I mean, it's obviously, I mean, validation volumes, but profitability projection so far if it meets your previous expectations? Christer Wahlquist: Since it's validation, there is no sort of feedback on yield and those kind of things. Of course, you can look on the individual cycle times, and they are according to our expectations, but the full yield, it's too early to give any comments on that. Carl Ragnerstam: And the production you're ramping up now, is it covering the cost so far? Is it the burden? I guess it's a burden of margins at such early stage, right? Or -- because its contributed 1% to organic growth in medical. What is the EBIT impact or if any? Per-Ola Holmström: It's, of course, a small EBIT effect, but it is covering its cost right now. Carl Ragnerstam: Okay. That's very clear. And on IVD. I'm a bit curious to hear more about what you're seeing there. Because we've seen -- I mean, as you wrote a weak start to the year, we saw before that early indications of a recovery followed by declines. So it's been a bit back and forth, at least it is that -- how I look at it. So how do you view the current recovery in that segment? Christer Wahlquist: Yes. There is a lot of dynamics behind the IVD as we've been talking about of course, the volatility and the supply chain discussions after COVID, but also the change of one customer changing to our deliveries to an end customer is that. So there is a lot of changes. But we look positive on this market segment. We see possibilities, definitely. We see a growth opportunity going so we are very positive, but we have seen, as you mentioned, some back and forth in the delivered volumes. Carl Ragnerstam: So you see the growth in IVD to be here to say for now, at least what you see? And do you see an acceleration from here? Or what is your feedback from customers? Because they used to be quite a good earnings driver. Christer Wahlquist: Yes. I think the feedback we get from customers is that it's a long-term growth area. They see that and they are adding new test into this type of product. So definitely a long-term growth opportunity. But with some volatility still going on in the single deliveries over quarter-for-quarter. Carl Ragnerstam: Okay. That is very clear. And also, maybe you mentioned it, I didn't hear the full call. But in the materials, you've seen the sort of weakness in automotive. On the other hand, where you've seen telecom, I mean, offsetting it. How do you view the short midterm development here? Because we've seen the deceleration in telecom, if I remember correctly, right, from very favorable comparisons. So do you see it at low single-digit negatives ahead as well short, midterm before automotive picks up pace or how do you view the trajectory from here? Per-Ola Holmström: I think we should see a sequential development for materials, which is very similar as this quarter in the next quarter. That is the best view we can give. Long term, it is a good growth opportunity for us. But this quarter and also in the next quarter, we foresee a bit slower operations in that area. Carl Ragnerstam: And when you see sales sequentially, is it a minus 1? Or is it in absolute numbers or perhaps both? I don't have the comps on top of my head. Per-Ola Holmström: I would say, in absolute numbers similar to Q3. Operator: That concludes the Q&A session here. Thank you very much, Christer and Per-Ola for presenting here today. Thank you, everyone, for tuning into this webcast with Nolato and I wish you all a great rest of the day. Thank you very much. Christer Wahlquist: Thank you. Bye-bye.
Christopher Eger: Good morning, and welcome to Resolute Mining Q3 Quarterly Highlights. My name is Chris Eger. I am the CEO of Resolute Mining, and I'm joined today by Dave Jackson, our CFO; and Gavin Harris, our Chief Operating Officer. Moving to Page 3. Let's start with some of the key highlights of the quarter. So as you see on the page, we had gold poured of 59,807 ounces, just shy of 60,000. And for the year, that brings us to 211,000 ounces of gold poured. With regards to our group AISC, in Q3, we achieved a $2,205 per ounce cost. It's worth noting though that in Q3, we are paying a much higher royalty expense across the business because of the higher gold price environment. So we estimated that the AISC increased by about $125 in Q3 relative to previous quarters as a result of the higher gold price environment. The business generated a healthy amount of cash in Q3 of around $26 million. Therefore, we ended the quarter with a net cash position of $136 million. Overall, the gold price that we achieved in Q3 was $3,400, which also was an increase over Q2 as the Q2 gold price average was $3,261. Very pleased to say that our TRIFR reduced from the previous quarters, and we're now sitting at 1.95 for Q3. And one of the key developments that we had in the quarter was to increase our resource at the Doropo project in Côte d'Ivoire, and now we're sitting at 4.4 million ounces. As you also see on the bottom right side of the page, we have now narrowed our guidance as we're approaching the end of the year and have much better visibility of our activities in both our operating sites. Our original production guidance of 275,000 ounces to 300,000 ounces has now been narrowed at the bottom end of the range to 275,000 ounces to 285,000 ounces, predominantly from a decrease at Syama, which again, I'll explain in the upcoming slides. Also on the all-in sustaining cost, which was originally guided at $1,650 per ounce to $1,750 per ounce, we have now increased the AISC by $100, really to reflect the higher gold price environment, which is increasing royalty rates, royalty costs, as we say, across the business. But again, this will become clearer as we talk about both Syama and the Mako operations. Moving to Slide 4. I wanted to recap what we believe is a very exciting and attractive organic profile that we put in place at Resolute Mining. As you can see, in 2025, our updated guidance provides a production profile of 275,000 to 285,000 ounces. In the next 2 years, we expect similar type production levels as we will be continuing to process stockpiles at Mako. But with the ramp-up in Syama as a result of the SSCP, we expect to start hitting numbers closer to 300,000 ounces, probably more in 2027 than 2026. But very excitingly, from 2028 and onwards, once we bring Doropo into production, we feel very confidently that the business will start to achieve production levels above 500,000 ounces. But moving beyond 2029, I'm very pleased with the amount of work that we're doing in exploration that the business has real potential to dramatically increase its production profile beyond 500,000 ounces. So in summary, the business is very much on track for this growth profile, and I'm very pleased with the progress that we've made year-to-date with the substantial transformations that have happened in the business throughout 2025. Now let's move into each of our country activities to give a quarterly update on the key progress that's been made across the group. So starting with Mali, let's turn to Page 6. As previously highlighted, Syama unfortunately continued to have operational challenges in Q3, mainly due to supply chain disruptions from explosives. So gold poured was just shy of 40,000 at 39,918 ounces, slightly down from Q2, which was around 41,000 ounces. We saw all-in sustaining costs increasing quite a bit to $2,358, but one of the key contributing factors to increasing AISC was that for the quarter, we saw an increase in royalty rates as a result of the high gold price, and that impact of higher royalty rates resulted in a higher AISC of about $160 relative to our original guidance at the beginning of the year. CapEx was as expected for $26 million for the quarter. And so look, talking about the site, we made some good progress on supply chain disruptions, whereby we have now increased suppliers with regards to explosives, but explosives continues to be the Achilles heel of the operation. Today, we're sitting around 100 tonnes of explosives, which is only about 1 month's worth of stock, not even, to be honest. We have activities in place today to try and get an additional 400 tonnes, which will take us to the end of the year. But unfortunately, the explosives and supply chain situation continues to be very delicate, and we're managing the best possible by trying to bring in as many new suppliers as possible as well as to work with the government in the logistics of those explosives. We're making good progress on the underground even with the explosives that we have. Today, we're starting to mine continuously 8,000 tonnes per day relative to what was half of that at the beginning of the year. So look, the activities on site are going well. We're making some good inroads in reducing costs. We're right now also in the budget season for 2026. And so I'm pleased with how the team is coming together. But unfortunately, like I said before, the explosive situation is really a key contributing factor to the reduced production levels. In Q3, we also made quite a few management changes on site. And today, Gavin, who's here with me, is effectively acting as a General Manager as we are completely restructuring the management team at Syama in order to prepare for a much more profitable 2026 and beyond. The oxide production is also reduced in Q3 because we're very much at the end of the life of the oxide production. And so we experienced expected lower grades as a result of diminishing oxides. So unfortunately, as a result of the challenging