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Operator: Good morning, and thank you for joining Becle's Third Quarter Unaudited Financial Results Call. During this call, you may hear certain forward-looking statements. These statements may relate to our future prospects, developments and business strategies and may be identified by our use of terms and phrases such as anticipate, believe, could, estimate, expect, intend and similar terms and phrases and may include references to assumptions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those in forward-looking statements. Before we begin, we would like to remind you that the figures discussed on this call were prepared in accordance with International Financial Reporting Standards, or IFRS, and published in the Mexican Stock Exchange. The information for the third quarter of 2025 is preliminary and is provided with the understanding that once financial statements are available, updated information will be shared in appropriate electronic formats. [Operator Instructions] Now I will pass the call on to Becle's CEO, Mr. Juan Domingo Beckmann. Juan Legorreta: Good morning, everyone, and thank you for joining us today as we discuss Becle's third quarter 2025 results. In a challenging environment, we continue to strengthen our position in key markets, supported by the consistent execution of our strategic initiatives and the strength of our brand portfolio. Consolidated volumes increased by 3.7%, mainly driven by a 5.2% growth in our spirits portfolio. In the U.S. and Canada, Tequila remained the main growth driver, and we continue to protect long-term brand equity while prioritizing premiumization. In Mexico, our core categories continue to gain momentum, and we consistently outperformed the market, gaining share across most segments. Finally, EMEA and APAC delivered double-digit growth, supported by strong execution and healthy inventory levels. On profitability, our gross margin expanded by 300 basis points, reaching 56.1%, mainly reflecting our lower input costs and operating efficiencies. Additionally, EBITDA for the quarter reached MXN 3.5 billion, marking a 63.3% increase year-over-year. As we approach year-end, our priority remains balancing shipments and depletions while continuing to execute our premiumization strategy across all regions. I'm confident in our ability to close the year strongly and position ourselves for sustained growth in 2026. Thank you. With that, I'll turn it over to Mauricio Vergara to discuss our U.S. and Canada results. Mauricio Herrera: Thank you, Juan, and good morning, everyone. Please note that [indiscernible]. During the third quarter, the U.S. and Canada region continued to face a complex and highly competitive market environment, characterized by persistent pricing pressures, cautious consumer spending and evolving category dynamics. Despite these challenges, our team remained focused on disciplined execution. Net sales value declined 10.3% compared to the same period of last year, reflecting a 6.4% decrease in shipments and a 4.4% decline in depletions. This result was mainly driven by continued softness in our Ready-to-Serve portfolio and retail boycotts in Canada, which resulted in approximately 120,000 cases in lower shipments. Encouragingly, our full-strength spirits portfolio outperformed the region's overall trend, led by stronger performance in high-end tequilas, which continue to drive premiumization across our mix. In terms of consumer takeaway, our performance was in line with the overall market. According to Nielsen 13-week data through September 27, our spirits portfolio, excluding prepared cocktails, declined 3.5% compared to a 3.4% decrease of the total industry. Meanwhile, C-stores, which provides one of the most comprehensive views of the industry performance, shows that Proximo outperformed the broader industry within full-strength spirits, including the Tequila category, over the 3-month period ending in August. Our prepared cocktails portfolio continued to weigh on consolidated shipments, largely due to softness in our large-format Ready-to-Serve offerings. But in contrast, our ready-to-drink cans gained momentum versus the first half of the year, signaling a positive turnaround as we align our portfolio with evolving consumer dynamics. Within Tequila, we continue to observe intensified industry-wide pricing competition. Average tequila pricing in the market declined 7.9% versus last year as leading competitors implemented material negative price adjustments. In this environment, we have remained disciplined, focused on selective strategic promotions while maintaining an overall responsible pricing approach. Notably, small format offerings of our super-premium and ultra-premium brands continue to outperform, underscoring that consumers are seeking high-quality products while managing their spending. Our strategy to strengthen the on-premise continues to deliver results. On-premise shipments outpaced the off-premise, driven by initiatives that enhance brand visibility and consumer reach. Looking ahead, we anticipate improving long-term fundamentals in the U.S. spirits market, particularly within our focus categories. Premiumization continues to drive growth in Tequila, where demand for authentic high-quality brands remain robust. I will now turn the call over to Olga Limon to discuss the results for Mexico and Latin America. Olga Montano: Thank you, Mauricio, and good morning, everyone. In a challenging industry landscape, Mexico posted solid third quarter results. Even with constrained consumer demand, we outperformed in our key categories and continue to improve our leadership position. Net sales value increased 24.3% in the quarter, primarily driven by an increase in volume. This was further supported by a favorable product and channel mix as high-end Tequila outperformed the rest of the portfolio. Shipments in the quarter increased 18.3% year-over-year, driven by market share gains and an easy comparison against last year. As you recall, 2024 was a typical year marked by strong industry destocking. Compared to the third quarter of 2023, shipments grew 1%, demonstrating that we have returned to premarket contraction shipment levels, and we have done so with a normalized inventory position. Overall, inventory levels remain healthy and well balanced across channels as we head into the year-end. Our brands continue to gain market share in Mexico, reinforcing our leadership in both Tequila category and the broader spirits industry. According to [ Nielsen ], we grew in value 3.4% year-to-date compared to flat performance for the overall industry, while our volume rose 3.4% versus a 1.1% industry decline. These results underscore the strength and consumer appeal of our brands in the Mexican market. During the quarter, we took a strategic step to further optimize our portfolio with the sale of Boost, reinforcing our commitment to focus on our core spirits business. The fourth quarter of 2025 will serve as a transition period, during which we will continue to operate the brand in close collaboration with the buyer to ensure business continuity. As of January 1, 2026, Boost will no longer be consolidated in our financial statements. For reference, in 2024, Boost sold 938,000 9-liter cases, representing 3.7% of our consolidated volume and therefore, will impact our volume comparables in 2026. In Latin America, performance was strong, with shipments and net sales both increasing. We also achieved a double-digit increase in net sales value per case, reflecting the successful execution of our premiumization strategy. Despite persistent macroeconomic uncertainty, underlying trends continue to improve across the region, and we remain focused on disciplined pricing, protecting profitability and reinforcing our leadership position. I will now turn the call over to Shane Hoyne, Managing Director of the EMEA and APAC region. Thank you. Shane Hoyne: Thank you, Olga, and good morning, everyone. During the third quarter, we operated in a volatile trading environment influenced by macroeconomic uncertainty, aggressive competitive pricing and continued cost-of-living pressures. These factors led distributors to manage inventories cautiously. Even in this context, our premium spirits portfolio delivered solid results, driven by robust growth in super premium tequilas across key Asian markets and emerging EMEA countries. Shipments in EMEA and APAC increased 11% in the quarter. Asia remained a key growth engine, achieving double-digit growth in both shipments and depletions. Tequila remained our primary growth driver across the region with shipments up 20% year-over-year and super-premium tequila shipments accelerating 38%. These results demonstrate the strength of our premiumization strategy and the growing global appeal of our brands. Looking ahead, the fourth quarter will be a pivotal trading period. Through effective commercial execution and agile decision-making, we expect to maintain momentum in the EMEA and APAC region, backed by the strength of our portfolio and our disciplined focus on premiumization. We believe we are well positioned to deliver sustainable growth across the region. I will now hand over to Rodrigo, who will take you through the financial results. Rodrigo de la Maza Serrato: Thank you, Shane, and good morning, everyone. I will now walk you through the financial results for the third quarter of 2025. The company reported a 3.7% increase in volume, driven primarily by a 5.2% growth in our spirits portfolio, marking our first quarter of volume recovery since Q1 '23. Consolidated net sales were flat at MXN 10.9 billion, reflecting the continued impact of price normalization, geographic mix dynamics and unfavorable FX. This quarter marks our seventh consecutive period of year-over-year gross margin expansion, a significant achievement despite unfavorable regional mix and despite the appreciation of the Mexican peso, which represented a modest drag on margins. Despite these headwinds, we continue to benefit from lower agave-related input costs and ongoing cost efficiencies from strategic sourcing and manufacturing operations, resulting on a gross margin of 56.1%, an expansion of 300 basis points. A&P expenses declined year-over-year, reflecting our focus on strategic brand prioritization and disciplined resource allocation amid moderate demand. SG&A expenses also decreased as a percentage of sales as productivity gains and tighter cost controls more than offset inflationary pressures. EBITDA increased 63.3% year-over-year to MXN 3.5 billion, while the EBITDA margin expanded to 31.7%. This increase reflects both strong organic performance across the business and inorganic contributions. Turning to the financial results. We recorded a favorable swing of MXN 3 billion in the quarter, primarily driven by a MXN 2.5 billion gain from asset divestitures as well as MXN 188 million year-over-year foreign exchange gain, as the appreciation of the Mexican peso positively impacted our net U.S. dollar debt exposure. As a result, net income grew at triple-digit rate year-over-year, reaching MXN 4.1 billion. From a cash flow perspective, the company generated MXN 3.3 billion in net cash from operating activities, primarily reflecting strong profitability. Our cash balance increased MXN 5.1 billion relative to the end of the second quarter, mainly due to proceeds from the portfolio optimization activities. Our capital allocation approach remains consistent and disciplined. Every decision aims to support long-term value creation and sustainable growth. Our top priority continues to be investing in organic growth through brand prioritization, targeted A&P spending, innovation and R&D to ensure the continued strength and resilience of our portfolio. At the same time, we remain disciplined in managing our portfolio, acting decisively when brands no longer fit our strategic direction. The recent divestment of the Boost brand is a clear example of this, an action aligned with our ongoing efforts to sharpen our portfolio and exit noncore assets. Looking ahead, we will continue to explore value-creating investment opportunities, being mindful that our portfolio is unique and any acquisitions must be both strategic and accretive to the business. The following chart shows how our company is delivering on CapEx efficiency. The business is generating more EBITDA while requiring less CapEx to do so, demonstrating the success of our efficiency initiatives and our progress towards a more asset-light value-accretive operating model. Finally, our lease adjusted net debt-to-EBITDA ratio improved to 1.0x from 1.7x in the previous quarter, underscoring the strength of our balance sheet and our capacity to create long-term value. Overall, the step-up in underlying operating profit was the main driver behind a 160 basis points increase in ROIC compared to the same period last year. With that, I will now turn the call back to the operator for the questions-and-answer session. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Ricardo Alves. Ricardo Alves: Ricardo Alves from Morgan Stanley. Impressive numbers. I had a couple of questions on the main positive surprise to us came on the gross margin, the 56% number in the third quarter, certainly very impressive. Is it possible to go a little deeper or to quantify any agave impact or raw materials in general that boosted your margin for the third quarter? Any color that you could share? Even if qualitative, in terms of how you're cycling the inventory of raw materials in the portfolio that you're selling today, that would be helpful. We've been talking about going back to that 60% gross margin or so for many years now, and it seems that we are approaching that. So any qualitative or if you're able to quantify in a way how you're cycling through the inventory of agave finished products? I think it would be helpful for us to have a better idea of how your profitability could shape up in 2026. That would be my first question. The second question, really impressive numbers in Mexico and Rest of the World. So I think that we have less concerns there. But I think that the U.S., I believe that one of the comments that you made is that the competition remains tougher in that market. So I wanted to focus on that market. We noticed that your unit revenue on a U.S. dollar terms was down, I believe, 5% in U.S. dollar. And we also assume that your product mix continues to improve in the U.S. So that would imply that there seems to be some discount activity on the spirits category. I just want to pick your brains on that to see if indeed, you're still seeing your competitors more aggressive in pricing. And if there is a light at the end of the tunnel here, maybe things are looking better as we go into the fourth quarter and shipments and depletions could be more aligned. So just trying to see if we are closer to a stabilization of the U.S. market. Rodrigo de la Maza Serrato: Thank you, Ricardo. This is Rodrigo. I will take the first question. In fact, yes, we're satisfied with the progress on gross margin. So far, we continue to cycle all the inventory, as you correctly mentioned. And I want to highlight that most of the benefit on gross margin is coming actually from agave-related input, everything that happens there in terms of the agave, the yields and also the manufacturing efficiencies that have been implemented through manufacturing investments. And so the main driver is that. On the contrary, we have, at least in this quarter, an unfavorable Mexico peso impact, driven by the appreciation of the peso, also mix -- unfavorable mix dynamics overall, given the U.S. results as a percentage of the total portfolio, plus, as you mentioned, the heightened promotional activity resulting in a lower price per case. Overall, that's what's driving the gross margin, which stands at 56%, which is quite positive. Mauricio Herrera: On your second question, Ricardo, this is Mauricio. You're right. The market continues to be extremely competitive. If you look at total Tequila, the overall pricing is down by almost 8%. So what we -- the approach we have had has been to actually indeed have some targeted promotional activity to remain competitive and protect our share in the marketplace, but without chasing competition. So our focus continues to be protecting our competitive position in the marketplace whilst protecting the brand equity for the long term. So we will refrain from chasing competition on the downside. We need to remain competitive, but our focus is really long-term equity growth in what I think will continue to be for the next year or so, a very competitive market environment. Ricardo Alves: That's helpful, Mauricio. Do you see any early indications that maybe the market is going to become more rational anytime soon? Or maybe the trends that we saw in the third quarter did remain the same into the fourth quarter? Mauricio Herrera: Look, based on what we're looking at all the data sources and for me, the most comprehensive one is [ DeepSource ], what we're seeing is a projection of next year of the market of our potentially continue to decline at a rate of 4.5%. So with that projection of the market, I would expect the market to remain extremely competitive as everyone will be focused on share. So I don't see the current dynamics changing at least for the next 18 months. Operator: Our next question comes from the line of Nadine Sarwat. Nadine Sarwat: This is Nadine Sarwat from Bernstein. Two for me, please. First, sticking to the U.S. on RTDs, I know that continues to be the main drag. It's been the case for quite some time. Although I believe in your prepared remarks, you did call out better momentum as you've adjusted your strategy. Could you please flash that out, what is this current strategy when it comes to the subsegment over the coming quarters? And what are you expecting the performance to be there? And then a second question, I appreciate the clarification of calling out Mexico shipments versus 2023. Could you just confirm or clarify that depletion number for Mexico so that we ensure we get the full picture? Mauricio Herrera: Thank you, Nadine. So in terms of your first question, this is Mauricio, on the U.S. RTDs, as I mentioned during the call, what continues to be a drag on our performance in [ RTS ], so which is the large formats, and that -- if you look at the marketplace, that continues to trend down as consumers are shifting to cans or RTDs. So when we talk about RTDs, we're talking mainly about cans. So what we are doing is changing and adjusting our portfolio with a lot of focus in RTDs, both in terms of execution format configuration, driving increased penetration across different channels. And we saw actually a big shift in the last quarter. We're showing growth of around 30% versus last year in our cans. So as we go forward, we will continue to drive not only execution, but also you would see innovation coming from us in that space, which is just pretty much adapting our portfolio to the evolving consumer needs. Olga Montano: As for the Mexico question, as we have already talked about, we had an easier comparable base in terms of shipments in the third quarter. So it's more meaningful to look at the year-to-date performance. In the year-to-date performance, where shipments are and depletions are broadly in line, we are up 4.7% year-to-date in shipments versus 2.5%, respectively, in depletions. So I hope that answer your question. Nadine Sarwat: Perfect. And then could you just remind us your split for -- of your RTD segment? I guess, how much is that large format versus RTS versus the cans, now that you've been implementing these changes? Mauricio Herrera: So still from a mix perspective, we still hold a large part of our mix in RTS, but our focus will then to continue to increase the mix now on RTD. So for now, our mix continues to be larger on RTS. We feel that the market will continue to evolve within the cans. And therefore, you would see in the future, our mix of RTDs/cans continue to increase relative to the large format. Operator: Our next question comes from the line of Froylan Mendez. Fernando Froylan Mendez Solther: Froylan Mendez from JPMorgan. A couple of questions. First, on a follow-up on the gross margin. Just trying to understand how sustainable is this margin gain from agave? Because if we look back in the previous quarters, it has been very volatile, let's say, the margin dynamic into the third quarter, I would have expected more of a headwind from FX, which was clearly offset by the agave. But is there any reason why the fourth quarter shouldn't be at least this 300 basis points gross margin expansion if similar volume conditions remain into the quarter? Or what are we missing to understand the gross margin dynamics into the fourth quarter into 2026? And secondly, into Mexico, I mean, it's very impressive to see the performance, given the weak economic backdrop in general in Mexico. Do you see any difference in the consumer behavior in Mexico versus what we see in the U.S. in terms of consumption per capita? Or what is driving this recovery in volumes in Mexico? Those two questions. Rodrigo de la Maza Serrato: Thank you, Froylan. I'll take the first question regarding the gross margin expectation. We will be facing a much more unfavorable situation from an FX perspective in the short term. Q4 comparable relative to last Q4 is going to be unfavorable as exchange rate was 20.1% on average. Other than FX, which could impact negatively the gross margin in Q4, we don't see any meaningful trend, changes regarding cost components. So besides that, that's the only impact that we, at this point, would be concerned about. Olga Montano: As for Mexico, we continue to see a volatile and challenging market environment and a very cautious consumer. We continue to see a contraction, but the good news is contraction at a slower rate. And also the good news is Tequila remains one of the few categories that is growing, and we are actually outperforming the industry within it. So that's what I can tell you. Fernando Froylan Mendez Solther: If I may just follow up, Rodrigo. So can I understand that the inventory that you are passing through the P&L is now at, let's say, a much lower cost versus what we have been seeing in most of the first half of 2025 and second half of 2024, so we are facing a real advantage on the cost side on agave from this point onwards? Rodrigo de la Maza Serrato: Yes. I think that sounds right, Froylan. Operator: Our next question comes from the line of Antonio Hernandez. Antonio Hernandez: This is Antonio from Actinver. Just wanted to see if you can provide more color on the lower A&P expenses as a percentage of sales, if this at all, maybe this is impacting maybe sales performance? And in which regions are you mostly lowering this expense? And what are your expectations going forward? Rodrigo de la Maza Serrato: Of course, Antonio. I'll take the question first. So A&P investment as a percentage of NSV is simply reflecting the more, let's say, some efforts in terms of efficiency on how we spend the A&P. But definitely, that's not a driver that we perceive is impacting top line performance in any of the regions. Antonio Hernandez: Okay. And these efficiencies are all over the place, I mean, in all the regions? Rodrigo de la Maza Serrato: Yes. Operator: Our next question comes from the line of Ben Theurer. Benjamin Theurer: This is Ben Theurer from Barclays. So I wanted to just understand a little bit and ask if there's more something in the pipeline. I mean, you've been divesting some of these like smaller noncore things. We've seen the Boost divestment. We have the Lalo brand this quarter. And we've seen this in the past by kind of like this review of the portfolio. So I just wanted to understand, as you look at the current portfolio in different regions, et cetera, specifically considering some of the softness also in RTD in the U.S., are there other things that you would consider as an asset for sale or like kind of like a noncore to kind of like really be able to focus and concentrate on the key things within Tequila, other tequilas and those other spirits that have been driving growth and have been doing better? Juan Legorreta: Yes. We -- this is Juan Domingo. Yes, we are continuing analyzing our portfolio and -- to see which brands should we invest more and which less and which brands so we can dispose. So yes, probably there will be more. Benjamin Theurer: Okay. And then I have one follow-up. Just as we look into the dynamics of spending on A&P over the last couple of quarters, it's clearly been, I would say, on the softer side. So as you look ahead, do you think this is a new level and new balance? Or as volume picks up and some of the momentum comes back up as we think into 2026 that you're probably going to be as well a little more on the upper end of what your usual guidance is for A&P? Mauricio Herrera: So this is Mauricio. So for the U.S., what we've been working on is a very disciplined approach to return on investment, making sure that we're understanding more and more what are the activities that are actually having the best impact in the marketplace. We continue to spend ahead of industry standards. So I think that we're actually in a very healthy level of spend, and our focus is more on understanding where can we put the dollars that will have the maximum return so we can drive efficiencies without compromising our -- how we compete in the marketplace. Operator: We have not received any further questions at this point. That concludes today's call. You may now disconnect.
Niina Ala-Luopa: Hello, and welcome to Vaisala's Third Quarter Results Call. I'm Niina Ala-Luopa from Vaisala's Investor Relations. And today with me in this call are President and CEO, Kai Öistämö; and CFO, Heli Lindfors. And like always, first, Kai will present the results, and then we have time for questions. Kai Öistämö: Hello, and welcome, everybody, from my side as well. Vaisala had a good third quarter, strong sales and profitability as the headline says. So, let's dive a little bit deeper where did it come from and what are the details behind. So, first notion, the net sales growth was strong, 13% in reported currency, which can be characterized really as strong sales in a quarter. The orders received simultaneously declined by 21% and leading into a decline in the order book. Whilst when going back to the financial performance, we maintained a very solid profitability, 18.2% EBITDA margin. And if I exclude extraordinary items due to the restructuring and so on, actually, the EBITDA margin was 20%, which I think is all-time high for us in terms of an EBITDA margin, if I recall right. Really happy on Industrial Measurements on the demand picture and now clearly also broader than earlier. And on demand and on the other hand, Weather and Environment side, more challenging market environment, and I'll talk about both in detail in the coming slides. And really happy on the subscription sales growth continued to be very strong, 57% year-on-year and also the underlying organic growth on a very healthy level. And as I said in the release already, it was great to see also subscription sales now contributing positively also to the profitability of the company. The market environment continued to be challenging. If you think about the entire third quarter within -- inside of the third quarter, we kind of we start -- it started with the tariff changes and kind of fixing the tariffs between Europe and U.S. And then at the same time, during the year, continued in the third quarter, the depreciation of euro vis-a-vis USD and Chinese yuan. So, the environment has many moving parts, and the depreciation of euro, dollar and renminbi really are things that don't often get talked about as much as the tariffs. But actually, if you think about it, like the magnitude of the depreciation of those currencies vis-a-vis euro, the impact actually is equal, if not greater, than what the tariff impacts actually are. So, it's good to remember that as well. And as I will conclude at the end of my presentation, the business outlook for the year 2025 remain unchanged. But before going into the numbers and performance of the company in more detail, good to look at a couple of words on strategy execution inside of the company and this time in terms of a couple, we picked a couple of kind of interesting launches that are reflecting also the strategy and strategy execution of the company. The first one, Vaisala Circular, it's a service product and the emphasis really is on the word product, where the industry measurement probes are recalibrated and provide a reuse service where the customers maintain a dedicated pro pools at our service centers. Essentially, what it means is that we have productized the calibration service in such a way that now we are selling always accurate on uptime and continuous operations in our customers' operations instead of talking about calibration or other technical terms. This is obviously kind of crucial in terms of selling services that how do you productize it, crucial for the customers to understand what's the value and crucial for our sales to actually then be able to communicate what the value is and what the customer should be paying for. So, kind of a great example of the things that we are doing to drive our service sales, both in Industrial Measurements where Vaisala Circular is an example of, but we are doing similar things also in the Weather and Environment side. Then on Xweather, the hail forecasts. Hail actually is one of the more difficult weather phenomena to actually forecast. And it's been really one of these places where -- one of the things that really is -- has been really a challenge for meteorologist for a long, long time. Super happy to report that now we have an Xweather hail forecast. And hail is really important in terms of the damage it causes for various kinds of a property or infrastructure. For us in Finland, the hail sometimes gets to be kind of pea size and even that can kind of cause some damage. But in more southern countries where more extreme weather and extreme thunderstones typically are when hails get to be baseball sized, they really can kind of create quite a bit of damage. And it really is like billions of dollars losses in various kind of places. The example we are showing here where we can apply the kind of capability to forecast and create alerts for hail is solar parks. And if you think about solar parks, there's a whole host of glass facing upwards. And in case of a hail that's really prone for damages. And if you think about solar parks, one of the features is also that in many cases, they actually track sun, i.e., they are turnable. So, in case of hail forecast, you can actually turn them sideways so you can avoid the damages. And there's a kind of a big market and unsolved problem that we are solving for here with hail forecast as an example. And then WindCube, the next generation. Here, this is really, again, a good example of how we push the boundaries of the technology with our own R&D. With this evolution on LiDAR technology, we can actually increase the distance out of which we can read the wind and the wind fields, increased data availability and much, much more robust performance in clean air and complex terrain environment. So significant step-up in terms of our performance, which I believe both demonstrates our capabilities and is important for that business and puts us squarely in the lead also from technology and solution and performance perspective in that business. Then moving on to the financials. So, starting with the group level, strong growth, as I said, with -- in both business areas. Orders received decreased as talked about, and I'll still kind of talk about that a little bit later when I go into the business areas because there's differences in performance side. Order book consequently kind of down from same time last year. And then net sales-wise, a very strong quarter, 13% up year-on-year. And if you take the constant currency side perspective, it would have been 16% up from year-on-year, same time, so third quarter last year. Gross margin, a bit down, and I'll give you -- it's easier to explain when I go through the different business areas. Nothing dramatic about that there. And then on the profitability side, as I said, if you exclude the restructuring side, actually the EBITDA margin being all-time high, at least in my recollection. And cash conversion, no news there remained on a strong level. Now going into Industrial Measurements, yet another strong quarter and really happy to note that now the positive results are coming from all market segments and all geographies. And super happy to see that now Asia performing really well compared to the same time last year, equally so -- almost equally so, Europe and at the same time the U.S. growth continuing. Obviously, in the U.S. and in China, for example, where the local currencies have devalued vis-a-vis euro, that has a negative impact. If you -- like if I take, for example, U.S. in a constant currency, year-on-year growth was 9% in Industrial Measurements in Americas region. And I promised to talk about the gross margin in the business area side. And if I take Industrial Measurement side first. So, first of all, what I forgot to say is the orders received actually increased on the Industrial Measurement side, corresponding to the net sales growth, actually a little bit more increased 9% year-on-year here when the net sales grew 6% in reported currencies. But back to the gross margin. So gross margin decreased a little bit. And this really is due to exchange rate impact, but clearly, kind of big part of the impact was the proportional impact on the U.S. tariffs. And here, maybe worthwhile kind of just pausing and explaining the math that we've said that we have been fully mitigating the tariff impacts in our business. And that means that we've raised the prices correspondingly to whatever the tariff costs have been. And if you think about how that math works, it means actually that the -- even if it's fully mitigated in absolute terms, since the divider and the above the line and below the line kind of when you do the division are added the same amount, the relative number actually goes somewhat down. So that's really like if you have time, just play with the math and you'll see what I mean. So that's a big part of the explanation. So, I am not worried. It's within the normal boundaries in terms of what the gross margin changes have been and it's worthwhile saying also that while we are in the Industrial Measurement side, it's obviously easier to kind of mitigate by price changes, extraordinary events like the import duties and such changes in import duty regimes compared to fluctuations in currencies. Since we price and any global company would do the same, price in local currency, you cannot go every time currency exchange rates go back and forth, go change the local pricing. Obviously, long-term, there are kind of pricing means to compensate this. But short-term, you cannot kind of react to all of this, and it would not be constructively taken either from a customer perspective. Then Weather Environment. In net sales, actually a great quarter and subscription sales-wise, equally so. At the same time, the orders received in decreased in Weather Environment, driven by a couple of things. There's a strong decline in renewable energy market, as we have been saying since the first quarter of this year. Nothing has really changed on that. And there was kind of a significant change in the market in the beginning of the year, and it continues to be on a low level, and we do not expect that to change in any time soon. And I'll come back to that in the outlook. And then likewise now in aviation and meteorology markets, there was a very strong comparison period and kind of big orders taken in the comparison period last year. But also this part of the market, when you take aviation and meteorology, there is a fluctuation between kind of natural fluctuation in those markets as well as this year, where there have been a couple of headwinds that we talked about before, one being the China investments due to a large extent, I would argue, to the fact of the cycle in terms of the 5-year plan this year being the last year of the 5-year plan and very often being the least investment in at least in this sector. So that we have seen that in declining order intake and then simultaneously, the administration changes and so on impact on delaying the order intake in this year in the U.S., which obviously is another contributor to this. And then there are kind of gives and takes on the rest of the market, which is within the kind of, I would argue, in the normal boundaries. And good to remember in the comparison period in the aviation and meteorology side on the back of really kind of a very strong now 2 years in terms of an order intake, really driven by the European stimulus fund on the radar networks in Southern Europe, most notably in our case was the big order that we got from Spain, but there were multiple other ones that we benefited from as well during the past year, 1.5 years that are still in our order book, and are being executed. Now on the gross margin side, a decrease of 3 percentage points. Sales mix, a stronger portion of the project revenues being recognized. So that's in plain English, what the sales mix means. And then same things as what I talked about in Industrial Measurement side on exchange rate and the U.S. tariff impacts, albeit somewhat less pronounced in case of Weather and Environment as the sales mix it's not as heavily weighted in euros and dollars or the U.S. business is a little bit less than what Industrial Measurement is. And then EBITDA percentage being on a very healthy level of 14.6%. I mentioned the cash flow continued on a good level. Here you see on the bridge on puts and takes on the cash flow and cash conversion being at excellent level of 1 and free cash flow around EUR 40 million during the period. Now if I look at the year-to-date, both net sales and profitability clearly improved during the first 9 months compared to the same time last year. And orders received did decrease by 13% year-on-year and while net sales grew by 9% year-on-year. And subscription sales, if I take the first 9 months of the year, almost incredible 58% up, obviously boosted by the acquisitions of WeatherDesk and Speedwell Climate, but also a great performance on the underlying organic growth. And then gross margin, slightly negative, again, same explanations that I went through. And then on EBITDA percentage and EBIT percentage up from comparable time or same time last year. And then worthwhile saying on the operating expenses, the restructuring costs, as I said, also in regards of this past quarter have been not insignificant as we have been adjusting our renewable energy business to the new market reality. And that's now behind us, that restructuring. And then acquired businesses and so on other explanations when you look at the year-on-year comparison on operating expenses. Financial position continued on a very good level, low leverage on the balance sheet, and we continue to have asset-light business model, no changes seen or foreseen in that. And on this page, I think it's good to note that the automated logistics center is now in a phase where we are loading it. So, it's actually fully in schedule, and we are putting material into that and starting to use it as scheduled in the fourth quarter of this year. And then also notable thing during the quarter was the acquisition of Quanterra Systems. Think about it this way that it's kind of an interesting team and technologies on monitoring CO2 fluxes, which means question whether individual geographic area, field or piece of land is a carbon zinc or carbon emitter, which a very interesting piece of technology, potential long-term kind of quite a bit of potential on that, and that was announced in September. Market and business outlook. We continue to see growth in industrial, instruments, life sciences and power, we continue to see roads as a stable marketplace. And then renewable energy, meteorology and aviation decline, and this is outlook for the rest of the year. And obviously, the renewable energy being kind of a clear change in the marketplace since the beginning of the year, whereas the meteorology and aviation now suffering a slightly different market conditions, as I explained before, in terms of the government subsidies and government incentives kind of on a lower level than when we compare to last year. And then on the business outlook, no changes to this. We continue to see the net sales to be between EUR 590 million and EUR 605 million and operating result being between EUR 90 million and EUR 100 million. With that, I want to conclude my prepared remarks, and I'll open up for any questions you may have. Operator: [Operator Instructions] The next question comes from Nikko Ruokangas from SEB. Nikko Ruokangas: This is Nikko Ruokangas from SEB. I have 3 questions, and I'll go one by one. Starting with Weather and Environment and orders, which you already discussed, and you told the reasons why they have now declined for a couple of quarters. But should we soon start to see the trend in orders happening there? Or has the demand continued sequentially weakening? And then do you think that the U.S. government shutdown could affect you now in Q4? Kai Öistämö: Yes. So obviously, kind of when we talk about we compare to year-on-year kind of things will obviously, when the comparables change, then that will change. Your question was on a sequential basis especially aviation, meteorology, things kind of come as they come. So even if there would be like numbers improvement or decline from one quarter to another, it would be hard to make a conclusion out of it since it's a lumpy business as a starting point. As I tried to explain on meteorology and aviation, it is more of a -- it's a bit of a cyclical business where now we have enjoyed, I would argue, almost like exceptionally high cycle in it for good almost 2 years. Now it's more on a normal basis, what it looks like. So, I would not be overly worried about it where I'm standing today. Then, on the U.S. government shutdown, it's a great question. And so, 2 comments on that. We've seen the budget proposal, and I would be actually happy, and this is the government's budget proposal, not minority budget proposal. I would be happy if and when that is approved. So, I have no issues with what is proposed. The shutdown itself, obviously, during the shutdown and getting a new order for next year since there's no budget approved nor and then there are a whole host of people furloughed. It's postponing things. If I look at bit on the history, typically, what has happened is that during this kind of U.S. government shutdowns, the orders will just come a little bit later in. But if I take kind of 12 months average or what kind of a little bit longer time series, it will normalize itself post the shutdown. So, it's like a little bit plowing snow in front of a snowplow kind of a thing, at least has been in the past. And we'll see how long it will last, it can stop tomorrow, or it can be continuing for some time. Nikko Ruokangas: Yes, I understand. Then on the guidance, as it indicates for Q4, clearly kind of year-on-year basis, weaker sales and EBITA development than now in Q3. So, is this basically explained by smaller project deliveries expected for Q4? Kai Öistämö: A big part of it is also very high comparable. If I actually go -- and I'm usually not doing this, I'll try to go back in my slides just to illustrate what I'm saying on this slide. And it's not this slide, here. So, if you look at this slide, it's kind of like highlights the unusual nature of the last year in terms of how the order intake kind of behaved and especially net sales behaved that we had a very weak first quarter, very strong second quarter, weak third quarter and a very strong fourth quarter. And if you went back into '23 or earlier years, typically, the second half, both quarters have been stronger. Typically, even the third quarter has been stronger than like second quarter clearly on an average year. So, there's a bit of when you compare to year-on-year kind of numbers, the anomality of last year makes it a bit harder this time around. Heli Lindfors: And I think the second topic is actually the FX that Kai was referring to earlier on. So, in the beginning of the year, the FX was still more similar level to last year, whereas now in the second half of the year, we see more of an impact of the volatility of the FX. So that will definitely be a factor in Q4 as well if the kind of rates remain as they are currently. Kai Öistämö: Correct. And it's again, a good illustration of that. If you go back and look at our second quarter results, we said that there was not really a material impact on FX yet. Nikko Ruokangas: Okay. So, this year, more normal seasonality expected than last. Kai Öistämö: Correct. Correct. Correct. Nikko Ruokangas: Then last one from me, at least at this point on cost side. So, you mentioned the EUR 3 million restructuring expenses. So, if we leave those out, so to me, it seems that your operating expenses were down in weather despite the acquisition or fixed expenses, but then clearly up in Industrial side. So, if you exclude those restructuring expenses, were those including something extraordinary? Or is it kind of describing the trends you are now having? Kai Öistämö: Yes, the extraordinary costs, as I said, was they were related to the restructuring that what I talked about in relation to the energy business and renewable energy business. So, I think your conclusion was exactly right. And like if you look at our numbers, and we have now a good trend also on the Industrial Measurement side, we have been a little bit longer kind of time series again, over the past 2 years where we had more modest growth, we were more conservative in spending and spending increases in Industrial Measurements. And now we see kind of clearly more growth opportunities and a bit more spending, not going wild, but a bit more spending on Industrial Measurement side. Operator: The next question comes from Pauli Lohi from Inderes. Pauli Lohi: It's Pauli from Inderes. I would start with this demand-related question. Have you seen any signs that the increased tariffs could start to dent the good market activity you have seen in the U.S. market or elsewhere compared to what we have seen already this year? Kai Öistämö: So elsewhere, I don’t see it go – it could have – now I understand your question. So okay, no, answer is no. We can't point anything in the U.S. or anywhere else, that would be at all related to tariffs. It's been more positive than what would have speculated pre-tariffs. Pauli Lohi: Well, that's definitely positive. And your scheduled deliveries for the rest of the year in the Industrial Measurements are a bit lower compared to Q3 last year. So, do you think that the current favorable market activity could still offset this? Kai Öistämö: No, Pauli, remember what Heli just said in terms of the exchange rate changes, which is, if you compare to last year, I think we are about 15, 16 points cheaper dollar than it used to be a year ago, and Industrial Measurements and Xweather are highly exposed to dollars. Heli Lindfors: Also, in dollars and renminbi. And especially for the Industrial Measurements, the renminbi is also very important currency. Kai Öistämö: So, it's not [indiscernible] then you can draw your own conclusions. I would not be worried about the demand picture per se. Pauli Lohi: Okay. Then, regarding the cost base, how large savings you expect from the recent restructuring on an annual level? Kai Öistämö: We have not communicated that. I'll put it this way that when we said in earlier quarters, similar calls, we've said that we are going to adjust our operating expenses to the level that matches the market picture on the renewable energy business. We've now done it. Pauli Lohi: All right. Then, regarding the new logistics center, do you expect any short-term cost-base increase or operational extra costs from starting to use the new center? Kai Öistämö: No, no, no. Absolutely not. Pauli Lohi: And do you see that it could provide any material financial benefits next year? Kai Öistämö: Over time, I think it clearly -- I mean, if you think about it now, fully automated material flow, it should yield into kind of a better rotation days, better management of the inventory, multiple benefits in terms of how much capital is tied into an inventory, and different tools also to optimize that inventory. So obviously, we have a business case, and over time, this is an investment where we expect a payback as well. Pauli Lohi: Okay. Finally, on Xweather, do you think that the current roughly double-digit organic growth rate is sustainable going forward? Taking into account the new product launches and maybe potential synergies from the recent acquisitions? Kai Öistämö: Yes. So, short answer, yes. And here also, short-term, we have to take into account the currency exchange rates when we look at the euro reported numbers. But typically, we do the pricing changes at kind of around the year-end in all of the businesses, well, at least Industrial instruments as well. So, we need to then see how those impact kind of going forward as well, depending on how the exchange rates then turn out to be. Operator: The next question comes from Waltteri Rossi from Danske. Waltteri Rossi: A few questions. First, about the Industrial Measurements orders in America. The report said that they grew slightly. I think the wording was a bit softened from the previous. So, have you seen any changes in the activity level in the Americas? Or is this only related to the FX? Kai Öistämö: So, I think I earlier said that it was a 9% on a constant currency level year-on-year. And if you look at the reported currency, it would have been 2%. So here, you see kind of direct impact on the currency exchange rate. I would be very happy with the 9%. I'll offer you that. Waltteri Rossi: Okay. Okay. Perfect. But you don't disclose how much the Americas is of the Industrial Measurements orders. Can you give us... Kai Öistämö: Not on orders and not on a quarterly basis, but it's clearly the biggest market that we have, and it's clearly north of 1/3 of Industrial Measurement sales. Waltteri Rossi: Okay. Okay. Then, about the Xweather business, it said that over the past quarters, it's actually been contributing positively at profitability. So, does that mean that the segment is now making positive operating profit already? And if so, are we talking about a low single-digit margin, or what? Kai Öistämö: We are not reporting that business separately. So, I will decline to answer you. So, we have not quantified. But contributing positively kind of would imply that it actually makes money. Waltteri Rossi: Yes, yes, sure. But I was just making sure that we're talking about EBIT on an operating profit level. But kind of... Kai Öistämö: Remember on the EBIT level, we did the acquisitions last year. And that's obviously kind of the amortizations of those assets raised the hurdle on one hand. But if you look at on an operating profit side, then that's what I'm referring to. Waltteri Rossi: Okay. Okay. So, we should still expect that you are continuing to invest in the growth of that business and shouldn't expect the profitability to kind of start to improve or scale up from now on? Kai Öistämö: Yes. Well, if software business grows 50% year-on-year, one should expect that it scales. Waltteri Rossi: All right. But you are still keeping the view that you are shifting focus from growth to clearly start improving the profitability side only later during this strategy period? Kai Öistämö: No. There's no shift between profitability and growth to be foreseen. It's always -- like when you are scaling a software business, it's always a kind of a trade-off, of how much you invest in the growth. And typically, in this kind of a software business, it really is investments into sales and demand generation rather than increasing the R&D when software businesses are scaling. And then the return on investment should be quite quick. And it's relatively easy to verify as well, kind of from a cost of acquisition side. If you kind of invest in customer acquisition cost, you can actually measure what the return on investment is, and it really should be quite quick. Waltteri Rossi: Okay. Okay. Lastly, as of now, earlier in the year, the expectations were kind of lowered because of the U.S. tariffs and how they will impact, especially the Weather and Environment public side sales. How would you describe the impacts of the tariffs on public sales this year today? Like, has your view changed since at all... Kai Öistämö: I would say no impact so far on the Weather and Environment sales in the U.S. from the tariff side. As you may recall, we did kind of a plan for the tariffs, and we mitigated the tariffs by actually shipping into our own warehouse in the U.S. so kind of that we have a little bit of time to pass the tariff costs into prices. And I think we are executing against that plan very well. Operator: The next question comes from Joonas Ilvonen from Evli. Joonas Ilvonen: It's Joonas from Evli. I have a couple of questions about Industrial Measurements. You already discussed this question of cost, but if I can come back to it. So, I think like R&D costs were down this quarter at a relatively low level. And of course, I think there's always a bit of like a quarterly variation when it comes to that. But then also you say -- and I saw your total OpEx still grew quite a bit, albeit it was still at a rather moderate level. But you mentioned this investment in sales and digital capabilities. So, my question is that how do you see the kind of overall Industrial Measurements investments continues to grow from now on? Like, do you expect it to grow basically at the rate of sales volumes? Kai Öistämö: If I take all kind of that will be a good approximation over time. Obviously, these things change over, like vary over quarters, and the quarters are not equally strong, and so on. So, kind of different quarters are a little bit different. But over time, that's a good proxy. Joonas Ilvonen: Okay. That's clear. And then you mentioned IM APAC growth that was especially strong. So, was this mainly due to China? Or were there any other countries there you would like to highlight, and which specific industry groups, like you mentioned, life science and power in your report? Kai Öistämö: Yes. As I said in the prepared remarks, if I start from the kind of latter side of the question, it came from all segments in the Industrial Measurement side. So, all market segments, grew. And it's both in China and outside of China. China did have a marked change compared to the second quarter, clearly having more market optimism in the third quarter, great to see. But it was not only in China, it clearly was outside of China as well. And if I pick one very interesting market, which continued to be strong is Japan, and where obviously, lots of industrial activity, and we have a great position in Japan in various different segments, but not only those 2 markets. It's broader than that. Joonas Ilvonen: All right. So, there weren't basically any kind of weaknesses in terms of geographic regions or... Kai Öistämö: No, no, not that I can think of. Joonas Ilvonen: Okay. That's clear. And maybe one last question. So, you already discussed this IM gross margin headwind due to exchange rates and tariffs. So, it's going to fade at some point, but did you comment on when exactly is it going to? Does it still continue over Q4 or into next year? I mean, considering how things look right now? Kai Öistämö: Yes. So, 2 things on, if you look at gross margin, and this was a bit on the net sales side as well, what I tried to say earlier, one thing is we -- and then they function differently if you think about FX and then the tariffs. The tariffs, what I said and what we've been saying all along, is that we fully mitigated that by raising prices. And that has kind of by itself a negative relative impact on gross margin. And I'll do you the math, pardon my details here. But if you think about that -- let's imagine that the transfer cost out of which the tariffs are counted would be 100 units. And then you put a 15% tariff on it. Now that cost would be instead of EUR 100 million, that will be EUR 115 million. And you fully move that into the sales price and let's do an easy math and call it like it's EUR 200 million and you put EUR 15 million on top of EUR 200 million. Now you fully mitigated it. And if you do the relative calculation, there is a negative impact on relative number. Joonas Ilvonen: All right. Kai Öistämö: Sorry about that. I think it's good to understand that that's when you -- and then on FX, as I said, you can't manage FX-related changes within a quarter or within a half a year. You cannot like fluctuate your local prices based on exchange rates. But we do try to be smart when we do the annual price increases as we do every year in the beginning of the year. So that's a chance of actually taking the currency exchange rates and our costs and everything else into account. Operator: [Operator Instructions] The next question comes from Matti Riikonen from DNB Carnegie Investment Bank. Matti Riikonen: It's Matti Riikonen. And sorry if I have to ask some questions again because I had to jump to another call for 15 minutes during the presentation. So, some of the questions might have been asked already. So, I start with the math question that Kai you just explained. So is it in rough terms, we are talking about that the price increase that you made, it covers the kind of cost price, but then the margin that comes on top of that doesn't follow. So, you are not getting the compensation for the lost margin compared to the normal situation where you put the kind of markup to the imported price. Kai Öistämö: Yes. And even if you put a markup to it, you can do the math in different scenarios, how much of a markup you need to do in a high gross margin business in order to kind of mitigate the gross margin if you -- and there's obviously a limit how much you can pass on the costs if you think about the tariff a drastic change in the middle of the year, it's what's acceptable from a customer side. So yes, in a way, what you asked for. And then I'll go back to what I just said that beginning of the year, we are going to review our prices anyway, and we are going to look at different kinds of costs and things that where do we put the prices going forward. Matti Riikonen: Yes. But basically, isn't it always so that when the new year begins, you are trying to kind of achieve the same profitability level or higher what it used to here. So, it takes some time for the following price increases to kind of correct the situation into what it was from there. Kai Öistämö: Yes. That being said, when the book-to-bill cycle is 3 weeks in the Industrial Measurement side, that's pretty fast. Matti Riikonen: Right. Then regarding the Weather and Environment, when you talked about received orders and how they were kind of suffering different things, you meant that there's also industrial cyclical fluctuations or I don't remember what the term that you used was. But what does that actually mean in the Weather and Environment business? So, what kind of industries are there on the customer side that are affected if you're not talking about the renewable business, which I would... Kai Öistämö: No, I was not talking about the renewables business. And maybe I'll just explain it a bit more. So, it's not really an industrial activity. Think about it this way that this is -- it's a relatively small market in the end, I mean, in the total market as we are the market leader in terms of an absolute market leader in this. So, you kind of -- it's a relatively small market. And then many of the products are having their natural cycles and sometimes they are quite long cycles. So, if I take the radars that we just sold, I'm not expecting the same kind of a complete renewal of Finnish network until 15 years from now or something like that. And here, relatively small individual things like the COVID-19 fund to renewal, which was used to renew Southern European radar network kind of increased the tide a bit and now the tide is kind of lower as we speak. But that has been a phenomenon, if you go on a longer-term kind of a history in meteorology and aviation that the relatively small 2 big airports get to be built at the same year, kind of increases the size of the market and the years are not exactly the same. So, this market kind of just has a phenomenon where there's a relatively small discrete demand changes change the size of the market somewhat. Matti Riikonen: Yes. Okay. And that clarifies because maybe the wording in the Finnish stock exchange release was about the industry and basically, it means the sector where you operate in the crisis. Kai Öistämö: Correct, correct. That's good. Thank you, Matti, well spotted. Matti Riikonen: If we then think that these sector changes tend to be quite slow and one year is not necessarily enough to make it go away. Are you afraid that this would continue also in 2026? I'm not talking about the order backlog, which you already have or the Indonesian order, which might come sometime next year, but basically new weather orders that you were -- or you are expecting every year. Is there a danger that we would see an even slower 2026 when it comes to new business? And if your order backlog is decreased this year, then, of course, you would have less to kind of deliver in '26 based on old kind of order backlog. Do you think that is a kind of risk that you would like to highlight? Or of course, you have to take a stance on that when you give the guidance for '26. But at least -- I mean, at this point of the year, you probably already know, and you have made some internal plans how it's going to be in the weather business in '26. So, any thoughts on that would be great. Kai Öistämö: Correct. Yes. So let me answer -- well, it's exactly like you said, we're going to give guidance next year when the time comes. But let's think about it this way that there are the product sales, which are selling to existing projects and existing customers and the fluctuation on that business is very small. The fluctuation really comes from the kind of new projects and bigger and smaller and so on. So, there's kind of a level that has been at least relatively stable in the past, and I don't see any changes why that assumption should be different going forward. But then how will individual projects come through and so that obviously will not only impact our sales but actually like if kind of a couple of big orders come -- big projects come in a half a year, that kind of theoretically means also irrespective of who wins that impacts the entire market as well. Matti Riikonen: All right. So we will wait for your guidance for '26 to see that what is your plan that you promise to deliver. Kai Öistämö: Correct. Matti Riikonen: Okay. I'm just saying that it doesn't look so good when this year, of course, the order backlog has been decreasing. And when you have basically negative outlook for all key metrological... Kai Öistämö: For the rest of the year. Remember the outlook. Matti Riikonen: What would need to happen that it would kind of recover to a normalized situation in '26. Do you foresee some positive changes to this current trend, which you have now said that will impact '25, but do you see some positive triggers that would change the situation for '26? Kai Öistämö: Yes. Like I said, so as the market impact -- market size is really individual like bigger orders can swing that different ways. So that's something that is, as you know, historically, it's really, really hard to say when certain things kind of come through. The pipeline remains on a good level on new projects. But kind of a flow through the pipeline continues to be very unpredictable as it has been in the past. So... Matti Riikonen: All right. Fair enough. Final question, you already touched the topic of Industrial Measurement and some investments in digital capabilities. Just out of curiosity, what kind of digital capabilities are you talking about? Kai Öistämö: So online as a sales channel, whether we talk about to our distributors or whether we talk about to the end users, especially on the services side. If you think about -- so today, it's mainly -- we don't have much of a sales through the digital channel. We are doing demand generation, but the actual sales transactions we do very little through digital channels and that capability we are building. And very important, like kind of first it will have an impact on the services delivery side. But longer term, I believe, like in any other business, obviously, kind of -- it will have an impact on our overall sales, I believe, as well. Matti Riikonen: Does that mean that the existing customers would kind of want or need a different approach to maybe order from you? Or does it mean that you are seeking new business through those channels? Kai Öistämö: I think in the end, it will be both. And I don't think any businesses will remain as they have always been, and I'll just use the car analogy here that nobody ever believed that a car can be bought online and look where we are today. Try to buy a Tesla offline, then they will throw you online. Operator: The next question comes from Waltteri Rossi from Danske. Waltteri Rossi: So just to still clarify the Xweather profitability question. I was actually -- I think I was talking about EBITDA and operating profit as a synonym previously. But just let's talk about EBITDA. So, is the Xweather currently contributing positively on EBITDA level? Kai Öistämö: Yes. Subscription sales to be specific. That's what we report today. We don't report separately Xweather. Operator: There are no more questions at this time. So, I hand the conference back to the speakers. Niina Ala-Luopa: Okay. That was our Q3 call. Thank you all for joining. Thank you for the questions. Thank you, Kai. And I would like to mention or remind that we will arrange a virtual investor event for analysts and investors on November 24. And there, Kai and our business area leaders will provide an overview of Vaisala's strategy and business areas. And you will find more information on the event on our investor website, vaisala.com/investors. But now thank you all for joining and have a nice rest of the week.