year that we've had at Syama, we have decided to reduce the full year production guidance to 177,000 ounces to 183,000 ounces. And I could say probably the vast majority of the reduction in ounces as a result of the lack of explosives, which, as I said before, has been a real frustration for us. Therefore, with the lower production and the higher gold price, we've needed to increase the all-in sustaining costs by roughly $200 to reflect the changes in the business environment. But what I want to highlight is of that $200 increase, probably 2/3 of it relates to the higher gold price environment that we sit in today relative to the beginning of the year. All in all, at Syama, it's been a very challenging year, but I am quite confident that as we look to 2026 and beyond, we are putting in the right people and the right infrastructure in place to start to achieve our historical targets. On to Page 7. One of the key projects that I believe may have gotten lost in the investment thesis of Resolute Mining has been the Syama Sulphide Conversion Project or as we call it, the SSCP. To recap, this is a very exciting project that was commenced back in 2023. And what we're doing here is converting our oxide line to process sulfides. It's roughly $100 million project that is now in the final stretches of completion. This project has run extremely smoothly. It's been on budget, on track. And I'm very pleased to say that after close to 1 million man hours spent, we've had no LTIs. As explained, the project is well on track. This year, we've spent just over $20 million of the planned guidance of $30 million. In Q3, we added 2 additional CCIL tanks that you can see in the top left part of the picture as well as commissioned the pebble crusher. Both of those achievements will add a bit more flexibility to the business with increasing a bit more recovery as we are starting to have increased residence times in the CCIL tanks. However, the main benefit will come next year once the secondary crusher and the ball mills are commissioned as well as the roaster upgrades. So moving into 2026, the site will be fully operational to process 100% sulfide ore, which will dramatically increase the flexibility of the operations and expect to increase the production back over 210,000 ounces for this foreseeable future. So this has been a great project that we've completed or near completion, and it shows the capabilities of our business in building projects on time and on budget, which I think speaks to the team as we're starting to enter operations and constructions at Doropo next year. On to the next slide, Slide 8. I wanted to highlight a few other activities that have been important in Mali. As some of you may know, back in October, early October, I visited Mali and had a chance to meet with senior government officials. Most namely on October 10, I was able to meet with both the Prime Minister and the Minister of Mines in Bamako. This was my first trip to Mali as CEO of Resolute Mining, and I have to say it was a very productive trip. The discussions with both the Prime Minister and the Minister of Mines focused on historical challenges of the business, activities that we're facing today, but most importantly, trying to create a platform for constructive growth. So we had a very open discussion around what's happened in the past, what are the challenges that face the industry today and how to try and work together for the future. It was an initial conversation that will lead to many more discussions, but I have to say, pleasingly, it was a step in the right direction. Other activities at Syama have been focused on exploration, although in 2025, exploration has been less of a priority at Syama relative to other areas in the business. We have targeted a few potential oxide ore bodies, but I have to say they have not come back with meaningful results. Moving into 2026, though, we will look to increase our exploration activities at Syama, but most likely with a focus of really developing additional sulfide ore in order to fill the plant considering the flexibility that's been implemented in 2025. So in summary, before I move to talk about our operations and activities in Senegal, in summary, activities in Mali this year have been very complicated. We've had a lot of changes. We've made a lot of significant management changes, but I'm confident that now we are putting in the right pieces, the right people, the right infrastructure in order to have a much more successful year in Mali in 2026 and beyond. What will be key to the success of Syama will not only be our people and our operations delivering their targets, but maintaining a constructive and productive dialogue with the government, which I'm confident will result in a win-win solution for Resolute Mining, our employees, the community as well as our stakeholders. Now let's move to our activities in Senegal, starting first with our Mako operations on Slide 10. I'm very pleased to say that in Q3, the site produced just shy of 20,000 ounces at 19,939 ounces. And year-to-date, we've achieved 82,000 ounces of gold poured. So as a result of the very strong first 3 quarters of the business and what we expect for the remaining quarter for 2025, we believe that full year production will fall somewhere between 98,000 to 102,000 ounces at this stage. Therefore, we've increased guidance to these levels. As we look at AISC, with the higher production from the site, but a slightly higher AISC as regards to the higher royalty, we believe that AISC will remain unchanged from a guidance perspective between $1,300 and $1,400 per ounce, although I will probably say that we'll end up being at the lower end of that guidance. So all in all, the activities at Mako have had a very robust year. The site has been performing extremely well, and I'm very pleased with the activities at Mako. However, there's a lot of other activities in Senegal that are worth noting, specifically as it relates to our mine life extension projects. Looking on Page 11, as you can see, we have 2 key projects that we are in the process of developing in order to add additional ore and mine life to the Mako operations. As discussed in the past, the 2 projects are Tomboronkoto and Bantaco. Today, both deposits have over 600,000 ounces of known gold that we believe will add at least 5 to 10 years of additional mine life to the Mako operation. But there's a lot of work that needs to happen in order to develop these 2 satellite deposits, which I'll go through in detail in the next couple of slides. Starting with Tombo, on Page 12. In Q3, we had a very key milestone with regards to the fact that the ESIA for the Tombo development was lodged with the government, and we're in active dialogue in discussing that ESIA with the government to get hopefully their approval by the end of this year or in Q1. Having the approval of the ESIA is a key milestone in order for Resolute to file for its mining exploitation permit planned for some time early next year. The other key activities at Tombo was ongoing community engagement to educate the folks that are involved around the benefits of developing Tombo as people remember, we have to move a village. And finally, the other key activities at Tombo was regards to completing the technical reports, namely the DFS required in order to file for that mining application in the beginning of next year. So in summary, I'm very pleased with the activities at Tombo in Q3. Again, I congratulate the team and the filing of the ESIA and looking forward to getting the government's comments so that we can maintain our time line, which you can see in the bottom left of the page. So there's still quite a lot of work that needs to be done. The permitting and licensing will probably be the biggest risk to the overall time line. Once we have the exploitation permits in hand, we can start to really develop the project by moving the village in order to get into mining the ore body in sometime in 2028. Moving to Slide 13. The other key activity in Senegal has been our progress at Bantaco. If you remember back in July during my Q2 announcement, we provided initial MRE at Bantaco, and in Q3 of this year, the key focus for us has been to continue to drill at Bantaco with regards to doing infill drilling at Bantaco South, also at Bantaco West as well as some additional drilling to expand the resource. But really, the focus has been infill drilling. And as we look into Q4 and early next year, we'll be looking to expand the Bantaco resource. That infill drilling was needed so that we can complete the technical studies required as well as the ESIA for Bantaco and get that lodged with the government so that we can be in a position to file for an exploitation permit in Q2 of 2026. There's 2 pictures on this slide on the far right. The picture on the top is Bantaco South, and you can see some of the promising drill results that we've had in Q3 as regards to infill. We believe the deposit continues to extend at strike and also down dips, and we will continue to explore across this area, like I said, in the latter part of this year and into next year in order to make the deposit at Bantaco South bigger. The other picture that you see on the bottom right of the page shows Bantaco West. This is an interesting picture because you can see the Bantaco West potential ore bodies, and you can also see the Tombo ore body in yellow. The magenta line to the left of the Bantaco West ore bodies represents the planned road diversion that we'll have to undertake in order to develop the satellite deposits. So again, congratulate to the team for the significant amount of work that they've done in Q3 in order to progress both Bantaco and Tombo as these are key projects with regards to the extension of the mining activities at Mako. But again, I'm very pleased to say that all the activities are on track, on budget, and the team is doing a fantastic job. Now moving to Côte d'Ivoire. I'm very pleased to say that the Doropo project remains very much on track and on budget at this stage. A key development in Q3 was the fact that we updated the MRE to 4.4 million ounces based off of a more realistic gold price, and this was published in September. The increase in gold price has created a lot more optionality and flexibility for the development of Doropo, and we're in the process today of very much updating the DFS with regards to creating this additional optionality and flexibility. So key activities in Q3 across Doropo was the increase in the MRE, continued work on the updated DFS, community activities as well as permitting, specifically as regards to key activities in updating DFS. The main focus has been to think about increasing the capacity as regards to the fact that we know there's going to be a lot more gold than that was originally anticipated. We're also evaluating different power options. And most importantly, we're updating all the cost figures for more realistic assumptions based off today's environment. So today, we very much see that we are on track to provide an updated DFS at the end of November, early December, which will crystallize the value of the Doropo project. The other key activity in 2025 is around permitting. As flagged in the past, we are in the final stages of getting our exploitation permit granted. But what we knew would be a bit of a complication around the permitting process was the fact that there were elections in Côte d'Ivoire on Saturday, which thankfully, what we hear have gone very peacefully. But unfortunately, because of the elections and the politicking that occurred before the elections, the Minister of Mines office has been preoccupied with the elections at this stage. However, we believe that discussions will resume, and we should be able to get our permits granted by the end of this year, worst case, very beginning of next year. However, none of that changes the overall time line because we still envision that we will proceed with final investment decision post updated DFS and permits, either at the end of this year or early next year and then start early works, complete financing, all with an anticipation of being in production in 2028. So overall, very pleased with how the project is developing. There's been an awful lot of work. There continues to be an awful lot of work in getting all the steps completed. But at this stage, we're very much on track. Moving to Page 16. I wanted to talk to you about some of the other key exciting activities in Côte d'Ivoire, namely on exploration. So first, let's start with the ABC development project. ABC today has over 2.2 million ounces at 0.9 grams per tonne. But as you can see in the picture on the right, those ounces are dedicated to the Kona permit, which is in the middle of the 3 red boxes. In Q3, we did quite a bit of additional work on all the different permits in order to identify where we would like to drill next. And very pleasingly, we are going to start drilling in the permits in the north, the Faraco and Nafana permits with a planned 10,000 meters of RC drilling to commence in November, and that will continue into early next year. We're very excited about that area because, as you can see, it's just southeast of the Awale-Newmont joint venture license, which have had some very high-grade intercepts in the past quarters. However, we're not going to stop doing work at the Kona and Windou permits. We've done quite a bit of surface geochemistry and mapping. And as we've seen, we believe there's additional resources in order to expand and grow that deposit. And so we are targeting at least 15,000 meters of RC drilling in order to develop that deposit. So in combination between the 3 areas, we're very excited about what we see at ABC and has the potential to become a fourth mine for Resolute at some point in the future. And finally, before I turn the page, it's worth noting that we're still active in looking for new permits in Côte d'Ivoire as we find it to be a very interesting area for development. And as you can see on the bottom right side of the page, we were granted a permit called [ Gbemanzo ] which was actually granted in June of this year, and we still have permit applications for 2 others that we expect to receive in 2026. And moving to our final exploration projects in Côte d'Ivoire. On Page 17, I want to give you an update of the La Debo project. So to date, La Debo has over 400,000 ounces at 1.3 grams per tonne, but that resource is dedicated to the northeast of the deposit, which you can see in the bottom left picture between the G3N and G3S areas. In Q3, we finished our exploration activities at La Debo. And today, we're in the process of updating our MRE, which we believe will be a substantial increase in what was previously published, and we're on track to update that MRE by the end of this year. Moving forward, we will look to expand our drilling activities focusing on the middle to southwest parts of the deposit. So again, very pleased with the progress at La Debo. We believe that this project also has very exciting potential. But at this stage, it's a bit too small for us to say it will become a mine, but it has the potential to do so. So with that, let me turn it over to Dave Jackson to discuss the financials of our Q3 results. Dave Jackson: Thanks, Chris. Today, I'll walk you through this quarter's headline financial results, highlighting the key performance metrics. Overall, our Q3 metrics were in line with our expectations as we continue to strengthen our balance sheet and build cash in the business. Looking at the financial highlights, our year-to-date EBITDA was an impressive $293 million versus $225 million in the same period last year. This performance was underpinned by revenue of $664 million. This was generated from the sale of 209,000 ounces of gold at an average realized price of $3,175 per ounce. As previously noted, Resolute remains fully unhedged and continues to sell all of its gold at spot prices. At quarter end, net cash stood at $137 million, marking more than a $20 million increase from Q2. Included in the net cash figure is $58 million of bullion, representing nearly 15,000 ounces of gold that we have sold after the quarter closed. We had $32 million drawn on overdraft facilities at quarter end. These continue to be used locally to optimize working capital. The group has in-country overdraft facilities of approximately $100 million available as we continue to maintain financial flexibility for the group. The group all-in sustaining cost for Q3 was $2,205 per ounce sold, which represents a $500 per ounce increase from Q2. This increase was primarily driven by the expected reduction in gold production at Mako, the impact of supply chain issues, which impacted gold production at Syama and the increased royalties at both sites due to the rising gold prices. This has added approximately $125 per ounce in Q3 at the group level. At Syama, all-in sustaining cost was higher than Q2 due to lower production volumes as we continue to experience supply chain issues. As Chris already mentioned, while we are cautiously optimistic that we're addressing these issues, the situation in Mali continues to be unpredictable. Despite these challenges, we are focused on maintaining strict cost control across the group. Let me now walk you through the key components of our financial results that led to the cash and bullion position of $168 million at the end of Q3. We generated a solid $68 million in operating cash flow during the quarter. CapEx totaled $89 million year-to-date. This includes $20 million allocated to exploration, $28 million in sustaining capital across Syama and Mako and $41 million in non-sustaining capital at Syama, of which $20.7 million was spent on the SSCP. Overall, CapEx and exploration spend was in line with expectations, and we remain on track to deliver our 2025 guidance range of $109 million to $126 million. As previously noted, we made the initial $25 million payment for the acquisition of the Doropo and ABC projects during Q2. These projects represent exciting growth opportunities for the company and are expected to deliver meaningful long-term value for our stakeholders. VAT outflows at the end of Q3 totaled $20 million across Mali and Senegal. VAT remains a source of cash leakage for us, but we continue to engage actively with local governments to recover these amounts. Our recent discussions have been positive, and we remain encouraged by the progress being made. We recorded a $5 million working capital inflow for the year-to-date, primarily driven by a reduction in stockpile balances. Also, we have made solid progress in lowering consumable inventory levels as a part of our ongoing efforts to optimize working capital. Our ending cash and bullion of $168 million marks a $67 million increase from the beginning of the year. This leaves us with ample available liquidity of over $244 million at the end of September. As noted on the 15th of October, Loncor Gold entered into a sale agreement whereby subject to certain conditions, Chengtun Mining will acquire all the outstanding common shares of Loncor in an all-cash