Operator: Hello, and welcome to Banc of California's Third Quarter Earnings Conference Call. [Operator Instructions] I'll now turn it over to Ann DeVries, Head of Investor Relations at Banc of California. Please go ahead. Ann DeVries: Good morning, and thank you for joining Banc of California's third quarter earnings call. Today's call is being recorded, and a copy of the recording will be available later today on our Investor Relations website. Today's presentation will also include non-GAAP measures. The reconciliations for these measures and additional required information is available in the earnings press release and earnings presentation, which are available on our Investor Relations website. Before we begin, we would also like to remind everyone that today's call may include forward-looking statements, including statements about our targets, goals, strategies and outlook for 2025 and beyond, which are subject to risks, uncertainties and other factors outside of our control, and actual results may differ materially. For a discussion of some of the risks that could affect our results, please see our safe harbor statement on forward-looking statements included in both the earnings release and the earnings presentation as well as the Risk Factors section of our most recent 10-K. Joining me on today's call are Jared Wolff, Chairman and Chief Executive Officer; and Joe Kauder, Chief Financial Officer. After our prepared remarks, we will be taking questions from the analyst community. I would like to now turn the conference call over to Jared. Jared Wolff: Thanks, Ann, and good morning, everyone. We're pleased to report another strong quarter for Banc of California with double-digit earnings per share growth and continued momentum across all of our key performance drivers. These results once again demonstrate the strength of our franchise, the consistent growth trajectory of our core earnings and the disciplined execution of our teams. Strong Q3 earnings per share growth of 23% quarter-over-quarter of $0.38 reflects our success in generating positive operating leverage and continuing to expand our net interest margin. Since the start of the year, our return on tangible common equity has grown 231 basis points to 9.87%, while EPS has increased nearly 50% since Q1. During the quarter, we also continued returning capital to shareholders in a meaningful way. We repurchased 2.2 million shares of our common stock in Q3. And overall, under our program, we bought back 13.6 million shares, more than 8% of our outstanding shares at an average price of $13.59, well below our tangible book value per share. Repurchases have totaled $185 million, more than half of our $300 million repurchase authorization. And even with this activity, our continued earnings growth has built CET1 to 10.14% at quarter end and tangible book value per share has also increased 3% quarter-over-quarter to $16.99. We will continue to be prudent with the remainder of our share buyback program and use it opportunistically while remaining focused on maintaining strong capital levels. Core deposit trends were positive with noninterest-bearing deposits up 9% and now represent 28% of total deposits. It was driven by both higher average balances and steady inflows of new business relationships. This strong core funding enabled us to further reduce broker deposits, which declined 16% from the prior quarter and lowered our total cost of deposits by 5 basis points to 2.08%. As noted in our investor deck, core interest-bearing deposits also increased when runoff of interest-bearing broker deposits is excluded. Our deposit strategy is both dynamic and flexible. While we continue to grow our core deposits, we will choose to shrink or expand other sources of deposits as needed, depending on pricing, our loan production and other liquidity needs. Loan production and disbursements remained healthy at $2.1 billion, with broad-based production from our business units. We purchased fewer SFR loans this quarter, down about $346 million from Q2 as yields contracted due to strong secondary market demand. Total loans declined about 1.6% from last quarter, mostly due to elevated paydowns and approximately $170 million of proactive payoffs of criticized loans, consistent with our strategy to maintain high-quality credit and exit credits that we believe are not meriting of long-term strength and support from us. Excluding that deliberate activity, our core loan portfolio was essentially flat. Pipelines remain strong, and we expect loan production activity to remain high. This strong loan production is one of the keys to the ongoing incremental growth in our earnings per share. The rate on new loan production remained healthy at 7.08%, well above the rate of loans that have been maturing. As a result, with strong loan production, even with elevated payoffs in the quarter, our balance sheet remixing accelerates our margin expansion. The loan sales we announced last quarter continued to proceed well. In Q3, we liquidated $263 million of held-for-sale CRE loans, largely through the execution of strategic sales within our targets and some proactive paydowns. We currently have $181 million of CRE loans remaining in HFS, and we expect to sell those over the next several quarters. Credit quality remained stable with criticized loans down 4% quarter-over-quarter and special mention loans down 24%. Classified loan balances increased this quarter due to a timing issue related to a $50 million CRE loan for which the borrower executed a contract for sale after quarter end as well as a revision to our risk rating framework for certain loans in the Venture Banking portfolio. It's important to mention that all of those loans are performing and on accrual status with no delinquencies greater than 30 days. The updated framework was procedural and not indicative of any incremental underlying credit weakness. Our allowance for credit losses increased to 1.12% of total loans or 1.65% on an economic coverage basis, reflecting our continued discipline to reserving and the strength of our credit profile. This was another great quarter for the company, a quarter that reinforces the positive trajectory we've established and the consistency of our performance. With a strong capital position, a valuable core deposit base and a proven team that executes with discipline, we believe Banc of California is well positioned to deliver sustainable high-quality earnings growth for many quarters to come. Now let me turn it over to Joe for some additional financial details, and I'll certainly be back to answer questions. Thanks. Joseph Kauder: Thank you, Jared. For the third quarter, we reported net income of $59.7 million or $0.38 per diluted share, which was up 23% from the adjusted EPS of $0.31 in the prior quarter. Net interest income rose 5% from Q2 to $253 million, and net interest margin expanded to 3.22% driven by higher loan yields and lower deposit cost. Our exit net interest margin at quarter end was 3.18%, which is normalized for excess accretion income in the quarter. We expect our margin to continue to expand from this level in the fourth quarter. Average yield on loans increased 12 basis points to 6.05%, reflecting the benefit of portfolio mix shift towards higher-yielding C&I loan categories, including Warehouse, Lender, Venture. Our loan yields also benefited from higher accretion income, which was up approximately $3 million from Q2 due to loan payoff activity. The spot loan yield at the end of the quarter was 5.90%, reflecting the impact of the September rate cut on the variable rate loans and normalization for accretion income during the quarter. Total loans ended the quarter at $24.3 billion, down slightly from last quarter, largely due to the intentional payoff activity and elevated paydowns that Jared mentioned. Excluding that, underlying core loan balances were stable. Deposit trends were strong as we saw favorable mix shift towards more noninterest-bearing deposits and reduction in broker deposits. As a result, cost of deposits declined 5 basis points to 2.08%. Our spot cost of deposits at 9/30 was 1.98%, and our cumulative beta in this down rate cycle for interest-bearing deposits is approximately 66%. The interest rate sensitivity on our balance sheet for net interest income remains largely neutral as the current repricing gap is balanced when adjusted for repricing betas. From a total earnings perspective, we remain liability sensitive due to the impact of rate-sensitive ECR cost on HOA deposits, which are reflected in noninterest expense. We expect fixed rate asset repricing to continue to benefit net interest margin as we remix the balance sheet with high-quality and higher-yielding loans. We have approximately $1 billion of total loans maturing or resetting by the end of 2025 with a weighted average coupon of approximately 5%, offering good repricing upside. Our multifamily portfolio, which represents approximately 25% of our loan portfolio has approximately $3.2 billion repricing or maturing over the next 2.5 years at a weighted average rate that offers significant repricing upside. Noninterest income was $34.3 million, up 5% from last quarter, primarily due to higher fair value adjustments on market-sensitive instruments. Normal run rate for noninterest income remains at about $10 million to $12 million per month. Noninterest expenses of $185.7 million were relatively flat across most expense categories as we continue to maintain disciplined expense controls while supporting our growth initiatives. The combination of stable expenses and higher revenue drove a more than 300 basis point decline in our adjusted efficiency ratio to 58%. We continue to make progress on expanding positive operating leverage while still investing thoughtfully in technology and talent to support future growth. We expect 4Q expenses to be consistent with prior quarters and be at or below the low end of our range as we continue to make progress on managing core expenses. As Jared mentioned, credit quality remained stable with net recoveries of $2.5 million and declines in our criticized loan balances. Provision expense of $9.7 million was largely related to portfolio growth and updates to risk ratings and the economic forecast. Our allowance for credit losses ended the quarter at 1.12% of total loans or 1.65% on an economic coverage basis, consistent with our prudent approach to credit management. Looking ahead, we remain on track with our 2025 guidance. We continue to expect loan growth for the full year to be in the mid-single-digit range and net interest margin to remain within our 3.20% to 3.30% target range for the fourth quarter. We also expect to maintain our strong capital and liquidity position while delivering steady high-quality earnings growth. With that, I'll turn it back to Jared. Jared Wolff: Thank you, Joe. This was another excellent quarter for Banc of California, one that highlights our strong performance, positive operating leverage and the consistency of our results. Since completing our systems conversion in the third quarter of '24 following our merger with PacWest, we have been building core earnings while improving the balance sheet, managing expenses and efficiently deploying capital. With 4 quarters of high-quality earnings growth under our belt and foreseeable EPS growth in sight, the track record and the path ahead should be very clear. Our teams continue to execute with discipline and focus, driving growth and continuing to build one of the best franchises in California and everywhere else we operate. We have a proven business model that is delivering high-quality earnings through a diversity of lending channels, a valuable and growing core deposit base of deep client relationships and a culture of performance and accountability. We believe the opportunity in our markets remains significant as we capitalize on the dislocation in the California banking landscape and win new relationships. We continue to add high-quality talent to support our growth as our teams continue to win new business and bring new relationships to the bank while serving our clients and keeping safety and soundness front and center. The consistency of our results, the strength of our balance sheet and momentum in our business demonstrate why Banc of California is well positioned to continue our success and why we're so confident in the long-term trajectory of our franchise. Thank you to our employees for their dedication and commitment to serving our clients and community each and every day. With that, operator, let's open up the line for questions. Operator: The first question comes from Jared Shaw with Barclays Capital. Jared David Shaw: Just to start off, the credit trends this quarter were really good. And Banc of Ca was pulled into sort of a story of the Cantor loans and I think, just sort of broader concern around NDFI lending and structure. And clearly, from the numbers you put up, you must feel that there's not a lot of loss there, and it feels like you have good collateral protection. Can you just give a little color on how you structured that exposure and why you feel that there's not loss there? And is that sort of reflective of the broader view of how you're going after some of the non-mortgage NDFI lending? Jared Wolff: So thank you for the question, Jared. When you say how we structured that, you're speaking specifically to what was mentioned in the articles? Jared David Shaw: Yes, in terms of like being able to get additional commercial real estate collateral and being sure that you have the senior lien position. Jared Wolff: Yes. So this is a really important distinction. The frauds that were mentioned with Zions, with Fifth Third, with Western Alliance fundamentally had to do with NDFI lending. And they were generally lending with collateral pools. We were mentioned because we had a loan to a related borrower. But our loan to that borrower was not an NDFI loan. It was a pure real estate loan. So we weren't lending on any collateral pool. This is a loan that was made -- we made a loan many, many years ago to -- on a hotel on the beach in Laguna. That loan has been on nonaccrual, has been classified, and we filed a lawsuit many quarters ago. It's been in our numbers. But that was not -- that had nothing to do with our NDFI lending. That was just a simple real estate loan. And so I would just say it was a real estate loan that the partners got into a business dispute. Clearly, some of the drama that was going on there affected what was going on elsewhere. But it's real estate. We're collateralized. We have a guarantee from the [indiscernible], but we're relying on the property to pay us back, which we think we're well secured, and we think there's plenty of collateral there. So it's important to distinguish that. When we look at our -- and I think Zions mentioned in their lawsuit that we were in first position, again, they were looking at loans that were in a collateral pool that we had lent on purely as real estate loans. And in fact, they were 2 single-family loans that are no longer in our portfolio. They were sold as part of a pool of single-family loans that was sold in connection with the transaction. So we weren't lending to these groups that seems to be caught up in the fraud and certainly not Tricolor or First brands, but as it relates to Cantor and the related entities, we never lent to any of those on an NDFI basis. Just that wasn't what we were doing. So let me just put that to bed. We're a real estate lender fundamentally to those folks, and we think we're well secured by real estate. And you perfect a first priority interest in the mortgage deed when you make a real estate loan, very easy. In terms of NDFI, we put a chart together in our investor deck, it's on Page 14. A significant portion of our NDFI lending is in mortgage warehouse and fund finance, which I think people have a strong understanding of. Our mortgage warehouse loans are -- we have a great team. It's really well done. We've had it for years. We put -- but we think we do all of these credits well, including our lender finance loans that are business credit, consumer credit and other mortgage credit. And when you strip out mortgage warehouse, fund finance and other mortgage credit, which is 11.6%, 13.7% of our 18%, you're left with less than 5% of our loans having NDFI exposure. But across the board, we've had a history of no losses over -- and I ask people to put in the 10-year historical loss rate so that we could go back as far as we can because PacWest has been doing this for a long time and mortgage warehouse at Banc of California has been in place for a long time. It's negligible. That's not to say you'll never have a loss, but I think that the way that we do it is very specific. One thing that's important to mention that we put in our deck, and I had our team go through what happened at the other locations without being critical of our peers who are very good lenders, but things happen. I said, what do we do that's different to protect ourselves? And they highlighted one of the things that we do is we have an in-house audit team that conducts anti-fraud measures, frequent testing of underlying collateral, cash collections, payment history, mortgage title checks. When we do -- when we take a collateral pool, we look at it ourselves, we sample it, we check the trustees, we check the perfection and make sure that we know what position we're in through a broad sample. So look, I don't want to be critical of my peers. They're all good lenders. I can only speak to our history, what we do and how we do it, and I feel very comfortable with what we do. Happy to -- let me pause there, Jared. Happy to answer more questions. Jared David Shaw: Yes. No, that was great color. I think good insight into how you're structuring it. Maybe just as a follow-up, shifting over to the margin. When we look at the guide for the margin of 3.20% to 3.30%, is that a good normalized level? Or as we sort of end the year and start looking into '26, how should we be thinking about margin, especially with the likelihood of some cuts? And I think your guidance does not assume cuts. Is that right? Jared Wolff: Correct. It doesn't assume cuts. So I'll start, and I'll let Joe chime in. So we -- certainly with -- we are liability sensitive when you factor in the ECRs. And so we do expect our margin to expand. The accelerated accretion we had last quarter was in the middle of the quarter, which is why it affected -- and it was -- it affected our overall margin. It took it to 3.22%. But when you strip it out, we were at about 3.18%, which is still a nice expansion from the prior quarter. So we see our margin continuing to expand. The question is at what pace. I'm pleased that our teams have been able to realize, I think, a pretty high level of beta as we're really being disciplined in terms of managing our deposit costs. So I expect whether we're going to achieve 66% or 50% is going to matter on a whole bunch of factors, but we certainly expect to achieve at least 50%, if not higher, going forward on our deposit beta. Our margin will continue to expand. And Joe and I were talking about this before the call. I mean, the biggest driver of our margin expansion seems to be our increased loan production, whatever it is in the quarter and how that is really replacing loans that are at much lower rates. One of the big shoulder bags we're carrying is this $6 billion multifamily portfolio that it will -- half of it matures or repays in the next 2.5 years. But that portfolio is at 25% of our balance sheet and it's -- of our loan portfolio, and it's at 4%. So even with rates coming down, our loans coming on are coming on at much higher rates. And even a lot of those loans happen to be floating rate loans, but they're still coming on at much higher rates. And generally, we'll have floors on those loans as well. Joe, anything to add there? Joseph Kauder: No, I think you captured it, Jared. As we look out into the future, your original question, I think, Jared, was, is it a solid run rate looking at 3.20% to 3.30%. I think that's a starting point. And then as Jared Wolff mentioned, I think we intend to grow it from there. And the loans -- obviously, the loan -- the remixing of the loans is a powerful accelerant to that. But then we also -- as we did this quarter, we're continuing to focus on growing noninterest-bearing and getting our cost of deposits and cost of funding down. And then you'll occasionally see some lumpy upside related to the accretion, which we had this quarter. So I think we're feeling pretty good about it. Jared Wolff: Jared, I think as we get to the fourth quarter, it's going to be easier -- get through the fourth quarter, it will be easier for us to give you a range guidance for the margin for next year because I imagine you're starting to look at that. I expect if we're 3.20% to 3.30% right now, we're going to end up -- obviously, we're going to end up there given that we are at 3.18% in the fourth quarter, and we don't even have a full quarter of rate cuts. And so we'll end up low 3.20s in the fourth quarter, most likely. And then I would expect the jumping off point for '26 is going to be 3.25% to 3.35% or whatever it is, that gives us some flexibility. Look, we're earnings first and margin second, but I think the margin will certainly continue to expand, and we should have more guidance as we get closer to the end of the fourth quarter. Operator: The next question comes from Timur Braziler with Wells Fargo. Timur Braziler: Maybe just back on that margin discussion. I guess just looking at margin kind of not the combined effect with the ECR reduction, just are you still liability sensitive from a margin standpoint or relative to the comments you just made, rate cuts are going to be punitive maybe upfront and then you get that ECR benefit on the back end? Jared Wolff: They're definitely not punitive to us. We are, at worst case, neutral with rate cuts when you take out ECR. And I'll let Joe correct me if I'm wrong there, but we believe that we really are fundamentally neutral that our deposits and loans are kind of repricing in balance and then ECR gives us that liability benefit. But our margin expansion is really being driven by this loan production that we're seeing. Joe, do you agree with that? Joseph Kauder: Yes, that's correct. We're -- right now, as we stand today, we're a neutral balance sheet if you were just to -- if you were to exclude the HOA deposits with the ECR benefit. Jared Wolff: And Timur, we kind of debate this internally. When you do these models, as you probably know, these IRR models, they rely on a static balance sheet. And nothing is ever static in a bank. So I always think that they're off in some way. And it's -- they're directionally accurate, but they're never truly accurate because the balance sheet is not static. And so the question is, which way is it off? I think we can drive more benefit because I guess that's the way my brain works, and that's where I'm going to drive results. But I tend to think that we can even on a static balance sheet or a slightly dynamic balance sheet without production, I think I can get more movement on deposit costs because that can drive cost down. We have to put in assumptions about what deposits are going to reprice and how they're going to reprice. And I tend to think that we can be pretty aggressive as long as we're doing well on our growth initiatives. So -- but the technical answer is we are completely neutral. Timur Braziler: Okay. That's good color. And then just looking at the third quarter deposit growth, particularly in DDA, I guess how much of that is tied to warehouse? There wasn't really an increase in related ECR costs. Was that more back-end driven and we might see the higher average balances impact 4Q numbers? Or was a lot of that growth kind of ex ECR driven? Jared Wolff: It wasn't -- you said warehouse, I think you meant HOA. It wasn't, if I understood your question correctly about whether it was HOA related, right? Timur Braziler: I mean just ECR-related deposits. Jared Wolff: Yes, the ECR is primarily in our HOA business. No, it really wasn't. We tend to see inflows of HOA at the beginning of a quarter and then they flow out through the quarter. And so you won't see kind of average balances grow tied to ECR. Also, our highest ECR cost is really associated with some larger depositors in HOA, and we have not been growing balances from them because we don't want to increase our cost and concentration. And so even if we were to grow HOA, we wouldn't see the same level of ECR cost come up. But -- so that's just some color on how we're growing our balances is the level of ECR that we're paying is not the same at new balances we're bringing in from HOA. Our team has done a great job of making sure that our ECR costs are not what they were historically. And we have some larger relationships that have some more expensive deposits, and we just don't want to grow those, right? And so we've been -- I would say that the deposit growth was pretty broad-based. I've been -- as I've said, I expect deposits over time to grow. We're working really hard at relationships. If people have been tracking kind of the ample reserve conversations at the national level and with the Fed policy, I mean, liquidity is tightening nationwide, and it's expected that the Fed is probably going to have to engage in some [ TOMO ] activity to kind of put some liquidity back in the market. That's consistent with what I've been saying for many quarters is that if we're flat when liquidity is coming out of the system, that we're winning because in many cases, deposits are down and your customers don't have more to give you. I would say this quarter was a great quarter. It was pretty balanced. We brought in a lot of new relationships. We did see some good activity from some existing clients as well. We'll see what shows up -- I'm sorry, in the Q3. So we'll see what shows up in Q4. But over time, I expect that we're going to continue to win on bringing new deposit relationships in. Operator: The next question comes from Matthew Clark with Piper Sandler. Matthew Clark: Just on the loan and deposit growth for the year, targeting mid-single-digit growth, it implies a decent step-up here in 4Q. Maybe just speak to the pipeline on both sides of the balance sheet and maybe mid-single digit is 4% to 6%, so 4% would kind of be in that range on the loan side. But on the deposit side, it just implies a steeper step up. Jared Wolff: Yes, you're right. I mean what we don't do is we don't pull away from goals. We'll measure ourselves and see how we did at the end of the year. But you're right, it would suggest that we'd have to have some outsized growth this quarter, and we'll see if we hit it. We're -- our teams are working hard. We might not, but I'm comfortable being measured against what we do. I think our shareholders are being rewarded by our growth in earnings. And I'd like to put out there all the initiatives that we have and how we're driving results for shareholders. And the market is what it is, the dynamics are what they are. I think on a core basis on the loan, when you strip out the loans that were sold, when you look at kind of core loan growth, we'll probably hit the 4% to 6% range. I think that's fair. Deposits are going to be a lot harder. So we'll see where we end up. But I just didn't feel like pulling back our goals. Our teams know what they are. They're out there working hard to try to deliver. Production has been fantastic. I've been really pleased with the production of our teams. Payoffs happen. But like I said, earnings are continuing to grow, notwithstanding that. So I'm very pleased with what we're doing so far. Joseph Kauder: Jared, I would just add also that we calibrate our deposits to our loans, right? So we don't want to have too many deposits. If we end up with excess deposits, we'll occasionally take measures that will optimize our balance sheet. But we can -- there's a spectrum of deposits. And if loan growth -- to the extent loan growth is robust in the fourth quarter, we can scale those deposits to fund that. Jared Wolff: Yes. No, Joe, that's -- I'm glad you mentioned that. It's one of the comments that I had in my prepared remarks, which is that we are pretty dynamic in managing the balance sheet to optimize earnings and not carrying cash at levels where we think we can get a better return somewhere else. And so -- and we'll let -- depending on what we see in terms of our flows, keeping our loan-to-deposit ratio and our liquidity levels in balance. Our team does a great job. Our treasury team does a phenomenal job with our finance team of really optimizing in a very dynamic way when we bring on broker deposits at what cost, for what duration, what do we need right now, depending on other deposit flows. And so I'm glad you brought that up, Joe. Matthew Clark: Great. And then just the other one for me on the Venture business, can you just provide a little more color on what changed in the way you're risk rating those loans that may have caused a little bit of creep in the classified? Jared Wolff: Yes. Sure. So we -- I mentioned this many quarters ago that we were going to get stricter on how we were internally grading ourselves because I feel like it's the best way to have an early warning system. So you can downgrade credits based on a new methodology, but it has nothing to do with the experience that you've seen to date of the credits, but it might mean that you're watching them more closely because we decide the environment or just our risk tolerance may have changed. And so the way that we're looking at venture credits fundamentally has to do with a matrix of a number of factors. It has to do with fundamentally, just to remind everybody what we do in Venture generally. So fund finance is capital call lines of credit. I think people are familiar with that. In Venture, where we have a disproportionate amount of deposits relative to our loans, we lend discretely. And generally, what we're doing in the Venture space is lending to give somebody a line of credit that bridges around of funding. When we bring in a relationship, they're giving us all of their -- let's say it's a company that has some great software and they just did a round of $20 million at a $200 million valuation. That $20 million is going to come into our bank and let's say, we bid on a line of credit and we won. That $20 million is going to sit in our bank. It's probably going to be $2 million or $3 million in their operating account and the rest is going to be in a money market account where they're getting some earnings because they need it because they're not profitable. They might have asked for a $5 million line of credit. That line of credit is going to not be used. It's a bridge facility that would only be used when they go out to raise capital if they need additional time. And what we monitor is the RMC, the remaining months of cash as they burn and make sure that we never have what's called crossover, which is when the debt is in excess of cash. As long as our debt remains less -- greater than the cash level and most of the time our debt is 0, we're fine. And we're benefiting from these deep relationships of treasury management and cards and all the other services we provide and the expertise that we provide that they certainly value. But they may say, "Hey, we're going to go to a round C. We've got lined up investor support. We're going to -- we need a little bit more time. We have 9 months of cash, and we think it's going to take us down to about 4 months of cash. Okay. And they're asking us and they're talking with us about whether or not they're going to borrow on that line of credit. And then it's a conversation, and we go in with our eyes open based on what we see there. And 99% of the time, it works out fine, but there have been circumstances when it doesn't. So what we've done is to tighten the requirements that we have for what we're looking at. We're looking at the sponsor support, the support of the VCs, we're looking at how they're doing relative to their business plan. We're looking at the remaining months of cash. We're looking at the cash to debt levels. We just tightened up the matrix, and that caused us to rate credits in a different way, and there's about 8 or 10 things that we look at. And it's hard for me to go deeper than that, Matthew, but I just want to give you some color. And so the credits could be the exact same credits and performing the exact same way, but under this new matrix. We might be looking at it a little bit differently, and it might trigger another conversation with the sponsor and the VC firm and that's just what we decided to do to tighten up our standards. Operator: The next question comes from David Feaster with Raymond James. David Feaster: I guess maybe touching on the loan growth side. If we think about the growth dynamics, obviously, payoffs and paydowns have been a headwind. If I was reading between the lines, it sounds like you're expecting production -- improving production to drive growth rather than really a deceleration in payoffs and paydowns. I guess, first, is that a fair characterization? And then secondarily, what do you see as some of the key drivers of that increase in production? And how is pricing today? Jared Wolff: Yes. Let me start at the back end of your question. So we see a very strong pipeline this quarter. It's looking really good. The fourth quarter tends to have good activity. It's obviously economy dependent. But right now, people seem to be doing well enough and active. And I think rate cuts generally will stimulate activity as well. So I think that probably bodes well for a good quarter. Pricing is holding up at 7.08% of new production. Yields is a little bit lower than prior quarters, but it's still really, I think, really, really good. And if I look at the yields that we got on production in our individual lending units, which I have right here, production yield really held up pretty well. I mean construction was flat, was almost -- was a little bit up. C&I was up, Venture was up. Warehouse was up. SBA was a little bit down. Equipment Lending was slightly down. Fund Finance was relatively flat. Lender Finance was down. So Lender Finance was down about over 50 basis points, and that's because it is -- those are floating rate credits pretty closely tied to SOFR. And so we were very active in the quarter. And so that would have brought some of it down. But overall, I think yields were pretty good in the quarter. We had 7.29% last quarter, and it was 7.08% this quarter. So -- but in the first quarter, it was 7.20%. So there was kind of a spike in the second quarter and then third quarter came down a little bit. And also rates tend to lag a little bit. So this quarter, we'll see where they are based on rate cuts last quarter. But overall, I think production levels are strong. It's hard to know where payoffs are going to be in any given quarter. Stuff just happens. It's a very dynamic active. Our clients are very active. We had one client that won a lawsuit. They brought in tons of deposits, and then they paid off a big loan that they had with us. And so it happens. We didn't know that, that was going to happen, and it did, that's fine. It's just normal. But we really try to save loans when we can see things that are going to pay off. If it's a multifamily payoff, we certainly want to bid on it. If it's a construction payoff, generally, we're happy with it, and we'll find new construction because some of those longer-term mini perms at low rates, we're just not going to do. And sometimes they're too large. Even though we're going to do the construction, that doesn't mean we're going to do the mini-perm. It's just there's much higher debt on the mini-perm, and it's just not something that we're necessarily prepared to do even if we did the construction. Sometimes we are, but not always. It just depends on the project. And so David, let me ask you to reframe -- I want to make sure I'm answering all of your question. Can you restate... David Feaster: Yes, the other part was just with the increasing production that you were talking about, what are some of the key drivers of that? Jared Wolff: In terms of the areas where we're lending, I mean, I think C&I overall is doing really well. So in California, across our commercial and community bank, we're seeing broad-based good production. And generally, in our middle market area, which is to companies that are a little bit more experienced, a little larger, we're seeing good production locally and even more broadly across California, we're getting referrals from our business units that -- for businesses that are all over the country, which is great. Lender Finance continues to shine. And one of the things that Ann mentioned in a note to me was that we provided back leverage for the loans sold last quarter that were Lender Finance, and that might have brought down the loan yields a little bit, too, because we provided good rates on those loans for the back leverage for the loans that were sold, but it was still well above the rates of loans paying off. So that might have contributed to Lender Finance rates being down a little bit. Let's see. We're still seeing a lot of construction demand in terms of low-income housing tax credit. That stuff just takes a while to pay up, but it's -- that's doing very, very well. And I would say that Warehouse, there's always people that are refinancing and buying homes even up or down, we seem to have good demand in Warehouse. So that's growing as well. So I'd say those are the drivers right now. Fund Finance is always pretty -- the other thing I would mention would be Fund Finance. It was not a big quarter for Fund Finance. It was one of their slowest quarters after really 3 really strong quarters. So we'll see what happens in the fourth quarter. I know they have some good fundings expected this quarter and Fund Finance could have a good quarter this quarter as well. But it was not a big contributor last quarter. David Feaster: Okay. And maybe shifting back, I mean, you guys have been very proactive managing credit. That's been a part of what the payoffs and paydowns that you're seeing, some of which you're pushing out. The industry is obviously hyper focused on the credit outlook today, just given some of the recent issues that we've seen in the industry. I think you kind of put the NDFI issue to bed. But outside of that, I mean, is there anything where you're seeing any pressures or that you're watching more closely or that maybe you're pulling back from just that risk-adjusted returns don't maybe make as much sense just given competitive dynamics or underlying issue? Just kind of curious if there's anything you're seeing. Jared Wolff: Yes. As strong as the market is, I would say the areas where we have been very cautious have been -- certainly, we have not backed off any of our office comments about. We still think that, that is -- I was at an event with one of the investment banks held with Blackstone, and Jon Gray was there speaking to a room full of CEOs about what they were seeing, and they're like doubling down on San Francisco right now, the San Francisco office market. Obviously, Midtown Manhattan has come back pretty strong. That said, we don't feel the need to be an office lender. We just don't. And let others do it. And so we have -- we're backing off that, even though we just signed a big lease downtown in Downtown Los Angeles, where we're moving in. And we're -- we have 2 offices that we consolidated in Downtown Los Angeles, got the same square footage a little bit more, got rooftop signage for less than we were paying for the other 2 buildings combined. So we're trying to be proactive and take advantage of it, notwithstanding that, and maybe because of that, I feel like I don't want to be a lender on office right now. And so we're not doing that. And I would say that anything that has government in it, any type of property with government, we're staying away from. And some of the things that we moved out of, we forced exits of properties where the government was a tenant, and I said, just get rid of it, tell them we're not going to renew the loan and just move it out. And that was some of the credits that went out in the quarter, at least one of them had a government tenant, and I said, just get out of it. It was a large tenant in the property, and I said, let's just move out of that property, but it was completely stable. So that's where we've been proactive as well. Operator: The next question comes from Chris McGratty with KBW. Christopher McGratty: Jared, on the -- I know you touched upon it in your prepared remarks, the buybacks, the opportunistic buybacks partly from private equity. How are you thinking about CET1 levels given the earnings improvement ramp, the growth you talked about and just in light of regulation? Jared Wolff: Yes. I mean I think the right number is between 10% and 11%. And I think more people are coming -- as I've said in prior quarters, I think more people are coming down to us than going up to above 11%. I had said before, I thought 10.5% was totally fine. And so we're between 10% and 10.5% now. And I think we've got plenty of capacity, and we're building up CET1 at faster than we're growing earnings due to some benefits that we have on the tax side that Joe can walk through. And so we're able to continue to grow CET1 while buying back stock. And we're completely undervalued, in my view, by a meaningful amount. And we've got to solve that by continuing to drive earnings growth. I think the market gets it, and we're going to continue to build on this track record. But I think we now have a track record. And I think the margin expansion is there. So -- but I don't want to lose the opportunity to take advantage of buying back our stock. And I think we're going to be plenty of opportunistic and be able to maintain capital levels in the right range. Christopher McGratty: Okay. Continuing to buyback. Got it. And then on the ECR betas, maybe a question on for Joe. I guess what are you assuming for betas on the ECR deposits? I may have missed that. Joseph Kauder: So it is approximately -- the way the contracts work is approximately 75% for every 100 basis -- for every basis point move. Christopher McGratty: Okay. And then, Joe, I have you, that Jared tease the tax -- the fund tax item. What should we be thinking about in terms of tax strategies, tax rates? Anything unusual? Joseph Kauder: No, I think 25% is probably a good tax rate for us moving forward. We do have a big DTA generated from net operating losses that have occurred in the past, also have a fair amount of tax credits, which have been built up through our low-income housing activities, et cetera. As we use those up, as we make money and we use those up, those -- the way the tax law works is there is a -- you're kind of restricted in the benefit of that deferred tax asset in your CET1. So as you use up the deferred tax asset, it comes back in, it gets recycled back through CET1. So our CET1 is probably growing a little -- is growing a little faster than our earnings as the amount of pullback from the NOL dissipates over time. It's pretty complicated, and we can get into it more if you want to get into it. Jared Wolff: Yes. I'm just interested if I think about utilization of it over the next couple of years, like how much of a CET1 benefit are we talking? Because I think it plays right into the buyback narrative. Joseph Kauder: Yes. Well, I think as part -- maybe as part of our earnings guidance for -- at the end of the year, maybe we'll put something together on that. Operator: The next question comes from Andrew Terrell with Stephens. Andrew Terrell: I had a question just around the classified loans. Jared, I heard you mentioned in the prepared remarks, the $50 million of the pickup sequentially was more of a timing issue. So I guess, one, should we expect classifieds moving down in the fourth quarter? And then I appreciate all the color on the venture business and the loan portfolio there. Any other areas left across the loan portfolio that you feel like you need to review kind of the matrix on risk rating? Anything we should expect incrementally there? Jared Wolff: I don't think so. So classified, the $50 million loan, they signed the contract to sell it for well above our loan amount post quarter end. So that will come out this quarter. I think the conservative thing to say is that classifieds will remain flat. But of course, I hope they go down. And I would want them to go down. But I have to -- things always pop up, and it doesn't mean you're going to have a loss, but stuff just happens. So Andrew, I want to be careful to say -- all things being equal, if we didn't have a dynamic balance sheet, yes, it would go down. I don't know, stuff happens, I don't know. It could go up. It could stay flat. But hopefully, it doesn't. I think our team is doing a really