transaction. Resolute holds just over 31 million common shares of Loncor that are valued at around USD 31 million at the current exchange rate. The transaction is expected to close no later than Q1 2026, and Resolute expects no tax impact on its proceeds once received. In summary, we're in a very solid financial position and are excited about the growth potential of the business. And with that, I'll hand it back to Chris. Christopher Eger: Thank you, Dave. So look, in summary, I'm very pleased with how the business performed year-to-date, although we had a very difficult time in Mali with the explosive situation. So as such, we're still very much on track for full year group production guidance, albeit at the lower end of the range of 275,000 to 285,000 ounces. The business is performing well. We're producing cash, as you can see through our net cash generation of $26 million in Q3 and therefore, ending the quarter with a net cash position of $136 million. We continue to make good progress across the group, namely in Côte d'Ivoire with our development of the Doropo project. So we're very much advancing all our strategic initiatives across each of the countries that we operate, and we're very much on a pathway to deliver targeted annual production of over 500,000 ounces from 2028. With that, I'll hand it over for questions. Thank you very much. Operator: [Operator Instructions] We'll take our first question from Reg Spencer from Canaccord. Reg Spencer: Congrats on a good quarter. My question relates around what I'm sure is a frustrating issue on explosives in Mali. Can you tell me what you think the circuit breaker to this situation might be? Are we at a stage where we should be concerned about maintaining current levels of production? Or is there really any risk to near-term or medium-term production outlook due to the ongoing issues? Christopher Eger: Thanks for joining the call. So look, with regards to explosives, it hasn't been easy because I think I've highlighted before at the very beginning of the year, we lost our historical explosive supplier. We moved to a new supplier that has not been performing well throughout the year. And so now we've added a second supplier into the mix, which will help. But what complicates matters is the fact that there's been also fuel shortages in country, which you may have heard about from some of our other colleagues. That hasn't impacted ourselves with regards to our fuel activities, but it has impacted the generation of explosives. So that's been a major concern as well because the supply of explosives is just obviously low in Mali. And then look, the last component, which I've also highlighted in the past has been the complicated government regulations required to import and move explosives around. We are making no progress educating the government on this fact, and we've also highlighted to them that, look, we're down a meaningful amount of gold production this year because of their frustrations, and we've seen them react quicker to this. So the way we think about it today is that with additional suppliers, with additional education from us to the government, we do think we're in a better spot. We have more stock than we've had historically throughout the year. And like I said, we're probably building enough stock to get us to the end of the year. But it is unfortunately going to be an ongoing bit of a struggle to have, call it, ample stock for the 2026. So it's a risk, but I do think we've been heading in the right direction. Reg Spencer: I appreciate if you can really give much more color around the situation. I know some of the other operations in Mali may not be actually operating, but it sounds like a countrywide thing, it's certainly not specific to you guys, right? Christopher Eger: From what we see, yes. I mean, look, we are trying to buy explosives from our other -- to the other operators in country, and we're having a bit of progress. But in some cases, we're not having any progress, which just demonstrates that it's not -- there's not a lot of ample supply of explosives in Mali these days. Operator: We are now taking our next question from Will Dalby from Berenberg. William Dalby: Just a couple from me. I think in light of this explosive situation and obviously, the higher royalties, I'm just wondering if you feel there's much scope to improve your group AISC next year versus this year? That's the first one. Christopher Eger: Look, so in short, yes, because we think, look, next year, the production volumes at Syama will go up as we have effectively commissioned and will be commissioning SSCP. So we're obviously in the budget process now, but we expect to be back up above 200,000 ounces. So that will help on one aspect. But look, the gold prices is the other key component. Today, we're sitting at just shy of $4,100. And obviously, that has a meaningful impact in royalty expenses, which will impact the site. But look, on an apples-to-apples basis, we do expect AISC to decrease next year because of the higher production. But I just don't have an exact figure in my head because of the higher royalty expenses today. William Dalby: And then second, sort of just around the VAT receivables piece in both Mali and Senegal, that's sort of been an ongoing challenge there. I wonder if you can flesh out and give a bit more color on that situation? Are you seeing any kind of progress there? And how is that kind of unfolding? Dave Jackson: Yes. Thanks, Will. It's Dave here. Yes, the situations are very different in both countries. So we mentioned in the quarterly release, we are getting VAT back in Senegal, which we used to offset various government payments. So the situation is quite positive in Senegal. But in Mali, it still remains to be a point of cash leakage for us. I mean, we're engaging with the government discussing potential path forward. But as we stand right now, we continue to be not getting any of the VAT back. So there is quite a bit of cash leakage, as I said, in Mali. And until that's resolved, it will be a bit of an issue for us. Christopher Eger: And Will, it's worth noting that when I met with the government officials, namely Prime Minister and the Minister of Mines, we obviously put this as one of the key topics and said, "Look, not getting our VAT refunds is impacting the future growth of the business," and they understood it. So I think they're hearing the message from quite a few folks, but unfortunately, because of their economic situation, it continues to be very difficult to get them. And I'm not optimistic that we'll get any more in the rest of this year. William Dalby: And then maybe just a quick last one. I just sort of know in [indiscernible] on these very helpful development time lines that you have, you have plant modifications at Mako for Tomboronkoto. I just wondered if you could give a bit more detail around what's required there. I see it's in the time line for Tombo but not Bantaco. So is that sort of specific modifications for that deposit? And yes, I guess, how is that working? Christopher Eger: Yes. So look, the ore at Mako, the original ore was quite ore rock. But as we look to mine ore from both Bantaco and Tombo it's a lot softer, and so it's going to require additional capacity. The other key area of improvement in the plant is to increase overall throughput. So today, Mako has a throughput capacity of about 2.3 million tonnes per annum, and we're looking to increase it to 2.9 million tonnes per annum because we've been historically processing ore at probably 2.2 grams per tonne and both Tombo and Mako -- sorry, Bantaco and Mako are going to be closer to 1.1, 1.2. And so in order to try and maintain appropriate production levels, we want to increase the capacity. So that's the main reason for the plant modifications. Operator: [Operator Instructions] It appears we have no further questions. I'd now like to turn the conference back to Chris Eger for any additional or closing remarks. Please go ahead, sir. Christopher Eger: Look, thank you very much for joining the call. And look, like I said, it's been a challenging quarter. But in summary, we believe we're on track to deliver a very robust set of performance for 2025 and the platform for a very robust 2026. Thanks again. Have a good day. Cheers. Bye.