good job. And to your second question about are there other areas where we're doing reviews that could kind of impact our credit metrics? I don't think so. I think our team has kind of gotten through it all. And this -- we had been rolling out this venture thing over several quarters. And so this was just kind of the one that -- the quarter that had the most impact as we got through it and we started applying it. So I don't think there's going to be anything else. There's nothing else I'm aware of right now is what I would say. Andrew Terrell: Yes, I know it's been a focus for a while. Operator: The next question comes from Gary Tenner with D.A. Davidson. Gary Tenner: Most of my questions were asked, but I wanted just to ask about the timing of the buyback through the quarter. It looks like just based on the average purchase price, it was kind of weighted towards the last bit of the quarter after the stock had run up a little bit. Was that kind of delay just more of a function of getting visibility over where kind of growth in capital was going to go over the course of the quarter before you became more active later in the quarter? Or were there other... Jared Wolff: I don't know if I can confirm that, Gary, not because there's anything confidential there. It's just because I don't know that that's right. I'd have to go back and look at it. These are average prices that we're giving you and it affects how much was purchased when versus purchased elsewhere. And then also we had a block that we purchased from Warburg. So it's hard for me to confirm that. Joe, I don't know if you have any... Joseph Kauder: Well, in the deck on Page 24, we show how much we purchased and the average price. I'm not sure I understood the question. Gary Tenner: Well, the average price I think was [indiscernible], right? Joseph Kauder: Yes. Gary Tenner: And if I look at just kind of where the stock generally was over the course of the third quarter, and you didn't get kind of over [ 16 ], call it, until late August. And then it was kind of -- the stock was there through September. So that's what drove the question. Jared Wolff: Okay. So we -- your question was whether or not it was driven by making sure we had the right capital levels. I think that was the heart of your question, though, right? Gary Tenner: [indiscernible] Jared Wolff: Yes. So let me try to address that. We absolutely want to make sure that when we buy back our stock, our capital levels are going to be sufficient. And we -- so we definitely look at where do we think capital is going to be when we buy back stock. So that is part of our calculation. That is part of our analysis. So let me just say without saying when we bought stock, I will tell you that we definitely look at that. And that's probably a fair conclusion to make, but we obviously ended comfortably above. It's also pretty hard to calculate because of what Joe said about our dynamic range of our taxes and the NOLs that we have and how it impacts our CET1. And it's a little bit iterative how that calculation works and sometimes you don't have all the feedback. But I think what we experienced last quarter coming out of -- we were at 9.90% or 9.95% or wherever we were on CET1. Now that we're comfortably above 10%. I mean I think that, that might have been a 1 quarter kind of item that isn't really a concern going forward. Yes. And also, let me just say, look, we're always going to be looking at a variety of uses of our capital. We have $115 million left on our share repurchase authorization. It is unlikely that we will use all of it because we will retain some of it, but we do intend to be active when we believe that our shares are undervalued relative to other -- but we'll always be looking at other opportunities of what we could be using our capital for at any given time. And so they're not mutually exclusive, but our shares are, in our view, meaningfully undervalued. We're growing tangible book value at, I don't know, the past couple of quarters, it's been $0.25 plus per quarter. So it seems like knowing where we're likely going to end up, we can figure out like if we're not trading at $1.25, $1.30 or more of tangible book, which we should be given kind of our clear earnings path and the solid balance sheet that we have and the quality of the franchise and how big a footprint we have in California and how unique this is, I just think our stock is undervalued. So we'll be opportunistic. Operator: The next question comes from Anthony Elian with JPMorgan. Anthony Elian: Jared, just a direct follow-up to your comments you just made on the buyback, right? Why not be more aggressive here given the stock is still trading near tangible book value before you potentially get to that $1.25 or $1.30 of TBV. Is it just because you don't want to get below 10% CET1 and you want to retain some capital? Jared Wolff: Well, we might do exactly what you just said. I don't think it's prudent for us to tell the market exactly what we're doing and when we're going to do it because that generally tends to work against us. So just -- I'm sure you can understand that dynamic. I don't think we should be -- I want to make it clear that we will be opportunistic without saying exactly when we're going to do it. And I think we've done a really good job to date. If you look at the average prices that we bought at, I think people can say that we've been pretty effective at it overall with an average price of $13.59 for the total program. So you pick your spots and you pick your dynamics. But strategically, Tony, what you're saying is accurate, but I want to be careful about what I commit to one. Anthony Elian: That's fair. And then my follow-up, Joe, on the NIM guide, the 4Q NIM guide, I know you don't assume rate cuts. But if we do get a cut next week in December, could you quantify the impact that would have to the 3.20% to 3.30% guide? And then if we assume the forward curve next year, how would that impact the jumping off point of 3.25% to 3.35% you mentioned earlier? Joseph Kauder: Yes. So as we mentioned earlier, the -- our core net interest income is neutral, but we have the liability sensitivity in our HOA ECR book. The way the ECR deposits for HOA ECR deposits work is that they kick in the first day of the next quarter after the rate cut. So if there was -- if there's a rate cut upcoming here in the fourth quarter, we will not get benefit of that until January 1. So I would not assume that we would get much benefit in the fourth quarter from that rate cut. Jared Wolff: And then Tony was asking about how rate cuts affect our margin guidance. Anthony Elian: Specifically on the 3.20% to 3.30% NIM guide. Just if we do get the cut next week, I mean that's going to be more impactful coupled with the September cut. So how would that change? Jared Wolff: I think we have -- hold on, Joe, just one second. I think we have to see because so much of our NIM -- since we're kind of neutral, but for the ECR, which doesn't -- which is HOA, I think a lot of our NIM depends upon our loan production. Tony, so we -- and there's a little bit of a lag, right? And so we just have to see how that flows through. Joe, what do you think? Joseph Kauder: No, that's exactly right. It gets complicated because we can -- as the point or the discussion that Jared had earlier about the technical answer, the technical answer is pretty straightforward, which is that a 25 basis point rate cut for our ECR -- HOA ECR, it relates to about $6 million a year of pretax income. But there's other factors that factor in. If rates go down and there is -- economy stays strong, that should boost lending, that should have a benefit to us. Some of our loans -- a lot of our loans have floors in them. So when do we hit those floors and whatnot. So it's a little bit more complex than just saying that it's -- how fast can we bring down deposits, what kind of deposit beta can we get with our customers. It's a little bit hard, but I think the technical answer is what I said earlier. Jared Wolff: And Tony, the nontechnical answer is I expect that our margin will expand as rates go down because of our production and loans are coming on at higher rates than deposits are going -- and deposits are going down given stuff paying off. And so if we're at 3.20% to 3.30% now, and we think we're going to end the year in the low 3.20s, right, have a -- I don't know what it's going to be for -- whether it's 3.20%, 3.21%, whatever it is for Q4. And then off that 3.18% that we ended the quarter at. And then -- so that's your starting point for next year. We generally don't model rate cuts. We just -- we will a little bit, but we are slightly sensitive to them. So if the guide next year is 3.25% to 3.35% or whatever it is, I think we'll just kind of be updating it as we go from there. Operator: The next question comes from Tim Coffey with Janney. Timothy Coffey: Jared, if we were to look at your noninterest expenses and back out the earnings credit rates, they've been essentially flat the last year. And not to say that it hasn't been something that you've been paying attention to, but has something changed with your philosophy of cost control in the last year that has become more of an emphasis? Jared Wolff: I'll start, but Joe can provide the details. So first of all, I give a lot of credit to not only our finance team, but our entire company for being very thoughtful about how we manage expenses. I think there were a lot of expectations about the timing of hiring that changed. We've been adding bodies, adding great, great talent at all levels, but the timing has been more spread out as our teams have figured out ways to drive efficiencies. We're asking as we're budgeting for next year, we've asked everybody to think about where they're going to realize their benefits on gearing ratios as we've spent a lot of money on technology. And we've said to people, unless you're seeing a benefit of this technology, why are we doing it? So you need to factor into your hires for 2026. What benefits you're getting from technology and how you're gearing ratios, which we think about as the -- it's the number of portfolio managers you need for every lender. It's the number of relationship managers you need for every new client relationship you're bringing in. Whatever the ratios are, whatever the gearing ratio is, what benefits are we seeing from technology. It has to do with how we monitor and manage BSA, how we're using Copilot and ChatGPT, both of which are deployed company-wide. And our IT team has done a great job of training people on and making sure that we are using tools that can allow us to do things faster. I've told our teams like we're not looking to lay people off, but hiring might be slower because we don't need as many people as quickly. So I think some of it is timing, but our teams have really done a good job. Joe, I'm sorry for that long introduction. What's the actual answer? Joseph Kauder: No, I think you pretty much nailed it, Jared. We've been very disciplined about the headcount and about projects, and those are really the 2 drivers that move the needle in cost for us. And the -- on headcount, people have just been really thoughtful in the way they've gone about in areas where we needed to add people, maybe we found efficiency somewhere else to offset that. And on the projects, we start at the beginning of the year. We have a list of projects we want to do and it's detail and everything. But then as we get into them, we spend a lot of time and focus going through and sharpening our pencils and saying, okay, what do we really need to do? How can we do this in the most efficient and effective way? What are things that might be nice to have but not has to have that we can drop off of this project? And how do we get this done in a way that is the most effective for shareholders and for the bank. And we've done that and the team has done a really good job, as Jared pointed out, doing that. As we get into 2026, you'll see some step-up in cost for the normal wage inflation and those types of things and that some of the project spend investments we've made this year will start amortizing. But we think we're going to continue to focus on this and keep a really tight rein to make sure that our expenses don't grow in a way that is out of line with our revenue and we continue to increase our operating leverage. Jared Wolff: Tim, just another thought there. We have an initiative in the company called Better Bank. And we ask our employees to submit recommendations for improvement of anything that they see that they think is suboptimal. And we have a team that reviews those submissions, evaluates them, ranks them and then gives a response to the person that submitted it. And this is online for everybody to see in the company. So we're constantly improving the company. And I believe to my core that, that has actually created a ton of efficiencies in our company. When we have people that don't have to fill out the same forms that a third form when they've already filled out 2 others, they have the same information or they can get 2 forms down to 1 or we can do something faster for our clients so we can eliminate steps or get rid of things that just aren't necessary anymore because of our thoughtful employees who are on the front lines are saying, I can see a better way to do this and you actually listen to your team, you can create a lot of improvement. And I wouldn't look past that as also a reason why we've been able to keep costs in line. Timothy Coffey: Okay. That was great color. And then my next question has to be on the expense guide. I mean it's -- I don't think you're getting credit for your expense the fact that they've been flat for the last 4 quarters. So I'm kind of curious, it seems to me the guide for expenses is conservative. Is there -- are you expecting big investments in the business this next quarter, next year? Jared Wolff: Joe, go ahead. I mean... Joseph Kauder: Well, I think we just changed our guidance in the fourth quarter to say that we expect to be either at the low end or below the low end of the range. And I think we also further say somewhat consistent with what we've seen. So we're beginning to lean into that. And yes, I think it is fair to say maybe we've been a little conservative to date. Jared Wolff: Look, the project spend is real, Tim. Like if you ask people for a wish list of projects, it's pretty long, but our team is pretty mature, and they understand that like let's do a couple of things really, really well and not try to do everything. And like we'll tackle the next thing when we're done doing the first 5 things really, really well. And I've been at a couple of different companies and seen this managed. And generally, if you add up the number of projects, there are not enough man hours or people hours in the company to get it done in the time you want to get it done. And so if you're honest about it, you really don't have the people to get more than about 5 projects done in parallel and do them really, really well and on time that are significant. There's always small stuff going on and fixes here and there, but major projects, you got to -- it takes a smart dedicated group of people to do that, and they generally have day jobs as well. And so that's how we're trying to manage ourselves right now. Timothy Coffey: No, I can definitely understand that point. And then on the multifamily book, I mean, we talked about it earlier in the call, right? $6 billion, average yield around 4%. What strategies have you implemented to maybe bring forward some of those repricing time lines? Jared Wolff: Well, it's very hard to encourage somebody who's got a rate at 3.5% to reprice sooner, okay? What -- because market rates are much higher. Just taking one example. It could be 4%, whatever it is. But what we do look at is when loans -- we know which loans are coming off of their fixed rate period or are about to mature because oftentimes, these are 10-year loans with 5-year fixed rates or they're 5-year fixed rate loans. We will approach those borrowers and ask them if they are interested in working with us on a refi. And the benefit to working with us is they can do it with much lower documentation and lower fees and certainty. Fannie and Freddie are between 5.75% and 6% for a -- maybe 5.50% and 6% depending on the loan for a 5-year fixed rate loan. We're offering between 5.90% and 6.1% for a 3-year fixed rate loan with a different prepay. Fannie, Freddie will have a prepaid 54321 or something like that. They'll have lower fees, lower cost. They won't need a new appraisal. So there's a benefit to doing it with us even on a shorter duration. We've been successful about 1/3 of the time of the ones that we've gone to. Operator: And we have a follow-up from Chris McGratty with KBW. Christopher McGratty: Of course, I want to ask this respectfully. There's not a lot of banks at book value today, and we're in an M&A environment where good assets have bids. So can you balance buying your own stock versus partnering and bridging that gap to the 13% ROE a little quicker? Jared Wolff: Look, I understand why we're attractive and why people mention our name. We have a very valuable franchise that's scarce. We're growing like crazy in one of the most dense and attractive markets in the country. We've got a really talented team of people. So I get why people might say, but I've heard that forever wherever I've been. I think the most important thing that we can do is put our head down and run this company well like we're going to run it forever and take care of our shareholders and put our heads down and keep growing earnings and everything else seems to take care of itself. So that's what we're focused on. We're focused on growing this franchise and being really successful. And I don't think you're going to see any secret where we are, but our teams are doing a fantastic job, and we're really focused on delivering excellent results for our shareholders. Operator: This concludes our question-and-answer session and Banc of California's Third Quarter Earnings Conference Call. Thank you for attending today's presentation. You may now disconnect.
Denise Reyes: Good morning, everyone, and welcome to Nemak's Third Quarter 2025 Earnings Webcast. I am Denise Reyes, Nemak's Investor Relations Officer, and I am pleased to host today's call along with Armando Tamez, Nemak's CEO; and Alberto Sada, CFO, who are here this morning to discuss the company's business performance and answer any questions that you may have. As a reminder, today's event is being recorded and will be available on the company's Investor Relations website. Armando Tamez, our CEO, will lead off today's call by providing an overview of business and financial highlights for the quarter. Alberto Sada, our CFO, will then discuss our financial results in more detail. Afterwards, we'll open for a Q&A session, which participants may join live or submit written questions via the Q&A function. Before we get started, let me remind you that information discussed on today's call may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions you not to place undue reliance on these forward-looking statements. Nemak undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. I will now turn the call over to Armando Tamez. Armando Tamez Martínez: Thank you, Denise. Hello, everyone, and welcome to Nemak's Third Quarter 2025 Earnings Webcast. This quarter, our top line remained stable compared to the same period of last year, supported by the continued resilience of the automotive industry. EBITDA declined 15% year-over-year, ending the quarter at $143 million. This change is primarily explained by a high comparison basis in the same quarter of last year when we benefited from one-time commercial adjustments as well as the typical seasonality of the third quarter, when summer shutdowns and major maintenance activity take place. While these dynamics were particular to this quarter, for the full year, we expect to achieve the high end of our EBITDA guidance, at $600 million with capital expenditures totaling $290 million. Our focus remains firmly on executing our strategic priorities and positioning the company for long-term value creation. In line with this commitment, we recently announced the agreement to acquire the Georg Fischer Casting Solutions' automotive business, a milestone that will mark an important step forward in strengthening Nemak's capabilities and a significant advancement in our strategic journey. Georg Fischer is an outstanding player in the industry and its capabilities are expected to be highly complementary to Nemak. This transaction is well aligned with our strategic focus and technical strengths in lightweighting. It will enhance our business profile and be accretive from both a commercial and operational standpoint. It will also expand our innovation platform and extend our reach in R&D, particularly in high-pressure die casting technology. Additionally, we will be able to broaden our product offering, particularly in high complex aluminum and magnesium parts for the e-mobility, structure and chassis application segment, which continues to offer ample potential for future growth. From a geographic perspective, the integration of Georg Fischer Casting Solutions will increase our footprint in Europe and China. The transaction perimeter includes: 2 manufacturing plants in Austria, 2 in Romania, a tool shop in Germany, an R&D center in Switzerland, 3 plants and a tooling shop in China and 1 facility currently under construction in the United States. This new plant will be dedicated to highly engineered structural components, and it is expected to begin operations during the second half of 2026. In addition to footprint diversification, this transaction will provide a valuable entry point to serve important Chinese OEMs, including BYD, Denza, Geely, Hongqi, Li Auto, Nio, Xpeng and Zeekr among others. Beyond the opportunities with new Chinese customers, this acquisition will also positively impact business with our existing Western customers. This includes Audi, BMW, Jaguar-Land Rover, Mercedes Benz, Porsche, Stellantis, Volkswagen and Volvo, among others, reinforcing our commitment to serve a diverse and globally-recognized customer base. As part of this transition process, we're eager to welcome a highly skilled and experienced management team, along with a dedicated workforce of approximately 2,500 employees. We look forward to the integration phase ahead and the opportunity to combine the strengths of 2 competitive and complementary cultures. The transaction remains subject to customary regulatory approvals across the various regions involved. While we expect to close by the end of the year, the timeline continues to follow the procedures established by the respective regulatory bodies. Moving on to commercial activity. During 2025, we have secured $250 million in awarded business across all our regions, 80% in the ICE powertrain segment and the remainder in the e-mobility, structure and chassis applications segment. These new programs will mostly reuse existing assets, deploying capital efficiently while continuing to deliver high-quality, cost-effective solutions to our customers. The new contracts also highlight the ongoing relevance of the ICE powertrain segment, whose lifecycle has been extended due to the current electric vehicle adoption trends. In line with this, we have also experienced robust demand for V8 and I-6 engines in North America. In other recent developments, I am proud to share that 4 of the 10 vehicles recognized in the 2025 Wards Auto Best Engines & Propulsion Systems include components manufactured by Nemak. This recognition reflects the trust that leading OEMs place in our technology as well as our ongoing contribution to efficient, high-performance propulsion systems. Notably, this year, hybrid powertrains dominated the list, underscoring the growing relevance of electrified solutions. Moving on to innovation. The integration of artificial intelligence is becoming increasingly essential to our efforts in this area. At Nemak, we are successfully embedding AI into our business practices to enhance decision-making and operational efficiency. A clear example of this is the evolution of our patented NORIS system, which stands for Nemak Online Realtime Information System. This system has been running successfully for over a decade as [indiscernible] information system. Recently, we introduced NORIS GPT, a new AI-powered layer that significantly enhance the system capabilities. Our manufacturing processes involve managing a wide array of variables and parameters. NORIS GPT enable us to quickly turn data into actionable insights, combining this enhanced information with domain expertise to deliver real business outcomes. This advancement reflects our ongoing commitment to innovation and our ability to leverage cutting-edge technologies to heighten our competitive position. Turning to our sustainability agenda. We continue to make meaningful progress in advancing responsible practices across our operations. Our commitment to the Aluminium Stewardship Initiative remains strong. And this quarter, we achieved 2 additional certifications under the performance standard at sites in Europe. In addition, our melting center in Mexico was certified under the Chain of Custody Standard. This is a key milestone in producing certified alloys for our casting facilities in the country. These milestones demonstrate our continuous commitment to integrating sustainability across our value chain. Moving forward, we plan to have the majority of our sites certified in the near future. This concludes my remarks. Thank you for your attention. I will now hand the call over to Alberto. Alberto Sada Medina: Thank you, Armando. Good morning, everyone. I will begin with an industry overview of the regions where we operate, followed by a discussion of our consolidated and regional financial results for the third quarter of '25. During the third quarter, the top line remained stable at $1.2 billion, on the back of sustained pricing and a favorable product mix. EBITDA decreased by 15% due to the effect from commercial negotiations in the third quarter of 2024, which elevated the comparison basis and extraordinary expenses during the period. During the quarter, we generated positive free cash flow on the back of operating results and a prudent approach to capital expenditures. In turn, this allowed us to maintain our net debt-to-EBITDA ratio at 2.5x. Turning to the automotive industry. During the third quarter, light vehicle sales in the United States showed a 5% year-over-year increase on a SAAR basis to 16.4 million units. This was mainly due to a pull-ahead effect prior to the phase out of the Inflation Reduction Act EV incentives and tariff potential impacts. Light vehicle production grew 3% year-over-year to 3.9 million units, driven by sustained demand. On a SAAR basis, light vehicle sales in Europe grew 2% year-over-year to 15.7 million units. OEMs continue to introduce less expensive trims, therefore, improving affordability. Light vehicle production in the region remain at 3.4 million units, similar to the same period of last year. In China, light vehicle sales on a SAAR basis increased 7% year-over-year to 28.6 million units, propelled by trade-in programs and government incentives. Light vehicle production increased 2% year-over-year to 7.4 million units, driven by stable domestic sales. In Brazil, light vehicle sales decreased 1% year-over-year and production increased by 3%, driven by export activity. Moving to Nemak's results. During the third quarter, Nemak's volume was 9.6 million equivalent units, in line with the same period of last year. Volume was driven by stronger production in North America and partially offset by lower production in Europe. Revenue was $1.23 billion, stable when compared to the same period of last year as updated pricing and the appreciation of the euro offset the absence of the one-off effect from commercial negotiations in '24. During the quarter, EBITDA was $143 million, a 15% decline year-over-year. This was due to the lack of commercial negotiations versus the same period of last year and launching expenses associated with the ramp-up of volumes and mix changes in certain platforms. In turn, the unitary EBITDA margin was $15 per equivalent unit. Operating income decreased to $26 million from $73 million in the same period of last year. The decline was mainly attributable to lower EBITDA and impairment charges of $17 million related to non-operating assets, primarily in North America. Net income increased to $25 million from $5 million in the same period of last year, reflecting lower net financing expenses and a favorable tax effect from foreign exchange movements, particularly the appreciation of the Mexican peso against the U.S. dollar, which more than compensated for lower operating income. The combined effect of disciplined execution and reduced financial expenses and capital expenditures allowed us to generate during the quarter, a free cash flow of $18 million. This is aligned with the business seasonality and our expectations for the year, and places us in a good position to continue reducing our leverage. In turn, by the end of September, net debt was $1.59 billion, $173 million lower than in the same period of last year. This is a testament to our disciplined capital allocation and operating efficiency, which more than offset the foreign exchange impact on our balance sheet from euro-denominated liabilities. Looking forward, debt reduction remains a key priority. At quarter end, the net debt-to-EBITDA ratio was 2.5x compared to 2.9x at the end of the third quarter of last year. Conversely, the interest coverage ratio was 4.9x compared to 5.0x in the same period of 2024. Our cash position at the end of September was $328 million. Capital expenditures during the quarter totaled $70 million, 27% lower than the same period of last year, in line with our disciplined investment strategy that prioritizes projects with adequate profitability. Moving on to the regional results. In North America, revenue rose 2% year-over-year to $651 million, supported by higher volumes. EBITDA decreased 14% to $67 million, mainly due to the absence of prior year commercial negotiations and additional costs associated with the volume ramp-up of specific platforms. In Europe, lower volume drove the 4% decline in revenue to $401 million. This decrease was partly offset by improved pricing and depreciation of the euro. In turn, EBITDA decreased by 26% to $50 million, mainly due to the lower volume and the absence of one-off customer payments following commercial negotiations on inflation compensations in 2024, which more than offset the benefit from the appreciation of the euro. In the Rest of the World, revenue increased by 3% to $175 million as lower volume was more than offset by an improved product mix. EBITDA of $26 million was 11% higher, driven by performance and product mix improvements. In relation to the acquisition of Georg Fischer Casting Solutions' Automotive Business, the enterprise value is $336 million. At closing, we will cover a payment of $160 million with existing cash. The remaining of the enterprise value is structured through a combination of holdbacks not related to performance, but subject to the absence of contingencies as well as a portion of assumed operating and financial liabilities. This portion of the transaction will be funded by a vendor-financing agreement. Overall, we continue to focus on maintaining profitability even when facing a very dynamic landscape in the automotive industry. We believe the diversification and potential synergies of the Georg Fischer acquisition will lead us to strengthen our value proposition. In conjunction with our customary disciplined execution, we believe these measures will enhance our business profile, delivering value to our stakeholders as we continue to make strides in our commitment to deleverage and create sustainable value for the future. I will now turn the call back over to Denise. Denise Reyes: Thank you, Alberto. We are now ready to move on to the Q&A portion of the event. Denise Reyes: [Operator Instructions] The first question is from Jonathan Koutras from JPMorgan. Jonathan Koutras: So, I have 2 questions on my side. The first one is on the recent developments on the supply chain side. There was the fire at the Novelis aluminum plant in New York last month, impacting Ford, which is an important client for Nemak. The question is, if you expect any impact or headwind in the fourth quarter volumes stemming from this aside from the typical seasonality? And the second question, Alberto flagged on the $17 million impairment in non-operating assets in the quarter. So just wondering if this is still related to the recent investments on the EV side and if we should expect a similar impairment in terms of magnitude during the fourth quarter or not? Armando Tamez Martínez: I will answer the first question related to the Novelis fire. Certainly, we have been in conversations with most of our customers that were, let's say, supplying metal sheet, aluminum metal sheet from Novelis. So far, we have not seen any volume reduction that has affected us. Actually, we continue with very strong volumes in North America. Our customers, in conversations with them, are telling us that they have other sources. Novelis is a supplier of the Detroit 3 and other OEMs. They told us, in the conversations that we have had with them that they have other suppliers and that they are looking how to expedite also the rebuild of the facility that was affected by this fire in the New York state where the plant of Novelis was located. But so far, we have not seen any effect. We will monitor this very closely. And in the event that we see any type of volume reductions, certainly, we will take the necessary steps to align our cost structure. Alberto Sada Medina: And related to your second question, Jonathan, related to the impairments. Yes, as you correctly pointed out, these impairments are related to assets, most of them associated with projects on the EV side that have not been used to the extent possible. And going forward, I mean, we will continue reviewing our asset base to make sure that we have the right accounting for all the assets that are currently being used. And those that will have no use would certainly be written off as we negotiate with our customers for compensations in that case. We review that, I mean, all the time. So, we will report in due course if we have more impairments to do in the fourth quarter. Denise Reyes: We have another question from Stefan Styk from Barclays. Stefan Styk: This is Stefan from Barclays. I have a few, if you don't mind. First one is, can you quantify the specific EBITDA impact this quarter from last year's commercial negotiations that you didn't have this quarter? Alberto Sada Medina: Well, yes, as highlighted, last year, particularly the second half was heavily influenced with commercial negotiations. And as we discussed, I mean, those were very intense processes with our customers that we concluded along the year. So, part of that was reflected on the third quarter of last year. Unfortunately, we cannot provide specific numbers on the potential benefit from those claims as those were confidential negotiations with our customers. But I can tell you, as indicated that -- yes, a portion of the difference between last year and this year is associated to that comparable that is favorably reflected on the third quarter of last year. We also experienced a little bit of additional costs in certain operations, particularly in North America, which also explains part of that difference. Stefan Styk: Okay. On the acquisitions front, just curious how you're thinking about the EBITDA contribution on a run rate basis after you close? I think you disclosed historical EBITDA figure with the purchase memo. But should we expect it to be above or below this? And what sort of ramp-up period are you expecting for integration after closing? Armando Tamez Martínez: Yes. Thank you, Stefan. As we have indicated already, we're in the process of getting all the necessary approvals by the different antitrust places. And once we get the full approval, which is expected to be at the end of this year, and this is what we are getting from our legal staff, once we have this -- let's say, complete approval on this acquisition, we will provide a guidance of the combined 2 companies, the Nemak and the new Georg Fischer acquisition. We expect to have that one, let's say, available to share during the first conference call that we will have scheduled for January. Stefan Styk: Okay. And then if I could just sneak in one more. On the new business that you disclosed, the $250 million in annual revenue going forward, can you give a bit more color on the contract structure on the volumes there and the length of the contracts? And then that's all for me. Armando Tamez Martínez: Yes. Approximately out of this $250 million worth of new business, 80% is related to extensions and new contracts or volume increases on the ICE or internal combustion engine platform. Those are very interesting contracts. And the interesting part is that we will use existing assets to produce these parts. And this is related, Stefan, to the change, especially here in North America related to the slowdown of the electric vehicle adoption. And some of our customers are increasing, let's say, production of big ICE and hybrid vehicles, and this is why we're getting additional volumes. And as I indicated, the beauty of this is that most of that will be absorbed with existing assets without any additional CapEx. And in the contracts, certainly, we're signing an extension and also with the new pricing that will be beneficial for Nemak. Denise Reyes: The next question is from Alfonso Salazar from Scotiabank. We'll move on with the next question. The next question is from Alejandro Azar from GBM. Alejandro Azar Wabi: I think I have 3 or 2 if I may. On the transaction with GF Castings, if you can give us a little bit more color on the contingencies, after you mentioned you are going to pay $160 million when the transaction closes and the rest over a 5-year period related to some contingencies. If you can give us more color on those related to what is? And my second question is also on GF Castings. If you can -- if the contracts that you're acquiring from this company have similar terms to the ones that you have in Nemak, I mean, pass-through, et cetera? And the third one would be, with this transaction, how does your capital allocation priorities change, thinking specifically on the refinancing or the maturing of the bond, if I'm not mistaken, that you have in 2028? And those are my 3 questions. Armando Tamez Martínez: Let me respond to first question, Alex, related to the structure of the acquisition of Georg Fischer. As you correctly pointed out, and as I indicated before, we are due to pay $160 million upon closing, upon getting the approvals from the regulatory agencies. And after that, we have a combination of -- a structure, which is a combination of holdbacks, vendor financing and assumed liabilities from the operation. So, it's a combination from all of those elements. I cannot disclose you all the elements because of confidentiality restrictions with the seller. But what I can tell you is that related to those contingencies, those are the type of elements that you normally have on an agreement, which have to do with unknown items or things that have not been adequately reflected on the structure or on the due diligence that may pop up in the future. So, I would say it's nothing different than what you would expect. And the structure certainly allows us to do an efficient execution of any contingency if they materialize. Alejandro Azar Wabi: And those contingencies have a 5-year, let's say, period? Alberto Sada Medina: Yes, what we have is 5 years. If any of the identified, let's say, conceptual contingencies materialize in the 5 years, we will deduct part of that from the pending payment. If they do not materialize, we'll pay them back to the seller. Armando Tamez Martínez: Related to the contracts, as it's normal practice when we're making an acquisition is that we are not allowed by the antitrust authorities to take a deep look at the contracts. However, in conversations with the management team from Georg Fischer, certainly what they are indicating is that they have similar contracts to the ones that we have in which they are getting the contracts for the lifetime of the vehicle line on the products that they are getting and also normal payment terms, not only in Europe, but also in China. This is what they have shared with us without getting into any specifics. Once we get, let's say, the approvals, certainly, we will take a look at all the specific commercial contracts and compare those against us. And certainly, if we see any difference, we will address those directly with the customers. Alejandro Azar Wabi: Okay. My worry was actually on China. Armando Tamez Martínez: Normally, in China, for the benefit of all the entire supplier base is that the Chinese government implemented a new policy in which the maximum payment terms now stands at 45 days, which is normal for China. As you know, we have already operations in China, and these are the normal payment terms that we have. And even with the Chinese customers, they have, let's say, similar contracts to the ones that we have with Western customers. Alejandro Azar Wabi: Okay. And on the capital allocation priorities? Armando Tamez Martínez: On the capital allocation, one of the things that we are expecting, Alex, is that since the 2 combined companies, once we get the approvals from the regulatory authorities is that we will use existing assets to reduce significantly the CapEx going forward. And in some of the due diligence that we have made, we have seen already the opportunities that eventually once we get the approval, we will capitalize in reusing existing assets and try to go forward, at least in our projections to reduce significantly the CapEx going forward, so that the company will generate higher free cash flow and we will be able to reduce our leverage sooner than originally expected. Alejandro Azar Wabi: Okay. Can I make one more question? Armando Tamez Martínez: Yes. Alejandro Azar Wabi: From your press release, you mentioned, if I'm not mistaken, it was 2024 or 2023 that Georg Fischer generated $91 million in EBITDA terms. I'm just curious, I understand that that $91 million does not include some plants in the U.S. So, is there any way that you can share with us that plant, how much of the production of Georg Fischer represents? Or I'm trying to get the potential from that point, let's say, like that. Armando Tamez Martínez: Yes. Just clarifying, Alex. Today, Georg Fischer is building a new facility in the state of Georgia. This is a state-of-the-art facility. Actually, we have visited all the facilities, and we were very impressed. This is a brand-new greenfield facility built in the state of Georgia to support one very important German OEM. And certainly, that facility will be operational in the second half of 2026. In this transaction, we excluded, or they excluded out of the deal a few facilities, 1 iron casting that was located in Germany that is not part of the deal and 2 small plants located in Italy that were for a different industry that -- those were not part of the transaction. Once we get the approvals from the regulatory bodies, we will be able to share exactly what is the projection on the EBITDA of the combined companies, Alex. Denise Reyes: There are no more live questions. We will now move on to the written question. We have 2 questions from Alfonso Salazar from Scotiabank. First, how do you see the outlook for Europe in 2026? And second, given the risk of a strict control of rare earth exports from China, how is Nemak and its main customers preparing for potential bottlenecks? Armando Tamez Martínez: Yes. Thank you, Alfonso. Certainly, this is new information that our customers are trying to, again, understand if there is any potential implications. I think they are trying also, as we speak, to look for alternatives for these semiconductors. And so far, I think that we have not seen a major effect related to this at this point in time. But certainly, we will monitor this very closely. And as always, part of our operational model, in the event that we start seeing a decline in volumes, we will immediately align with the normal cost reduction activities that we have as part of our business model. Denise Reyes: Thank you, Armando. There are no further questions at this time. And with that, we conclude today's event. I would just like to take this opportunity to thank everyone for participating. Please feel free to contact us if you have any follow-up questions or comments. This does conclude today's earnings webcast. Have a good day.
Operator: Good day, and thank you for standing by. Welcome to the Precision Drilling Corporation 2025 Third Quarter Results Conference Call and Webcast. I would now like to hand the conference over to Lavonne Zdunich, Vice President of Investor Relations. Please go ahead. Lavonne Zdunich: Good morning, and thank you for joining Precision Drilling's Third Quarter Conference Call and Webcast. Earlier this month, we announced the retirement of Kevin Neveu and the appointment of Carey Ford to President and Chief Executive Officer; Gene Stahl to Chief Operating Officer; and Dustin Honing to Chief Financial Officer. Kevin retires after serving as President and CEO for one of the longest tenures of any oilfield service CEO. We would like to thank Kevin for his many contributions during his time with PD. Before I pass the call over to Carey and Dustin today, I would like to recap some of our Q3 highlights. Precision Drilling activity outperformed industry and our U.S. drilling activity continues to grow. Our operating margins are resilient and within guidance. We increased our 2025 capital budget by $20 million to allow for 5 additional contracted rig upgrades as several of our Canadian and U.S. customers are taking a long-term view of demand for energy. And finally, we are on track to meet our 2025 capital allocation plans, having already achieved our debt reduction target. Please note that some comments today will refer to non-IFRS -- non-IFRS financial measures and include forward-looking statements, which are subject to a number of risks and uncertainties. For more information on financial measures, forward-looking statements and risk factors, please refer to our news release and other regulatory filings available on SEDAR and EDGAR. With that, I will turn it over to Dustin Honing, our new CFO. Dustin Honing: Thank you, Lavonne, and good morning or good afternoon, depending on where you're calling today. Our Q3 results demonstrate Precision's commitment to delivering on our strategic priorities and positioning the business for long-term success. We recorded adjusted EBITDA of $118 million, which equates to $129 million before share-based compensation expense compared with prior year EBITDA of $142 million. . In Canada, drilling activity averaged 63 active rigs, a decrease of 9 rigs from Q3 2024, resulting from customer projects being deferred to the upcoming winter season. Our reported Q3 daily operating margins were $13,007 a day compared to $12,877 a day in the third quarter of 2024, well within our prior guidance range. In the U.S., we averaged 36 rigs, an increase of 3 rigs from the previous quarter, primarily due to Precision's strength in gas-weighted basins. In Q3, daily operating margins for the quarter were steady at USD 8,700 a day compared to USD 9,026 a day in the second quarter, also within our prior guidance range. With favorable positioning in the U.S. natural gas market, we continue to add to our U.S. rig count, which has increased from a low of 27 rigs in Q1 to a high of 40 rigs today, a reflection of strong field performance recognized by our customers and the efforts of our sales team. While contract churn continues to challenge activity levels, we are encouraged by the quantity and quality of conversations tied to future opportunities in all basins. Internationally, Precision's drilling activity averaged 7 rigs, down from 8 rigs in prior year Q3. International day rates averaged USD 53,811 a day, an increase of 14% from prior year Q3 due to rigs recertification with nonbillable days recognized in 2024. In our C&P segment, adjusted EBITDA was $19.3 million, which compares to $19.7 million from prior year Q3. Our strong presence in Canada's heavy oil and unconventional natural gas markets combined with our favorable positioning in the U.S. has provided us the ability to capitalize on rig upgrade opportunities, underpinned by firm customer contract commitments. During the quarter, we increased our planned 2025 capital expenditures from $240 million to $260 million, comprised of $151 million for sustaining and infrastructure and $109 million for upgrade and expansion. The plan is inclusive of 5 additional contract-backed upgrades added this quarter. Our added contracted backlog in the third quarter far exceeds the increase in our 2025 capital plan, ensuring strong financial returns as we strengthen both the marketability of our rig fleet and customer alignment in key regions. Even with this increase in capital, we remain firmly committed to our strategic priorities. As of September 30, we've met our annual debt reduction target, reducing our debt by $101 million and are well on our way to allocating between 35% and 45% of our free cash flow to share buybacks. We have repurchased $54 million worth of shares during the first 9 months of the year. Moving on to forward guidance. I will begin with our expectations for the fourth quarter. While our outlook for the remainder of the year remains positive, it will continue to be commodity price dependent. In Canada, we are expecting activity for this year's winter drilling season to meet or slightly exceed last year's winter activity. Q4 rig counts should be similar to Q4 2024, which averaged 65 rigs. Keep in mind, this includes the seasonal slowdown for Christmas holidays. Our operating margins in Canada are expected to range between $14,000 and $15,000 per day. In the U.S., we expect to sustain the momentum we have experienced in the last 2 quarters with an average active rig count in Q4 within the upper 30s. For the fourth quarter, we expect our margins to remain stable, ranging between USD 8,000 and USD 9,000 per day. Moving to guidance for the full year. We expect depreciation of approximately $300 million and cash interest expense of approximately $65 million remaining unchanged from prior guidance. Our effective tax rate will be approximately 45% to 50% due to increased deferred income tax expense related to the momentum of our U.S. operations. Cash taxes are expected to remain low in 2025. And looking to 2026, we expect to return to our traditional effective tax range within 25% to 30% with cash taxes, again, remaining low. For 2025, we expect SG&A of approximately $90 million to $95 million before share-based compensation expense. We refined our share-based compensation guidance for the year and now expect to range in between $5 million and $30 million, assuming a share price of $60 to $100. Our long-term target to achieve net debt to adjusted EBITDA of less than 1x remains firmly in place as does our plan to increase our free cash flow allocated directly to shareholders towards 50%. Our net debt to trailing 12-month EBITDA ratio is approximately 1.3x with an average cost of debt of 6.6%, and we have over $400 million in total liquidity today. With that, I will pass it over to Carey. Carey Ford: Thank you, Dustin, and good morning and good afternoon. First, I would also like to acknowledge Kevin for his accomplishments and contributions to Precision over his 18 years as CEO. His commitment to high performance and ability to grow the business while navigating industry cycles have certainly left their mark on the company. We wish him well in retirement. Precision is today the leading land driller in Canada, a leader in drilling technology, a high-performance driller in the Middle East, a leading driller in the U.S. and the largest and highest performing well service provider in Canada. The company has a multiyear track record of generating sizable cash flows and now has a strong balance sheet approaching 1x leverage. In short, Precision is well positioned for its next phase of growth. Precision is undoubtedly one of the truly exceptional companies in the energy industry. What sets us apart is our culture, shared passion, commitment to supporting the field, enthusiasm for serving customers, and deep desire to be the best. Precision's culture, core values and people will continue to be the foundation for our success. For our investors, the Precision team will remain excellent stewards of capital and we'll follow through with our commitments, which include our plans for long-term debt reduction and increasing direct returns to shareholders. We will continue to be agile and run lean and we'll be prepared for whatever challenges the commodity market has in store for us. For our customers, we are committed to safety, consistency, reliability and technology that drives performance, reduces costs and delivers the highest quality wellbores. For our employees, Precision will continue to be a fantastic place to work, develop your career and call home. Case in point, Precision just completed a leadership transition in which the company filled 3 key positions, all with internal candidates, and our leadership team will not skip a beat. Gene, Shuja, Veronica, Tom, Darren and I have been working together on the leadership team for nearly a decade, and I look forward to the success this team will accomplish over the next stretch. I'm pleased to welcome Dustin to the executive leadership team as he steps into the Chief Financial Officer role. Some on the call will remember Dustin when he oversaw our investor relations and corporate development efforts over the 2018 to 2020 period. And over the past 5 years, Dustin has been a key driver of our financial performance working hand in hand with the sales and operations teams in both our Contract Drilling and Completion and Production services segments. I'm excited about Dustin's performance-driven mindset and his future contributions to Precision in his new role. I also want to extend my congratulations to Gene Stahl, on his new role as Chief Operating Officer. This is a well-deserved recognition of Gene's excellent leadership of Precision in the field with customers and within the industry. I'm truly honored to have the opportunity to lead such an outstanding team. As we dive into Precision's third quarter performance, I want to make sure for the listener that I link together how our competitive strategy, execution and capital deployment not only support the financial results, which we published, but also position Precision Drilling for future success. Three pillars of our strategy that underpin our performance are leveraging our scale, utilizing technology to drive rig performance and customer focus. I'll start with leveraging our scale. Precision is running 115 drilling rigs and 80 well service rigs today with rigs, support systems and over 5,000 employees serving customers across North America and the Middle East. Our scale enables us to seize opportunities and secure attractive returns for our investors. For instance, during the quarter, we mobilized 2 Super Triple rigs from the U.S. to Canada and perform major upgrades to prepare the rig for the winter drilling programs. One of the rigs is already drilling, and the second rig should leave our Nisku yard next week. These rig mobilizations were part of a larger multiyear customer contract where we repositioned and reactivated 5 rigs in total. The creative contract structure, mobilization of assets and quality and speed of the upgrades could not have been possible without Precision's scale and vertically integrated support functions. We also demonstrated the benefits of scale and geographic positioning in the U.S. market where our strength in gas basins positioned us to capitalize on attractive contracted upgrade opportunities for long-reach drilling applications for customers. These rig upgrades added to our contract book, our customer list and rig capabilities. During the quarter and because of recent rig upgrades and the quality of our crews, we drilled the longest well for a large customer in the Marcellus, and the second longest well for a large customer in the Haynesville, with both wells approaching 30,000 feet. We also set footage per day records for separate customers in both the Marcellus and Eagle Ford. Higher activity and scale in the U.S. are supporting operating margins as well. Those of you who have listened to previous calls have heard me discuss the strategic rationale for committing to our geographic breadth, in the U.S. market, understanding that we experienced some margin pressure in the short term to cover higher fixed costs. In the past 2 quarters, we have capitalized on several opportunities across the U.S. and are minimizing the fixed cost burden as our rig count has moved from the high 20s earlier this year to 40 rigs active today. As we communicated in our guide for the fourth quarter, our margins are now stabilized. My final point on leveraging our scale addresses the performance of our Completion and Production Services segment. The differentiated size and capabilities of our well service fleet, which we have scaled through consolidation over the past 3 years, combined with our Precision rental fleet, delivered a year-over-year revenue growth in a market that generally saw lower drilling and well service activity. Second pillar I'll discuss is that technology continues to be a key driver of success, not only with our Alpha and EverGreen platforms, but also with real-time monitoring technology further supporting rig performance. We now have 90% of our active Super Triple rigs running Alpha technology and 93% of all active rigs with at least one EverGreen solution, reducing fuel consumption and emissions for our customers. Our automated robotics rig working for a major in the Montney continues to deliver faster tripping and drilling times for our customer and interest in the robotics offering is broadening across our customer base. Our Clarity platform and Digital Twin initiatives delivered real-time monitoring of equipment and well performance, resulting in lower downtime, longer equipment lives, faster drilling speeds and more collaborative and enduring customer relationships. Technology applications are ubiquitous within Precision's operations and are clearly driving results for all our customers. Finally, I cannot overstate how important customer focus is to our business. The success we have had with the upgrade program in 2025 is a direct result of our customer focus. We work hand-in-hand with our customers to deliver rig equipment and technology packages that we mutually agree will deliver the optimal results. This year, we expect to complete 27 major upgrades and these upgrades are backed by customer contracts or upfront payments. Our strategic initiatives clearly supported our financial performance in the third quarter and will continue to drive results for Precision in the future. I'm personally excited about Precision's trajectory as we near the end of 2025 with our demonstrated ability to deliver on our shareholder capital return commitments while gaining market share, completing significant investments across our drilling fleet, building our contract book and sustaining strong field margin. The future for Precision Drilling is promising. That concludes my prepared remarks, and I will now turn the call back to the operator. Operator: [Operator Instructions] Our first question comes from Derek Podhaizer with Piper Sandler. Derek Podhaizer: Carey, congratulations to you. And Kevin, great to see you in the seat. Carey Ford: Thanks, Derek. Derek Podhaizer: So just maybe a question around some of the comments you made for 2026, the limited visibility in the first part of the year. Obviously, you have some contract term, short-term duration contracts. When can we start seeing those extend a little bit here and get some term back into your contracts? I'm just thinking about the interplay of a lot of the customer-funded upgrades that you've talked about and how that can then lead into extending the terms as we move through 2026? Carey Ford: Yes. I think I was going to go around North America on customer contracts. We are seeing a bit more commitment to longer-term contracts in the Montney. I'd say that would be where our longest duration contracts are. We're seeing some longer-term contracts in heavy oil, but not quite to the degree that we're seeing in the Montney. In the U.S., we're certainly seeing longer-term contracts in the Marcellus. We have a couple of 2-year contracts that we've signed this year, lot of 1-year contracts and then some shorter-term contracts. I think the contract duration is going to be the shortest in the oil basins as there's been a bit more volatility in that commodity. And in the Haynesville, we're seeing some short term and some slightly longer term, maybe 1 year to 18-month contracts. And I'll just add, I think Dustin made a comment here about some of the conversations we're having with customers. We don't have -- I think we have one contract in our book that starts -- that we booked that starts in 2026, but we are having a number of constructive conversations with customers for both oil and gas targets in the U.S. for work starting in 2026. But it's kind of yet to be seen how long those contract commitments are going to be. Derek Podhaizer: Okay. That's helpful color. And then just on the rig upgrades, obviously, you've done a lot here in 2025. I think the number is almost 30. We start thinking about 2026 and then as you start thinking about your budget around for CapEx and what that means for free cash flow, how much more rig upgrades do you expect to do? I guess what's the population that you have of your rigs going -- that are available to be upgraded. Just want to start contextually thinking about what rig upgrades can look like for next year, what it means for CapEx? Carey Ford: Yes. I think we -- I would just start with the capital commitments that we made to investors on debt paydown and share repurchases. We will start with commitments, maybe similar levels next year. Hopefully, we raise the commitment to deliver returns directly to shareholders. So we'll start with that. And then we'll have our regular maintenance, which has been trending kind of in the $150 million a year range at this activity level. And then beyond that, frankly, I hope we have a lot of upgrades. This is an excellent opportunity to generate a significant financial return for our customers. It's certainly the highest return opportunity we have out of all of our options. We have an embedded advantage on completing the upgrades with a 40-acre tech center in Nisku and a 20-acre tech center in Houston that are fully staffed with experts on completing these upgrades. So we have a cost advantage. And then also, it usually comes with -- or I would say almost always comes with a contract that locks in the return. So I hope we have more. I think as we continue to see longer reach horizontals in the U.S., that will drive demand from our customers for upgrades. We expect to see more pad configuration upgrades in the heavy oil in Canada. And I think it will be more -- it'll be much more than 0. I don't know if we'll hit the same level that we do this year, but I don't think that these upgrade requests are going to stop. Operator: Our next question comes from Keith MacKey with RBC Capital Markets. Keith MacKey: Certainly echo Derek's comments on congrats to you, Carey, Dustin and Gene. I think maybe, Carey, if we could just kind of start out with, and you did discuss it in your prepared remarks. But I'm not, at this point, expecting wholesale strategy change from Precision, but certainly some tweaks from how you might see the business to how Kevin might have seen it. Can you just talk about some of those factors and sort of how your priorities will stand going forward as you take on the CEO role? Carey Ford: Yes, sure. I think that's a fair question, Keith. And certainly early days, but I have been with the company for 15 years. I would say that the strategy that we've been working with over my tenure as CFO for the past 10 years. I was heavily involved in developing it, particularly around cost control, capital allocation, return to shareholders and kind of hand-in-hand on how we look at operating the business and dealing with customers. Where I think the initial focus will be on supporting field operations, the best we can, and proving to our field that we're delivering the best support we can. And then also with customers doing, I would say, a more thorough job of proving to customers that we are delivering the best performance in the industry. And we've got lots of new tools to do that and a commitment by our sales and operations and technology teams to follow through on that. And beyond that, I would just say that there's a lot of things that are working for Precision right now. So I'm not looking to change the things that are working. You look at kind of the laundry list that I closed my comments with about our contract book and market share and I think we had a revenue decline of 3% year-over-year this quarter, which I think you would be hard-pressed to find a service provider with a similar geographic footprint to us that had a similar resiliency in revenue. So there are a lot of things that are working. But I think there's a few areas where we can sharpen our focus. Keith MacKey: Okay. I appreciate the comments. And just one on the margin per day guidance, specifically speaking to any mobilization or activation costs. It looks like in the U.S., you had about $502 a day of impact in Q3. Can you just talk about what that might look like in Canada and the U.S. for Q4, please? Dustin Honing: So Keith, this is Dustin here. In Canada, we'll have a little bit tied to the rigs we've mobilized up, but I wouldn't view it as substantial as one of those rigs has already been delivered. And then when you look in the U.S., we've kind of seen a little bit of a constant run rate with some of the reactivation following the momentum of staging all of these incremental rigs from Q1 into Q3. So I think that's a reasonable run rate you can expect kind of with the contract term that we've been absorbing so far in the short term. Operator: Our next question comes from Aaron MacNeil with TD Cowen. Aaron MacNeil: Congrats to everyone. I would certainly echo that and looking forward to seeing where you guys take things. Maybe I'll build on Keith's question, Carey. I was just hoping you could comment on a few specific items like performance-based contracts, your comfort with the operating regions or business lines and your approach to M&A? And if those sort of factors differ from your predecessor? Carey Ford: Okay. So I would say with regards to M&A, no change. I mean I was involved in every kind of M&A discussion we've had probably over the last 15 years. And I think there's nothing strategic that we see on the M&A front. I think there's some transactions we could complete if the price was right, but there's not a transaction out there that we would view as strategic that we would need to pay up for. So no change on that. I think the other thing I would say on M&A would be we're proving, and this year, in particular, that there are ways to grow our business organically without M&A. And we're doing that through high utilization of assets, improved pricing, rig upgrades, technology add-ons, EverGreen add-ons. And so I think there's a bit more runway on that growth avenue. With regard to performance-based contracts, I think -- I might have a slightly different view on that, but it's not much different. I think there are good opportunities for performance-based contracts. The industry has certainly -- it's more prevalent in the industry than it would have been 2 or 3 years ago. And we're seeing more unique applications to insert performance clauses into our contracts in both the Canadian market and the U.S. market. And so we're not -- we're not opposed to them. We have several performance-based contracts, and they're working well on delivering financial returns as well as driving performance for our rigs. So I think that -- I don't think you're going to see a step change in how we look at performance-based contracts, but I would be surprised if we didn't see more of them in the future. Aaron MacNeil: Okay. And then just -- sorry, the last piece of the first question was just presumably you're comfortable with the operating regions and business lines you're currently in? Carey Ford: Correct. I think we're not looking to add any service lines onto our current business lines. And when we look at expanding internationally, we've said it before, and I agree with it today that the markets that we're in, Kuwait and Saudi Arabia are very good markets in the Middle East. It has been difficult to grow outside of those markets because the return profile of deploying new capital has been unattractive. And if we can make that change or find opportunities where that does change, we could grow in that region in the Middle East. And maybe there's another region or 2 that we grow in the future, but nothing to report or telegraph at this point. Aaron MacNeil: Okay. And then for the follow-up, I'm sure you guys gave this a lot of thought before moving additional rigs to Canada. But how do you sort of wrap your head around the downside mitigation in terms of adding supply to the market that's generally been pretty good for the last couple of years. And you also mentioned a unique customer contract structure in the prepared remarks. Can you elaborate on what you mean by that? Carey Ford: Yes. I mean that -- this was a 5-rig contract for a major customer in Canada, where we moved 2 rigs from the U.S. market to Canada, but also we're able to get long-term contracts on 3 other rigs in the Canadian market. So we were able to look at the contract package and the capital committed for that contract package and the contract term and the return that the contract delivered for all those rigs. And together as a package, it was a very attractive opportunity for us, and we were uniquely positioned to be able to capture it. So I think it was just a unique situation that allowed us to move 2 rigs to the Canadian market. Now your question about supplying more rigs to the market, and I just want to be clear on the comments that we delivered both in our press release and I believe Dustin delivered on his -- on his press release, we expect to be at 100% utilization on Super Triples this winter drilling season. So we are addressing higher demand for Precision Drilling Super Triples. And I don't know what that means for the rest of the market in triples in Canada. But certainly, for our rig class, we expect to be at 100% utilization. Operator: Our next question comes from John Daniel with Daniel Energy Partners. John Daniel: I guess, Carey, well, congrats -- everyone, congrats, by the way. This question is for Gene. I know it's too early to say how many rig upgrades you're going to do next year, but I'm curious if you could just speak to the demand for more upgrades next year? Gene Stahl: John, thanks. So working closely with all of our customers here in the U.S. and trying to understand what they need for rig requirements, what their drilling programs look like and then we've got 3 classes of Super Triples. So our regular 1,500 -- our 1,500 EER and our ST-2000. And so depending on what their drilling program looks like, they've got a steady program, and we've got a rig that we can upgrade for them at a reasonable price, and we can come to contract terms, then we'll go ahead and see if we can move forward with the upgrade. John Daniel: Okay. But when I look at the 5 rigs that you're doing for Canada, can you just speak to how that evolved the opportunity? How long were the discussions? And could you be surprised next year, all of a sudden that you're going to have 5 to 10 more upgrades. So just -- I'm just trying to get a feel for what the opportunity could be? Gene Stahl: Yes. So it's a blend of heavy oil rigs and a blend of Triples. Obviously, Carey just spoke to the Triples viewpoint. And heavy oil with Super Single rigs, we have 48 of them. As the Clearwater starts to evolve and they expand their well design, they're looking for year-round operations. Typically, that can mean 100 more days of utilization for us as a drilling contractor. And so converting those single-mode rigs to pad rigs is something that's of interest to our customers and to ourselves and that's where the growth would come from. John Daniel: Got it. Apologies for what's going to be a drilling 101 question here. But you did the 27 rig upgrades this year or you'll do them. Can you remind me what a potential rig upgrade cycle could be? When do you have to bring those 27 back in? Carey Ford: Oh, you mean the time it takes to complete an upgrade? John Daniel: Yes, just -- yes, I'm sorry for such a basic question, but I'm slow today. Carey Ford: You know, it's a -- for what for what we're doing, some of the rig upgrades might be an in-basin upgrade where in a rig move, we're installing a new piece of equipment from [indiscernible]. A longer-term upgrade might be doing a pad configuration for Super Single and that would be 3 to 4 months. The rigs that we moved up, the Super Triples, those were probably 2- to 3-month upgrades to get those rigs ready. So we're not looking at any kind of 6 to 9-month upgrades. Most of them are going to be pretty quick, inside a week to 3 or 4 months. Gene Stahl: And it speaks to our rig design and our capability to use our inventories and upgrade to our spec. So I think a differentiator for Precision, certainly. Operator: Our next question comes from Tim Monachello with ATB Capital Markets. Tim Monachello: Everybody, long-time listener and first-time caller in a while. Congrats, Carey, Dustin and Gene for much deserved promotions and Kevin for a great career. First question just around Canada. Interesting to see a couple of rigs being moved out of the U.S. into Canada Super Triple market. And with your comment that you're fully utilized for -- or expecting to be fully utilized for the winter drilling season, do you think there's more opportunity to move rigs out of the U.S. into Canada? Carey Ford: I think for this winter drilling season, no. And we don't currently have deep discussions with customers about moving more rigs. But over time, over the next couple of years, I mean, LNG Canada Phase 2, other LNG opportunities, there could be more demand for Super Triple rigs. And certainly, the rigs that we have in Canada are delivering good performance for our customers. So there may be opportunities in the future, but I would say it would be for next winter drilling season. Tim Monachello: Okay. That makes sense. And then the U.S., obviously, the oil basins, the outlook is a little bit circumspective, I would think. In the gas basins, you've seen almost 20% rig activity growth in gas in the U.S. year-to-date. And you have a unique footprint in the gas basins with a pre fragmented customer base. So I expect you have a decent view from a lot of customers on what their expectations are going forward for activity. Could you talk a little bit about your expectations for U.S. gas drilling activity over the next, I don't know, 6 to 12 months? Carey Ford: Yes. I think we have a decent viewpoint on where activity might be going on gas. I think the Marcellus is, I would say, steady to low growth. There might be some -- what we've seen is there's been a bit of high-grading within the basin. So as we've added more rigs to the basin, there's been a few instances where a rig has gone down. So they haven't -- our additions there haven't necessarily resulted in basin growth. In the Haynesville, I think most people look at the Haynesville as swing producer for LNG exports and natural gas production in general. So we could see higher activity in the Haynesville over the next year if gas prices are supportive. But I wouldn't say that we have a -- as we stated in our press release, we don't have much of a view on that demand beyond early 2026. Tim Monachello: What's the motivating factor behind, I guess, higher activity levels this year considering gas prices have been fairly uneconomic in the U.S. Is it just LNG export and building supply? Is that what you're seeing? Carey Ford: Yes, I think there's -- I think most people are seeing a wave of demand on both natural gas-fired generation for data servers and electrification of the economy and then LNG exports. And so I think some customers are looking through any short-term volatility in gas prices and looking at the longer-term demand outlook. Tim Monachello: Okay. That's helpful. And then could you just provide a quick overview of what the geographies, the 27 upgrades you're going to? Dustin Honing: So it's really a mix, Tim. But think of it, we obviously commented on the 2 Montney rigs that we're going to bring up from the U.S. into Canada. Heavy oil is really a key area we've invested a lot. So this would be our Clearwater Basin and then more into the unconventional plays in SAGD. One comment on that, we've seen a lot of enthusiasm with our customers on these upgrades where we have recognized a lot of upfront payments throughout the year to help support these upgrades as well. And then when you look down to the U.S., it's primarily weighted to the Haynesville and the Marcellus. But we have had some upgrade opportunities with high torque equipment in the Rockies and even in the Permian. Carey Ford: And I would just add to that, Tim, I believe we said this in the press release, but the vast majority of the upgrades are going to areas in North America where we expect to have year-over-year increases in activity. So it's a little bit out of stuff with kind of the broader market, but in the Haynesville, in the Marcellus heavy oil, and in the Montney, we expect that higher year-over-year activity, and that's what was driving these upgrades. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Lavonne for any further remarks. Lavonne Zdunich: Thank you for taking the time to learn more about Precision Drilling today. And with that, we will sign off. Everyone, enjoy your day. Thank you. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Good afternoon, everyone, and thank you for standing by. My name is Nicole, and I will be your conference operator today. Today's call is being recorded. I would like to welcome everyone to Nextracker's Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] At this time, for opening remarks, I would like to pass the call over to Ms. Sarah Lee, Head of Investor Relations. Sarah, you may begin. Sarah Lee: Thank you, and good afternoon, everyone. Welcome to Nextracker's Second Quarter Fiscal Year 2026 Earnings Call. I'm Sarah Lee, Nextracker's Head of Investor Relations, and I'm joined by Dan Shugar, our CEO and Founder; Howard Wenger, our President; and Chuck Boynton, our CFO. As a reminder, there will be a replay of this call posted on the IR website along with the earnings press release and shareholder letter. Today's call contains statements regarding our business, financial performance and operations, including our business and our industry that may be considered forward-looking statements. In such statements involve risks and uncertainties that may cause actual results to differ materially from our expectations. Those statements are based on current beliefs, assumptions and expectations and speak only as of the current date. For more information on those risks and uncertainties, please review our earnings press release, shareholder letter and our SEC filings, including our most recently filed quarterly report Form 10-Q and annual report on Form 10-K which are available on our IR website at investors.nextracker.com. This information is subject to change, and we undertake no obligation to update any forward-looking statements as a result of new information, future events or changes in our expectations. Please note, we will provide GAAP and non-GAAP measures on today's call. The full non-GAAP to GAAP reconciliations can be found in the appendix to the press release and the shareholder letter as well as the financial section of the IR website. And now I'll turn the call over to our CEO and Founder. Dan? Daniel Shugar: Good afternoon, and thank you for joining us. We're very pleased to report another quarter of strong execution. Before we cover the company's performance, I'd like to remind everyone we will be hosting our inaugural Capital Markets Day at our headquarters in Fremont on November 12. We look forward to welcoming many of you as we explain the details of our long-term strategy, platform expansion and growth opportunities. Given that, after Howard, Chuck and I provide our prepared remarks on the quarter, we will hold a more limited Q&A today. Now turning to our performance. We delivered yet another solid quarter, reflecting the team's continued focus on innovation, long-term customer partnerships and execution. In Q2, revenue grew 42% year-over-year to $905 million, and adjusted EBITDA increased 29% to $224 million. For the first half of fiscal 2026, revenue was up 31% year-over-year to $1.77 billion, a record first half for the company. Over the past year, we've significantly expanded our technology platform from foundations and electrical balance of systems solutions to AI and robotics, and our suite of complementary products and services is gaining traction. Last week, we announced a multiyear agreement with a leading U.S. solar panel manufacturer for multi-gigawatt volumes of our advanced module frame technology, a deal valued at over $75 million. This agreement provides tangible value to customers. It significantly increases domestic content of solar panels, which supports eligibility for tax credits. Our advanced frame technology also improves durability of solar panels for more reliable, long-term performance for owners and can facilitate faster installation during the construction phase. We also launched NX PowerMerge in September, our new electrical balance of system trunk bus product and achieved record eBOS bookings in Q2 and the highest quarterly sales in Bentek's 40-year history. We saw other products gaining traction as well. We booked our first fully integrated NX Earth Trust Foundation, which reduced parts count over an order of magnitude. And we saw strong adoption of our NX Vantage Fire Identification System, which employs AI-based visual analysis. Together, these product lines broaden the capability of our platform, connecting the tracker, electrical and digital systems into one cohesive solution that maximizes project value for our customers and enables us to capture increased wallet share. We are scaling these innovations across our high-volume tracker footprint with over 150 gigawatts shipped to date, translating measured R&D and M&A investments into meaningful revenue and profit. Internationally, we continue to expand our market presence and partnerships. Today, we announced we entered into an agreement to form Nextracker Arabia, a joint venture with Abunayyan Holding, expanding our manufacturing footprint and commercial presence across the Middle East and North Africa. Nextracker has a strong legacy of reliable performance in Saudi Arabia, starting with KSA's first utility scale installation, the 405-megawatt Sakaka solar park where our system has demonstrated exemplary reliability. The JV will localize production, strengthen regional supply chains and advanced Saudi Arabia's clean energy goals under Vision 2030. Looking at the broader picture, we continue to benefit from powerful structural tailwinds, including increasing electricity demand, a flight to quality and very solid long-term customer relationships. Our strategy is clear. Through a combination of internal innovation, targeted acquisitions and world-class operational execution, we're building a compelling integrated technology platform that delivers the lowest cost, most reliable solutions to meet our customers' needs. Chuck will walk through our updated FY '26 outlook shortly, but we're confident in our ability to deliver sustained profitability and cash generation while scaling our platform globally. And finally, before turning the call over to Howard to review some of the highlights from the quarter, I want to thank our customers for their continued partnership and trust and our employees for their passion in driving innovation and customer satisfaction. Howard Wenger: Thanks, Dan. We continue to see strong global demand for our products and services, growing backlog to over $5 billion at quarter end. It has been gratifying to see continued sales gains and customer traction with our emerging solar technology platform. In Q2, we had record bookings for eBOS and foundations a record number of new customers and contracts added for robotic inspection and fire detection services, and we recently announced a new multi-gigawatt agreement for advanced module frames. The speed of adoption of these additional products and services is very encouraging and a testament to our market footprint and capability to scale quickly. We also had record quarterly bookings for TrueCapture and our Navigator control system, underscoring the value and energy yield enhancement and plant performance and control. Our strategy is to build a cohesive platform by harmonizing these new products and services with our industry-leading NX Horizon-XTR system. This approach will deliver superior economics and reliability, improved installation efficiency and excellent customer experience. In fact, we are seeing many project orders now with multiple Nextracker products and services, not just the tracker. At Capital Markets Day, we will go into the details of our solar technology platform. Now let's move to regional demand. In the U.S., bookings and revenue were up significantly year-over-year with revenue up 49%. We have benefited from a flight to quality and an ongoing shift toward domestically manufactured systems. Outside of the U.S., internationally, we highlight Europe in the quarter, which has emerged as a top market for the company. Coming off the strongest year ever for Nextracker in FY '25, we see the markets in Europe broadening and gaining momentum, delivering record sales in Q2. We are also excited by our new KSA joint venture to address the growing MENA region. Turning to project timing, cost and pricing. Project timing remains stable and manageable on a portfolio basis, consistent with previous quarters, with some projects accelerating and others pushing out. Our deep backlog and broad project portfolio provide excellent visibility and reduce uncertainty. Pricing continues to track the broader solar cost curve, and we continue to invest in R&D and scalable infrastructure to drive cost out. Our company culture is to relentlessly serve our customers and deliver the most value at competitive cost and pricing. This innovation and customer-centric approach is working as evidenced by increased market share and sustained earnings. We always work very closely with our customers, including managing U.S. tariff impacts. The tariffs are substantial, as we all know, but impacts are mitigated by our domestic supply chain with over 25 partner manufacturing facilities producing U.S. components and ability to deliver 100% domestic content to U.S. Treasury guidelines. In parallel, some of our customers have told us they have successfully increased their power purchase agreement pricing both in the near term and beyond the tax credit horizon. This helps buffer some solar supply chain cost impacts and can help bridge the industry going forward as government policy changes get implemented. In summary, our business fundamentals remain strong. Demand is healthy. Our backlog is large and expanding. Project timing and execution visibility is solid and we continue to strengthen our competitive position through innovation, operational excellence and serving our customers. With that, I'll hand it over to Chuck to walk through the financials in more detail. Charles Boynton: Thanks, Howard, and good afternoon, everyone. We again delivered strong financial and operational performance this quarter. Q2 revenue was $905 million, and adjusted EBITDA was $224 million, representing a 25% EBITDA margin. Year-to-date, we've generated approximately $1.8 billion in revenue, up 31% from last year and $438 million in adjusted EBITDA and demonstrating continued execution across all aspects of the business. Adjusted free cash flow was $171 million for the quarter and $241 million year-to-date. We remain highly capital efficient, and our cash generation continues to support investment in growth and innovation. We closed the quarter with $845 million in cash, no debt and total liquidity of nearly $1.8 billion, including our recently renewed $1 billion unsecured revolving credit facility with investment-grade terms. This balance sheet strength provides us with significant flexibility to fund future expansion and strategic investments. Turning to profitability. Q2 gross margins and operating margins remained strong, reflecting benefits of 45x manufacturing credits, solid cost management and a favorable regional mix. We continue to see tariff-related headwinds of approximately 300 bps in Q2, up 200 bps over Q1. Our geographic mix, diversified supply chain domestic manufacturing footprint and disciplined execution have helped offset those impacts. Looking ahead, we are raising our full year FY '26 outlook. We now expect revenue between $3.275 billion and $3.475 billion, adjusted EBITDA between $775 million and $815 million and adjusted diluted EPS in the range of $4.04 to $4.25 per share. For the second half of the year, we expect modest margin impact due to Section 232 tariffs and a higher percentage of international projects. Based on project schedules, we expect the second half revenue to be slightly more weighted toward Q4. In addition, we expect gross margins to continue to be in the low 30s and operating margins in the low 20s. Our outlook assumes the current U.S. policy environment remains intact and permitting processes and time lines will remain consistent with historical levels. Overall, we feel confident in our ability to deliver sustained growth and profitability while continuing to invest in innovation and long-term value creation. We continue to execute at a high level while maintaining strong margins and cash flow and strengthening our balance sheet. We believe our strategy, team and platform uniquely position us to deliver long-term shareholder value. With that, we'll move to Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Mark Strouse with JPMorgan. Mark W. Strouse: Yes. So Dan, I think being the first quarter that you guys were reporting since One Big Beautiful Bill but also safe harbor being updated. Just curious for your take. I don't want to steal thunder from the Analyst Day here in a few weeks. But kind of how you're thinking about industry growth through the next several years, let's call it through the end of the decade. I think when you first IPO-ed, you were quoting some industry sources for some pretty significant growth. Just curious with everything that's kind of changed between now and then how you're thinking about that going forward. Daniel Shugar: Yes. Thanks, Mark. We feel the fundamentals for solar are very strong. We've spoken to our customers and in the U.S., customers have safe harbored immense amounts of projects and gigawatts. Orders are continuing. The fundamentals overseas are strong as evidenced by our sustained bookings and backlog. What's interesting is as the industry moves forward, how the economics of solar stack up when tax credits are gone down the road. And way back about 6 or 7 years ago, Nextracker did the largest solar project in the Western Hemisphere at the time. It was a project in Mexico, we did for now called Villanueva we did with our partner, EPC partners solve. And there were no tax credits down there. That was an all-source solicitation. And that project stood on its own, the economics work, the no tax credits in North America. So since then, solar panels have gotten a lot more efficient. The power of the panels has roughly doubled since that project happened. Inverters are more efficient, the Nextracker platforms have our increasing yield. And so many of our customers share our view that the industry can stand on its own without tax credits and be economically viable in most of the U.S., most of the world. While this has happened this year, what we've seen is also significant escalations in the cost of fossil power generating equipment on CapEx. And we've seen a lot of volatility on fuel pricing and things like that. So we're confident in the long-term prospects for our industry for solar. And we feel great about our current position with record backlog today at over $5 billion. Operator: Your next question comes from the line of Brian Lee with Goldman Sachs. Brian Lee: Kudos on the nights execution here. I guess just one question I'd have around the cadence for this year. I know you don't necessarily control the project timing. But first half of the fiscal year has been really strong, evident in the numbers here. So it is a bit of a different seasonal cadence. Can you maybe give us some sense, is this pull forward ahead of policy changes in the U.S.? Or are there other factors driving the project time lines this year versus historical? And then I'll just throw one in there. I don't know if I'll get an answer, but given the evolving mix of business and you've stated, Dan, record bookings in eBOS, can you guys provide any kind of rough thoughts around the bookings mix, tracker on tractor U.S., non-U.S.? I'll take a stab at that one. Daniel Shugar: Great. Thanks, Brian. I'll take part 1 and Howard will take part 2. So we had a really, really strong first half of the year. Kudos to our operations team, an incredibly strong delivery. Our on-time delivery is stellar and our customers really enjoy how we operate. As you know, we look at our business on an annual/multiyear basis. And you can't just look at one quarter and say that's a trend. Having said that, we have raised our outlook now both Q1 and in Q2 so we are seeing strength in the year. As you know, the one quarter out, the trucks are scheduled, deliveries are scheduled and so we feel really good about where Q3 is landing. We did note in the prepared remarks in the shareholder letter that you'll see Q4 is a bigger quarter than Q3. And so I think overall, we feel good about where the year is landing and we'll see how strong Q4 will come in. If It's going to be bigger, we'll let you know next quarter. But right now, we feel really good with the pace and cadence of the business this year. It's a little smoother, quite frankly, than last year and a year before. So we do think that as we grow in scale, it is becoming a little more linear. Howard, do you want to take the second part? Howard Wenger: Sure. So you asked about eBOS and the mix of non-tracker and tracker and then sort of a regional look. So kind of a multipart question there. Thank you. We are -- we have a strategy of building out a platform that has our tracker at the core, and we're executing to that, both with organic investment in R&D and new products within the company and also inorganic through M&A. We've executed a number of M&A a number of acquisitions, as we've announced, one of them you asked about is the eBOS. We acquired Bentek. And in the first full quarter that they were with us we achieved a record bookings, and that's over a 40-year history of that company. So that gives you a sense of our market presence and platform and ability to scale these acquisitions. We're really happy with the start there. We also had record bookings in our Advanced foundations business, also through acquisition and internal R&D combined. And we had a record -- we purchased Onsight, which is a robotic inspection company. had a record number of new customers signed in the quarter and contracts there as well. So we're really happy with the non-tracker part of the business. At the upcoming Capital Markets Day will get into how these -- the tracker, non-tracker business and we'll give a lot more detail on how they fit and how they're going to grow and what the percentages are, et cetera, there. So please come for that day on November 12. And I'll just say that from a U.S. and non-U.S. mix perspective, the U.S. has really had a very strong run, and we expect that to continue. And meanwhile, as we noted, revenue was up 49% year-on-year in the U.S. Okay, quarter-on-quarter or year-on-year for the quarter. Meanwhile, the international business keeps growing, and so we're very pleased with how the strength of our global bookings status is, and now we're over $5 billion of backlog. Operator: Your next question comes from the line of Philip Shen with ROTH. Philip Shen: First one is on bookings. Your bookings and book-to-bill have been consistently impressive. With the expansion of your technology platform, our check suggests that your customers who already spend a large chunk of their wallet with you are open to spending yet more. Can you talk about how bookings could continue to trend the coming quarters, especially with the increased number of product offerings? And my second question here is on the poly 232. I think in your shareholder letter, you talked about the steel and aluminum 232 impacting your back half margins. But on the poly 232, which is potentially going to be announced in the next few weeks. How are you and your customers prepared or potentially high 232 tariff that may have a limited quarter level for the different segments of the value chain? Howard Wenger: I'll take the first part, Phil. Howard, and Dan will take the second part. So yes, another very good quarter for us on sales, very strong. Demand is still there. For us, we think there's a flight to quality and that our customers want to -- for us to do more. And so that's what we're doing. We're responding to customer demand. And we're unlocking a lot of synergies between the tracker and other elements of what we're selling as evidenced by record bookings and particularly for foundations, which we're very pleased about. Another quarter of increased backlog. So you can infer from that, that monotonically increasing backlog is a good thing. And so we are going to get into it in a lot more detail at Capital Markets Day on how these different products and services and solutions integrate together and how customers are responding to that. Thanks for the question. Part A, Phil and Dan will take the next one. Daniel Shugar: Phil. So with respect to 232 as it relates to poly, so we don't buy poly wafer cells. I will say though, last week, we toured a major new 5 gigawatt module manufacturing facility. I had the pleasure of meeting some executives from Corning, which has really stepped up to increase their production in the United States of polysilicon and other stuff. And so the -- we're just very gratified to see the significant build-out of capacity in the United States. But we're not in a position to really comment on how all that's going to play out with respect to raw materials for our customers. I will say though that with respect to tariffs, that was part of the logic in us doing our -- launching our steel frame business, okay? So this has just been very well received in the market. The fundamental reason we first started looking at this, Nextracker has been involved in advanced module frame since we founded the company. We came up -- if you look at almost every solar panel today, there's features in those frames that were Nextracker DNA, okay? So we've done a lot of engineering and research on that. The legacy frame have been aluminum. And aluminum was okay when solar panels were small. But today, solar panels are huge, and you have this floppy module problem where the aluminum is not strong enough. Well, our frame designs that we have both our next gen frames our amazing acquisition we did with Origami with their frame design address those issues by providing more rigidity to the solar panel, which provide longer term, we believe, greater durability of the performance of the solar panel as well as facilitate attachments of those panels to reduce installation time and labor. What it also does though is address the supply chain issue. And essentially, we can manufacture these frames in the United States using U.S. supplied steel, we're already doing this. It's happening. We have capacity on the ground. And this allows our customers to have a better position with it can allow them to have a better position with respect to tax credits and also increase the content of the product. So we're doing our part, which is to further increase domestic manufacturing of many of the aspects of the solar power system and the stream thing will help get that done. Operator: Your next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: Maybe just kind of digging into the T1 Energy partnership that you announced a few weeks ago. Are you viewing this as maybe a blueprint for future deals with other U.S. solar manufacturers? And if so, how far along are those discussions? Could we see more deals this year? Or do you view the T1 deal as kind of more of a one-off or more kind of an exclusive pilot? And then maybe just kind of longer term on the product side for steel frames. You mentioned some of the benefits. But is there an opportunity to maybe design or develop a new track our product that better integrates the steel frame designs and enhances the overall performance? Daniel Shugar: Yes. Thanks, Praneeth. For question number one, we see the need as Universal for solar panels. These panels, the physical area has significantly increased in these panels. And the need to provide more mechanical stability and functionality in these panels applies really to everyone. And so we've had a very positive reaction to the launch of our advanced module frame business at the major trade show of the year, RE+, which was last month and in the run-up to the T1 transaction you mentioned and afterwards. So we see this as a great win for everyone. Really owners, the IPPs that are operating these plants want to see longer-term durability the module industry wants to be able to source competitive domestic product and increase their U.S. content. And EPCs want more durable solar panels to handle and the ship in and the installation phase. Now the next thing that's possible is, hey, can we co-optimize the frame with the tracker system. And the answer is, yes. In another part of our shareholder letter, we commented on how we just launched our integrated Earth Trust product in the foundation space, and there's an analogy here. With that product, we were able to reduce the parts count by an order of magnitude. So if you look at the existing foundation and the new foundation, we're able to engineer a lot of these parts out. The analogy with the frame, you can think about an automobile. Old cars, they had a very strong automobile frame, okay? And then the panels were just sort of hung on the car, the side panels. And then you came out with these like unibody cars where it's a co-optimized structural element that has to survive dynamic forces. And it seems that it's true with the solar panel on the tracker. So there's a lot of opportunities to co-optimize these products and to really serve the industry. both before frames that work with Nextracker as well as other support systems. We're very excited about this product family, and it's been very well received in the market. Operator: Your next question comes from the line of Sean Milligan with Needham. Sean Milligan: Great quarter. I was curious on the international side. You mentioned a lot of markets. And so I was interested to see what your comments are around tracker uptake in those markets. And if you just go back a couple of years, how much additional share have trackers taken in those markets have grown to? And just kind of where you see that heading over time? Howard Wenger: Yes. This is Howard. Yes. Trackers, there's no question, trackers are the predominant structure for utility scale solar projects and also larger DG, distributed generation projects have gone to trackers. And just the energy yield has gone up over time with innovation. We've been able to -- back 20 years ago, for example, even in a place like Germany, Southern Germany, a tracker gain was about over fixed till 12%. You fast forward to today, 20 years later, because a lot of the innovations that Nextracker has implemented, we're now at 18% to 20% gain over a fixed tilt in the same region. So that's -- there's just sort of this very important drive for energy yield, lower cost that's happening with scale, this virtuous cycle that's allowed trackers to become the dominant platform. And that's in just about every region of the world. The only place that we're seeing some fixed tilt is like super like incredibly like on a mountain side, these niche applications that are incredibly difficult, you might -- it might be appropriate for fixed tilt. Operator: Your next question comes from the line of Dimple Gosai with Bank of America. Dimple Gosai: Team, you mentioned or you called out expansion in the Middle East through Nextracker Arabia JV. Can you help quantify the level of investment in Saudi Arabia JV? Is there any local manufacturing planned or in place? And then further to that, what kind of revenue contribution or manufacturing footprint you expect by '27, right? Like maybe give us a sense of pricing or margins in those regions compared to the U.S., please? Daniel Shugar: Yes, Dimple. Dan here. I'll provide a bit of context then ask Howard to provide more color on the market and Chuck to go deeper on the numbers. We're extremely excited to be launching Nextracker Arabia. As noted earlier, we have a long legacy 7 years ago, we did the first utility scale project in Saudi Arabia with the 400 megawatts Sakaka Project. We've exported from Saudi Arabia many times from manufacturing capacity that we've set up there. The market is growing very fast in Saudi Arabia. It's one of the top growing markets in the world. And what's really key is to work with the right partner, and we couldn't be more pleased than to be partnering with Abunayyan, one of the most respected participants in the water, energy and infrastructure industries with 75 years of experience. And local content matters. So you asked, are we increasing capacity. Yes, there's actually a factory. Typically, we work with other partners to run factories. In this case, we actually stood up an Nextracker factory in Saudi Arabia. And Chuck is going to comment on the -- how we're dealing with that in a moment. And that facility is shipping finished goods. We have multi-gigawatt orders, we're fulfilling right now and a long history with delivering well over 6 gigawatts across the region. Now that region is very challenging environmentally with extreme temperature win sands. And our systems have really stood up well with exemplary performance, differentiated reliability and higher energy yield. Now the way we structured this particular business arrangement in Nextracker Arabia is it's a joint venture. There's a technology licensing component, and we're not going to consolidate. Chuck first -- I'm sorry, Howard, can you speak a little more about the market and the regions we serve, and then Chuck comment a bit more on the financial aspects. Howard Wenger: Sure, Dan. So first of all, before I get to the market, I just want to say that we couldn't be more pleased, as Dan mentioned, because finding the right partner is nontrivial. We found the right partner, and we believe they felt the right partner to an Abunayyan Holding. And just the culture fit is there, first and foremost, to make a joint venture work. You have to speak the same language, be on the same page and be highly complementary and synergistic, which we are they're going to bring the market. We're going to bring the technology together, we're going to go and win. And so we feel very good about the plan that we've developed together and to execute. And we're going to hit the ground running with projects that we've already secured in the region that will go into the joint venture. And as far as the market goes, it's not just Saudi Arabia, I want to make that clear, which is a very strong market, okay? They have a 2030 vision that they're executing on. They need to install 20 gigawatts per year there to execute to that vision in Saudi KSA but the joint venture also covers the MENA region, Middle East, North Africa. And there are some very strong markets within that region that we can go and conquer together. So very exciting. And with that, I'll hand it over to Chuck. Charles Boynton: Thanks, Howard. Yes, Dimple. Abunayyan is really a blue-chip company. It's the kind of partner that a U.S. specifically Silicon Valley technology company would want to partner with. And we spend a lot of time with them working on this transaction, and they are really incredibly sharp astute people, great partners. As Dan mentioned, this is going to be a roughly 50-50 JV that we do not plan to consolidate. And it really fits with our kind of asset-light model kind of high ROIC. And given that the JV will have factories and operations, we think it's better overall for our financials that way. And then on the revenue side, we will have a license fee and be able to sell our technology in. And then we think this will be a really good business for years to come. I won't comment specifically on 2027. But as Howard mentioned, the aspirations in that market are incredibly strong, and we're really excited about the future. Operator: Your next question comes from the line of Corinne Blanchard with Deutsche Bank. Corinne Blanchard: Maybe the first one, can you talk about to capture. I think you mentioned in makeup 2% of the quarterly revenues -- so maybe I or if you can talk about the expected contribution through 2026. And then maybe a quick regional market update for trackers would be great. Daniel Shugar: I'll take the first part, Corinne. TrueCapture, as we mentioned last quarter, TrueCapture rev rec is really tied to commissioning of systems. And it's been around 2% of revenue last quarter. We said it did dip a little bit because of just the timing of commissioning and as predicted, it rebounded to a really strong quarter of around 2% recognized this quarter. Howard, do you want to take the second part? Howard Wenger: I'll just say that adoption continues to increase. So when we did the IPO back 2.5 years ago, almost 3, we're at about 1%. So the adoption of our TrueCapture software continues. And we keep adding features and capability and the energy yield keeps going up. So it's more and more compelling with a very strong backlog for TrueCapture. Operator: Your final question comes from the line of Ben Kallo with Baird. Ben Kallo: My question was just about you guys have made several acquisitions, but half a dozen. And just thinking about your appetite going forward? And then also how we think about how you feed the different acquisitions with capital, whether that's R&D or other types of capital going forward? How you allocate that and how we should think about that number as we go forward to next year as you grow each of those businesses integrate them? Daniel Shugar: Thanks, Ben. I'll take the first part. This is Dan. Chuck will take the second. So first, we view the new products, services, we do holistically meaning that we look to internally generated products and services as well as acquisitions that we can do. We are very close to customers and really just ask them like, what are your pain points like? How is it going? Like where are you having issues? Where do you see as opportunities for greater yield. And we factored that into our -- also complement that with our own thinking and experience about how to get more profitability out of these systems and help drive lower LCOE and so forth. So we've significantly increased our internal R&D budget. We've roughly tripled it in the last 2 to 3 years to roughly $100 million today. And then -- with respect to acquisitions, we try to have a very objective evaluation of what we can do in the market and needs in the market. I'll give you a case study, which is our advanced module frame activity. As I mentioned, Nextracker's worked on that for many years. There's features in almost every module frame that's sold today that has our DNA there. We really saw we needed to really help control that to provide value to the module companies, EPCs and owners. And so we had an internal program for the last few years to develop the next-generation advanced module frame. We were also supporting a third-party, Origami Solar, that had developed a beautiful universal frame, which has the same sort of fit and function of its traditional aluminum frames. So we really evaluated on an objective basis that they needed -- they've taken the company as far as they could. They needed sort of an exit. And so we evaluated that and thought hey, we like what we're doing internally, but this helps our speed to market and it provides an initial immediate customer need. And then that team provided incredible engineering and other merits to complement our internal effort. So we -- it's really how we think about things in terms of solving customer needs that brings that forward. And in terms of capital allocation, can you speak to that, Chuck? Charles Boynton: Yes. Certainly. And Ben, one of your questions was funding these post close. We do have a very experienced M&A team in the company, both sourcing and integration. And we are really, really intentional with not making the mistake of killing the company you've acquired by not investing in it. We actually buy the company, we have an investment case, and we stick to our guns. We're playing the long game, Ben. We're not looking at the short-term results. So we're heavily investing in things like R&D and marketing and sales to ensure success. We've built out a really capable team to manage these investments -- and I'm really proud of the work. And it's really bearing fruit, you can tell. And I think so we're excited about the investments that we're making. We're not going to slow down, and we appreciate that. Dan, do you want to close? Daniel Shugar: Yes. I do want to just say on these new businesses were growing. It takes time to operationalize these and get the leverage of scale with it drops through into like significant margin. And so we feel great about the portfolio as we've brought in the foundations. I mentioned we just launched this integrated product, which reduces the part count significantly lowers the cost. We love the margin profile of as we optimize products, how they contribute to the overall company. And so both with the organic and the new businesses we're bringing in, we look forward to unpacking those in our Capital Market Day upcoming. Thank you all for joining. We look forward to welcoming you either in person or on our Capital Markets Day on November 12.