Operator: Welcome, ladies and gentlemen, to the analyst and investor webinar on the 3Q results for HSBC Holdings plc. For your information, this call is being recorded. I will now hand over to Pam Kaur, Group CFO. Manveen Kaur: Welcome, everyone. Thank you for joining. We are making positive progress towards creating a simple, more agile growing HSBC. The intent and discipline with which we are executing our strategy is reflected in the momentum this quarter and our target upgrades. Most notably, our annualized RoTE of 17.6% year-to-date excluding notable items. Throughout this presentation, I'll focus on year-over-year comparisons. This will exclude notable items and be on a constant currency basis. The equivalent comparisons on a reported basis can be found on Slides 16 and 22. Let's turn straight to the highlights. We reported a strong quarter. Total revenues grew $500 million to $17.9 billion. Wealth had another good quarter, with 29% growth in fee and other income. Our customer deposit balances stand at $1.7 trillion. If we include held-for-sale balances, these grew by $86 billion. We are also investing for growth. On 9th October, we announced our intention to privatize Hang Seng Bank. We see this as a compelling opportunity. Let me set out clearly our reasoning. First, it meets all four of our criteria for acquisitions. Second, we see good growth in Hong Kong in the years ahead. It's a business, in a whole market we know very well. Third, we see an opportunity to create greater alignment for better operational leverage and efficiencies. Fourth, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle. Fifth, we are removing a $3 billion capital inefficiency. This is a transaction which we initiated as a growth investment. It is also a statement of our confidence in the outlook for Hong Kong. We are in an offer period, so we are unable to give more details on synergies at this stage. What I will say is that consolidating the noncontrolling interest from the profit and loss increases our profit attributable to ordinary shareholders. We have also said that we see the potential for additional revenue through expanded capital market products to Hang Seng commercial clients and Wealth products to its affluent clients. And we can simplify and streamline decision-making processes, improve operational risk management and better align operations, which we expect will result in efficiencies. We are confident the integration will not distract us from organic growth and it's more value generative than a share buyback. Turning now to upgrades. We are delivering against the targets we set out to you. We are now upgrading two items: our 2025 banking NII to $43 billion or better, our 2025 RoTE, excluding notable items to be mid-teens or better. We remain disciplined with our shareholders' capital, investing it where we see growth, exiting businesses with the intention to redeploy the costs where we don't. We are progressing at pace with the exit of nonstrategic activities. This quarter, we have announced the exits of HSBC Malta and Retail Banking in Sri Lanka. This brings our total announced exits to 11 so far this year. Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. The review will not include our wholesale banking activities in Egypt, which remains an important market and one we believe has strong potential for growth. Finally, we are on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Let's now turn to the firm-wide financial results. First, the income statement. Annualized RoTE was 16.4% in the third quarter or 17.6% year-to-date, both excluding notable items. Revenue grew 3% year-on-year to $17.9 billion in the quarter. This was driven by a return to growth in banking NII and strong fee and other income. Profit before tax was $9.1 billion. Looking at our capital and distributions. Our CET1 capital ratio is 14.5%, and we continue to target a dividend payout ratio for 2025 of 50% of earnings per ordinary share, excluding material notable items and related impacts. Let's now turn to our business segment performance. We grew total revenue by 3%, and each of our four businesses returned greater than mid-teens annualized RoTE. Moving now to banking NII. $11 billion this quarter is a return to growth driven by deposit volumes. We are raising our full year guidance to $43 billion or better. I know you will have questions on the outlook. So I'll note here the multiple drivers of banking NII. HIBOR, which has recovered; deposit growth, which continues; interest rates, where the Fed is still cutting. We have grown our structural hedge to $585 billion and its rolling on to higher yields. I'll also just mention that the chart on the left is on a constant currency basis, while our full year guidance is as reported. There is a reconciliation in the footnote. Turning now to wholesale transaction banking. We are pleased with our strong ongoing customer engagement. This year has really validated the strength of our franchise in a range of economic and tariff situations. Both payments and trade grew again in the third quarter. In trade, I would note the first half was particularly strong as we supported customers to navigate a fast-changing trade landscape. In security services, fee and other income grew 15%. This was due to higher asset balances given improved valuations and new customer mandates in Asia and the Middle East. In FX, performance reflects lower currency volatility and a strong prior year comparison. Looking through this, performance of $1.3 billion was strong. Turning now to Wealth. We delivered 29% fee and other income growth to $2.7 billion. This shows our strategy is working. Net new invested assets were $29 billion, with more than half coming from Asia at $15 billion. This takes total invested assets to $1.5 trillion. Wealth was driven by all four income lines. Our insurance CSM balance is up by $2.5 billion year-to-date. This is driven by strong new business. I would note that we review our insurance assumptions in the third quarter, favorable experience and strong market performance slightly flatter at these figures. Private Banking grew 8%; and Asset Management, 6%, respectively. Investment distribution also performed very well, up 39%, reflecting strength in our customer franchise in Hong Kong. And Wealth is not just a Hong Kong story. It runs across our Asian franchise with double-digit fee and other income growth in Singapore, Mainland China and other markets. We are providing you with a little extra color this quarter on our Hong Kong flows on the next slide. We are pleased to have added 318,000 new-to-bank customers this quarter. This brings us to more than 900,000 year-to-date. What this slide shows, over a slightly longer period is that nonresident customers have been a significant driver of customer activity and balances. These new-to-bank customers have contributed up to 1/3 of flows across deposits, investments and insurance. We see new nonresident customers as a significant and long dated opportunity for the bank. Now let's turn to credit. ECL of $1 billion is flat year-over-year and down modestly on the second quarter. We retain our full ECL guidance of around 40 basis points. Our ECL charge this quarter includes $0.2 billion Hong Kong commercial real estate. On Slide 19, you will see we have updated the Hong Kong commercial real estate slide we showed you at the half year. Other charges include $150 million from a Middle East-based customer, $0.3 billion in the U.K., $0.2 billion in Mexico and a $0.1 billion release due to improved economic assumptions. Now let's turn to costs. We remain on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Year-to-date, we have taken actions to realize $1 billion of annualized simplification savings with no meaningful impact on revenues. We continue to expect $0.4 billion simplification savings to be realized in the full year 2025 P&L. It's worth noting that there is some slight seasonality to costs in the fourth quarter, which also includes the U.K. bank levy. This quarter, we have $1.4 billion of legal provisions on historical matters, which don't impact our ongoing business. They consist of $1.1 billion, as you will have seen in yesterday's announcement relating to made-of litigation, which is a material notable item and, therefore, does not impact any dividend, and $0.3 billion related to historical trading activities in Europe, which is a notable item. I would also just draw your attention to Appendix Slides 16 and 17, where we detail recent and potential future notable items. This leads us to our exit of nonstrategic activities, which we will discuss on the next slide. We are progressing at pace. With our exit of nonstrategic activities, this slide sets out that progress. The red boxes show the exits announced in each quarter, the gray, those in prior quarters. Given the phasing of the sale processes, only Grupo Galicia is currently complete with others to follow. In the third quarter, we have announced Malta and Retail Banking in Sri Lanka. Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. As I said earlier, the review will not include our wholesale banking activities in Egypt, which remains an important market. As a reminder, costs released from the exits of a nonstrategic activities will be invested in our priority growth areas at accretive returns. Now let's turn to customer deposits and loans. Including held-for-sale balances, we've had another strong quarter with $86 billion of growth in deposits in the last 12 months. By business, there is some volatility this quarter. Silver bond subscriptions in Hong Kong moved deposits from Hong Kong business to CIB for a few days over quarter end, benefiting CIB balances. CIB also benefited with -- from some large client deposits, which may be short dated. Overall, we see good momentum in our customer deposit franchise. In the U.K., lending was the standout. We saw continued growth in mortgages and our commercial lending book. Infrastructure being a key area of focus. In our U.K. business, the book has grown 5% year-over-year, which includes a drag from the repayment of COVID loans. We see low levels of household and corporate debt in the U.K., which we expect to provide a platform for the continued growth of our franchise. In Hong Kong, we saw customer repayments and corporate deleveraging notably in the commercial real estate space. Credit demand remains muted. Now turning to capital. Our CET1 is 14.5%, reflecting strong organic capital generation during the quarter. We said with the announcement of the Hang Seng offer that we do not expect buybacks for the next 3 quarters. That is, of course, dependent on underlying capital generation with strong profitability and currently modest loan growth via highly capital generative. Finally, let's turn to targets and guidance. In summary, the intent