Operator: Good morning, good afternoon, ladies and gentlemen, and welcome to Besi's conference call and audio webcast to discuss the company's 2025 third quarter results. You can register for the conference call or log into the audio webcast via Besi's website, www.besi.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer; and Mrs. Andrea Kopp, Senior Vice President, Finance. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded and cannot be reproduced in a whole or in part without permission from the company. I will now hand the word over to Mr. Richard Blickman, Mr. Rich Blickman, go ahead. Richard Blickman: Thank you. Thank you all for joining. I'd like to remind everyone that on today's call, management will be making forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements reflect Besi's current views and assumptions regarding future events, many of which are, by nature, inherently uncertain and beyond Besi's control. Actual results may differ materially from those in the forward-looking statements due to various risks and uncertainties, including, but not limited to factors that are discussed in the company's most recent periodic and current reports filed with the AFM. Such forward-looking statements, including guidance provided during today's call speak only as of this date. Besi does not intend to update them in light of the new information or future developments nor does Besi undertake any obligation to update the forward-looking statements. For today's call, we'd like to review the key highlights for our third quarter and 9 months ended September 30, 2025, and update you on the markets, our strategy and outlook. First, some overall thoughts on the third quarter. Besi reported Q3 '25 revenue and operating results within prior guidance in an assembly equipment market showing early signs of recovery. Order levels improved significantly Q3 '25 with bookings of EUR 174.7 million, increasing by 36.5% and 15.1% versus Q2 '25 and Q3 '24, respectively. For the quarter, revenue decreased by 10.4% and 15.3% versus Q2 '25 and Q3 '24, respectively, reflecting continued weakness in mainstream assembly markets, particularly mobile and automotive applications and lower hybrid bonding revenue. Operating income was at the high end of guidance, reflecting higher-than-anticipated gross margins and operating expense developments, slightly better than forecast. The improved order outlook this quarter was principally due to a broad-based increase in die attach bookings by Asian subcontractors for mostly 2.5D data center applications and renewed capacity purchases by leading photonics customers. We also noticed improvement in more mainstream electronics and automotive applications. A push out to Q4 '25 of certain anticipated hybrid bonding bookings limited even stronger order development during the call -- during the quarter. Besi's results for the first 9 months of 2025 reflected similar trends experienced in Q3 '25 with revenue of EUR 425 million and orders of EUR 434.6 million, decreasing by 6.4% and 6.5%, respectively, versus the comparable period of the prior year. In general, weakness in mobile and automotive applications this year has been partially offset by significantly increased die attach orders by Asian subcontractors for AI-related computing applications. Year-to-date '25, net income of EUR 88.8 million decreased by 27.6% versus the comparable 2024 period, primarily due to lower revenue, lower gross margins realized principally due to adverse ForEx effects, and higher interest expense net related to our senior note issuance in July '24. Liquidity remained strong with cash and deposits of EUR 518.6 million, at September 30, increasing EUR 28.4 million or 5.8% versus June 30 this year, due to cash flow from operations more than doubling versus the second quarter of this year. In addition, we completed our EUR 100 million share buyback program, October '25, and authorized a new EUR 60 million program with an anticipated completion date of October 2026. Next, I'd like to discuss the current market environment and our strategy. TechInsights currently forecasts assembly market growth of 1.8% in 2025, which is below last quarter's forecast of 9%, driven by a push out of the anticipated assembly upturn to 2026. Forecast growth is focused primarily on AI and data center logic and memory applications. TechInsights now expect cumulative growth in the period 2026-'29 of 42% based on continued advancements in AI use cases, new product introductions in the 2026-'28 period, and a cyclical recovery in mainstream assembly applications. We expect to exceed market growth rates given our leadership position in advanced packaging. The semiconductor market has shown signs of normalization with inventory to booking ratios improving from above 2 in 2022 to below 1.5 currently. In addition, interconnect unit growth has also rebounded, improving from a low of roughly minus 20% in October 2023 to approximately plus 7% currently. These indicators point to a more positive assembly equipment environment as we look ahead to 2026. Besi continued to make progress in its wafer-level assembly activities in the third quarter, securing new customers and orders for both its hybrid bonding and TC Next systems. Hybrid bonding adoption expanded with the placement of orders in the third quarter '25 by a new foundry customer. Progress also continues on integrated hybrid bonding production lines with internal operating 6 Kinex lines with 30 hybrid bonding tools. Future hybrid bonding demand is also supported by recent announcements from AMD and Broadcom in collaboration with OpenAI. In addition, high-level discussions with major memory players are ongoing as HBM4 assembly processes start to take shape. TC Next progress continued with the new order received from a fourth customer. The outlook for Besi's business in the second half of this year has improved based on third quarter order trends and continued order momentum to date in the fourth quarter. The improved outlook reflects increased demand for advanced packaging capacity necessary to support the rapid expansion of data centers, software and next-generation semiconductor devices required by the industry-leading AI players. Advanced packaging is one of the key ways to achieve AI system differentiation, develop innovative consumer edge AI devices and provide the most energy-efficient data center performance. Now a few words about our guidance. For the fourth quarter this year, we anticipate that revenue will increase by approximately 15% to 25% versus the third quarter of this year, due to increased bookings levels. Besi's gross margin is anticipated to range between 61% and 63%. Operating expenses are expected to increase by 5% to 10% versus the third quarter due primarily to higher R&D expenses. That ends our prepared remarks. I would like to open the call for questions. Sorry, operator. Operator: [Operator Instructions] Our first question comes from Didier Scemama from Bank of America. Didier Scemama: I just wanted to ask you a bit more about 2 things. The usual questions really. On the hybrid bonding and TCB Next side, maybe just give us a sense of your conversation with foundry customers, but also DRAM customers. How you're thinking about the bookings for those type of tools in the fourth quarter? And then also related to the point you made earlier on this recent announcement by OpenAI and AMD. We know that AMD has been a major customer of your hybrid bonding systems via TSMC. Can you tell us a little bit more about that whether the capacity is in place or whether you expect a material improvement in orders from TSMC to support that ramp? Richard Blickman: Thanks, Didier. If you allow me not to go into specific customers, I'm very happy to answer a bit more in general terms. First of all, the hybrid bonding adoption for logic is continuing quarter-by-quarter. And we see that with adding another customer with several machines. And also as we guide for the fourth quarter, we expect orders. One is a larger one, as we have discussed also in the previous call and that may be related to those end products, which you just referred to. At the same time, the adoption for HBM stacking is all pointing towards a critical evaluation year 2026. The big 3 in that market -- all 3 of them have publicly announced that hybrid bonded devices should be available in their program by the end of next year. So that will be, as we have expected for many years, 2026-'27, that should be the adoption time using this hybrid bonding technology with all its advantages versus the TC solutions, so reflow and clarity, we will share as quarters go on, and that should result in probably first orders for some initial capacities. The orders received so far, as we shared in previous quarters are from 2 of the 3, who are evaluating in many different designs using the hybrid bonding technology stacking the 12 and 16, and they even go up much further, simply to achieve data on a comparable basis, on performance and of course, on cost. So that's the bigger picture in those 2. Then the chiplet architecture, adding more different devices and different structures is also continuing. And we see ever more customers. So if you look at the total count now, around 16, having hybrid bonders for different type of applications, and all developing applications in early stages apart from the major volume in Taiwan and what we also discussed the capacity having been set up in the U.S. by one customer, but the others are testing, qualifying and publishing data on using the hybrid bonding. So that's for the hybrid bonding. If we look at TC Next, the key issue in TC are basically there are 2 issues. One is going to a fluxes solution. Our system is prepared for adding that to the system. And at the same time, more accuracy required for bond pad pitches below 20 micron. Recent additional data has been published by IMEC in Belgium, that on our system, successful products have been refloat down to below 10-micron bond pad pitch, even 7-micron bond-pad pitch. So that should fill the gap between the necessary hybrid bonding and the reflow process as the world is using today above 20-micron bond pad pitch. And as you can see, another customer has been added, they all prepare for those 2 criteria required for next-generation TC. Didier Scemama: Very well. As a follow-up, I just wanted to check also another thing. So my understanding is that this OpenAI AMD chip and let's forget the name of the customer, but it's 3, if not 2-nanometer design. So are you ready to ship your 25-nanometer accuracy system in support of that customer? And I've got a quick follow-up as well. Richard Blickman: Well, for hybrid bonding, the current, let's say, the majority of systems shipped so far is 100-nanometer accuracy. And the 50 will be shipped for evaluation, qualification towards the end of this year. And that is in preparation for design structures below 2 nanometers as we understand from customers. So that's still some time out. Today, it's all 100-nanometer basically the benchmark technology used for many applications and not just for 1 customer. So we will see in the course of the coming quarters, a broader adoption for different types of devices and one of them has been announced publicly and the MI450. There's also a next one above 500, and they all use hybrid bonding as far as we are informed. Didier Scemama: Perfect. And then my final question, Richard, at this time of the year, it depends sometimes it's in Q4, sometimes it's in Q1, you start to get a feel for some flagship smartphone design upgrades, which typically leads to orders for you guys? Any feel for what it could mean for the new models that come in the later part of '26. Could that be orders for you in Q4 or in Q1? Or is it too early to say? Richard Blickman: No. The typical pattern for these new models is ordering Q4, Q1 with then market launch in September. So delivery of systems in June, for qualification July, August. So we should understand much more in Q4 and when we released the numbers in Q1 end of February, where this is heading. So if you follow the public domain, there's a lot of information about what will happen in this next generation, probably different cameras, also foldable. That means different design of the infrastructure in these units, and that could lead to a next round. But also this year in the generation for 2025, many let's say volume related, but also slightly new versions in these modules in these phones have led to a very positive business, albeit at lower levels than at the peak years 2021, '22. So the key is to understand what really changes, our new machines required. And as soon as new machines are required, that means an extra round. Currently, you can simply conclude that a lot is being manufactured on systems already installed. And in many cases, retrofits have done the job in bringing successful the latest models to market. Operator: Our next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding your business with older customers, such as in the smartphone market, the autos market, et cetera. There seems to be some signs of life in the smartphone market. But the question I have is that will those signs of life translate into orders for you given that sometimes your orders are very much related to next-generation product and whether that needs to wait until the new product comes out next fall? Or is it likely to happen because of the volumes? Or is that too early to say because it can happen because of the volumes. And I have one quick follow-up. Richard Blickman: Some are related to volume. So with the success which we have read in the public domain recently, that means, yes, more volume and that means shortages in certain areas and that is definitely helping. But as you said rightly, the key is to understand what are the real changes for the next model. And that typically becomes more clear towards the end of Q4, Q1, and then we have a much better understanding is there next year, going to be a ramp in those applications? Or is it at similar levels? That's typically how it has developed over the past many cycles. Automotive, the developments in automotive are mostly at new power modules also quite complicated modules. They're all for hybrid cars. That's what we hear. Volume is still, yes, let's say, moderate, not any expansion to mention, but that is also clear from the announcements of the major customer in that space. So there you can say still the turn of tide is to be expected early next year. Let's hope so. But yes, our success is always in these new technologies. So automotive, we mentioned also last quarter, we don't see further decline. We see a stabilization, and we see new products where we are included also new technologies for instance, in soft solder in bonding those high-powered devices. So that's typically what the status is in automotive. Sandeep Deshpande: One quick follow-up on the comment you made in your opening remarks on TC Next. You said you've got -- you've got an order for another customer in TC Next, I mean can you help us understand totally how many customers you have on TC Next? And is this, I mean, based on how you are seeing it play out. I mean clearly it's early days yet, but could this become a major new revenue stream for you? Richard Blickman: Yes. Well, let's hope so that, that will be the case. That's what we are aiming at. There are 2, again, markets. You can say the logic markets, and that is where you first reach the smaller bond pad pitches, so below 20 micron. And that is where the concept the TC Next is aiming at the first place. But at the same time that system is uniquely capable to stack those dies in HBM application. And also it's prepared to add the units required for fluxless application. The development is in both directions. So time will tell. And as I said earlier, '26 is going to be a critical year for adoption of hybrid bonding in HBM stacking, depending on what -- how that split will be at some point for HBM4. Most will be as everyone expects in refill process DC, but there are different variations in those processes. As we all know, the 3 use a different process, but that's less critical. So the machine typically for HBM3 is not -- that's why it's in an early stage, but an important year ahead of us to see where these applications can lead to major volumes. Operator: The next question comes from Ruben Devos from Kepler Cheuvreux. Ruben Devos: I had one on photonics. These orders, are they tied to I guess optic pilots? Or are they for, let's say, the pluggables inside the AI data centers? And... Richard Blickman: Sorry, you had more part to your question or... Ruben Devos: Yes. Well, just a follow-up on the photonics like these customers have resumed capacity purchases, I understood. Like is it for new platforms? Or is really expansions on the installed base? Yes, that's the first one. Richard Blickman: Well, it's for pluggables. So the connectors in the data centers. And it's partly add-ons, but it's 5 customers as we explained in the previous quarter and they're all ramping up and very much on our systems. So we have a major market share in that area. So -- yes, we expect that also to continue in Q4 because it's all tied to data center expansions. Ruben Devos: Okay. Just thinking about sort of the mix shift that has taken place since, let's say, 2021 when you sort of had the peak in mobile, I think it was 40% of your business and 20% compute and now approaching the end of '25. How do you think of that mix from what you've seen already so far? And particularly now in Q3, you see more momentum with orders obviously up particularly the OSATs ordering. Like how would you characterize maybe that shift mix today? And do you see, in general, like how do you assess the investment appetite basically from the OSATs now for compute as what it was maybe a decade ago in mobile? Richard Blickman: That's a very good question. In a big picture, the world clearly for the last decade was very much focused on mobile. Every year, next generation, every 3, 4 years, a major, let's say, new, whether it's from 4G to 5G and before that 3 and then also the cameras and the movies and all that has been a constant driver. And that still is today. So you can expect the 6G, but also the connection to wearables. And what we haven't mentioned yet is the increasing development in wearables in the glasses. It started with Google glasses, now Meta glasses, where we are also very much involved. So you see that developing along -- yes, let's say, the development I would sometimes characterize in mankind using those devices. Now we are in an AI phase, and that's more data using, again, yes, data in whatever more intelligent ways. And that is shifting then the percentage of revenue. Already last year, 43% was related to computing and data center high-power computing as opposed to many years before that, it was somewhere in the mid-20s. So that's all a very positive development. We were, for many years, characterized that we were very much dependent upon the high-end smartphone cycles. Currently, that is far less. We have more -- we have major drive in the whole AI world and with different technologies. So we look upon it in that sense with continued engagement in the forefront of the development of communication devices. And then we have automotive, which has dropped to below 20%, which was the average level, somewhere between 15% and 20%. So that's in a broader brush how our business is developing. Operator: The next question comes from Charles Shi from Needham & Company. Yu Shi: Congrats on the pretty strong guidance for fourth quarter. Maybe I want to go back to the major hybrid bonding order you expected that could arrive in Q3, but now it looks like it's going to be a little bit later, given the push out. So the question was -- question is this, how much confidence you have in getting that particular large order in the current quarter because last time, I think, quite frankly, we were a little bit disappointed by the push out, but really hope that this time it's real and it's coming. Richard Blickman: Well, you can also qualify that a bit in our own success in building machines. So at the very beginning, the throughput time to build these machines was over 9 months, closer to a year. And now since these 100-nanometer machines have become more standardized, we can turn them around in a 6-month period, which has the benefit for customers to align that more closely with their end customer demand and also the logistics. So what we understood is that the initial delay because of certain manufacturing or building construction issues at that customer. And that is why the placement is somewhat delayed. That is our current view supported by all the information directly from the customer. Yu Shi: Got it, Richard. So it sounds like 2 factors there, customer clean room delay and also the fact that you will improve the manufacturing cycle time. So they are not really -- they don't really need to place order well in advance, did I understand correctly. Richard Blickman: Yes. So we are currently installing machines at that same customer and those machines have been built in 6 plants. And that is also one of the factors. Yu Shi: Got it. So maybe a little bit of a more technical question. Regarding the Gen 2, the 50-nanometer accuracy tool, well, you have been very consistent. I think over the last 2 years that you expect to deliver the tool, maybe the end of 2025, that time line hasn't really moved. But at the same time, people have high expectation about Besi and probably were wondering why the schedule didn't move up. And was that more of a customer road map issue or more of a little bit of technical challenges on your side? Can you kind of shed some light on what's happening there with the 50-nanometer tool. And I think on a related question, I think when your schedule didn't really move in, do you worry about a little bit increased competition. I think on the HBM side, competition -- the landscape -- competitive landscape is well-known, lots of regional players there. But in logic side, do you see any increased competition there, especially at the leading foundry customer? Richard Blickman: Well these are very good questions. The first question on the timing of the 50-nanometer requirement, that's purely customer road map. And that road map has not changed. The road map is '27 onwards. And so that tool has to be ready by the end of '26 as we have shared, that is not being pulled forward. The adoption of hybrid bonding is ever more confirmed and we see that with additional orders, additional customers. It's definitely logic oriented because that is where the most critical and the smallest geometries are requiring this technology. On HBM stacking, it is a bit less in a sense, the bond pad pitch is not that of a great issue. But there, it's more the heat factor, so the performance of the device, which is driving using hybrid as opposed to a reflow process. On the competitive landscape, let's -- there from the beginning, a Japanese competitor has been already for 8 years sort of side by side. So far, our concept is certainly leading with a market share of over 80%, even some people say 90%. There has not been a change in that landscape. We have successfully moved the generation from 1 to 1 plus, so 150, 200-nanometer down to 100-nanometer. As far as we know, also from a cost of ownership, throughput, our system is certainly in the lead. On the HBM, it's a different competitive lens, more Korean based. Exciting will be in the course of this year, how the evaluations will, let's say, develop in terms of side-by-side comparisons that will take place in Korea at the 2 major Korean customers. So that will give us a better understanding of the competitive landscape. So that's in a nutshell, Charles, where we're at. Yu Shi: Got it. So in logic, no real change. In HBM, it's always a little bit of -- in some flux. But thanks for the color. Operator: The next question comes from Andrew Gardiner from Citi. Andrew Gardiner: I wanted to come back to the market slide that you put up every quarter in your deck. You've highlighted that tech insights have reduced expectations for this year. And I can see as well for next year, those have come down. I fully accept Besi is going to outgrow the market given your positioning in some of these areas. But expectations are pretty high out there at the moment for your revenue growth into next year. I'm just wondering if you can shed a little bit of light on how you are seeing things. You've talked about orders in the near term, but any indications from customers as to their thoughts into next year and what could help you to drive such outsized revenue growth into next year? Richard Blickman: Well, always a very good reference is the order run rate. So if you look at the last quarter, third quarter, also our guidance in broad terms for the fourth quarter, that leads to levels, which, yes, quarterly run rates give an indication on a yearly model. If you look at our revenue, let's say, if you take the guidance for revenue Q4, you take the midpoint and you add it up with the first 9 months, and then you look at the run rate in orders. And also, let's say, where those orders are coming from and you -- I think you also shared it in that sense. Then we are benefiting from a part of the market, which grows significantly more than the average assembly equipment market. So the TechInsights numbers are for the overall markets, and it could very well be that the mainstream market for less, let's say, complicated devices is growing far less than for the advanced, which has always been the case. So based on -- yes, the current run rate, one -- yes, should see that development. And also with the adoption of hybrid bonding gaining more traction more broadly, and also TC for that matter. Yes, that's a bit different than the forecast, which you see from the TechInsights. But in this industry, I've never seen any forecast, which is on the dot. It's usually either much too high or it is too low, it's a difficult time. If you also see this in respect of what's happening in the whole industry, and that in relation to the world, there -- yes, it's not that straightforward. Well, it's never been that straightforward. But anyway, so my message is our statements, we expect based on the current evidence and trends that we should be able to outgrow what is currently forecasted for the market. Operator: The next question comes from Timm Schulze-Melander from Rothschild & Co Redburn. Timm Schulze-Melander: Maybe just the first one. You talked about a new foundry customer to whom you've shipped a hybrid bonding tool. Could you maybe just provide some color about the application and just kind of how meaningful that might be? And then I had a follow-up. Richard Blickman: We are not -- let's say, we don't know the end customer in particular, but it looks like it's more in the mobile space. So that is as far as we know. Systems are ordered. They will be delivered in Q1. So then we may well know more, but customers are pretty careful in sharing end customer and end product details. Even for many, we are not allowed to see it. It's usually with code names. So our service engineers also are not able to track that, and one can understand also the reason why in IDMs, it's a bit more yes, let's say, easy because they typically have their end products, but in foundries that is a high level of -- yes, let's say, secrecy, confidential. Timm Schulze-Melander: That's really helpful. And then just you referenced an order booking that slipped and looks like it's going to track into Q4 in terms of just the readiness of the customer. Could you just maybe -- is that an existing customer? Is it a chip maker? Or is it a packaging subcontractor? Richard Blickman: Well, it's a chip-making foundry, and it's an existing customer. So that's as much as we can share. Timm Schulze-Melander: Okay. Okay. That's helpful. Because I think maybe one of the -- my last question. If we look at where the strength of sort of hybrid bonding engagement has been, it's been at those customers who are front-end chip makers and you've referenced a couple like TSMC and Intel. What would be the indication that the market is extending into subcons who don't -- the packaging specialists who don't naturally have sort of chip-making front-end capabilities. Is that something that we can anticipate sort of being in the 2026 time frame? Or is that really sort of a much longer-term kind of target that maybe follows whatever happens in high bandwidth memory? Richard Blickman: The largest subcon in the assembly space has taken ownership of hybrid bonding about a year ago and is in the process qualifying devices for end customers. It is very likely that you will see that trend, which has happened forever. And also, you can see it, for instance, 2.5D modules. 2.5D modules are now built at a whole range of subcontractors, the typical, the higher-end ones, and that is where the growth in our orders in the third quarter was very much coming from. So for hybrid bonding devices, you can expect a similar trend. It may take a few years, but it's all a matter of cost, and that is a normal trend. And as I said, you see already preparation because for those subcons, the high-end devices also offer the highest margin potential. So there's a clear win situation on both ends in reducing cost and that's the trend in many of our products. It starts at IDM and it moves gradually into the subcontracting arena. Operator: The next question comes from Martin Jungfleisch from BNP Paribas. Martin Jungfleisch: Yes. I have 2 follow-ups from some earlier questions, please. The first one is on the hybrid bonding order. I mean would you stick to your comments that you made during Q2 results where you anticipated H2 hybrid bonding order to increase significantly compared to H2 '24? Or is there -- do you see now some orders to slip even into Q1 '26? Richard Blickman: No, no, no. That's a very good question. It's very much as we said a quarter ago. So there are more we expect in Q4 to come in. So it's not just the big order, which slipped from Q3, hopefully, to Q4. But there are several other customers where we expect orders in Q4. Martin Jungfleisch: Okay. That sounds great. And then just secondly, on the 2.5D orders, I mean, you flagged this for the big increase in Q3. Just wondering, how sustainable are these order levels? I mean, is this driven by a single customer? Or is it multiple customers? And also what do you expect kind of this trend to continue into 2026? Richard Blickman: It's multiple customers. We mentioned several times that it is a group of 5, which we have been -- several we have been engaged in since over 10 years. So it started off with [indiscernible] already a decade ago, routers. And that has developed in our smaller geometries now into data center connectors. So that is a business which is growing and it's not a -- we don't expect that to be a onetime. But in capital goods, there's always this cyclical behavior. So you have a growth period, and then you have capacity absorption. But as we guided, we expect some continuation of this trend on the short term. But with the adoption of AI, and if you look at this in a broader perspective, again, what the world is expecting in the next couple of years, to do with the AI in every different form, these data centers is expected to grow significantly. And in case we are able to maintain our market position that should lead to continued business, albeit not in a straight line, but typically in a growth pattern. Martin Jungfleisch: That makes sense. Can you just tell me the lead time for the 2.5D tools? Is it similar to the mainstream market? Or is it more closer aligned to the hybrid bonders? Richard Blickman: Somewhere in between. So we have -- that's also a good question. We can turn around equipment for mainstream in -- yes, some even in 6 weeks, 8 weeks. But this is typically 12, 16 weeks. That's why we cannot turn around the orders received in Q3 in the quarter. That's why the guidance 15 to 25 and up. So a major part will be shipped in Q1. So that's how it works. So we have machines which are more than a year -- or more than 6 months, sorry, with new developments, it's more than a year, but then it varies between the purchase lead times is 6 weeks. And yes, usually to 12 to 16 weeks, that is what the pattern. Next question, please. Operator: We have time for one last question, and the question will be from Adithya Metuku from HSBC. Adithya Metuku: Firstly, I just wondered if you could help us get some more clarity into 2026. When I look at your revenue run rate that you've guided to for the December quarter or the orders run rate that we've seen in the third quarter,and annualize that, I get to around 20%, 25% below consensus in terms of revenues for 2026. So I just wondered if you expect orders to pick up further in the December quarter, or will it kind of plateau the high levels you've seen in the third quarter? Any color you can give and also any color you can give on how any other drivers we should keep in mind when we think about 2026 growth and that would be helpful. And I've got a follow-up. Richard Blickman: Excellent. Well, first of all, we try to share in the press release that the order momentum continues into Q4. So Q3 is not the highest level. We also indicated that we see renewed drivers for growth in '26, which are linked to mobile, for instance, but also in the careful mainstream recovery where we see the early signs. But on top of that, we have the hybrid bonding continuation based on further adoption, and that could lead to a much -- yes, let's say, stronger growth in '26 than what we have so far in '25. So those are the -- and don't forget the TC Next. So those drivers could result in, as I also answered to an earlier question, in a business model more focused towards the high-growth AI arena. And at the same time, recovery for those applications where we have had in previous cycles, significant growth in new model usually applications. So that's in a broad brush what the market could develop in '26, albeit in an environment which we all know is under -- yes, let's say, also different. China what we see is many customers are building next-generation capacities outside China. With the current geopolitical situation, you can expect new capacities built in countries like Vietnam, but also India. India, there are 5 major customers setting up assembly capacities, starting with direct product moves from what is currently built in China then built in India. That also offers additional growth in the change of infrastructure. So there are many aspects which can have an influence on how '26 will look like compared to '25. But we don't guide further than a quarter out. But since you ask what could be different in '26, then those are the aspects you can take into consideration. Adithya Metuku: Understood. And then just as a follow-up. I know last quarter, you talked about price negotiations in light of the recent adverse FX moves. I wondered if you could give some clarity on how those negotiations are going and when you might be able to get back into your 64% to 68% target range that you've previously provided? Richard Blickman: Well, interesting enough, if you look at the dollar decline versus the euro with about 12% and a margin impact of around 3% gross margin. So we have been able to offset that partly in new features, which always allow higher pricing, but also in carefully managing our supply chain. And in that sense, the -- those developments will continue in an environment where the market is, you could say, soft. So -- and if this is the low part of the cycle, then you have a significant upside potential. Also, if you look at revenue levels, EUR 134 million this quarter, what was it exactly, which is -- our peak was above EUR 200 million. Capacity utilization is, of course, at a different level currently. And that all has an impact on the gross margin overall. So if you compare this gross margin to peak levels, yes, the delta is larger than the 3%. I think once we reached 66%, we haven't reached 68%, it also depends on the order mix. There are certain new developments, which always have a somewhat lower margin. And over time, that improves because of, yes, the full qualification of systems. So those are all impacts on those gross margins. But still gross margins well above 62% is a reasonable margin at this time. Any last question? Operator: I think we do not have any more time for any last questions, but I will hand the word back over to you, Mr. Blickman for any closing remarks. Richard Blickman: Well, thank you all for taking the time. And if you have any further questions, don't hesitate to contact us directly. Thank you for attending. Bye-bye.