with which we are executing our strategy is reflected in the growth and momentum in our performance this quarter. It again shows discipline, performance and delivery. Discipline in the way we are applying strong cost control. We are on target to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Our simplification saves are ahead of our previous expectation. We have announced 11 exits so far this year. We will continue to progress at pace and invest costs released from exits into priority growth areas. Performance in our earnings. Each of our four businesses is making mid-teens RoTE or better, excluding notable items. Delivery, our third quarter results show that we are creating a simple, more agile growing HSBC. Revenues grew and excluding notable items, our year-to-date 17.6% RoTE demonstrates that we are delivering against the targets we set out to you. That is why we expect 2025 RoTE, excluding notable items to be mid-teens or better. With that, I'm happy to take your questions. Operator: [Operator Instructions] Our first question today comes from Aman Rakkar at Barclays. Aman Rakkar: I wanted to ask about banking NII rather predictably, please. So just at face value, your guide does imply a decent step off in interest income in Q4. But I don't think that you really mean that. I just wanted to kind of check in around what your expectations are for net interest income in kind of Q4. I guess I'm particularly mindful of the tailwind from average HIBOR in the quarter alongside things like the structural hedge and hopefully, balance sheet momentum. My best guess is that Q4 NII is actually up Q-on-Q. But any color you can give us there in terms of what you mean and what the drivers are, would be very helpful. And then the second question is around deposits. And I'm interested in your take on the sustainability of the kind of current 5% underlying deposit growth that you're benefiting from at a system level. Obviously, Hong Kong year-to-date has been a key driver of that. And how sustainable do you think this level of pace is? And what confidence does it give you around things like net interest income growth next year? Manveen Kaur: Thank you, Aman. So firstly, on banking NII. I want to say that we are not walking back the Q4 as a starter. As the maths would show, we are saying that the banking NII would be no less than $10.6 billion. So absolutely, that's why it is $43 billion or better. And you are quite right from a balance sheet momentum, we see that continuing from the third quarter onwards, albeit there can be a few seasonality fluctuations. HIBOR is a tailwind, structural hedge is a tailwind, but we should be mindful that the U.S. dollar rate curve will be a headwind. So that's where we are on banking NII. In terms of deposits, and as you know, we are not giving a guidance on banking NII for 2026. But our deposit franchise is very strong across all markets, all currencies, all business areas. So it's not just dependent on Hong Kong dollars. But of course, we are very pleased with our preeminent position and strength in Hong Kong, which is a key driving force for the deposit growth. So very positive on deposit growth from here on as we've had before. Operator: Our next question today comes from Guy Stebbings at BNP Paribas. Guy Stebbings: The first one was back on bank NII then one on insurance. So obviously, quite a big move in the banking in our guidance. Outside of HIBOR, is it really the deposit strength that's the delta in terms of the guidance here? I mean you also referenced yield curve steepening. So I'm just wondering if you would encouraged to think about anything above and beyond the structural hedge roll when you think about yield curve steepening when it comes to NII? And then on insurance, really strong quarter, but there's quite a lot going on there, I think, so 46% growth. But you mentioned model changes, experience variance. And then if you can help quantify that, I think there might have been $150 million or so type model changes. I mean if that's the case, we're still talking about a sort of 20% clean run rate. So if you'd encourage you sort of think along those sorts of lines in the CSF now at $50 billion, it looks like a very sort of useful underpin from here? And if I can sort of briefly flip on that. There was $1.1 billion of CSM build year-to-date from economic factors. I'm just interested how much of that is sort of purely lumpy items? Some of your peers show the normalized unwind or expected return of in-force, which can be sort of quite material and a consistent tailwind to the CSM built above and beyond the new business systems. So I'm just wondering whether we should treat that $1.1 billion boosters very much one-off or an element of that is repeatable, if you like? Manveen Kaur: Okay. Great. Thank you, Guy. So firstly, in coming -- so with your question on banking NII. So it's -- our deposits strength, as I've called out, but our structural hedge is also important tailwind for us on banking NII and the stabilization of HIBOR, which impacted banking NII almost equivalently on the negative side in Q2 and Q3, is not expected for Q4 and has not shown that at all in Q4 so far. The insurance growth, you're again right, it's -- the one-offs are circa $150 million, as you've called out in terms of the change in assumptions, which is a normalized annual process that we go through. So we are very pleased with a very strong CSM and balance build, which gives the underpin in terms of the growth in this business. In terms of any one-offs or lumpy items, nothing material to note, but I'll ask our IR team to follow-up with you. You can see some of the walk on the CSM balances on Slide 21. Operator: Our next question today comes from Katherine Lei at JPMorgan. Katherine Lei: I also have a follow-up on NII and then I would like to ask about Hong Kong CRE. On the NII line, I noticed that in Hong Kong, the composite deposit rate actually comes significantly in 3Q. I think this is because that this move -- migration from time deposit to demand deposits and also that banks generally lower the time deposit rates. So into 3Q -- into the 4Q because of the rebound in -- because of the rebound in HIBOR, do we expect some of the reversal of that decline in composite deposit cost? Will that lead to some sort of risk to the banking NII? This is number one question. And then have we seen any like further migrations or what's the trends of deposits in CASA deposits? And then the next question will be in Hong Kong CRE. We noticed that the Stage III loan ratio increased from 16% to 20%, but however, if we look at the impairment charges on Hong Kong CRE, this quarter is actually lower than that of last quarter. So I would like to have some color from management say, for example, what is the latest trend in terms of the asset quality? And what is our thought behind that while the Stage III loan ratio continued to increase, but then we slow down the pace in making provision against Hong Kong CRE risk. Manveen Kaur: Thank you, Katherine. So in terms of HIBOR, it continues to be a tailwind from a deposit perspective, we see the trends from sort of prior quarters, continuing to Q4, so nothing much to call out there. Specifically, yes, there has been some small rise in time deposits, but that is all factored in terms of our banking NII guidance. And I'm speaking both from what we saw at the end of the September as well as the ongoing trend. The banking NII, as I've said earlier, in addition to HIBOR, the structural hedge also continues to be a tailwind for us. And that is the reason why we have obviously upgraded our banking NII guidance. And you know we are very conservative in HSBC. It takes a lot for us to upgrade the guidance and also to add the word or better. So take from that what you will. In terms of Hong Kong commercial real estate, I would like to take a little bit of time to share with you our reflections in the Hong Kong commercial real estate. So firstly, in terms of residential properties, the trend has stabilized and is getting stronger. The resi property index has grown 2% year-to-date. September transaction volumes were up 79% year-on-year and the valuations as well as rentals have held well. We have also seen some supportive developments in the retail sector. Hong Kong retail sales have grown since May and are up 4% year-on-year in August. It is also underpinned by increase in year-to-date tourist arrivals of 12% year-on-year. Now if I look at the office sector, of course, the office sector continues to be challenging and under pressure, and we expect that to continue through most of next year as well. However, there has been a slight uptick for take-up for grade A office space. So this is in the best locations with the best specs and that is an improvement, which we see quarter-on-quarter. As you know, our portfolio is well collateralized. This quarter, of course, there was some slippage, which is expected as part of our review in as things move through from some good to satisfactory, substandard to impaired, but there were names which you are aware of, no big surprises. And hence, the ECL pickup was relatively modest. Operator: Our next question today comes from Ben Toms at RBC. Benjamin Toms: In relation to the $1.1 billion provision in relation to Madoff litigation. [indiscernible] the ongoing cases with a cumulative total contingent liability of, I think, greater than $5 billion. Can you just provide that the case that was decided last week does not set any legal precedent for the other 4 cases? Especially the 3 cases that are