Operator: Hello, and welcome to Newmont's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Newmont's Group Head of Treasury and Investor Relations, Neil Backhouse. Please go ahead. Neil Backhouse: Thank you, and hello, everyone. Thank you for joining Newmont's Third Quarter 2025 Results Conference Call. Joining me today are Tom Palmer, our Chief Executive Officer; Natascha Viljoen, our President and Chief Operating Officer; and Peter Wexler, our Chief Legal Officer and Interim Chief Financial Officer. Together with the rest of our executive leadership team, they will be available to answer your questions at the end of the call. Before we begin, please take a moment to review our cautionary statement shown here and refer to our SEC filings, which can be found on our website. With that, I'll turn the call over to Tom for opening remarks. Tom Palmer: Thanks, Neil. To begin today's call, I'd like to take a moment to acknowledge the important leadership transition we shared a few weeks ago. Announcing my retirement at the end of this year and appointing Natascha as Newmont's next President and Chief Executive Officer. When I joined Newmont more than a decade ago, I could not have predicted the remarkable transformation our company would undertake. Over these years, we have not only grown as a business, but redefined what it means to be the world's leader in gold mining. We have successfully navigated some of the most significant transactions in mining history, fundamentally changing the landscape of our industry and what it means to be a gold company. Today, we stand as the benchmark for responsible gold mining with an operating portfolio that has meaningful copper production and a project pipeline that is the envy of our industry. During my time with Newmont, the mining industry has undergone profound change. Newmont has responded to these changes and actively shaped its destiny. Rather than simply riding the commodity cycle, we have built a long life, globally diversified portfolio, one that will sustainably deliver shared value to our host communities and governments, shareholders, employees and all of our stakeholders. It has been a privilege to serve as Chief Executive. And as I pass the baton, I am confident that Natascha, who has demonstrated exceptional leadership throughout her 30-year career in our industry, will seize the many opportunities that lie ahead for our business. And with that, I'll turn it over to Natascha to take you through our third quarter operational and financial performance. Natascha Viljoen: Thank you, Tom, and thank you also for your leadership and support since I met you the first time 3 years ago and for your leadership of this great company over the past 10 years. Your contributions have helped shape the strong foundation we stand on today, and I look forward to leveraging that experience to further unlock the value that we all know this business can deliver. Before diving into the details about our operational and financial performance, I'd like to highlight a few notable milestones and record achievements from the quarter. First and foremost, in July, we safely recovered 3 teammates at our Red Chris project, a result of robust procedures and systems in place, the swift and trained actions from individuals involved and strong collaboration across the mining industry. As an organization, we are taking a hard and honest look at the findings from the investigation into the circumstances that led to the incident, and we are fully committed to applying and sharing those learnings across our business and the broader industry. Second, we've received nearly $640 million in net cash proceeds from equity and asset sales since the start of the third quarter, marking the successful completion of our asset divestment program and the further streamlining of our noncore equities portfolio. Third, from our portfolio of world-class gold and copper assets, we generated record 3 quarter cash flow of $1.6 billion, enabling us to reach an all-time annual record of $4.5 billion, with 1 quarter still remaining. And we made significant progress on the cost discipline and productivity work we announced at the beginning of the year, which has allowed us to meaningfully improve our 2025 guidance for several cost metrics, whilst maintaining our outlook for production and unit cost in a rising gold price environment, a notable success in today's market. We achieved this by establishing a smaller senior leadership team with a decentralized organizational structure that is designed to sharpen accountability and simplify how we work. This includes consolidating our structure to 2 business units, giving our 12 operating sites greater decision-making authority and enabling faster, more agile execution. In addition, we further strengthened our balance sheet and enhanced our financial flexibility, ending the quarter in a near 0 debt position after successfully retiring $2 billion of debt. And Moody's upgraded Newmont's issuer credit rating to A3 with a stable outlook, a clear reflection of our improved credit profile, strengthened balance sheet, excellent liquidity position and prudent financial management. We have also continued to share our success with our shareholders, returning $823 million since the last earnings call through a stable dividend and ongoing share repurchases. On top of this financial discipline and excellent performance from our operations, we will also declare commercial production by the end of today at our new exciting mine, Ahafo North, which expands our existing group footprint in Ghana and adds profitable gold production over an initial 13 years of mine life. With this strong momentum from our operations and projects, we are well positioned to continue creating long-term value for years to come. Building on our cost and productivity work and solid foundation from the first half of the year, our third quarter operational performance reflects our continuous focus on safety and optimization. Our third quarter production was largely in line with the second quarter, primarily driven by a step-up in production due to higher grades of Brucejack, improved productivity at Cerro Negro and continued success from our patented injection leaching technologies at Yanacocha. As previously signaled, Peñasquito delivered a lower proportion of gold and steady lead, silver and zinc production in the third quarter, consistent with the planned sequence at this polymetallic mine. And at Ahafo South, we completed mining at the Subika open pit during the third quarter as planned, shifting mining activities to lower grades from the Awonsu open pit. And finally, at Lihir, we completed the construction of the engineered wall of the Phase 14a layback, preparing the site to efficiently reach higher grades in the future years. Consistent with our stable production in the third quarter, our unit costs remained largely in line with the second quarter. Our continued focus on cost discipline and productivity has enabled us to offset higher cost from profit-sharing agreements, production taxes and royalties resulting from the stronger gold price environment. In addition, we continue to progress the projects we have in execution and reached several significant milestones during this third quarter. As I mentioned, we poured first gold on September 19 and will be declaring commercial production at our new mine, Ahafo North, by the end of today. At our second expansion at Tanami, we have fully completed the concrete lining of the 1.5 kilometer deep production shaft and are equipping the shaft and completing construction of the underground crushing and associated materials handling system. At Cadia, tailing from PC2-3 has continued according to plan as we advance the underground development for PC1-2, along with a critical tailings remediation and storage capacity work, which I will touch in a little bit more detail in a moment. Moving on Newmont's operational strength in the third quarter, we delivered another solid financial performance. Newmont generated $3.3 billion in adjusted EBITDA and adjusted net income of $1.71 per share for the third quarter, a 20% increase from the second quarter and more than double last year's results. Also during the third quarter, Newmont generated $2.3 billion of cash flow from operations and $1.6 billion of free cash flow after working capital, marking a record third quarter performance. This achievement represents the fourth consecutive quarter with free cash flow exceeding $1 billion, underscoring Newmont's scale and leverage to favorable gold prices. So far this year, we have generated $4.5 billion of free cash flow, an all-time annual record already, with 1 quarter still remaining. And since the last earnings call, we have received $640 million in after-tax cash proceeds from successful asset divestitures and further equity sales, bringing our total 2025 proceeds to over $3.5 billion in cash to support Newmont's disciplined capital allocation priorities. These priorities remain unchanged and include maintaining a strong balance sheet, steadily funding cash generative capital projects and continue to return capital to shareholders. Looking ahead to the remainder of the year, strong execution across all our managed operations during 2025 has positioned us to achieve our full year production guidance. In the fourth quarter, mining at Yanacocha is expected to conclude, and we will continue to evaluate the opportunities in the surrounding regions of Peru. Additionally, we are looking forward to adding new low-cost ounces during the fourth quarter from our new mine, Ahafo North, and we are anticipating higher ounces from Nevada Gold Mines in the fourth quarter, as indicated by our joint venture partners. From a cost perspective, we are already seeing that our savings initiatives are bearing fruit this year, and we have reduced our absolute cost guidance in 2025 for G&A, Exploration and Advanced Projects by approximately 15%. This improvement in G&A expense is the direct result of our deliberate efforts to simplify the organization and drive down labor and contractor costs. And on the back of progressing labor reductions, our Exploration and Advanced Project guidance is also reflecting the optimization work we are doing to ensure we are managing cost efficiently, including how we deploy resources and equipment, sequence studies and focus exploration on areas that will generate the highest value. Turning now to unit cost. It is important to note that our 2025 guidance was established using a $2,500 per ounce gold price assumption at the start of the year. With sustained high gold prices, our fourth quarter all-in sustaining cost outlook includes increased cost from profit sharing, royalties and production taxes. However, through ongoing optimization and cost improvements, combined with supportive macroeconomic tailwinds, we expect to largely offset these impacts, enabling us to maintain our guidance for cost applicable to sales and all-in sustaining cost per ounce. Finally, now shifting to capital spend. Sustaining capital spend in the current year is tracking below our guidance published in February 2025, primarily due to the timing of spend related to our investments in the tailings work at Cadia. The team has done outstanding work this year, thoroughly assessing every option to ensure we're deploying capital in the most efficient way. Our focus continues to be maximizing capacity in the current in-pit storage facility, repairing the southern wall of the Northern facility and then rising the wall of the Southern facility. With this plan in place, we are ramping up our spend, ensuring that we achieve the right balance between responsible capital management and the tailings capacity needed to support this very long life mine. Similarly, development capital spend is also tracking below our initial guidance, primarily to a deliberate shift in the timing of spend related to the study and underground development work to support the potential expansion project at Red Chris. Taking everything into account and looking ahead to 2026, gold production from our managed operations is expected to be within the same guidance range we provided in 2025, but towards the lower end due to the planned mine sequence at our world-class operations. As previously indicated, lower ounces from Ahafo South next year will be largely replaced by new low-cost ounces from Ahafo North mine. In addition, the decrease in expected production next year will be driven by a lower proportion of gold production from Peñasquito as we transition into the next scheduled phase of mining at the Peñasco pit, while slightly increase our output of silver, lead and zinc. Lower leach production at Yanacocha as we conclude the mining activities at the Quecher Main pit and lower gold and copper production from Cadia as PC1 and PC2 come to an end and we transition to the next panel cave, PC2-3. In addition, following the anticipated $200 million improvement to capital guidance in 2025, we expect capital spending to be elevated in 2026 as a result, keeping our 2-year average largely in line with expectations. Lastly, building on cost and productivity improvements achieved in 2025, we expect to realize the full benefits of our cost saving initiatives, which will be reflected in our 2026 guidance to be provided in February next year. However, if elevated gold prices persist into next year, increased profit sharing, royalties and production taxes could offset a significant portion of the benefits we expect to realize from our cost savings initiatives in 2026. These ongoing efforts demonstrate our disciplined approach to cost control and our continued commitment to driving margin expansion, with more work underway to capture additional efficiencies even in a rising price environment. With our guidance reflecting continued operational and financial discipline, I'll next turn to capital allocation, where our focus remains on striking the right balance between financial flexibility, reinvestment in the business and returning capital to shareholders. We remain committed to our shareholder-focused capital allocation strategies, which are 3 key priorities and remained unchanged. Beginning with our strong and flexible balance sheet, we ended the quarter with $5.6 billion in cash, and we reduced gross debt to $5.4 billion, ending the quarter in a near 0 net debt position and reinforcing our financial resilience in today's unpredictable environment. Secondly, we continue to steadily reinvest in our business, in line with our long-term planning cycle and external guidance, with a goal of generating sustainable free cash flow. And finally, we continue to return capital to shareholders. We declared a fixed common quarter dividend of $0.25 per share. And we repurchased $550 million of shares since our last earnings call in late July. This year, we executed $2.1 billion in share repurchases, bringing the total to $3.3 billion in share repurchases since February of last year, with approximately $2.7 billion remaining in our $6 billion program. We will continue to be disciplined and balanced in our capital allocation priorities. Despite the record level gold price environment, ensuring that Newmont is well positioned to drive consistent long-term shareholder value. With another strong quarter behind us, we remain well positioned to continue delivering on our commitments to our shareholders. Driven by the consistent operational performance we have seen so far this year, we are firmly on track to achieve the improved 2025 guidance that I outlined earlier. And from this stable and efficient operational performance, we have generated $4.5 billion in free cash flow so far this year, achieving a full year record in just the first 3 quarters. From this position of strength, we have focused our time and attention towards optimizing our assets, taking deliberate actions to improve our cost structure and unlock the full value of our world-class portfolio. Alongside our operational strength and financial discipline, we will declare commercial production at our Ahafo North project at the end of today, setting us up to deliver new low-cost ounces for many years to come. In addition, we have successfully completed our asset divestment program and the further streamlining of our noncore equity portfolio, generating greater than $3.5 billion in after-tax cash proceeds from asset divestitures in 2025 to support Newmont's disciplined capital allocation priorities. Over the last 2 years, we have repaid $3.9 billion of debt and have returned over $5.7 billion to shareholders through our common dividend and share repurchases, delivering approximately $250 million in annual savings from these actions alone. Even amid unprecedented gold prices, our commitment remains to disciplined, balanced capital allocation, cost management and productivity improvement, driving long-term shareholder value and financial resilience. As we look to the future, Newmont is well positioned to continue generating industry-leading free cash flow, strengthening our business and rewarding shareholders through a predictable dividend and ongoing share repurchases. Lastly and most importantly, I would like to sincerely thank Tom for his leadership and contributions that helped to put Newmont on such a strong footing. And with that, I'll turn it back over to you, Tom, one last time for closing remarks. Tom Palmer: Thanks, Natascha. As only the 10th CEO in Newmont's 104-year history, it has been a privilege to serve this great company. I'd like to thank our Board for its guidance and partnership throughout my time in the role, our executive leadership team and all of our teams across the world for their support in shaping our business into the industry leader that it is today. And with that, I'll hand the line back to the operator to open the call up for questions. Operator: [Operator Instructions] The first question comes from Daniel Major with UBS. Daniel Major: Congratulations, Natascha. And Tom, good luck in the future. So yes, a couple of questions. The first one, just on capital allocation and the balance sheet. You've been returning cash to shareholders at a healthy rate, but the balance sheet is effectively net debt 0, well below your net debt target. How do you see that going into 2026 if gold prices stay at this sort of level, would you look to build cash? Or would you look to accelerate the rate of buybacks and cash returns to get closer to your net debt target? Natascha Viljoen: Thank you for that question, Daniel. As we've said in our prepared remarks, we remain firstly committed to, I think, a very well-defined capital allocation framework. Within that framework, we've made some good progress, and we will continue to review our returns to shareholders within the flexibility that we have in the capital allocation framework, and we will remain disciplined towards that. And of course, just to add, we do review that on a quarterly basis with our Board. Daniel Major: Okay. So if prices stay here, would it be fair to assume you would accelerate the rate of cash returns rather than move into larger net cash -- or move into a net cash position, is that fair? Natascha Viljoen: Daniel, I would rather steer towards we'll remain disciplined within that framework. And we will continue to review that as we have greater certainty of what the gold price do in the future. What's in our control, certainly, is to continue to focus on our operational performance, our safety, cost and productivity work. Daniel Major: Okay. And then the second question is just on the project pipeline, previously indicated that Red Chris block cave would be the next project that would potentially be approved. Has there been any delays to that potential timeline with the incident last quarter? And is there any other updates on the other kind of longer-dated projects, Yanacocha, Wafi-Golpu, et cetera? Natascha Viljoen: Daniel, firstly, on Red Chris, we remain on track to deliver a proposal to the Board towards the middle of next year. And we have, as we said earlier, done quite a bit of work to do a thorough investigation on the incident that we had. And we are building all of those learnings into the work that we're doing through the feasibility study. We are -- the progress remain on track. In terms of longer-dated projects, those are part of our projects in our -- that's part of our studies pipeline. And all of them will have to earn their right in the portfolio and for us to allocate capital to any future decision. Operator: The next question comes from Matthew Murphy with BMO. Matthew Murphy: Congratulations, Tom, on retirement and Natascha on the appointment. When you described giving the sites more autonomy and just some of the restructuring, I'm interested, what that means for your team? Are there key appointments that you're still looking to make? Or do you feel like you have the team to carry out that strategy already? Natascha Viljoen: Matthew, as you know, in our executive leadership team, we do have a vacancy in-house for our CFO, who is -- and currently, we have our team very capably led by Peter Wexler and a very capable team supporting him in that finance -- in the finance function. So that would be a key appointment that we are focusing on. We have a deep bench across our operational teams that we are leveraging from. We've redefined or reshaped our business into 2 business units, who will be -- that will be led by 2 very strong managing directors, each having authority over 6 of our assets. We also have a very strong group head in our projects and studies and another group head looking off to health, safety, security and environment. So all 4 of them absolutely focused on operations and projects at the core, making sure that we can deliver on our objectives in a sustainable and safe manner. And then, of course, we continue within the framework of the restructuring, we have a very strong functional team across all of our important functions that will continue to support the work that we've defined in this restructuring. So very comfortable that we have a very capable team across our operations, projects and functions. Matthew Murphy: Okay. Great. And then just any color you can share on the ramp-up of Ahafo North? How -- you've got it into commercial production. Has that gone as planned? And how is the ramp looking in Q4? Natascha Viljoen: Yes. So we will be -- we will officially declare and it's absolutely a matter of timing. By the end of today, we'll be able to declare commercial production. What that means is that we have, on average run for 30 days at more than 65% of the design, which gives you about 300 tonnes per hour. And that ramp-up is going -- is running on schedule. So we're very, very excited about this new mine. I think Tom and I, will be heading out there next week. I think particularly, that's a big legacy for Tom as well for us to get this operation up and running. And -- but we will be celebrating with the team that brought this asset online next week to officially open it. But we're really excited about having this new mine as part of our portfolio. Operator: [Operator Instructions] The next question comes from Josh Wolfson with RBC. Joshua Wolfson: I recognize it might be a bit early to ask, but is there any sort of perspective you can provide on reserve pricing, gold assumptions for next year? And then also in that context, whether we should expect a growth in the reserves? Natascha Viljoen: Josh, you're right. It is a little bit early. As you would expect, we're right in the middle of our budgeting cycle, right, also busy with our resource and reserve review. And we will definitely give you an outcome of that work in February next year. Joshua Wolfson: Okay. Got it. And then just back to some of the comments on 2026 guidance. And I guess, there's sort of 2 parts here. One is, I think you had mentioned earlier the average CapEx over '25 and '26 would remain unchanged. If the CapEx declined in '25 by $200 million, should we assume the number next year is the same as '25, so -- or $3.2 billion and then add $200 million to it? And then the other question is just on AISC. I recognize there's a bunch of moving parts here. Directionally, there wasn't any indication provided there. But is the suggestion in the text that the AISC cost should remain stable? Or is one of the optimization and synergies outweighing the other of higher gold prices? Natascha Viljoen: Josh, yes, firstly, starting off with capital. I think you're accurate. And if you consider that over the 2 years, '25 and '26, that we will remain within the guidance that we've given. 2026 will be higher. So you can assume that, that will flow through into 2026. If we look then at all-in sustaining cost, the 2 elements that will impact our all-in sustaining cost, firstly, would be the guidance that we've given or the indication of that we've given for the guidance next year of where our ounce profile will be for our managed operations. I want to just add that. And the impact would be predominantly from Ahafo South, where we -- our Subika open pit operation has stopped, and we've moved into a Awonsu pit with lower grades. But our Ahafo North would largely offset that. The reductions then further will be Yanacocha from the Quecher Main pit, that where we stop mining, and we will only be focusing on leaching activities. Peñasquito, we see a move into GEOs and our goal just due to where we are from the mining profile and Cadia as we wait for PC2-3 to ramp up. So the combination of what we think would be on the lower end of our guidance for ounces and moving of sustaining capital into 2026. Saying that, however, despite the good progress that we've made on our cost and productivity work and we start to see that benefits flowing through, that work will continue with a focus on cost and productivity. So to help offset any increases due to higher gold prices or what we've seen in the higher capital or lower ounces next year. Operator: The following comes from Lawson Winder with Bank of America. Lawson Winder: And Tom, congratulations on concluding your very notable career at Newmont. And then Natascha, I just want to say congratulations on your appointment as CEO. I do look forward to following this next chapter in Newmont's history. If I could, I'd like to ask about capital allocation again, but just from a slightly different point of view. Obviously, there's a lot of extra capital for which Newmont can consider allocating in a variety of different ways. It sounds like capital return is a priority. The balance sheet is already very strong. How do you think about acting on asset or company acquisition opportunities? Is that something that's still within the wheelhouse of potential capital allocation? When you think about growth and investing in growth assets, is that on the docket? Natascha Viljoen: Lawson, thank you for that question. Firstly, we believe that with the -- with this wealth of the portfolio that we have, that the best investment for us is in our own assets and in share buybacks. So definitely, we will remain disciplined around that. And just as a reminder, those 3 elements, you've touched on it. The one is certainly strengthening our balance sheet and our resilience. We've made some good progress there, the investments that I've just touched on. And the progress that we are making on bringing Tanami 2 and the 2 block caves at Cadia still online, disciplined in making sure that we spend our money well in those projects and bringing them online in time. And then lastly, we still have our ongoing share buyback program and our fixed dividend policy. So we will remain committed, and that investment will only be made where we know that it's value accretive. Lawson Winder: Okay. Fantastic. And in that same vein, I mean, there will be an opportunity to consider a significant investment into Nevada Gold Mines from the point of view of Fourmile, which is now 100% controlled by Barrick. I mean, there's also a demonstrated significant upside at Goldrush as a result of the work that's been done at Fourmile. I mean, how do you think about those 2 investment options? Is one preferred over the other? And when you look at Fourmile potentially coming into the portfolio several years down the road, do you think of it as another project to which to allocate capital? Or is that a separate decision from the project allocation? Natascha Viljoen: Thank you, Lawson. Firstly, on Goldrush, is already part of Nevada Gold Mines. So already included in that portfolio, and the capital required is included in the capital forecast as we have it from Barrick today. From a Fourmile point of view, and if you look at that Nevada Gold Mine district, we know that it's a district that is -- still has a wealth of resources and a long future in terms of mining. And as Barrick has concluded their pre-feasibility last year and from the results that we have seen, which is the same results that you have seen and just from what we know from that district, we're very excited about the opportunity that we have that's included in the current agreement for us to have an option to continue our share of that project as well. So we are waiting for Barrick to give us more information so that we can make an informed decision. And as you would have indicated a little bit earlier, it will be a project that will compete for capital against all of our other projects, and we will be disciplined in also making this capital decision when we have the information available as our JV agreement. Operator: The next question comes from Anita Soni with CIBC. Anita Soni: And congratulations, Tom, on your retirement and Natascha, on your appointment as CEO. . Just a further question, a couple of detailed questions, I guess, on Yanacocha, I think the tapers in -- you said it's closing in the fourth quarter. They had a really, really strong quarter this quarter. Is that expected to continue into the fourth quarter? Natascha Viljoen: So Anita, yes. Thank you for that question. Into the fourth quarter, we do see slightly lower than the third quarter. And that is as we in the mining, in Quecher Main pit. And then we will be fully focused on the injection leaching through those in the heap leaches that they have. And that's where our main production source would be. Sorry, Anita. Anita Soni: That's fine. As you indicated that you're going to be at the lower end of the -- if you -- you said it was -- similar levels to 2025 for your managed operations, but at the lower end, I assume that means the lower end of the plus or minus 5%. Within that, are you assuming Cadia is going to drop off in grade next year? Or could you see some positive surprise on that side as well? Natascha Viljoen: Anita, it's a really good question. We have -- we are planning according to the best estimates from our models. We have seen upside in this year so far. And we will continue to monitor PC1 and PC2 as they come to the end. So the models predict that we will see a decrease going into next year. And that's what we've certainly incorporated into our planning for next year. Anita Soni: All right. And then last question on cost. So I think this quarter, you indicated CAS of about -- or sorry, in fourth quarter, CAS about $1,260. Is that -- I mean, just as a proxy to next year, is that a good -- if you're using current gold prices and the kind of operational efficiencies that you've already achieved, is that a good run rate on average for next year, assuming obviously higher gold prices and some great declines, as you mentioned? But on average, would that be a reasonable assumption for CAS for next year? Natascha Viljoen: Anita, our fourth quarter CAS -- G&A is normally cyclical by nature. So I think that's the first assumption that you need to consider. And we do not see that, that is the run rate going into next year. And then from CAS point of view, CAS is impacted by our -- will be mainly impacted by our normal inflation. And then depending on where we are with gold prices, increases in taxes, royalties and worker participation. But it's very much still work in progress as we work through this last quarter and getting ready for the guidance in February. Anita Soni: All right. And then one last quick one for me. On the Ahafo North, my prior assumption was production of around 300,000 ounces for next year as it ramps fully. Does that mean that Ahafo South would decline by the same amount? Or is 300,000 ounces too aggressive for the first year of operations at Ahafo North? Natascha Viljoen: I think if we look at the 2 operations, you could assume a similar kind of run rate that we've had for this year between the 2 operations. Operator: The next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Natascha, congratulations on your new appointment. And Tom, congratulations on the retirement, and hope it's going to be a good one and a great adventure. . 3 questions, if I could. Just Natascha, starting off on Nevada Gold Mines, you said you're waiting for Barrick to provide you with information so you can make your decision. Just trying to understand, is that information the feasibility study that we need to wait on? Or is there something else before that? I think the feasibility study is not until 2029. Natascha Viljoen: Yes. That's right, Tanya. We're waiting for that feasibility study. Tanya Jakusconek: Okay. That's helpful. And just on the capital returns to shareholder, you focused a lot on share buyback. Should I be assuming that in February, our $1 per share dividend remains intact and constant? Natascha Viljoen: Tanya, as you know, and again, within the -- in the framework, in the capital allocation framework, we -- as we have it today, we have a fixed dividend, and it is -- something that the Board review on a quarterly basis. Tanya Jakusconek: Okay. So it could be possible, I guess, that part of your return to shareholders could include an increase in dividend in addition to your share buyback? Natascha Viljoen: Yes. Tanya, it's absolutely not something that I think I can give you any indication on, I think. I think the commitment that we have is to remain disciplined within the framework that we're very familiar with. Tanya Jakusconek: Okay. Maybe on the restructuring then, if I could. Understand that you flatlined a lot. I'm just trying understand, I'm trying to draw an organizational chart. Natascha, how many people do you have reporting or divisions do you have reporting to you at this point? Natascha Viljoen: So Tanya, we have restructured the organization to have 2 business units, each of them fixed assets. So it's a good spread of -- an equal spread of operations and also a good spread from a jurisdiction point of view. So if I look at a future structure where I have the operations and the 2 managing directors, the group head for projects and the group head for safety, health, environment still reporting to me, it would be a team of 8 people. Sorry, Tanya, just want to correct that. If I add the CFO, it would be 9, yes. Operator: The next question comes from Fahad Tariq with Jefferies. Fahad Tariq: Maybe just first, just to clarify on 2026 production guidance. I think I heard 2 different things. I just want to make sure I'm getting it right. . You're saying it's within the same guidance range for the core portfolio as 2025, which would be 5.6 million ounces. But that -- but you're also saying it could be lower. So is the right way to think about it potentially 5% lower than 5.6 million ounces? Natascha Viljoen: Fahad, I think the first thing is the 5.6 million is obviously the managed and non-managed operations. So non-managed, we are waiting for -- like normal. We will be getting that guidance from Barrick. And the focus for the managed operations would be we normally guide within a range of plus or minus 5%. And we do see that next year's production would be on the lower end of the managed portion of the guidance, which is in the order of 4.2 million ounces. Fahad Tariq: Okay. That's very clear. And then in all the cost commentary, I didn't hear anything about cost inflation. You mentioned that some of the cost saving initiatives at the unit cost level are being offset by higher royalties, profit sharing, taxes, but that's all gold price driven. Are you seeing any underlying cost inflation on labor, consumables, fuel, anything? Natascha Viljoen: It will be part of our budget, Fahad. There will be a normal increase in that we normally do for our labor increases. And then we'll, obviously, there would be economic factors from some of our major consumables. I think the biggest challenge that we normally have around inflation would be taxes, royalties and worker participation. And that we've been able to offset a large portion of through the cost savings initiatives. Operator: The following question comes from Daniel Morgan with Barrenjoey. Daniel Morgan: Just a follow-up on the 2026 qualitative guidance chart. So to clarify, your managed guidance, 2025 is 4.2 million. You say today that it's expected to be similar but close to the bottom end of the range, which implies 5% lower at -- a roll down of 4.0 million ounces. Is that too conservative a view for the market to take as the midpoint for 2026 guidance? Natascha Viljoen: I think, Daniel, considering that you very rightly commented that it's indicative from where we are going for the next year. We're in the middle of that work. So it is directional. And just to remind you, the impacts that we are having, firstly, I think probably just to take a step back. At the beginning of the year, we've given a clear indication of the work that we're doing to support the long-term profile through the projects and the projects that's in delivery. And those like Ahafo North that we just delivered, they are all on track for delivery. Then we have other production improvements that we're working on, amongst others, with the laybacks that we are doing at Boddington and Lihir, all of those underway for that long-term guidance and making sure that we're consistent with around that 6 million ounces for next year. However, the areas that we are focusing on that we have seen come down is Yanacocha because we have stopped production at the Quecher Main pit. So we're absolutely now required and reliant on the injection meeting. Peñasquito, where we're seeing that we're taking another layback. And that's just due to the normal sequencing of that pit, we'll see lower gold and slightly higher ounces, GEO ounces. And then Cadia, as we work to bringing PC2-3 online, which is well on track to deliver on time, we see a period for where we see PC1 and PC2 lower grades as they come to an end. So the impact on 2026 is very much driven by those dynamics. Daniel Morgan: And just on -- I know it is still early, but just on the reserve discussion that's coming up. There's obviously a fair degree of discretion, which you would be debating. I imagine about the gold price is up a lot. What do you do with thinking about reserves, versus -- do you try to maintain higher margins, et cetera? Just wondering how collectively you're thinking about that debate internally right now. Natascha Viljoen: So from a reserve and resource pricing point of view, that is as you're right, we're in the middle of that debate. Independent of how we think about resource and reserve price, firstly, the focus for us is to always put to prioritize high -- the highest grade ounces through the capacity available to us, first. A very important factor for us as we see the cost of tailings. And that's probably one of our biggest bottlenecks is to ensure that it's economic ounces from a tailings point of view as well. So that is the important factors for us to consider as we make any decisions on resource and reserve impact prices. And again, Daniel, I'll probably just double down on -- as we think about margins. We -- independent of what gold price does, we will continue to focus on our underlying cost and productivity to drive margins in that way. So that is absolutely the focus for us. I think the only additional mention for us around resource and reserves is probably just the divestments that we've done through the year. But you need to -- that you can consider. Operator: The next question comes from Hugo Nicolaci with Goldman Sachs. Hugo Nicolaci: Just going from previous comments, congratulations. Tom, on your tenure at the helm and Natascha, as you take the baton. I wanted to ask a more strategic question on the project pipeline. How do you maximize the value of your currently longer-dated projects here? Does the gold price let you accelerate some of these given the reduced balance sheet risk from your position now? Or is there maybe room to monetize additional assets like the stakes in some of these multimillion ounce projects like Galore Creek and Nueva Unión as you go forward if they're not medium-term priorities? Natascha Viljoen: I think Hugo, you have heard me say this probably 5 times on the call so far. So we're going to remain disciplined in terms of that capital allocation. So we have these projects in study phase in various sizes in the pipeline. They will all, as per the Fourmile comments a little bit earlier, all compete for capital within the profile or within the portfolio. I think it's important to consider that we have many opportunities, both brownfields and greenfields. And the most value-accretive projects will have the benefit of capital allocation. Obviously, within that framework of maintaining a resilient balance sheet and returning capital to shareholders through share buybacks and dividends. So that remains the focus. And as we develop those projects, when the time is right, we will make those decisions. Hugo Nicolaci: Got it. So to clarify, the projects not competing for capital in, say, the next 5 years is a divestment an option? Natascha Viljoen: We continue to evaluate our portfolio. That's something we should be doing to continually look at what is the value that we can get from these assets. And if we have a view that we cannot get value out of them, then they will be -- that will be an opportunity for us to reconsider its position in the portfolio. Hugo Nicolaci: Got it. Fair enough. And then lastly, if I could, Tom, as you take a step back, maybe what excites you the most about the future of Newmont? Tom Palmer: Thanks, Hugo. Thanks for giving me a chance to use my voice. Hugo, this portfolio we've built is unsurpassed in the gold industry. The long life operations, the project pipeline you were just asking about, that can be developed with discipline over time to be able to make decisions and lay out a portfolio of gold production, supported by copper and a few other metals coming through. Never been seen before in this industry. What I'm going to be looking forward to watching from [ Cottesloe Beach ] is in the years to come, '27, '28, '29, '30, 2035, looking at Newmont sustaining the sorts of production levels and margins that no other gold company can compete with. That's the thing that excites me, Hugo. Operator: The final question comes from Ralph Profiti with Stifel. Ralph Profiti: Best wishes and congratulations on the management changeover and transition. Just one question from me, Natascha. When I look at this $450 million in Exploration and Advanced Projects, how much of that reduction is due to rationalization and asset sales, and it's just sort of catch-up adjustments versus the original guidance? And how much was from strategic capital allocation decisions aimed at say, cost savings where exploration was either pulled back or advanced at certain assets? Natascha Viljoen: Thank you, Ralph. Over the last 18 months and as we had clear line of sight of our go-forward portfolio, we have done a material amount of work on all of our assets to understand the full potential around each of these assets, considering not only where we are with every asset today, but the long-term potential, including any exploration upside in these -- all of these assets. And that, in addition to the advanced projects, basically made up the baseline for how we reconsidered the work that we need to do going forward for Newmont. Making sure that, that work is targeted towards delivering the value out of each and every one of these assets. That is what then and also underpinned our organizational structure and the decentralized design. I know that's not your question, but I think it's an important context because in that same framework within that same context, we are also targeting our exploration dollars where we are clear on where the best next exploration work is and where we can expand our understanding and future of these assets. So when we see a reduction, it wasn't a hiccup. It was a deliberate review of doing the right work for the assets and targeting our dollars towards that. So it's been a very deliberate piece of work. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Tom Palmer for closing remarks. Tom Palmer: Thank you, operator. I was expecting that to go to Natascha. Thank you, everyone, for your time, and please enjoy your evening or the rest of your day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and thank you for joining Becle's Third Quarter Unaudited Financial Results Call. During this call, you may hear certain forward-looking statements. These statements may relate to our future prospects, developments and business strategies and may be identified by our use of terms and phrases such as anticipate, believe, could, estimate, expect, intend and similar terms and phrases and may include references to assumptions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those in forward-looking statements. Before we begin, we would like to remind you that the figures discussed on this call were prepared in accordance with International Financial Reporting Standards, or IFRS, and published in the Mexican Stock Exchange. The information for the third quarter of 2025 is preliminary and is provided with the understanding that once financial statements are available, updated information will be shared in appropriate electronic formats. [Operator Instructions] Now I will pass the call on to Becle's CEO, Mr. Juan Domingo Beckmann. Juan Legorreta: Good morning, everyone, and thank you for joining us today as we discuss Becle's third quarter 2025 results. In a challenging environment, we continue to strengthen our position in key markets, supported by the consistent execution of our strategic initiatives and the strength of our brand portfolio. Consolidated volumes increased by 3.7%, mainly driven by a 5.2% growth in our spirits portfolio. In the U.S. and Canada, Tequila remained the main growth driver, and we continue to protect long-term brand equity while prioritizing premiumization. In Mexico, our core categories continue to gain momentum, and we consistently outperformed the market, gaining share across most segments. Finally, EMEA and APAC delivered double-digit growth, supported by strong execution and healthy inventory levels. On profitability, our gross margin expanded by 300 basis points, reaching 56.1%, mainly reflecting our lower input costs and operating efficiencies. Additionally, EBITDA for the quarter reached MXN 3.5 billion, marking a 63.3% increase year-over-year. As we approach year-end, our priority remains balancing shipments and depletions while continuing to execute our premiumization strategy across all regions. I'm confident in our ability to close the year strongly and position ourselves for sustained growth in 2026. Thank you. With that, I'll turn it over to Mauricio Vergara to discuss our U.S. and Canada results. Mauricio Herrera: Thank you, Juan, and good morning, everyone. Please note that [indiscernible]. During the third quarter, the U.S. and Canada region continued to face a complex and highly competitive market environment, characterized by persistent pricing pressures, cautious consumer spending and evolving category dynamics. Despite these challenges, our team remained focused on disciplined execution. Net sales value declined 10.3% compared to the same period of last year, reflecting a 6.4% decrease in shipments and a 4.4% decline in depletions. This result was mainly driven by continued softness in our Ready-to-Serve portfolio and retail boycotts in Canada, which resulted in approximately 120,000 cases in lower shipments. Encouragingly, our full-strength spirits portfolio outperformed the region's overall trend, led by stronger performance in high-end tequilas, which continue to drive premiumization across our mix. In terms of consumer takeaway, our performance was in line with the overall market. According to Nielsen 13-week data through September 27, our spirits portfolio, excluding prepared cocktails, declined 3.5% compared to a 3.4% decrease of the total industry. Meanwhile, C-stores, which provides one of the most comprehensive views of the industry performance, shows that Proximo outperformed the broader industry within full-strength spirits, including the Tequila category, over the 3-month period ending in August. Our prepared cocktails portfolio continued to weigh on consolidated shipments, largely due to softness in our large-format Ready-to-Serve offerings. But in contrast, our ready-to-drink cans gained momentum versus the first half of the year, signaling a positive turnaround as we align our portfolio with evolving consumer dynamics. Within Tequila, we continue to observe intensified industry-wide pricing competition. Average tequila pricing in the market declined 7.9% versus last year as leading competitors implemented material negative price adjustments. In this environment, we have remained disciplined, focused on selective strategic promotions while maintaining an overall responsible pricing approach. Notably, small format offerings of our super-premium and ultra-premium brands continue to outperform, underscoring that consumers are seeking high-quality products while managing their spending. Our strategy to strengthen the on-premise continues to deliver results. On-premise shipments outpaced the off-premise, driven by initiatives that enhance brand visibility and consumer reach. Looking ahead, we anticipate improving long-term fundamentals in the U.S. spirits market, particularly within our focus categories. Premiumization continues to drive growth in Tequila, where demand for authentic high-quality brands remain robust. I will now turn the call over to Olga Limon to discuss the results for Mexico and Latin America. Olga Montano: Thank you, Mauricio, and good morning, everyone. In a challenging industry landscape, Mexico posted solid third quarter results. Even with constrained consumer demand, we outperformed in our key categories and continue to improve our leadership position. Net sales value increased 24.3% in the quarter, primarily driven by an increase in volume. This was further supported by a favorable product and channel mix as high-end Tequila outperformed the rest of the portfolio. Shipments in the quarter increased 18.3% year-over-year, driven by market share gains and an easy comparison against last year. As you recall, 2024 was a typical year marked by strong industry destocking. Compared to the third quarter of 2023, shipments grew 1%, demonstrating that we have returned to premarket contraction shipment levels, and we have done so with a normalized inventory position. Overall, inventory levels remain healthy and well balanced across channels as we head into the year-end. Our brands continue to gain market share in Mexico, reinforcing our leadership in both Tequila category and the broader spirits industry. According to [ Nielsen ], we grew in value 3.4% year-to-date compared to flat performance for the overall industry, while our volume rose 3.4% versus a 1.1% industry decline. These results underscore the strength and consumer appeal of our brands in the Mexican market. During the quarter, we took a strategic step to further optimize our portfolio with the sale of Boost, reinforcing our commitment to focus on our core spirits business. The fourth quarter of 2025 will serve as a transition period, during which we will continue to operate the brand in close collaboration with the buyer to ensure business continuity. As of January 1, 2026, Boost will no longer be consolidated in our financial statements. For reference, in 2024, Boost sold 938,000 9-liter cases, representing 3.7% of our consolidated volume and therefore, will impact our volume comparables in 2026. In Latin America, performance was strong, with shipments and net sales both increasing. We also achieved a double-digit increase in net sales value per case, reflecting the successful execution of our premiumization strategy. Despite persistent macroeconomic uncertainty, underlying trends continue to improve across the region, and we remain focused on disciplined pricing, protecting profitability and reinforcing our leadership position. I will now turn the call over to Shane Hoyne, Managing Director of the EMEA and APAC region. Thank you. Shane Hoyne: Thank you, Olga, and good morning, everyone. During the third quarter, we operated in a volatile trading environment influenced by macroeconomic uncertainty, aggressive competitive pricing and continued cost-of-living pressures. These factors led distributors to manage inventories cautiously. Even in this context, our premium spirits portfolio delivered solid results, driven by robust growth in super premium tequilas across key Asian markets and emerging EMEA countries. Shipments in EMEA and APAC increased 11% in the quarter. Asia remained a key growth engine, achieving double-digit growth in both shipments and depletions. Tequila remained our primary growth driver across the region with shipments up 20% year-over-year and super-premium tequila shipments accelerating 38%. These results demonstrate the strength of our premiumization strategy and the growing global appeal of our brands. Looking ahead, the fourth quarter will be a pivotal trading period. Through effective commercial execution and agile decision-making, we expect to maintain momentum in the EMEA and APAC region, backed by the strength of our portfolio and our disciplined focus on premiumization. We believe we are well positioned to deliver sustainable growth across the region. I will now hand over to Rodrigo, who will take you through the financial results. Rodrigo de la Maza Serrato: Thank you, Shane, and good morning, everyone. I will now walk you through the financial results for the third quarter of 2025. The company reported a 3.7% increase in volume, driven primarily by a 5.2% growth in our spirits portfolio, marking our first quarter of volume recovery since Q1 '23. Consolidated net sales were flat at MXN 10.9 billion, reflecting the continued impact of price normalization, geographic mix dynamics and unfavorable FX. This quarter marks our seventh consecutive period of year-over-year gross margin expansion, a significant achievement despite unfavorable regional mix and despite the appreciation of the Mexican peso, which represented a modest drag on margins. Despite these headwinds, we continue to benefit from lower agave-related input costs and ongoing cost efficiencies from strategic sourcing and manufacturing operations, resulting on a gross margin of 56.1%, an expansion of 300 basis points. A&P expenses declined year-over-year, reflecting our focus on strategic brand prioritization and disciplined resource allocation amid moderate demand. SG&A expenses also decreased as a percentage of sales as productivity gains and tighter cost controls more than offset inflationary pressures. EBITDA increased 63.3% year-over-year to MXN 3.5 billion, while the EBITDA margin expanded to 31.7%. This increase reflects both strong organic performance across the business and inorganic contributions. Turning to the financial results. We recorded a favorable swing of MXN 3 billion in the quarter, primarily driven by a MXN 2.5 billion gain from asset divestitures as well as MXN 188 million year-over-year foreign exchange gain, as the appreciation of the Mexican peso positively impacted our net U.S. dollar debt exposure. As a result, net income grew at triple-digit rate year-over-year, reaching MXN 4.1 billion. From a cash flow perspective, the company generated MXN 3.3 billion in net cash from operating activities, primarily reflecting strong profitability. Our cash balance increased MXN 5.1 billion relative to the end of the second quarter, mainly due to proceeds from the portfolio optimization activities. Our capital allocation approach remains consistent and disciplined. Every decision aims to support long-term value creation and sustainable growth. Our top priority continues to be investing in organic growth through brand prioritization, targeted A&P spending, innovation and R&D to ensure the continued strength and resilience of our portfolio. At the same time, we remain disciplined in managing our portfolio, acting decisively when brands no longer fit our strategic direction. The recent divestment of the Boost brand is a clear example of this, an action aligned with our ongoing efforts to sharpen our portfolio and exit noncore assets. Looking ahead, we will continue to explore value-creating investment opportunities, being mindful that our portfolio is unique and any acquisitions must be both strategic and accretive to the business. The following chart shows how our company is delivering on CapEx efficiency. The business is generating more EBITDA while requiring less CapEx to do so, demonstrating the success of our efficiency initiatives and our progress towards a more asset-light value-accretive operating model. Finally, our lease adjusted net debt-to-EBITDA ratio improved to 1.0x from 1.7x in the previous quarter, underscoring the strength of our balance sheet and our capacity to create long-term value. Overall, the step-up in underlying operating profit was the main driver behind a 160 basis points increase in ROIC compared to the same period last year. With that, I will now turn the call back to the operator for the questions-and-answer session. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Ricardo Alves. Ricardo Alves: Ricardo Alves from Morgan Stanley. Impressive numbers. I had a couple of questions on the main positive surprise to us came on the gross margin, the 56% number in the third quarter, certainly very impressive. Is it possible to go a little deeper or to quantify any agave impact or raw materials in general that boosted your margin for the third quarter? Any color that you could share? Even if qualitative, in terms of how you're cycling the inventory of raw materials in the portfolio that you're selling today, that would be helpful. We've been talking about going back to that 60% gross margin or so for many years now, and it seems that we are approaching that. So any qualitative or if you're able to quantify in a way how you're cycling through the inventory of agave finished products? I think it would be helpful for us to have a better idea of how your profitability could shape up in 2026. That would be my first question. The second question, really impressive numbers in Mexico and Rest of the World. So I think that we have less concerns there. But I think that the U.S., I believe that one of the comments that you made is that the competition remains tougher in that market. So I wanted to focus on that market. We noticed that your unit revenue on a U.S. dollar terms was down, I believe, 5% in U.S. dollar. And we also assume that your product mix continues to improve in the U.S. So that would imply that there seems to be some discount activity on the spirits category. I just want to pick your brains on that to see if indeed, you're still seeing your competitors more aggressive in pricing. And if there is a light at the end of the tunnel here, maybe things are looking better as we go into the fourth quarter and shipments and depletions could be more aligned. So just trying to see if we are closer to a stabilization of the U.S. market. Rodrigo de la Maza Serrato: Thank you, Ricardo. This is Rodrigo. I will take the first question. In fact, yes, we're satisfied with the progress on gross margin. So far, we continue to cycle all the inventory, as you correctly mentioned. And I want to highlight that most of the benefit on gross margin is coming actually from agave-related input, everything that happens there in terms of the agave, the yields and also the manufacturing efficiencies that have been implemented through manufacturing investments. And so the main driver is that. On the contrary, we have, at least in this quarter, an unfavorable Mexico peso impact, driven by the appreciation of the peso, also mix -- unfavorable mix dynamics overall, given the U.S. results as a percentage of the total portfolio, plus, as you mentioned, the heightened promotional activity resulting in a lower price per case. Overall, that's what's driving the gross margin, which stands at 56%, which is quite positive. Mauricio Herrera: On your second question, Ricardo, this is Mauricio. You're right. The market continues to be extremely competitive. If you look at total Tequila, the overall pricing is down by almost 8%. So what we -- the approach we have had has been to actually indeed have some targeted promotional activity to remain competitive and protect our share in the marketplace, but without chasing competition. So our focus continues to be protecting our competitive position in the marketplace whilst protecting the brand equity for the long term. So we will refrain from chasing competition on the downside. We need to remain competitive, but our focus is really long-term equity growth in what I think will continue to be for the next year or so, a very competitive market environment. Ricardo Alves: That's helpful, Mauricio. Do you see any early indications that maybe the market is going to become more rational anytime soon? Or maybe the trends that we saw in the third quarter did remain the same into the fourth quarter? Mauricio Herrera: Look, based on what we're looking at all the data sources and for me, the most comprehensive one is [ DeepSource ], what we're seeing is a projection of next year of the market of our potentially continue to decline at a rate of 4.5%. So with that projection of the market, I would expect the market to remain extremely competitive as everyone will be focused on share. So I don't see the current dynamics changing at least for the next 18 months. Operator: Our next question comes from the line of Nadine Sarwat. Nadine Sarwat: This is Nadine Sarwat from Bernstein. Two for me, please. First, sticking to the U.S. on RTDs, I know that continues to be the main drag. It's been the case for quite some time. Although I believe in your prepared remarks, you did call out better momentum as you've adjusted your strategy. Could you please flash that out, what is this current strategy when it comes to the subsegment over the coming quarters? And what are you expecting the performance to be there? And then a second question, I appreciate the clarification of calling out Mexico shipments versus 2023. Could you just confirm or clarify that depletion number for Mexico so that we ensure we get the full picture? Mauricio Herrera: Thank you, Nadine. So in terms of your first question, this is Mauricio, on the U.S. RTDs, as I mentioned during the call, what continues to be a drag on our performance in [ RTS ], so which is the large formats, and that -- if you look at the marketplace, that continues to trend down as consumers are shifting to cans or RTDs. So when we talk about RTDs, we're talking mainly about cans. So what we are doing is changing and adjusting our portfolio with a lot of focus in RTDs, both in terms of execution format configuration, driving increased penetration across different channels. And we saw actually a big shift in the last quarter. We're showing growth of around 30% versus last year in our cans. So as we go forward, we will continue to drive not only execution, but also you would see innovation coming from us in that space, which is just pretty much adapting our portfolio to the evolving consumer needs. Olga Montano: As for the Mexico question, as we have already talked about, we had an easier comparable base in terms of shipments in the third quarter. So it's more meaningful to look at the year-to-date performance. In the year-to-date performance, where shipments are and depletions are broadly in line, we are up 4.7% year-to-date in shipments versus 2.5%, respectively, in depletions. So I hope that answer your question. Nadine Sarwat: Perfect. And then could you just remind us your split for -- of your RTD segment? I guess, how much is that large format versus RTS versus the cans, now that you've been implementing these changes? Mauricio Herrera: So still from a mix perspective, we still hold a large part of our mix in RTS, but our focus will then to continue to increase the mix now on RTD. So for now, our mix continues to be larger on RTS. We feel that the market will continue to evolve within the cans. And therefore, you would see in the future, our mix of RTDs/cans continue to increase relative to the large format. Operator: Our next question comes from the line of Froylan Mendez. Fernando Froylan Mendez Solther: Froylan Mendez from JPMorgan. A couple of questions. First, on a follow-up on the gross margin. Just trying to understand how sustainable is this margin gain from agave? Because if we look back in the previous quarters, it has been very volatile, let's say, the margin dynamic into the third quarter, I would have expected more of a headwind from FX, which was clearly offset by the agave. But is there any reason why the fourth quarter shouldn't be at least this 300 basis points gross margin expansion if similar volume conditions remain into the quarter? Or what are we missing to understand the gross margin dynamics into the fourth quarter into 2026? And secondly, into Mexico, I mean, it's very impressive to see the performance, given the weak economic backdrop in general in Mexico. Do you see any difference in the consumer behavior in Mexico versus what we see in the U.S. in terms of consumption per capita? Or what is driving this recovery in volumes in Mexico? Those two questions. Rodrigo de la Maza Serrato: Thank you, Froylan. I'll take the first question regarding the gross margin expectation. We will be facing a much more unfavorable situation from an FX perspective in the short term. Q4 comparable relative to last Q4 is going to be unfavorable as exchange rate was 20.1% on average. Other than FX, which could impact negatively the gross margin in Q4, we don't see any meaningful trend, changes regarding cost components. So besides that, that's the only impact that we, at this point, would be concerned about. Olga Montano: As for Mexico, we continue to see a volatile and challenging market environment and a very cautious consumer. We continue to see a contraction, but the good news is contraction at a slower rate. And also the good news is Tequila remains one of the few categories that is growing, and we are actually outperforming the industry within it. So that's what I can tell you. Fernando Froylan Mendez Solther: If I may just follow up, Rodrigo. So can I understand that the inventory that you are passing through the P&L is now at, let's say, a much lower cost versus what we have been seeing in most of the first half of 2025 and second half of 2024, so we are facing a real advantage on the cost side on agave from this point onwards? Rodrigo de la Maza Serrato: Yes. I think that sounds right, Froylan. Operator: Our next question comes from the line of Antonio Hernandez. Antonio Hernandez: This is Antonio from Actinver. Just wanted to see if you can provide more color on the lower A&P expenses as a percentage of sales, if this at all, maybe this is impacting maybe sales performance? And in which regions are you mostly lowering this expense? And what are your expectations going forward? Rodrigo de la Maza Serrato: Of course, Antonio. I'll take the question first. So A&P investment as a percentage of NSV is simply reflecting the more, let's say, some efforts in terms of efficiency on how we spend the A&P. But definitely, that's not a driver that we perceive is impacting top line performance in any of the regions. Antonio Hernandez: Okay. And these efficiencies are all over the place, I mean, in all the regions? Rodrigo de la Maza Serrato: Yes. Operator: Our next question comes from the line of Ben Theurer. Benjamin Theurer: This is Ben Theurer from Barclays. So I wanted to just understand a little bit and ask if there's more something in the pipeline. I mean, you've been divesting some of these like smaller noncore things. We've seen the Boost divestment. We have the Lalo brand this quarter. And we've seen this in the past by kind of like this review of the portfolio. So I just wanted to understand, as you look at the current portfolio in different regions, et cetera, specifically considering some of the softness also in RTD in the U.S., are there other things that you would consider as an asset for sale or like kind of like a noncore to kind of like really be able to focus and concentrate on the key things within Tequila, other tequilas and those other spirits that have been driving growth and have been doing better? Juan Legorreta: Yes. We -- this is Juan Domingo. Yes, we are continuing analyzing our portfolio and -- to see which brands should we invest more and which less and which brands so we can dispose. So yes, probably there will be more. Benjamin Theurer: Okay. And then I have one follow-up. Just as we look into the dynamics of spending on A&P over the last couple of quarters, it's clearly been, I would say, on the softer side. So as you look ahead, do you think this is a new level and new balance? Or as volume picks up and some of the momentum comes back up as we think into 2026 that you're probably going to be as well a little more on the upper end of what your usual guidance is for A&P? Mauricio Herrera: So this is Mauricio. So for the U.S., what we've been working on is a very disciplined approach to return on investment, making sure that we're understanding more and more what are the activities that are actually having the best impact in the marketplace. We continue to spend ahead of industry standards. So I think that we're actually in a very healthy level of spend, and our focus is more on understanding where can we put the dollars that will have the maximum return so we can drive efficiencies without compromising our -- how we compete in the marketplace. Operator: We have not received any further questions at this point. That concludes today's call. You may now disconnect.