in the Luxembourg courts where there's a more material exposure? And can you confirm that the litigation charge does not change your aspiration to resume the buyback at half 1 '26? And then secondly, on Slide 10, which is a really nice slide, you made 11 disposals year-to-date. It can be quite difficult sometimes to track the transactions coming out of the P&L. Is it possible to give us some idea of the annualized cumulative PBT lost as a result of these sales? Although the transactions may be RoTE positive together, it just be good to get a sense of the PBT headwind going into next year? Manveen Kaur: Okay. Thank you, Ben. So firstly, on the Madoff litigation provision charge, you can expect that we did a thorough exercise with advice from internal, external counsel as well as colleagues in the accounting function to determine what would be our best judgment on this case. In terms of the other cases, of course, we look at read across and those gets factored in. But each case has very distinct factual considerations. So there's nothing more to add on that other than what we've already called out as disclosures in the midyear. So please don't read more into that. As you know, on this case, we won on the cash side of the element of the case, but it was the securities element that we are providing against. In terms of our share buyback and announcements at the time of Hang Seng privatization offer. As you can imagine, this case has been pending for a while. We had looked at all kinds of downside scenarios. So when we came with our view of suspension of share buyback for the Hang Seng offer for up to 3 quarters, we still stand behind that number, that was all included. As you know well, we will go through a rigorous process every quarter. We continue to be highly capital generative as you've seen with also the upgrades on our guidance. And once we look at that, we see where the organic growth opportunities are. Obviously, in organic, that's where the Hang Seng privatization offer comes in and then the residual after obviously, looking at the 50% dividend payout, which is a key element of our capital distribution, then we look at share buybacks. So I don't expect any headwinds in that, the up to 3 quarters still holds. In terms of the 11 disposals, I note to your point, these are all relatively, as you can see, small disposals. What is very important is each time disposal happens and it's completed like we had the Grupo Galicia, but also as we did with the closure of the investment bank, we immediately reinvest, and the kind of areas we've invested and we've actually seen the benefits come through is we have invested in the U.K. And as you see, we have seen some loan growth in the U.K. We have invested in Wealth, both in the U.K. and Asia and the Middle East. And of course, the numbers speak for themselves. But also we take very specific opportunities where we see either growth in volumes or new customer mandates as we saw in security, services so that we can be in a prime position to take those opportunities. So that's an ongoing piece of work. We don't stop at the end of each quarter or regularly to see what we need to reinvest as soon as we have the money available, we reinvest. Operator: We will take our next question today from Joe Dickerson at Jefferies. Joseph Dickerson: I just -- it's just more of a conceptual question really in terms of the return profile of the bank. I guess why isn't this -- why isn't HSBC post-Hang Seng integration more of a high-teens bank than a mid-teens bank? I mean, clearly, the exit rate for this year on banking NII is going to be much higher, I think, than what most analysts would have thought, particularly given that the HIBOR move, you only had about 6 weeks of that embedded in Q3. So you get a full quarter of that in Q4. And effectively, you feed that through to next year. And yes, you can have lower rates, but ultimately, you probably have a structurally higher banking NII given the deposit mix. And then if you look at your invested assets, in Wealth, you clearly have a strong business there that continues to grow and the marginal ROE is much higher and throwing Hang Seng, you're 70, 80 bps just from the minority deduction. I guess why don't we get to a number that's in the high-teens here as opposed to mid-teens? Manveen Kaur: Thank you, Joe. It's a really good question. As you can imagine, we in the bank obviously reflect on this very closely as well. And you'd see that we have upgraded obviously, our guidance for this year. But let me just remind you, when we came up with our target of mid-teens RoTE for the medium term, '25, '26, '27. That's a target. There's nothing that says that you will stop working once you achieve the target. You continue to work to both achieve to target as well as to improve on the target. In terms of the target itself, we are not making any change. We will, of course, reflect on it as we go through our year-end results and go into next year and give greater details on our forward-looking guidance. But just remember, a target is something that you have to achieve or better. Target is not where you stop. Operator: Our next question today comes from Kendra Yan at CICC. Jiahui Yan: My question -- my first question is regarding to the Wealth management revenue. We've observed a very strong -- very rapid growth rate in the third quarter. Could you elaborate on the key drivers behind this performance and its sustainability? And my second question concerns is about the credit risk. In recent weeks, we've seen some risk involving the U.S. market, like the small and medium-sized banks in the U.S., they have some risk. And also the JPMorgan, they cautious the market about the credit risk during its earnings call. Although HSBC's primary client base is not in this segment, but still I'd like to ask whether HSBC has any exposure or concern in loans to nonbank financial institutions or say, those private credit corporate sector? Manveen Kaur: Thank you, Kendra. Two really good questions. So firstly, in terms of Wealth, we are very comfortable with our medium-term guidance of a double-digit growth in fees, though obviously, quarter-on-quarter, it can vary. So what has been really strong this year has been investment distribution notably in Hong Kong and strong equity volumes. As I said earlier, our insurance business has continued to grow, and that momentum is helped both in terms of existing client base, but also the new clients we are onboarding in Hong Kong, in particular. Obviously, strong equity markets have been favorable, and that becomes a lever for Wealth in terms of both the sentiment and the activity we see. But overall, not changing our guidance, but very optimistic for Wealth in future, as seen from Q3 results. And of course, be mindful there are some seasonal fluctuations, Q4 can be a little less in Q1 more, but we'll see how it progresses. So far, all on a very good trajectory. From a credit risk perspective, and as you can appreciate, I've been a Chief Risk Officer for 5 years. So indulge me, I'll share my thoughts on that with you. Private credit as a sector, of course, is going to have stronger players and weaker players. What is very key is how you do the due diligence and what are the kind of underwriting standards you apply in this new area. You are quite right. This is primarily U.S.-driven, 80% a U.S.-driven business, and our footprint in U.S. is relatively small. All I can tell you is that our direct exposure in the private credit space is single billion dollars. We apply the same strong credit underwriting principles there. So I'm very comfortable in that space. What I do want to call out is, you're right, it is always the second and the third order risk that you should be very mindful of, which are not your direct exposures, but exposures you may have through weaker counterparties. We have always taken a very conservative view in terms of our exposures to smaller banks, regional banks in the U.S. and elsewhere. We've been doing that right through the COVID period, through Russia, Ukraine, through inflation, high interest rates, so on as well as exposure to smaller hedge funds. Having said that, we closely monitor this space because you can never get too comfortable in the space, and good risk management really means looking forward to see what else can impact the overall ecosystem, which then can cause indirectly concerns to all participants. Operator: Our next question today comes from Kian Abouhossein at JPMorgan. Kian Abouhossein: Just to come back on the NDFI exposure because you mentioned private credit just now a single digit. NDFI would be similar. Clearly, you get your U.S. legal entity exposures, whether the branches, which is below $10 billion. So should we see that as overall group exposure roughly for total NDFI, can you confirm that? And then secondly, on tariff scenarios, you gave an impact scenario or sensitivity scenario of low single digit on group revenues before Clearly, things have changed, but also that was on a very specific part of your business. So I'm just trying to understand how you're thinking about impact scenario going forward in the current situation and expectation of a trade deal? And secondly, also what the impact has been so far? Manveen Kaur: So let me come through the NBF exposures. As you can appreciate, NBF is a very broad industry. My comment on our disciplined and conservative approach to weaker NBFIs holds. So from an exposure perspective, both in terms of quantum that I've called out and beyond, I am very comfortable in terms of our approach to date as well as going forward. For the tariff exposure and the impact, as you've seen, the trade segment has continued to perform well. We have the advantage that as much as there is an impact on U.S. dollar-related corridors. There are other corridors, which are growing, which we have a strong presence in, whether it's India, U.K., Middle East, Asia, Intra Asia. So that's been quite good for us. So overall, guidance that we've given on the direct impact of tariffs has not changed. And of course, we look at that as part of our downside risk scenarios even for the ECLs. From an overall view on the macro environment with all the trade deals being done, I'll just give one reflection that our probabilities that we give to our upside, downside in base case scenarios have now normalized, and that's resulted in some modest releases of ECLs because we think the situation is improving compared to where they were more weighted towards the downside scenarios in the previous quarters. Operator: [Operator Instructions] We will take our next question today from Amit Goel at Mediobanca. Amit Goel: So two questions for me. The first, just on the U.K. business. It looked like there's a bit more investment and there was also a little bit of a tick up in the impairment rate versus prior quarters. So just wanted to check what kind of investments you're making there for what kind of opportunity? And then on the impairment, what's driving that? And then the second one is just a follow-up on the Madoff litigation. I'm just kind of curious what is really the range of outcomes? I know obviously, it says that it could be materially different to the provision. There are a lot of kind of numbers in the release. So just curious how you see that range? And I was also kind of curious why a provision wasn't taken in December '24 when you had the original ruling that went against? Manveen Kaur: Okay. Thank you, Amit. So first on the U.K. business, we have continued to invest for Wealth, both in terms of hiring of RMs to grow our premier customer numbers and to sell more Wealth product for the customers who we already have very strong deposit base with. We are also investing as we've opened a new Wealth center in the U.K. in this space. And then business banking has been important for us for investing in, in terms of customer service, customer journeys, and that's primarily a liability-driven business. Having said that, we are very pleased that our corporate lending book in the U.K. has shown sustainable growth in the sectors that we have lent into, so more into the new economy sectors, into infrastructure, into social housing, into innovation and so on. So that has been really positive for us. From an impairment perspective, just to give you a context, a $300 million charge in a quarter for the U.K. is not abnormal. In prior quarters where we had to release the charge can fluctuate between $200 million to $300 million. In terms of the specifics, there were a few single name defaults, but they are all of very small amounts, so nothing notable. And no specific concentration in any sector. So I feel quite comfortable in that space. From a made-of perspective, just to be clear, we had an appeal as of December, and the outcome of the appeal was only known to us on Friday, the 24th of October, and therefore, we gave our RNS and announcement on the provision yesterday. So the provision we have given is our best judgment of likely outcomes. It's not a midpoint. It's not a broad range as people may think, but it's just our best judgment based upon advice from both internal and external legal counsel. Operator: Our next question comes from Kunpeng Ma at China Securities. Unknown Analyst: It's [ Chen Li ] from China Securities. And I also have the questions about the Wealth management because of the further interest rate cut. So will the nonresident new customers in Hong Kong will slow down or keep stable? And also, how would the migration of retail deposits into wealth management products impact our wealth management revenue? Manveen Kaur: Thank you. So on Wealth management, the growth of wealth management that we've seen comes both from new customers, but primarily from our existing customer base in Hong Kong. We do not believe that at a normalized HIBOR rate, which we've had seen for quite a long period of time despite the fluctuations we've had earlier this year that, that should have an impact on both the appetite of our customers for Wealth management products, their desire to diversify and our matched product offering, which is in a prime position to meet their needs. So I don't think there is anything more to call. Obviously, a positive stock market is good optimism factor and encourages customers to invest even more. But the baseline growth that we are seeing quarter-on-quarter is very much expected to continue. Operator: Our next question today comes from Alastair Warr at Autonomous. Alastair Warr: I just wanted to quickly return to the Hong Kong CRE question. You saw as you touched on yourself some downward migration. You said before, you've been focused particularly on the higher LTV problem loans. And those have gone up quite a bit again, third quarter versus the half year. So could you just give us a little bit more about what's going on in collateral there in the background, why the ECL would be able to come down by quite a bit in terms of, say, individual clients posting more collateral, what the values have been doing in the quarter? Manveen Kaur: So thank you for the question, Alastair. So in terms of the Hong Kong CRE, you're right, if you look at the LTV, 70% plus the number, which has grown. But in the same note, we've taken more provisions. So net of the provisions quarter-on-quarter, that number has pretty much stayed steady around the $900 million. Now in terms of valuations, of course, we look at valuations across the board. And particularly for these, we look at them on a quarterly basis as well as if there are any transactions or events that cause us to pause and look at the valuations, again, we are looking at that. The real distinction between perhaps what you saw in the middle of the year and now is that there is no individual surprise name or situation. And overall, in Hong Kong CRE, retail has got better, residential, as we know, has stabilized. And on the office space, which is challenging, we are not so far seeing improvements, which are coming from the momentum even slight as it may be in terms of A-type properties going into the rest of the office space. So hence, I think that challenge will continue. Operator: Our last question today will be from Andrew Coombs at Citi. Andrew Coombs: A couple of questions, please. Firstly, just to follow up on divestments. You've now announced Sri Lanka, you've talked about Egypt retail being up for review. I see there's no mention of Australia or Indonesia in the slides this time, whereas there was in Q2. Can you just provide us with an update there? Particularly Australia because that is a potentially more sizable divestment. And then the second question, just on the new disclosure on Slide 7 where you provided the resident versus nonresident split of the additional customer in Hong Kong. Perhaps you could just give us an idea of what the split is of the stock as well as the flow. How that changes with Hang Seng Bank if you were to combine the two, not just look at the Red brand and how the revenue margins compare between resident versus nonresident? Manveen Kaur: Thank you, Andrew. So firstly, your questions on the divestments that we had called out in terms of strategic reviews. There is no further news. They are continuing through that strategic review process. So that's why we haven't called out anything specific here. It's work in progress, no turning back as such. So the slide that we have said on the resident and nonresident, the reason for that slide is really twofold. Firstly, to explain to you that why this growth and the reasoning of how it's grown up since the borders opened up in '23 and see that trajectory, and that shows how the trajectory is continuing. However, it does show that fundamentally, the customers who are coming in to begin with are coming with small balances, and it's a deposit-led growth story. There is also an uptake on insurance, which is a preferred product. So we called that out. The other Wealth products, it takes time to convert. Overall, if you look at the premier customer base between the start and the end, it stays pretty much stable, 15% to 16%. So that's how I would look at it. And new customers coming in, in terms of a trajectory has continued pretty consistently at least through this year at 100,000 plus every quarter. It's a little higher than what it was in '24, which was a little hard to begin with from where it was in '23. So you can see that as a continuum. In terms of Hang Seng, they don't do a third quarter filing. So I don't want to say anything about that. There's no news to share. They are a listed company in their own right. But obviously, as we have talked about the opportunities for revenue growth and operating leverage as part of our offer that does call out that from a revenue perspective, particularly on Wealth products, we will have greater opportunities to leverage the Wealth products in the Red brand, for the Green brand customers, both existing and new, which continue. Operator: Thank you, Pam, and thank you all for your questions today and for joining our webinar on the 3Q results for HSBC Holdings plc. You may now disconnect your lines.