Operator: Welcome to the FirstService Corporation Third Quarter Investors' Conference Call. [Operator Instructions] Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is October 23, 2025. I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir. D. Patterson: Thank you, Didi. Good morning, everyone, and welcome to our third quarter conference call. Thank you for joining us. I'm on with our CFO, Jeremy Rakusin. And together, we will walk you through the results we reported this morning. I'll begin with an overview and some segment-by-segment comments. Jeremy will follow with additional detail. Total revenues were up 4% versus the prior year, driven by tuck-under acquisitions completed over the last 12 months. Organic growth was flat overall, as gains at FirstService Residential and Century Fire were offset by organic declines in our restoration and roofing platforms. EBITDA for the quarter was up 3% to $165 million, reflecting a consolidated margin of 11.4%, generally in line with the prior year on a consolidated basis. Finally, our earnings per share were up 8% to $1.76. Looking at divisional results. FirstService Residential revenues were up 8% with organic growth at 5%, in line with expectation. Solid net contract wins versus losses have led to an improvement in organic growth sequentially. We expect similar growth for Q4 in the mid-single-digit range. Moving on to FirstService Brands. Revenues for the quarter were up 1% in aggregate, with growth from tuck-under acquisitions largely offset by organic declines of 4%. Revenues for our two restoration brands, Paul Davis and First Onsite, were up sequentially relative to Q2, but down versus the prior year by 7%. I mentioned last quarter that we were pleased with the level of activity, both day-to-day at the branch level and in terms of our wallet share gains with national accounts. That continued into Q3. Industry-wide claim activity and weather-related damage was very modest across North America and generally down in every region, but we still generated higher revenue sequentially than the first 2 quarters of this year. We believe we're capturing market share gains during this prolonged period of mild weather. We were down from the prior year, as we were up against a very strong quarter, particularly in Canada, that benefited from significant flood and wildfire restoration work. As well, storm-related revenues in the U.S. were minimal this quarter compared to Q3 of 2024, when we generated about $10 million of revenue from named storms, primarily Hurricane Ian. Looking to Q4, absent widespread inclement weather or named storms over the next few months, we expect to be down from the prior year quarter by about 20%. We generated $60 million of revenue from Hurricanes Helene and Milton in Q4 of last year. On average, since 2019, our revenues from named storms has exceeded 10% of total restoration revenues. Based on our visibility today, we anticipate this year's revenues from named storms to land at less than 2%, a big drop that impacts Q4 in particular. Apart from cat storm events, which we all believe will, on average, increase in frequency, we continue to grow and improve our platform and believe we're in an excellent position to capitalize on the long-term opportunity in restoration. Moving to our Roofing segment. Revenues for the quarter were up mid-single digit, driven by acquisitions. Organically, revenues declined 8%, an improvement over Q2, but below expectations. We simply did not convert backlog into revenue at the rate that we anticipated. We continue to see the deferral of large commercial projects and a general reduction in new construction. Our 3 largest operations all benefited last year from several large industrial roof projects that have not been replaced this year. Most of our year-over-year decline relates to these specific operations. Bid activity remains solid, but award activity has been delayed. We're confident that our market position and relationships remain strong. The uncertainty in the macro environment is definitely impacting new commercial construction and causing delays in reroof and maintenance decisions. We continue to believe that the demand drivers in roofing and generally in commercial building maintenance are compelling, and we remain focused on investing in this segment. As evidence of that, we were pleased during the quarter to announce the acquisitions of Springer-Peterson Roofing in Lakeland, Florida and A-1 All American Roofing in San Diego, California. These operations extend our presence and capability in two key markets. The Springer-Peterson and A-1 teams will continue to operate the businesses, and we're excited to have them on board with us. They jumped right in, collaborating and creating value with our existing operations in the regions. Looking ahead to Q4, we expect total roofing revenues to be up modestly from prior year, again due to acquisitions. Organically, we expect continued weakness, with revenues down 10% or more in the seasonally weaker quarter. Moving on to Century Fire. We had another strong quarter, with revenues up over 10% versus the prior year. Growth continues to be broad-based across the branch network and again, is supported by robust repair, service and inspection revenues. Our backlog remains strong at Century, and we expect similar double-digit year-over-year growth for Q4. Now on to our home service brands, which as a group generated revenues that were flat with year ago, right on expectation, and a result we're proud of in the current environment with weak existing home sales and broad economic uncertainty. Consumer sentiment remains depressed and is down from Q2. Our lead flow reflects this trend. Our teams have held revenue steady by driving a higher close ratio this year, combined with a higher average job size. They are executing extremely well in a challenging environment. Looking forward, we expect a similar result in Q4, with revenues roughly matching the prior year quarter. Let me now hand it over to Jeremy. Jeremy Rakusin: Thank you, Scott. Good morning, everyone. Leading off with a recap of our consolidated third quarter financial results, we recorded revenues of $1.45 billion, up 4%, and adjusted EBITDA of $165 million, a 3% increase relative to the prior year period. Our consolidated EBITDA margin for the quarter was 11.4%, down slightly from last year's 11.5% level. Adjusted EPS during Q3 was $1.76, resulting growth of 8% quarter-over-quarter. The growth on the bottom line exceeded our EBITDA performance as we saw the benefit of reduced interest rates on lower outstanding debt compared to prior year. I'll provide more details on our balance sheet in a few moments. For the 9 months year-to-date, our consolidated financial performance includes revenues of $4.1 billion, up 7% over the $3.85 billion in the prior year; adjusted EBITDA at $425 million, a 13% increase year-over-year, with our overall EBITDA margin at 10.3%, up 50 basis points versus a 9.8% margin for the prior year period. And lastly, our adjusted EPS year-to-date is $4.39, reflecting 20% growth over the $3.66 reported for the same period last year. Our adjustments to operating earnings and GAAP EPS in providing adjusted EBITDA and adjusted EPS, respectively, are disclosed in this morning's press release and are consistent with approach in prior periods. I'll now walk through the third quarter performance within our two divisions. At FirstService Residential, we generated revenues of $605 million, resulting in 8% growth over the prior year period. EBITDA was $66.4 million, a 13% increase over the third quarter of last year. Our current quarter EBITDA margin came in at 11%, up 50 basis points over the 10.5% in Q3 '24, extending the year-to-date margin improvement we have realized through ongoing operating efficiencies and streamlining efforts across our property management platform. Our teams have done a terrific job of execution, driving to a year-to-date margin expansion of 60 basis points. For the upcoming fourth quarter, we expect some tapering of these favorable impacts, leading to margins roughly in line to slightly up versus prior year. Shifting over to our FirstService Brands division. We generated revenues of $842 million during the current third quarter, up 1% versus the prior year period. EBITDA for the division was $102.1 million, down from the $105.8 million last Q3. Our margin of 12.1% compressed 50 basis points compared to the 12.6% margin in last year's third quarter. The lower margin was attributable to negative operating leverage resulting from tempered activity levels and declines in organic top line growth at our restoration brands and roofing operations. Our Home Improvement and Century Fire Protection brands continue to deliver healthy margins, roughly in line with prior year. Reviewing our cash flow profile, we generated more than $125 million in cash flow from operations during the third quarter, driving to a total of $330 million year-to-date, a significant year-over-year increase of roughly 65% compared to prior year period's. Capital expenditures during the quarter totaled $34 million, and spending year-to-date sits at a little under $100 million. We expect to be in line with our annual target of $125 million in CapEx for 2025. Acquisition investment during the quarter was approximately $45 million, largely encompassing the roofing tuck-under acquisitions that Scott noted. Our balance sheet at quarter end included net debt of $985 million, resulting in leverage at 1.7x net debt to trailing 12 months EBITDA. Maintaining a strong balance sheet has always been a cornerstone of FirstService's operating philosophy and has been aided by the ability of our businesses to collectively generate strong and relatively consistent free cash flows in any type of environment. This has played out once again over the past almost 2 years since our Roofing Corp of America platform investment at the end of 2023, with the steady quarterly deleveraging bringing us now back in line with our long-term historical trend. We also have more than $900 million of total cash and credit facility capacity, providing us with ample financial flexibility and liquidity. In terms of outlook, to close out 2025, Scott has provided top line indicators by brand, which will aggregate to revenues roughly in line with prior year for our upcoming fourth quarter. This will culminate in mid-single-digit growth in consolidated annual revenues for the full year. We expect that our 2025 consolidated annual EBITDA growth will be in the high single digits, approaching 10% compared to prior year. During our February year-end earnings call, we will provide indicators on our outlook for 2026. And that now concludes our prepared comments. Didi, can you please open up the call to questions? Operator: [Operator Instructions] And our first question comes from Daryl Young with Stifel. Daryl Young: I just wanted to touch on the divergence in the performance between Century Fire and the roofing business. And I would have expected that both of those would have had similar end markets, and so it's just a bit interesting to see the performance delta between the two. Is there a specific end market versus industrial versus data center or something like that, that is maybe driving the difference between the two divisions? D. Patterson: Daryl, there's a few things. I'll start with the fact that Century, close to 50% of the business is service repair and inspection, more recurring in nature. And then you've heard from us over the last couple of years that Century has been very successful in driving consistent growth in this aspect of the business. Century does have a piece of its business, again, close to half, it's tied to new construction. It's been more resilient than our Roofing Corp of America platform, in part based on the verticals that it focuses on, as you alluded to in your question. Century has benefited from the growth in data centers. And also, they have a strong multifamily business that has been -- remained solid through the year. Their strong results are hiding the fact, though, that a number of jobs continue to be delayed, deferred at Century, similar to what we're seeing in our roofing platform. Work is not being released at the same rate as the prior year, although bid activity remains strong. Hopefully, that answers your question. Daryl Young: Yes. That's good color. One more for me, just on margins. The margins in the Brands division were actually, I would say, fairly healthy in the context of the weak restoration and roofing results. So just wondering if you can give me a little bit of color on where the strength is coming from in margins in that platform? Jeremy Rakusin: Yes. Thanks, Daryl. I'll take that. I touched on it, home improvement, a lot of initiatives over the last year or 2, 1.5 years and in a tough environment for the top line have really produced superlative profitability. Century Fire, we have top and bottom line, a terrific performance throughout. We've made great strides in restoration over the last couple of years. And even in periods of mild weather patterns like we're experiencing, just the focus on the brand, the platform, the client relationships, the national accounts that Scott touched on, a lot of efforts around that. And then there has been some streamlining and headcount reductions in appropriate places as we've centralized a lot of functions. So just terrific execution there, and notwithstanding the mild weather patterns that we've seen year-to-date. Operator: And our next question comes from Stephen MacLeod of BMO Capital Markets. Stephen MacLeod: Just a couple of questions I wanted to follow up on. Maybe the first one is kind of in line with what you were just -- or dovetails with what you were just talking about, Jeremy, just on the restoration side. You talked about having gained some share in the market despite the weak backdrop. And I'm just curious if you can point to kind of where that's coming from? D. Patterson: I think it's a lot of the things that Jeremy just referred to. It's the hard work our teams are doing in positioning with national accounts, solidifying the account base. We have evidence that we are gaining wallet share with a number of our larger accounts, and we're signing new national accounts. It feels healthier across the board. We just have more activity across the branch network. We're not relying on any one event or one region to drive results. And I think it sets us up well to continue gaining momentum in mild weather conditions, but also to really benefit during more significant weather conditions. Stephen MacLeod: Right. Okay. That's helpful, Scott. And then maybe just on the margins and looking at the FirstService Residential business, you guided to sort of flattish margins year-over-year for Q4. And I'm just wondering if some of the streamlining that you've seen that's led to the improvements in recent quarters, is that kind of coming to an end? Or is that more reflective of the seasonal Q4 weakness? And I guess, would you expect those kind of benefits to continue into 2026? Jeremy Rakusin: Stephen, I'll take that one. 2026, we'll go through budgets with the businesses, so I'll defer on that point. But in terms of the outlook for Q4, I think we've known all along that the performance should taper. We've been working on these initiatives or the teams have at FirstService Residential for the better part of a year or more. And we saw it carry through. We've had significant margin improvement. There's also some moving parts in the quarterly fluctuations. And so what we're seeing in Q4 between the mix of higher-margin ancillaries, the timing in terms of hiring teams in face of contract wins, when we're going for contract renewals and getting pricing, there's a whole bunch of moving parts in this large enterprise. So it's just what we're seeing, but we're always working on initiatives. And again, I think we'll have more to speak about in terms of margin outlook for '26 on the February call. Stephen MacLeod: Okay. That's helpful. Thanks, Jeremy. And then maybe just one more, if I could. Just maybe more higher level when you think about restoration and roofing, where we're seeing some of the near-term temporary macro headwinds. Do you believe this is just, particularly in roofing, just a delay of work that people are -- your customers are putting off? And I just want to confirm, is that more of a delay that you expect to get back over time? D. Patterson: We certainly expect to get back, but we need some -- we need macroeconomic stability to see improvement in commercial construction and to give buyers more comfort and confidence to release work. It's -- we're in an uncertain environment, and it's definitely impacting roofing. And of course, in restoration, we need some weather. And I said in my prepared comments that this is the lightest year that we've seen since we took the big step with our acquisition of First Onsite in 2019. And -- so we expect both to improve. When we made these decisions, originally, our focus was and remains on the long-term opportunity in both these spaces. There is more fluctuation quarter-to-quarter and year-to-year. But on the flip side, there are more tailwinds and opportunity as well. So we remain focused on the long term in these businesses. We believe that there's a huge opportunity in both of them. And we've got the right teams and the right platforms to capitalize on them. Operator: And our next question comes from Stephen Sheldon of William Blair. Stephen Sheldon: Maybe just starting on the M&A front. Can you talk some about the level of competition you're seeing for tuck-under deals? And is it generally getting tougher to deploy capital towards M&A at attractive valuations in this environment? So yes, just be helpful to get any color on what you're seeing there in terms of competition across the different segments, if you could. D. Patterson: Yes, Stephen, I think it's definitely competitive. Multiples remain high, particularly in fire protection and residential property management. They've been at elevated levels for a few years now. Very competitive environment. Multiples are trending higher in roofing. I've indicated previously that there are literally dozens of private equity-owned roofing platforms that are competing for acquisitions. So similarly, very competitive in that space. The one thing I would add is that activity has actually slowed in roofing this -- in the last couple of quarters, slowed considerably due to the uncertain environment and the fact that most roofing companies are experiencing exactly what we are and are down year-over-year. So there's a number of processes that have been pulled this year or deferred until results improve. But those are all private equity-owned, generally. And they'll be back to market. But to answer your original question, it is very competitive. I don't know if it's increasingly competitive. But as always, we've got to make smart decisions and pick our spots. And we've been in that place the last few years. And we have opportunities in the pipeline, and we'll deploy capital every year. We'll find a way. Stephen Sheldon: Got it. That's helpful. And then just maybe to dig in a little bit more on the slowdown in roofing awards. I guess you kind of answered earlier, it seems like it's kind of macro factors. I guess, any more detail you can give on some of the bigger factors weighing down roofing projects moving forward even with the strong bid activity? And this is not -- this would be a tough question to answer, but just how long do you think it could take for decisions there to be made and activity to move forward, especially on the reroofing side? I mean, I get new construction permitting starts are down. But on the reroofing side, it seems like -- how long could this kind of be a pause in activity? D. Patterson: Yes. I mean, I don't know the answer to that. Certainly going to carry through Q4. I do think we need macroeconomic stability. Some of these reroof projects can be patched and sort of prepared and kicked down the road for a time. So it's -- I would say it's uncertain right now. For us, I mean, the good news is that we have 24 branches, and most of them are performing at approximately year-ago levels or even better. We do have these 3 large branches that last year, were benefiting from significant large new construction and reroof work. And some of these jobs are $10 million to $15 million. So if they're not replaced, it can skew a quarter. But generally, backlogs in roofing are stable. They are weighted towards reroof. As a reminder, we're generally 1/3 new construction, 2/3 reroof and repair and service. Our backlogs are weighted at that even more heavily towards reroof. And so it's going to take some time. We just don't know. But again, I'll just repeat, the long-term demand prospects are excellent. Our thesis has not changed. The aging building stock, increased frequency of weather events, increased legislation around building codes and other drivers. The other thing I would add is that last year in Q4, our Florida operations were benefiting from weather, and we're not seeing that this year. And so that's 1 of the 3 operations that are down. And that is -- they're missing a few of their large roof projects, but it's also being impacted by weather. So weather would certainly help in a few areas for us. Operator: And our next question comes from Himanshu Gupta of Scotiabank. Himanshu Gupta: So just a follow-up on the roofing weakness here. Is there any commercial asset class, specific commercial asset class or geography which is where you're seeing most of the contract deferrals and weakness? I think you did mention Florida, but any other region or within... D. Patterson: One of our larger branches is in Las Vegas, and that market is very soft. And we see that, Himanshu, in all of our other brands. We're weak in Vegas, really across every business that we operate. So that's -- each of these branches has a little bit of a different story. In terms of the asset classes -- I think I can only really speak to new construction, and it's down everywhere except for data centers, and that's not a vertical where we have participated historically in our roofing platform. Himanshu Gupta: Got it. And I mean, assuming that the new construction cycle is further delayed, like without the help of new construction cycle, how much organic growth can you deliver, assuming the strength in reroofing business comes back? D. Patterson: Organic growth in roofing? Himanshu Gupta: That's right, yes. D. Patterson: Well, we've been down every quarter this year, in part because we were surging in a few areas last year. But we'll reset here and get -- and we'll start growing. We'll get to a point. Our branches are strong. The leadership at our branches are strong. It's -- this is market-driven. We're in a good position, and we'll start to see the growth come back. I just can't tell you -- I can't give you dates in time. We need more clarity in the marketplace. Himanshu Gupta: Got it. And is Roofing still a segment where you want to grow from an M&A point of view? Or would you wait for this weakness to pass and then get more active on the M&A side? D. Patterson: We're definitely interested. I mean, our thesis really hasn't changed at all. We're very pleased with the transactions we did last quarter. We continue to look -- we have priorities. We're focused on white space areas to build out the platform. We're very focused on fit with our culture and the people at any business that we'd be interested in. If we find the right opportunity, absolutely, we will participate. Himanshu Gupta: Got it. And then turning attention to restoration business. Can you comment on the backlog? I mean, in terms of the magnitude or directionally speaking, like, how is the backlog today versus last year or versus last quarter? And also, if I exclude the strong activity, how is the backlog looking? D. Patterson: The backlog is about the same as prior quarter and a little off from last year. And it's off from last year for some of the reasons I talked about in my prepared comments, just the strength we had in Canada with -- and some remaining named storm work. And at the end of September, we did start to see a little bit of Helene and Milton get into the backlog. So we're a little off from last year, but solid and healthy based on the environment we're in. I feel good about it. Himanshu Gupta: Got it. And my last question is on FSR, FirstService Residential. I mean, good to see organic growth back to 5% level this quarter. Question is, is Florida also at mid-single-digit level? Or is it a bit slower than the rest of the portfolio? And I remember, you've been talking about budgetary pressures in Florida a bit more than some of the other regions, so just to check how Florida is doing. D. Patterson: Yes. Florida is, I'd say, in line. And the budgetary pressures have been relieved a bit because the insurance market stabilized. It's still a difficult one because there are many communities that are underfunded. So it's our largest region, and it can influence results for the division, and we've seen that. But it's holding its own right now and is up low- to mid-single digit in the prior quarter, Q3. Operator: And our next question comes from Tim James of TD Cowen. Tim James: Just wondering if you could talk about the relationship between sort of pricing and costs in each of the different segments? And I realize that involves kind of different brands to talk about on one side of the business. But I'm just thinking about as we look forward or into next year and beyond, is there -- do you feel fairly confident that kind of your pricing power, if I can call it that, is going to be or is suitable to offset any cost pressures? Or is there potentially an opportunity to push pricing and actually use that as a lever to push margins slightly higher? D. Patterson: Jeremy, over to you. Jeremy Rakusin: Yes, Scott, I can take that. Well, right now, we think we're in a good equilibrium with FirstService Residential. We've always talked about that business being a very price competitive industry, always has been, and currently is in line with historical trends. So we're always needing to look for efficiencies even to maintain margins, and the teams have been very successful with that over time. In terms of the Brand side of the business, the Brands division, Century Fire, I think quarter in, quarter out, year in, year out, has been getting good pricing power in their business, and don't see any pressures there. Home improvement, it's a watch for us. Obviously, the top line, Scott spoke about lower lead flow, but we're converting at a higher rate, and the top line is holding in there. We will flex pricing there accordingly to ensure that we keep revenue -- top line growth and profitability intact. And right now, we're not using promotional activities extensively, with the exception of some local marketing. So we see that holding. I think the one area where we could see it is in roofing, the availability of labor, subcontractors in some of our operations versus self-perform, resulting in a little bit of an uptick in our cost there and perhaps competing more for reroof jobs with our competitors. Pricing and margins could come in a little bit there. But we're going to go through budgets with all of our businesses in November and through the end of the year, and we'll have greater visibility for '26, which we'll communicate in the appropriate fashion with you on the February call. Tim James: Okay. That's really helpful. My second question, and kind of along a similar track. Again, the margins are actually, I think, really good considering the challenges that the business had. But are there any particular initiatives that we should think about on the cost side or on the efficiency side? And I guess I'm thinking more about in the Brands business sort of going forward, where you're looking to focus on -- again, not maybe to drive net margin improvement, but to kind of stand still or to keep just making the business more efficient or making sure that you're keeping as cost competitive as possible. Jeremy Rakusin: I mean -- and that's exactly what we've been doing. I mean, we do it every year, year in and year out. The businesses are focused on healthy profitability. The last year, we pointed out the strides we made in home improvement. Longer term, I alluded to it in one of the earlier questions around the performance in the restoration brands over the last couple of years, focusing on the brand, focusing on accounts, but also streamlining costs. So every brand -- and including FirstService Residential, the strides we've done this year, always looking for ways to be more efficient. I wouldn't call anything major out for significant margin improvement in the Brands division heading into 2026. And if we do -- if any of that surfaces during the budget discussions, again, we'll build that into our thinking and communicate it in February. Operator: [Operator Instructions] And our next question comes from Sean Jack of Raymond James. Sean Jack: Just quickly switching back to roofing. If the short-term macro has been softening for a while, do you expect this to make acquisitions easier in the space coming up, especially and like specifically with mom-and-pops? D. Patterson: I don't see that. And again, it's because of the number of private equity-owned roofing platforms that are in the market. Private equity firms have made a bet on the space. They are all focused on adding to their platforms. And so we need to differentiate ourselves and focus on the long-term brand-building strategy that we have. I don't think it will be -- we'll value it appropriately, based on the results of the business. But I don't see us having an advantage or it being any easier to buy the companies. Sean Jack: Fair, fair. Looking at that brand-building strategy you mentioned, is there any new offensive strategies you guys are employing to position or gain share while the broader macro is weak? D. Patterson: Nothing of note. I mean, we -- the strategy, the focus we have on building iconic brands over time is all focused on people and customer service, building culture and incrementally improving the platform, and that does take time. But we approach these investments with a very long-term focus and timeline. Operator: Thank you. I'm showing no further questions at this time. This concludes the question-and-answer session and today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to the Reliance Inc. Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] It's now my pleasure to turn the call over to Kim Orlando with ADDO Investor Relations. Kim, please go ahead. Kimberly Orlando: Thank you, operator. Good morning, and thanks to all of you for joining our conference call to discuss Reliance's third quarter 2025 financial results. I am joined by Karla Lewis, President and Chief Executive Officer; Steve Koch, Executive Vice President and Chief Operating Officer; and Arthur Ajemyan, Senior Vice President and Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investor.reliance.com. Please read the forward-looking statement disclosures included in our earnings release issued yesterday, and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are included in the non-GAAP reconciliation part of our earnings release. I will now turn the call over to Karla Lewis, President and CEO of Reliance. Karla Lewis: Good morning, everyone, and thank you all for joining us today to discuss our third quarter 2025 results. We delivered another solid quarter amidst market uncertainty, reflecting the strength and adaptability of our business model and solid execution across the Reliance family of companies. Our third quarter results demonstrate how Reliance's scale, diversification and high-performing management teams combine to deliver strong financial performance and capture market share in a uniquely challenging environment. Our tons sold were a third quarter record and outperformed the industry by approximately 9 percentage points, increasing our U.S. market share to 17.1%, up from 14.5% in 2023 due to our smart, profitable growth strategy. Driven by our high levels of customer service and broad inventory and processing capabilities, we offset declining industry shipment trends by winning new business opportunities that also better leverage our operating expenses and meaningfully contributed to our overall profitability. Trade policy uncertainty and readily available inventory are causing buyers to be hesitant, creating an extremely competitive market. In this environment, it is more difficult to immediately increase selling prices to fully offset mill price increases. These factors have contributed to short-term gross profit margin headwinds in the past 2 quarters. In addition, the aerospace and semiconductor markets that we serve, which have high-value specialty products that typically contribute meaningfully to our profits, continue to underperform due to excess inventories within these supply chains. We are confident, however, that the underlying margin profile of our consolidated business remains solidly intact, and we maintain our long-term annual sustainable gross profit margin range of 29% to 31%. Our scale, product and end market diversity and exceptional customer service, including next-day delivery and extensive value-added processing capabilities, were instrumental in our outperforming our competition and capturing significant market share. Overall, non-GAAP earnings per diluted share of $3.64 were within our expectations and guidance for the quarter. Our capital allocation strategy is designed to drive growth and deliver strong returns to our stockholders. We generated approximately $262 million in operating cash flow in the third quarter, that we strategically redeployed into high-value initiatives, including investments in advanced processing equipment and other projects that strengthen our long-term growth platform. Our 2025 capital expenditure budget remains at $325 million, with more than half directed towards growth initiatives. Including carryover spending, we expect total cash outlays between $340 million and $360 million in 2025. Our strong financial position also affords us the flexibility to pursue M&A opportunities that enhance our geographic reach, expand our value-added capabilities and strengthen our margin profile. At the same time, we remain committed to returning capital to our stockholders. During the quarter, we returned $124 million through dividends and share repurchases. Our year-to-date repurchases total more than 1.4 million shares, reflecting our balanced approach to growth and shareholder value creation. In summary, our teams navigated the quarter exceptionally well, keeping our people safe while managing market dynamics with discipline and focus. Our primarily domestic supply chain and strong relationships with our U.S. mill partners provide Reliance a distinct competitive advantage, while our nimble operating model, solid balance sheet and diversified product mix continue to underpin strong and consistent performance. These same strengths also position us favorably to capitalize quickly as market activity rebounds. Looking ahead, we remain focused on investing for growth and delivering value to our customers and stockholders, supported by our consistently strong cash generation. I'll now turn the call over to our COO, Steve Koch, who will review our demand and pricing trends. Stephen Koch: Thanks, Karla, and good morning, everyone. I want to begin by recognizing our teams across the organization for their strong execution in the third quarter, delivering outstanding service to our customers and navigating ongoing macro challenges with discipline while maintaining the relentless focus on safety. Looking at our demand and pricing trends. Third quarter tons sold were consistent with the second quarter of 2025, surpassing our expectations of down 1% to 3%. Our tons sold increased 6.2% compared to the third quarter of 2024, significantly outperforming the service center industry which reported a decrease of 2.9% in the same comparative period. Our outperformance of the industry demonstrates our ability to gain share in a demand environment constrained by market uncertainty through our smart, profitable growth strategy and the contributions of our continued investments in growth. Consistent with our outlook, our third quarter average selling price remained steady compared to the second quarter of 2025, even as tariff-related momentum quickly leveled off. Pricing upside from certain aluminum and stainless steel products was offset by pricing pressure on most carbon steel products as well as stainless steel products sold into the aerospace and semiconductor industries. Through industry overbuying in the first quarter of this year in advance of the tariffs as well as readily available inventory at domestic mills and depots, pricing for most products has been declining since April, resulting in a very competitive market, which, when combined with stable to declining end demand, has pressured our gross profit margins. As Arthur will expand upon when reviewing our outlook, we believe pricing for most products has now stabilized entering the fourth quarter. Our teams navigated these market dynamics very well while maintaining discipline in pricing and strong customer service levels. Turning to our key end markets. Nonresidential construction represented roughly 1/3 of our third quarter sales, comprising carbon steel tubing, plate and structural products. Shipments for these products were seasonally strong in the third quarter and increased compared to the third quarter of last year, driven by strong demand in public infrastructure work, including civil projects, schools, hospitals and airports, as well as ongoing data center construction. Our scale and broad geographic footprint enable us to capture growth across these key areas. General manufacturing, also about 1/3 of our third quarter sales, is highly diversified across geographies, products and industries. Shipments in this market also increased year-over-year as military, industrial machinery, consumer products, shipbuilding and rail sector shipments were seasonally strong and showed solid year-over-year growth. Relative weakness in agricultural machinery continued. Our sustained outperformance across key product groups in general manufacturing highlights the versatility and competitive advantage for our diversified business model as well as our ability to grow with both new and existing customers in an uncertain macroeconomic environment. Aerospace products comprised approximately 9% of total sales in the quarter. Demand on the commercial side was down slightly due to pent-up inventory in the supply chain, while demand in defense and space-related aerospace programs remained consistent at strong levels. Automotive, which we primarily service through our toll processing operations and are not included in our tons sold, represented about 4% of our third quarter sales. Our processed tons improved over the third quarter of 2024 supported by our investments in capacity expansion. Semiconductor market remained under pressure from ongoing excess inventory in the supply chain during the third quarter. In summary, I thank our team for their strong, focused and safe execution in uncertain and volatile market conditions. The scale and diversity of our product offerings and value-added processing capabilities, combined with dependable customer service, continue to win Reliance new business and new customers and increase our market share. To reiterate what Karla said, we are well positioned to capitalize and improve on our already strong results as market activity rebounds. I will now turn the call over to our CFO, Arthur Ajemyan, to review our financial results and outlook. Arthur Ajemyan: Thanks, Steve, and thanks, everyone, for joining today's call. We were pleased to report third quarter non-GAAP earnings per diluted share of $3.64, consistent with both our expectations and the third quarter of 2024. Of particular note, the third quarter of 2024 benefited from $50 million of LIFO income, compared with $25 million of expense this quarter, which equates to a $1.03 per share unfavorable year-over-year LIFO impact. I'll circle back to LIFO, but first, I'd like to expand on a couple of points that Karla and Steve mentioned: gross profit margin headwinds and market share gains. Trade policy uncertainty has contributed to temporary headwinds to gross profit margins since May of this year for most carbon steel products. Tariffs initially drove rapid price increases for carbon steel products, which slightly elevated carbon steel margins. But without a corresponding increase in demand and plenty of inventory availability in the supply chain, we encountered a very competitive pricing environment, which led to a third quarter margin decline for carbon products from somewhat elevated levels in the first half. In addition, ongoing excess inventories within the aerospace and semiconductor supply chain continue to pressure prices and margins across a range of stainless steel and aluminum products. In sum, gross profit margin associated with less than 10% of our sales has contributed to consolidated margin compression. We expect this pressure to ease as we move through 2026. Finally, the impact of our LIFO accounting method also contributed to margin pressure this quarter. Since LIFO is applied on a pro rata basis, we continue to carry LIFO expense through 2025 that reflected cost increases that occurred earlier this year. This LIFO effect tends to smooth out on an annual basis, though. For the full year 2025, we are still expecting $100 million of LIFO expense. Turning to organic growth. Our teams have done an outstanding job winning new business and growing with existing customers. We tend to outperform industry shipment trends at wider margins during uncertain times. The incremental volume of over 100,000 tons for the third quarter and over 300,000 tons for the year so far in 2025 has allowed us to meaningfully contribute to our overall profitability. On a FIFO basis, our gross profit margin was 29% in the third quarter, up from the third quarter of 2024, and our FIFO pretax income increased 30%. Looking at expenses, our same-store non-GAAP SG&A expenses were up 4.8% for the quarter and 3.6% for the 9-month period compared to the same prior year period, due to inflationary wage adjustments and higher variable warehousing and delivery costs to support our increased tons sold. We also saw higher incentive compensation in the third quarter due to a 30% increase in FIFO profitability. On a per ton basis, our same-store non-GAAP SG&A expenses were slightly lower in both the third quarter and the first 9 months of 2025 compared to the same period in 2024, demonstrating the operating leverage achieved through our smart, profitable growth strategy. I'll now address our balance sheet and cash flow. We generated approximately $262 million in operating cash flow in the 2025 third quarter, which reflected a working capital investment due to seasonally strong net sales. We continue to generate strong cash flow from operations throughout market cycles, that we redeploy to execute our opportunistic capital allocation strategy. We used that cash to fund $81 million in capital expenditures, pay $63 million in dividends and repurchase $61 million of our common shares at an average price of approximately $288 per share. Year-to-date, our repurchases have reduced total shares outstanding by 2%. And we have approximately $964 million available for further repurchases under our $1.5 billion share repurchase plan that we refreshed in October 2024. As previously announced, on August 14, 2025, we borrowed $400 million under a term loan agreement maturing in August 2028, and used the proceeds to retire of senior notes due August 15, 2025. As of September 30, our total debt was $1.4 billion, including $238 million in borrowings on our $1.5 billion revolving credit facility. Our leverage position remains favorable with a net debt-to-EBITDA ratio of less than 1, providing significant liquidity to continue executing our capital allocation priorities. Looking ahead, we anticipate overall demand in the fourth quarter will remain stable across our diversified end markets subject to ongoing domestic and international trade policy uncertainty. Accordingly, we estimate our tons sold will be up 3.5% to 5.5% compared to the fourth quarter of 2024. And consistent with seasonal trends, down 5% to 7% compared to the third quarter of 2025. We anticipate our average selling price per ton sold for the fourth quarter of 2025 will stay relatively flat compared to the third quarter. As a result, we anticipate flat to slightly improved FIFO gross profit margin in the fourth quarter. Based on these expectations and consistent with typical sequential seasonality where we experience approximately 20% to 25% decline in earnings per share in the fourth quarter, we anticipate Q4 non-GAAP earnings per diluted share in the range of $2.65 to $2.85, inclusive of quarterly LIFO expense of $25 million or $0.35 per diluted share. This concludes our prepared remarks. Thank you again for your time and participation. We'll now open the call for your questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Katja Jancic from BMO Capital Markets. Katja Jancic: Maybe starting on the gross margin. So I understand that right now, the environment is such that it's resulting in gross margin compression. But is any of this compression attributable also potentially to your focus on growing volumes? Karla Lewis: Katja, from a gross profit standpoint, I mean, we've tried to, in our remarks and release, give enough context to help everyone understand the uniquely challenging market that we've been in the last couple of quarters. And what really said a lot to me in recently speaking with a couple of our people who run some of our typically higher-performing Reliance companies, who've been in the business 30 to 40 years, they commented that they've never seen a market quite like the one we've been operating in the last 2 quarters with the pricing strength coming from tariffs without the underlying demand to follow it. And that's what we think is a little unique in the current environment. We think our teams have done exceptionally well in winning business. And they are getting price increases from some of the mill increases that are coming through on products, more so in some products than others, just not at the rate that Reliance has experienced in more normal periods where there was demand pull forward. But we do think that that is temporary. We also tried to highlight, in particular, there's been a drag on margins for some of our special -- high-value specialty products that we sell into aerospace and semiconductor. We're bullish on both of those markets long term. There's just been a little pain, and it has a bit of an outsized impact on our gross profit margin that we've been experiencing the last couple of quarters. But as far as our smart, profitable growth strategy that we've been pushing the last couple of years, that we think our teams have executed really well on, it means grow your tons with good, profitable business and keep our gross profit margin in that sustainable annual range of 29% to 31%. We said there may be quarters where we dip down, which we experienced in this quarter, which there's a little bit of the LIFO timing that Arthur explained that impacts that. But the tons we're going after, we certainly have picked up tons in the flat-rolled space, which those margins aren't always as high as some of the other products that we sell. So could there be a little bit of impact from that? But overall, the end game is the right end game in our view because this is profitable business that's adding to our earnings, it's helping leverage our SG&A expenses, and we're really happy with the additional profit that those tons are bringing to us. So it's not the reason that our margin dipped down. It could be a factor to a certain extent. But there are other -- it's more of the market and a couple of those specialty lines for us having the bigger impact. Katja Jancic: Okay. Maybe when I look at your inventory level on your balance sheet, it seems like they're moving higher a little bit. I wouldn't expect this to be the case in this environment. Can you maybe talk a little bit about what's going on there? Karla Lewis: So part of that is pricing. Because as we mentioned, there have been mill price increases, so that's part of the dollars increasing. But we also have our tons up, and we buy based on what we're shipping. And so I think we might have a slight uptick in tons as well, but it's right for the market. And I think we've seen many of our competitors pulling back a bit from having inventory on hand, and this is allowing us to win some business and better service our customers. Operator: Our next question is coming from Timna Tanners from Wells Fargo. Timna Tanners: I wanted to follow up, if I could, on the inventory side. I know you said ongoing -- I think the quote I have was ongoing excess inventory was pressuring margins or contributing to the margin pressure. And another mill CEO this week said destocking was over. So I'm just trying to get a sense of, how close are we to putting that in the rearview mirror? When do you think we could switch to seeing appropriate levels of inventory? And did you mean that from your competitors or from your customers, I guess? Karla Lewis: Yes. So Timna, more at both the mill and the service center level in Q2 and Q3. There was a lot of inventory at the beginning of the year. We think a lot of service center companies were buying heavy to get in front of the tariffs, whether that was coming through import or domestic buys. So we believe service centers have been trying to work down that inventory. We do believe those inventories have come down. We're not going to say if destocking is over. We don't talk about destocking and restocking in our company. We talk about buying what we need based on our shipment levels. But we are starting to see lead times for certain products go out a bit, which is a positive sign. Are we at an inflection point? Potentially. If we're not there, we're probably closer than we were. And when we were talking about the impact on gross profit margin from the competitive environment with a lot of inventory, that was really talking about Q2 and Q3 and the markets we were in every day. So we do see momentum coming out of that. We think like our gross profit margin troughed in Q3 based on the factors we see today. So I would say we probably generally agree with that comment, but probably just wouldn't say it is strongly as others. Timna Tanners: Fair enough. I want to ask on the comment about winning new business. How does Reliance win new business? Is it execution? Is it price? Is it a little of both? Karla Lewis: Well, hopefully, it's execution and not price. That's the strategy. And we have changed our message starting a couple of years ago and set specific targets with certain of our Reliance companies, where we felt that they could grow their tons in a profitable way, and ask them to execute on that. And it's really them calling on customers, maybe their customers they had not been calling on prior to that. Maybe they're going back after some business they used to have. We also have much more expanded processing capabilities. We can do a lot more for our customers now with the investments that we've made in that equipment. And so it's really going back out educating our customers, and then getting their orders and proving ourselves. We think that -- we think we provide among the highest levels of customer service in the industry. And that's why typically, once our companies can get their foot in the door with business and show our customers how well we can service them, we expect to retain most of that business that we've earned during these last couple of quarters. Our model, though, does fit with the market that we've been in, where it's been competitive, people have been hesitant to buy too much inventory because of the tariff uncertainty and falling prices in certain products. Our ability to service small orders on a just-in-time basis is a positive in that type of market environment. So we probably won some business because some customers' buying patterns changed a bit. But I think we should be able to hold on to a lot of that business that we were able to win during the last couple of quarters. Timna Tanners: Okay, appreciate it. And I want to squeeze in one more if I could. I'm going to dare to ask a question about LIFO. But it's kind of bizarre to see continued LIFO expense at the same time as you're talking about prices having drifted lower recently. So I guess just at a high level, when do we clear the decks and start to have like a neutral LIFO environment? It sounds like you're still expecting continuation into Q4. But is it getting to a point where we run through that and start to see LIFO income or at least no LIFO impact? Arthur Ajemyan: Yes, Timna, good question. So LIFO is an annual estimate. So I guess, the way you're thinking about it, a lot of the cost increases, if you step back or look at the year, happened in the first half of the year. But because it's an annual estimate, we applied it pro rata. So you're right. And intuitively, when you look at Q3 and you say there's LIFO expense, it's essentially associated with cost increases that are in the rearview mirror. But again, because the accounting method is pro rata, you're effectively spreading that equally throughout the year. So as we head into 2026 and costs are relatively flat, then essentially LIFO expense is in the rearview mirror. Karla Lewis: And just as a reminder, Timna, when we're in more normal times with pricing moves based more on the supply-demand dynamics and prices are going up because of demand and that creates LIFO expense, we're happy to incur LIFO expense in that type of environment. But again, it's been a bit of an atypical environment the last couple of quarters. Operator: Our next question is coming from Phil Gibbs from KeyBanc Capital Markets. Philip Gibbs: The semis, infrastructure and aerospace pieces specifically certainly been noting excess inventories for most of 2025. And I know Timna made a general question about excess inventory in the supply chain. But those markets specifically, are you anticipating that those begin to turn around or levelize sometime in 2026? Karla Lewis: Yes. And Phil, maybe we want to make sure too that we're clear, these are -- in those markets, we're talking in particular about the high-value products. These are the products you've heard us start talking about the end of last year -- well, actually for the last couple of years, coming out of COVID, we saw lead times move to 80 -- 50 to 80 weeks, which we had never seen before. And the whole industry saw that. We do think there was some general overbuying in both the aerospace and semiconductor market of some of these products because there was just concern about availability. And so we've just seen the supply chain working through those products. There are pockets where you start to see some improved demand. So we don't think it's getting worse today. We think it's getting better, but it's, for certain products, it's just going to take some time. So we commented as we go through 2026, we think we'll see continued improvement in the supply chain working itself down for those products. Stephen Koch: Phil, I would say that if you think about the aerospace inventory, from a Reliance point of view, we're probably in the seventh or eighth inning of kind of getting our inventory under control and in a good position to start restocking in the first quarter of 2026. But the overall industry and our competitors and some of our customers, they're probably more in the fifth and sixth inning. So I think we're in good shape, but we're still going to have to deal with the market dynamics of the reality of there's a lot of inventory. Philip Gibbs: And on the CapEx side, I think you said around $350 million in cash CapEx this year. What should we anticipate for 2026? Because I know you've been kind of on an above trend for the last several years as you've invested in your capabilities and made more acquisitions. Karla Lewis: Yes, Phil, that is our current estimate for this year. We're working on our 2026 CapEx budget as we speak. It, we believe, will be probably below what our 2025 number was. We've had some record years the last few years, and it's been good investments for us. But we are pushing our people to really utilize the equipment that we have better, how can we maybe share some of that equipment within the Reliance network, and just really pushing for better utilization of the investments we've already made. But we will continue. We do continue to see growth opportunities and we will have some growth initiatives in our CapEx in 2026. We'll give you that number in February, but probably directionally lower than our budget of $325 million in 2025. And remember, there will be carryover. Some of these projects are multiyear projects. So the cash outlay might be more consistent with this year just because of some of the carryover coming into 2026. Philip Gibbs: And the last question, just on taxes. So I know there's been the Big Beautiful Bill and half a dozen other things that seemingly are changing cash tax rates and effective tax rates for companies. But is your cash tax rate for this year and next year relatively aligned with the effective rate? Or is it somewhat below? Arthur Ajemyan: Yes, Phil. So I mean, you can look at our tax rate, for the most part, it's -- we're a full rate taxpayer. I think as far as the new tax bill, yes, it is definitely -- especially the bonus depreciation, that's going to help lower our cash taxes paid. We're currently estimating the impact, but that could be an incremental reduction of cash taxes, probably into $30 million to $40 million range. So that's kind of the extent of the impact at the moment that we've estimated. Operator: Our next question is coming from Bennett Moore from JPMorgan. Bennett Moore: If I could circle back real quick on the aero comment, I think from Steve. It sounds like you're expecting maybe restocking could emerge as soon as the first quarter. Is there any difference there between the aluminum and stainless side just given some commentary for some other players this morning and Boeing moving to 42 a month as of Friday? Karla Lewis: Yes, Bennett. So from I think Steve's comment, again, he was talking specifically about Reliance's inventory position. And remember, we're talking about these specialty alloy steels, titanium, specialty aluminum products. So it's not impacting all of our aerospace inventory and aerospace business. We've seen relatively steady activity with like the aluminum plate and some of the other products that we consistently sell into aerospace. This is a pocket of our inventory that we were talking about. But I commented earlier we're long-term bullish on aerospace increased build rates, absolutely could help that supply chain excess inventory get worked through faster. So that's all positive for Reliance and for the industry if we realize increased build rates. Stephen Koch: Yes. We're in really good shape regarding our heat-treated aluminum with the 2x and the 7x for aerospace. We're a little more challenged with some of the specialty long products that we're working through. Bennett Moore: All right. And then turning to the steady pricing guidance, if I could kind of dig into some of the puts and takes here. I mean it seems like flat steel is looking pretty steady. I think you made some similar comments. But we have seen the tinted plate price hikes over the past few weeks with some success. Structural sounds pretty strong, and Midwest premium reached a record high over this past week. So could you walk us through kind of the puts and takes there? Stephen Koch: So from the wide flange beam point of view, the lead times have been extended and demand has been strong for most of the year, actually probably the last 12 to 18 months. We do appreciate the plate increase that was announced recently, because there was a continuous sliding of some of those products. So we believe that that stopped some of the bleeding, and we are looking for more of an uptick in the fourth quarter going into 2026. There's a merchant bar increase that we think is going to take hold. And just in general, there's been some halt in some of the tubing mills. And overall, looking for brighter days in some of the carbon products. Karla Lewis: And I would comment too, you mentioned aluminum, Bennett, on the common alloy aluminum, and we did get our prices up in Q3 based on those price increases, some pretty high levels on the Midwest spot, which are good for us, and we're passing through. But I think with the trade uncertainty and not knowing when and what some of those final agreements might be, there's overall some hesitancy of stocking up too much on inventory in case there is a trade action related to the aluminum products. Bennett Moore: That's great color. And if I could squeeze one more in maybe just on M&A. We saw some activity from peers this past month. Just hoping to get your latest read on the M&A landscape, valuations, if you're seeing any new opportunities emerge. Karla Lewis: Yes. So we're continuing to see a pretty steady flow of opportunities. We have commented the first quarter -- the fourth quarter of last year, we think, because of the elections, and first quarter of this year, it has slowed a bit. But the market's been -- picked back up to what we would call fairly normal levels and has stayed there. So we continue to look at opportunities as they become available, think about where we might want to be growing. So we think it's a decent M&A environment. I think valuations are generally reasonable. Each opportunity is a little different depending on what the sellers are looking for. But we're pleased with the level of activity we've been seeing. Operator: Our next question is coming from Mike Harris from Goldman Sachs. Michael Harris: Quick question. As you work through the gross profit margin headwinds, are there any SG&A leverage you can pull to help protect the operating margin? Karla Lewis: Yes. So I think, Mike, that's something we're focused on every day and pushing our people to be focused on. We have been talking more internally and pushing our people to really look for efficiencies in their operations, in their warehouse activities. We have reduced our head count even with higher tons being shipped over the last couple of quarters. So that's a focus, again, like I said, that we're always looking at. We look -- we have several different locations. They don't all perform at the same levels. So we are continuously looking at any underperforming assets. How do we make changes there? Sometimes we combine locations. We'll close small locations. That's kind of constant activity that we're doing. And also with our smart, profitable growth strategy, we are getting better leverage off of the fixed cost component of our costs. Arthur, anything you would add? Arthur Ajemyan: Yes. No, great color, Karla. And Mike, yes, we actually peak head count in Q2, and we've trended down. And that's part of the efforts that Karla mentioned around rationalizing our operations. I think the service levels in this environment are important, and our market share gains have had a lot to do with our service levels. So it's important to be really thoughtful about maintaining those and not just go in and reduce head count for the short term, but in the long term really impact our service levels. So we're being very thoughtful, methodical as we're navigating this environment and really growing the business, getting new customers along with existing customers. We've had some really good success with that, and we're looking forward to continue that. Michael Harris: Okay. Great color, guys. And then I guess just on the market share gain that you pointed out, going from 14.5% up to like 17.1%. Just curious as to how much of that would you attribute to organic versus inorganic growth. Karla Lewis: Yes. So certainly, Mike, we have had a few acquisitions over the last couple of years, 4 in 2024, that is part of that. But -- and we call out our same-store and our consolidated shipment trends. But the majority has been organic growth, both again investments we're making in some greenfields, some expansions, our increased value-added processing we're able to do. But really just our salespeople looking for more opportunities and going after good business that's out there that maybe we haven't been servicing the last few years. So we're really proud of what our teams have done going out aggressively, but aggressively through service, not through price, getting that increased business. Arthur Ajemyan: Yes. That majority is organic, so. Michael Harris: Okay. Great. And then just last one, if I could. If we look at the third quarter shipments, were there any, I guess, major onetime items in there or perhaps any pull-forward sales that you would call out? Karla Lewis: No, there's nothing there we would call out, Mike. I mean when your average order size is $3,000 an order, it's hard to get that one big order that really moves the needle. So I think it was just pretty broad-based. Operator: Our next question is coming from Martin Englert from Seaport Research Partners. Martin Englert: For nonresidential construction, it seems reasonably good. I'm curious, how much of this activity do you think is related tied to AI, data centers, semiconductor build-outs, kind of that camp of activity? Karla Lewis: Yes, Martin. It's hard for us to quantify just based upon the diversification we have within our companies and then the customers that we're selling into. And I think we commented on this last quarter, almost every one of our Reliance businesses is touching the data center trend and build, including the build of the electrification to support that, with many, many different products, right? It's not just building the shell of the facility. It's a lot of the internal, racking and enclosures and equipment. It's cooling systems. It's, again, the grid. So we're touching it. And it's been very positive for the industry that the data center trend is strong right now. But for us to quantify that -- we think it will continue to grow. You can look at all the estimates out there of the builds that are being announced, and that will continue. So that's all very positive for us, but difficult for us to quantify specifically. Martin Englert: And if the government shutdown continues for an extended period, does this pose any risk to any programs you might have exposure to or anything within defense spending? Karla Lewis: There's nothing that we're aware that's impacted us directly today. We're on -- I think the programs we're on are pretty solid programs, that we expect to continue. But certainly, there, like with anyone else, there could be some fallout if this continues. But it's not something that we've heard any warnings from any of our companies about any of the programs they're on. Operator: Our next question is coming from Lawson Winder from Bank of America. Lawson Winder: May I ask about capital return, and I guess, really in the context of capital allocation? One might expect that as the shares were a little bit weaker during the quarter, it might present an attractive opportunity, perhaps allocate more of your capital to the share buyback as opposed to less and maybe direct that away from other opportunities. I mean so how do you think about that in terms of return on your dollars in buying back shares versus investing in the rest of the business? And how should we think about that going forward? Karla Lewis: Lawson, we think buying Reliance stock is always a good decision, no matter what the price level is. But we do look at that, we do look at what the market value is, and adjust our activity accordingly. We've been active the last few quarters. The exact volumes vary a bit. But we look to be in the market, we look to buy at attractive levels. We've got the balance sheet and the ability. We look at it as a pretty low-risk use of our capital when we're investing in Reliance by repurchasing our shares. And yes, it could be more attractive at different price levels, the same, I think, as for the general market. Lawson Winder: Okay. That's helpful context. Can I also ask you, are you being impacted by, any way, by the aluminum supply disruption in New York State? Karla Lewis: Yes. So we do, in our toll processing businesses, directly, we do work with the mill, that I think you're referring to there specifically. And it has created some disruptions in the market that was not expected. And we are working closely with our mill suppliers as well as the end users of the metal, the automakers and others, to try to do whatever we can. We try to be a problem solver for them, whether it's storing metal for them, processing metal for them, actually leveraging the whole Reliance company to see if we can source the metal and fill some holes through some of the other Reliance businesses. So definitely a collaborative effort within Reliance trying to help that particular mill and its customers, as well as the overall industry, because it's having a much broader impact on multiple end-use customers and different mills. So we're just trying to do what we can to help lessen the disruption for those impacted. Lawson Winder: Is it material enough for Reliance that that could show up on your cost item or impact profitability? Karla Lewis: No. And the good news with our tolling operations, if they do lose some processing business to this particular mill, they generally have more demand than they can accommodate, that they can process metal for some other customers and end-use applications. Lawson Winder: Okay. Great. And can we maybe talk a bit about seasonality or can you give us some perspective on that? I mean we've talked for a number of quarters about kind of negative impacts of seasonality on the business. In Q1, we saw seasonality benefit Reliance. When you think about the business today, and looking out to Q1, I mean, overall, across the business lines, should we be looking at a recovery in Q1? Or how are you thinking about seasonality going forward from here? Karla Lewis: Yes. Lawson, as much as anything is kind of normal in our business, the last few years hasn't been that much normal. But in the service center business, our activity is really based on shipping days and it's based on the number of shipping days that our customers are open. So the normal seasonality is Q1 and Q2 are our 2 strongest shipping quarters. They're usually fairly even, but there can be a little give or take. But the first 2 quarters of the year are our strongest. Q3 typically trends down a bit because a lot of big OEMs will do shutdowns for -- planned shutdowns during the summer in industries that we're selling into. Also a lot of the smaller customers, there are vacations and things going on where small businesses will shut down for a week or 2. So we generally see probably a 3% to 5% falloff in our shipping volumes in Q3 versus Q2. I think the fact that our Q3 '25 shipments were equal with Q2 '25 is a big positive and again shows how our businesses, the Reliance businesses, are going out and winning business from others. And the fact that there was no dip in our shipment levels -- because the industry, I think we'll see, did have the normal seasonality. And then Q4, with the holidays, that's usually another 5% to 7% reduction in shipment levels from Q3, just again because of customers being shut down more days, us being shut down a couple of days for the holidays. And then you see the bounce-back in Q1 when there are just more shipping days, people are back to kind of full staffing moving into the year. So we certainly expect that to happen. I would comment, when people look at seasonality, I just talked about shipment levels, but that obviously trickles down to earnings. And we -- our guide for Q4 earnings per share, typically, we've been down -- earnings per share from Q3 to Q4 dips about 20% to 25%, which is consistent with our guide. However, it was not reflected in the consensus numbers that were out there. So we ask that people putting those numbers out there do steady history and pick up on some of those trends and react accordingly. Operator: Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Karla Lewis: Well, again, we'd like to thank everyone for joining the call today and your continued support of Reliance. In particular, we'd like to thank all of the Reliance family members for continuing to operate safely and for all that you're doing in these challenging market times and the successes that we've had. We're very proud of what you're accomplishing out there. And also before we close out the call, I'd like to remind everyone that we'll be in Chicago next month presenting at Baird's Global Industrials Conference. And we hope to meet with many of you there. Thank you, and goodbye. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Alexis Bonte: Good morning, and welcome to the Stillfront Q3 presentation. I am Alexis Bonte, the CEO of Stillfront, and I will be joined later by Tim Holland, our Interim CFO. I would like to start with a slight focus on Europe. As you can see, we had solid progress in Europe. We said a few quarters ago that we were in an investment phase in Europe in the first half of the year and that we would start reaping some of those rewards towards the later part of the year. As you can see, Europe returned to growth for the first time since Q1 of 2024, so in Q3, where the growth was just under 1%. What is important to say here, this is before the launch of the main new games that will happen in Q4. Those big new games, as a reminder, will be Big Farm: Homestead, that will launch towards the end of the year and will be within the Big franchise, and we'll build on the success that we had with Sunshine Island. Another big game that we announced previously that will launch in Q4 is Warhammer 40,000, which is a big important new launch on the Supremacy franchise with a major IP. And we also soft launched with a narrative franchise, the Unfolded: Webtoon Stories game with the Webtoon IP, and that soft launch is having some encouraging results. The marketing efforts also that we'll have in what we call Q5, which is right after Christmas. It's a good time to basically start scaling game. We'll see most of that revenue come into next year. Obviously, and that will impact the margins in Europe in Q4. But I just want to show that we say that we were going to basically really work on building up Europe in the first part of the year. And so I'm very happy to see that, and to be able to share that we are now reaping some of the results with the existing franchises, which are kind of showing the results in terms of live operations and how that is really performing. And also obviously excited about the new launches in our core business area of Europe. If we go into the KPIs that we have in Europe, so that resulted in a net revenue of SEK 643 million. That's up 0.6% year-on-year. UAC was at SEK 207 million, relatively stable. We were able to apply quite a lot of UA, especially in Supremacy at the beginning of the quarter. Then towards the end of the quarter, it was a bit harder to put more UA. But overall, I think we're with a healthy level in UA for Europe. And as you know, every quarter, it varies a lot whether we're able to place UA or not place UA. So that's something that we're always very, very attentive to. Adjusted EBITDAC was solid at SEK 154 million, which is a margin of 24%. Our key franchises in Europe grew by 0.4%, good performance. I was very happy, in particular, with Albion Online, who started doing a lot of investments in product marketing. I told you that I wanted the company to be less dependent on performance marketing and Albion Online's is a great game to be doing more product marketing and they had a really strong effort in product marketing, which actually has borne fruit and has been successful, and that gives me a lot of confidence for that franchise going forward. The smaller franchises actually grew faster in Europe. That was mostly due to -- from our Playa studio, a smaller franchise called Shakes & Fidget, which performed well year-on-year, and also had a small new launch called Mobile Dungeon, which helped that franchise scale a little bit. So that's Europe, very happy with the results in Europe. Continuing on to North America, as you know, and as we said from the beginning, North America has been our turnaround case. It's been really our problem side. It's the only business area that has negative growth. It is the business area that's actually dragging us down overall in terms of organic growth. Without North America, we would have very healthy growth across the group since both Europe and MENA and APAC are growing business areas. But that being said, we're continuing our turnaround efforts in North America, and we're -- and we are deliberately focusing on profitability. That's really what we want to do. We want to find the right level. We've made some very serious cost cutting in North America. I think we have a much healthier base now in that area. We also took some very hard decisions moving games to other business areas. And I would say that a lot of that work is done now. We ended up with basically SEK 246 million of revenues. That's 32.9% down year-on-year. So that's what is dragging down the organic growth. UAC was SEK 110 million. As I said before, we are extremely disciplined about UAC and what games it goes to, and we've really increased the discipline in North America around that. And that obviously has an impact on the net revenue profile of the business area. But then it also resulted in a large increase in our adjusted EBITDAC, which was SEK 36 million, which is a 15% margin. I think most of you will recall that North America was barely profitable a few quarters ago. And that obviously is a big change that now North America is a net positive contributor to our EBITDAC margin. And I think this is just a much more healthy base to work from. Both key franchises and other franchises were down in North America. Now the challenge for North America is going to be to work from that base. I do expect the decline to continue into Q4 as we're continuing with our discipline, but I do also expect North America to continue to be a net positive contributor in terms of EBITDAC as we work on improving things there. MENA and APAC, continued solid growth. Actually, growth has slightly increased quarter-on-quarter. Very happy with MENA and APAC. We have -- if you look at our key franchises, they grew by more than 18%. That's -- and going into even more detail, both Jawaker and the Board Ludo franchise from Moonfrog had very healthy double-digit growth. Very, very solid situation in MENA and APAC. Small level of UAC. There's very little dependency on UAC, EMEA and APAC. I think actually, we do have an opportunity there to boost a little bit the growth in the future and more likely in 2026, particularly for the Board franchise if we're able to place a bit more UAC there, but that's something that we're going to do carefully and slowly, and just basically the -- and with discipline as we've been very disciplined all the time. And adjusted EBITDAC as a result has continued to increase significantly with SEK 276 million, which is a 57% margin. So that's basically the main things on this side. I will now pass on to our interim CFO, Tim, for -- to talk a little bit about finance. Tim Holland: Thank you, Alexis, and good morning, everyone. On a group level, revenues declined by 7.8% organically, coupled with a 6% foreign exchange headwind. Our net revenue declined from SEK 1,595 million, down to SEK 1,373 million. And that was driven by a few different things, but primarily, it was driven by BA North America and specifically Word and HGM franchises. And as Alexis noted, we are much more focused on the profitability of those titles. So we did decrease user acquisition on a year-over-year basis. However, when you do decrease UA, that's obviously going to increase profitability, but it is going to decrease net revenue. But that was partly offset by strong performance in BA Europe. As Alexis noted, we're almost at 1 percentage point of organic growth for BA Europe, and that was driven by strong performance for Big, for Albion Online and for Supremacy as well. And we also had strong performance from BA MENA APAC, where we got to almost 3 percentage points of organic growth, and that was driven again by Jawaker and Board franchises. Looking at UAC. UAC came down year-over-year from SEK 462 million down to SEK 336 million, and that was driven primarily by year-over-year declines in UA spend for HGM and for Word. Looking at adjusted EBITDAC, that's up year-over-year from SEK 385 million up to SEK 436 million. I should note that's a 13% point increase on an absolute basis year-over-year, and our net revenue obviously declined by 14%, but we are showing strong margin resilience even with that net revenue decline. Adjusted EBITDA came in at 32% in terms of margin. Again, that's up 8 percentage points compared to Q3 of 2024. Again, that's primarily driven by decreased UAC as a percentage of net revenue. But one thing to point out as well is that our gross margin has improved on a year-over-year basis from 80 to 83 percentage points, and that's due to the continued success of our Web shop rollout, where we've improved our direct-to-consumer share of revenue year-over-year from 33% up to 44 percentage points in Q3 of 2025. Looking at our LTM free cash flow, that's down slightly year-over-year. Last time we spoke, we reported SEK 1,089 million in terms of LTM free cash flow. That's down to SEK 974 million, but that change is primarily related to working capital adjustments, which is a natural part of our business. So you are going to see that fluctuation from positive to negative in terms of our working capital adjustments. Next slide, please. Digging a bit further into our cash flow generation. Cash flow before changes in net working capital came in at SEK 357 million, of which is SEK 77 million in paid financial expenses. That is down year-over-year from SEK 101 million, down to SEK 77 million. The decrease that you're seeing there is due to two things. That's primarily due to a reduced interest rate environment, and then also a reduction in our interest-bearing debt. Of that cash flow from operations before changes in net working capital, there is taxes paid of SEK 90 million. That's up year-over-year from SEK 42 million, up to SEK 90 million. The reason for the increase is primarily due to Jawaker, where we're paying taxes for Jawaker in the UAE now under that new legislation where you have to pay 9% of your corporate tax -- taxable income there. I should note that we are under CFC taxation in Sweden, so we will be getting a credit back for that amount. So the SEK 42 million to SEK 50 million amount is more of a normalized basis for our taxes paid. Net working capital came in at SEK 47 million, negative SEK 47 million, and that is due to negative SEK 98 million in terms of liabilities. That negative movement for liabilities is due to a reduction in our UAC, but that was partly offset by a positive impact of SEK 51 million for our receivables, and that's primarily due to reduced net revenue. Looking at cash flow from investment activities, that came in at SEK 119 million, and that was primarily driven by SEK 116 million in terms of product development. I should note that, that's about 8.5% of our net revenue spent on product development. Last year, it was 9.4%. So we are spending less in terms of product development. However, we are taking a much more targeted approach in terms of product development by specifically spending more in Europe, spending more in MENA and APAC. We were spending less in terms of BA North America. Looking at our cash flow from financing activities that came in at SEK 326 million. That was primarily driven by SEK 335 million that was used to pay down our RCF. That's up year-over-year, and that shows our continued focus on deleveraging this business. Turning now to our free cash flow. You can see our free cash flow for the LTM basis was SEK 974 million. That is up year-over-year from SEK 835 million. And the difference between the two values primarily comes from reduced financing charges, reduced product development, and it's partly offset by taxes paid. And this table on the right primarily shows what we've done with that free cash flow. So we had, obviously, the cash portion of our earn-outs at SEK 618 million. And we also reduced our borrowings by SEK 268 million. Again, that's up year-over-year. And then we had our share buybacks for SEK 142 million over an LTM basis. And I will note, and as you probably saw from the press release this morning, we have announced a new program that will begin tomorrow. Next slide, please. Looking at our financial position, our financial position, total net debt decreased from SEK 5.9 billion last year in Q3 of 2024, all the way down to SEK 5.1 billion. That's a reduction of almost SEK 800 million, again, showing our focus on deleveraging this business. The middle table shows our maturity profile. The maturity profile remains strong. As you know, we don't have any major maturities until 2027. That large bar there of SEK 2.9 billion represents SEK 1 billion for a bond that's due in 2027, the RCF drawn of SEK 1.2 billion and SEK 0.7 billion in terms of our SEK term loan. Then we have a bond due in 2028, and a bond due in 2029. Looking at the right table, that's our net debt to EBITDA. We came in at 2.06x for our leverage ratio. That's obviously above where we want to be for our 2x leverage ratio target. However, we are down sequentially from Q2 2025. We are down from 2.18, down to 2.06. And then on a year-over-year basis, we're down from 2.08 to 2.06. I should note, excluding earn-outs, we are at 1.87x. And then we'll flip to the next slide here. Then this is the last slide before I'll pass it back to Alexis. But as we've noted in our report this morning, we are announcing the conclusion of our cost optimization program, which has been driven by fixed cost savings and direct cost savings. And this has been announced 1 quarter early. We view this program as being a fantastic success. As I noted, we saved a significant amount of costs, specifically with fixed cost in North America, and we've been very successful with our direct cost savings with the rollout of the Web shop, improving our gross margin. Going forward, we're, of course, going to continue to focus on cost savings and direct cost improvements. However, we want to take a balanced approach to invest in our key franchises and invest in the future of Stillfront. And with that, I'll hand it back to Alexis. Thank you. Alexis Bonte: Thank you, Tim. So basically, to conclude, we are starting to deliver on what we set ourselves to deliver a year ago. We have concluded the cost optimization program a quarter in advance at the maximum level that we had set. We are advancing very decisively with the turnaround in North America and making sure that it's got a healthier base and healthier profitability. We are returning Europe to a more healthy level of organic growth while still having solid margins, and a very interesting pipeline of new games coming in. And we have MENA and APAC that is continuing to go from strength to strength. And we're also leveraging some of the talent there to move some of the games that we had in North America into that region. So we are still very much at the beginning of what we would like to deliver, but we are definitely seeing the first signs that our strategy is working, which gives me a lot of confidence, but also makes me extremely thankful to all the teams at Stillfront. In terms of our key focus going forward, we're going to continue to focus relentlessly our investments on the key franchises. That is something that we will do more and more and more. We obviously -- we're a games company. So we will continue focusing on successfully launching new games. But as you can see from our CapEx with a lot more disciplined approach, but at the same time, I want to make sure that we have the right level of ambition. We will continue to -- with our discipline of delivering on strong margins and cash flow. And obviously, we are continuing to execute on the strategic review. You've seen that we've done some game closures this past quarter. We've also announced that we'll likely do some extra game closures, and we're also looking at, still, very carefully at some potential divestments. So with that, I think we are ready to take your questions, and thank you very much for your attention. Operator: [Operator Instructions] The next question comes from Erik Larsson from SEB. Erik Larsson: I have two questions. First off, I appreciate the outlook comments here on Q4. And as I understand it, your wording on Europe as we will potentially see weaker organic growth rates in Q4 versus what we saw here in Q3. But are you still confident on the ability to grow sequentially here, just to sort of get a feeling on the magnitude? Alexis Bonte: Yes. Maybe I can take that question first, and then Tim, you can build up. So yes, as we've indicated, we do believe that Europe might potentially be a little weaker in Q4, but still, it will be a completely different level to what you saw in Q1 and Q2. The reason why it's very difficult for us to really know where Europe will be is a lot of it depends on the year that we're able to allocate for Supremacy. And also most of the impact of the new games will be in the later part of the year and also towards next year, and it's very difficult to basically balance what will happen there. But it's definitely on another level going forward, and we're very confident that we've kind of found a new rhythm for Europe now. Tim, I don't know if you want to... Tim Holland: Yes. I mean, just as Alexis said, there's going to be variability from quarter-to-quarter, but we do believe in the long-term improvement in Europe. And then as Alexis mentioned as well, that's going to be heavily influenced by the new games. Erik Larsson: Okay. Then second and final question. Looking at your debt structure, it's start to look at some refinancing next year. So I just wanted to hear some thoughts how you think about the capital allocation. I guess you have reducing the absolute debt, giving better earn-outs, et cetera. So any thoughts there would be interesting to hear? Tim Holland: Yes. I mean we're going to get back to that. I think that our debt structure is strong. We have our maturity profile. Everything is primarily due in 2027 onwards. And that's a good timing as well because our earn-outs will be finalized in 2027 as well. So what we'll do with the extra cash could be amortizing much more on our RCF. We can also potentially do dividends. We could do acquisitions, but we'll get back to that at the appropriate time. Operator: [Operator Instructions] The next question comes from Rasmus Engberg from Kepler Cheuvreux. Rasmus Engberg: Warhammer Supremacy, when is that the game supposed to be out? Alexis Bonte: Rasmus, good to hear from you. So basically, we are having an initial launch, I think, around the end of this month, which will be a soft launch. And then we expect to basically scale the launch during the year to have, basically, a larger launch towards the end of the year. So Q4, but later part of Q4. Rasmus Engberg: Okay. And would you dare to say anything about Europe for next year? Do you think it's going to be largely stable then? Or you've taken some measures with launches and improvement of titles? Is Europe stable from these levels going forward? Or how do you think about it? Alexis Bonte: Yes. I mean the way we're thinking about it is we did a lot of work that was necessary to be done in Europe. We're really focusing our investments, focusing on the key franchises, making sure that we have a proper pipeline going forward. We're seeing the results, I think, basically more or less when we expected them, which is good. And that gives me very solid confidence for next year. Rasmus Engberg: And these new measures, you talked about closing some further games in North America, or potentially lowering them. That sounds like though there are more fixed cost savings sort of outside of the program? Or how should we think about that? Or is that going to be reinvested in something or? Alexis Bonte: Yes. I think there's a time to be doing cost savings and there's a time to go on the offensive. I think we've done what we had to do in terms of cost savings. And any further savings that we might receive from other game closures and all that, it is very much our intention to reinvest and to go on the offensive and to strengthen our pipeline. I think we have a strong base to do that. I think the cleanup that we had to do has mostly been done. And now it's about really being more aggressive going forward. Rasmus Engberg: Would it be possible to talk about sort of the better part of North America? Is that a stable part? How much is it? Is it possible to give any indication on that? Alexis Bonte: I mean we don't do breakdowns of business areas, obviously. I mean, I'll let Tim to build up. But obviously, we have some key franchise in North America. Those -- some of those key franchises, I think, have really good potential, but they need to increase their performance. I think we we've really raised the bar in terms of what we consider as good performance. I think there is a few franchise in North America that could do well. Some can do well within North America. Others, clearly, we didn't have the team or the right resources to make them work in North America. For example, like Word. And that's why we moved out Word games to Moonfrog in India, where the team there, a lot of people are former Zynga people that worked actually on Word games. So it was a perfect match. So we'll be kind of very direct with that. But yes, there are some good elements in North America, but they're going to have to demonstrate over the next 3 to 6 months that they can deliver basically. Tim Holland: Yes, nothing further to add other than we have some very strong franchises in North America. Like BitLife, there's probably nothing like it globally in terms of that title. And so we have high hopes for that title. But of course, we do need to see some stronger performance in that region. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Alexis Bonte: Well, on behalf of Tim and myself, thank you very much for joining this call on the Q3 Stillfront results. As I just said, we're executing on what we said we were going to do. And we are happy to start seeing the first results of our strategy. And obviously, we aim to continue to deliver over this over the next quarters. Thank you very much for your time. Tim Holland: Thank you.
Operator: Good afternoon, and welcome to Alfa's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would like to turn the call over to Mr. Hernan Lozano, Vice President of Investor Relations. Mr. Lozano, you may begin. Hernan Lozano: Good day, everyone, and thank you for joining us. Further details about our financial results can be found in our press release, which was distributed yesterday afternoon, together with a summarized presentation. Both are available on our website in the Investor Relations section. Let me remind you that during this call, we will share forward-looking information and statements, which are based on variables and assumptions that are uncertain at this time. It is my pleasure to participate in today's call together with Roberto Olivares, Sigma's CFO. I will provide a brief update related to Alfa, Sigma, then Roberto will discuss Sigma's third quarter results and outlook. It is exciting to report Alfa, Sigma's first complete quarter as a streamlined global branded food player. We have experienced a smooth transition into a steady-state business after years of transformational developments. To better reflect Alfa's new identity and to concentrate on growing Sigma's corporate brand equity, we are implementing a re-branding initiative. As a first step to sunset the Alfa brand, an extraordinary shareholder meeting will be convened soon to propose adopting a Sigma-related entity name at the Alfa level. We will share updates on these changes in due course. Returning value to shareholders through cash dividends will remain core to capital allocation. On October 1, the Board approved the first dividend under the company's new food-focused structure, a $35 million payment, bringing total cash dividends for the year to $119 million. This amount is aligned with distribution levels historically supported by Sigma's strong cash generating ability. With that, I will now turn the call over to Roberto to discuss Sigma's results. Roberto Olivares: Thank you, Hernan, and thank you all for joining us today. We are pleased to report another quarter of positive sequential improvement in volume, revenues and comparable EBITDA, underscoring consistent progress adapting to raw material cost pressures in a global environment of soft consumer confidence. Consumers are moving across channels, categories and brands, including varying shift between retail and food service, dairy and packaged meats as well as value and premium brands. The good news is that Sigma's diversified business platform gives us a relative advantage to maintain strong connections with consumers throughout the broad marketplace. One of the biggest industry-wide challenges we continue to face is rising raw material costs. In particular, turkey breast has experienced the sharpest price increase, reflecting supply constraints amplified by seasonal avian flu. Prices reached an all-time high of $7.10 per pound at the close of 3Q '25, which was an outstanding 244% increase from a year ago. Although we have certainly felt the effects of high turkey prices and other protein costs, Sigma's large scale and global supply chain have helped reduce their impact on our results. Looking ahead, we anticipate that current high prices, vaccination and low feed cost will be supportive of a gradual improvement in turkey supply and cost. In addition to Sigma's structural advantages, our experienced teams have done an incredible job staying on top of consumer needs and expectations. All the initiatives we have undertaken drove third quarter revenues to a record $2.4 billion, up 8% year-on-year and 5% sequentially. We have been implementing targeted price actions through a balanced approach to mitigate rising input costs while also supporting volume. EBITDA was down 9% year-on-year due to sustained raw material cost pressures and a record high comparison in 3Q '24. Adjusting for the Torrente property damage reimbursements in the second quarter, comparable EBITDA increased 3% sequentially, marking the third consecutive quarter of improvement. As a result, 9-month comparable EBITDA of $722 million is tracking in range with our full year guidance. We are confident that this upward trend will continue gaining momentum into the fourth quarter, which implies significant year-over-year growth for the first time in 2025. Moving next to key highlights by region. Mexico was once again the standout with revenues in local currency increasing both year-over-year and sequentially. Volume increased 1% quarter-on-quarter as growth from retail channels offset weaker performance in food service, which was impacted by soft hospitality demand. By product, yogurt and value branded packaged meats were key drivers in the retail channels. FX-neutral EBITDA improved 6% sequentially as ongoing revenue management and efficiency initiatives offset higher raw material costs. In the United States, revenues were flat year-on-year and quarter-on-quarter as favorable pricing was offset by lower volume in both periods. Softer demand for packaged meats in national brands was partially offset as Hispanic brands continue to gain traction in mainstream channels and new customer acquisitions. EBITDA was 17% lower quarter-on-quarter, reflecting lower volume in national brands and changes in mix involving lower dairy sales. Staying in the Americas, Latin America delivered 2% currency-neutral revenue growth in the third quarter, driven by higher volume year-on-year and sequentially. EBITDA decreased 11% versus 3Q '24 due to higher protein costs and mix effects, but increased 10% quarter-on-quarter due to operating efficiencies achieved in the Central American operations. The underlying business in Europe has maintained an upward trajectory. Adjusting for all insurance reimbursements received last quarter, EBITDA increased more than 100% sequentially as effective price actions and Torrente-related production adjustments drove a recovery trend that is expected to be amplified with seasonality effects in the fourth quarter. Lastly, Sigma's Europe capacity recovery plan continues advancing on schedule towards full restoration in 2027. Looking at our financial position and select cash flow items, we maintained a strong consolidated net debt-to-EBITDA ratio of 2.7x at the close of the third quarter with a stable net debt. CapEx represents our largest use of cash, driven by planned investments. Projects underway include capacity and distribution expansions, primarily in Mexico and the United States, plus the previously discussed capacity recovery in Spain. Next, let me briefly touch on some of the exciting steps we are actively taking to strengthen the business model for long-term success. Our growth business unit remains focused on piloting and scaling new products and ventures with disruptive growth potential. Grill House, our direct-to-consumer venture that caters to the grilling enthusiasts is ready to make its entrance into the U.S. after uninterrupted growth in Mexico for the last 5 years. At the same time, the Studio, Sigma's Global Center of Excellence for design and innovation is moving forward in its first year with developing 46 prototypes and advancing on 11 innovation commitments to boost core brands. Advancements in these areas like these will continue to set us apart from competitors in all regions. With this, let's open the call for questions. Please, operator. Operator: Our first question comes from Ricardo Alves from Morgan Stanley. Ricardo Alves: I had a question on Mexico. I think that certainly, as you mentioned in the preliminary remarks, another quite positive and resilient performance in top line in the low double digits. With that in mind, can you break that down into more details as it pertains to eventual share gains? I'm really looking forward to what has been driving the strength of you relative to other food players in Mexico. If you can talk about share gains or your revenue management initiatives or even on a channel by channel? Is it exposure to smaller purchases that is benefiting you more than others with a less diversified SKU? So just trying to get some more granularity to try and explain the strength in top line in Mexico and if that's something that should continue going forward, that would be helpful. My second question, I think that, Roberto, you did refer to the guidance. We appreciate the fact that the company is reiterating the guidance. I think that the message is pretty clear here, and it does imply to the comment that you made that the fourth quarter should be significantly stronger. I think that we're talking about almost 10% EBITDA growth on a sequential basis. So, with that in mind, can you also lay out in more details in your view, what are the key value drivers from the third quarter into the fourth quarter for this big sequential improvement? Is it -- when we look historically, the seasonality doesn't really help us to come to a conclusion that the fourth quarter is going to be significantly better. So is it something that we cannot model as well as you can, meaning your hedges may be looking better or to one of the points that you made, maybe Europe is going to be improving much faster than expected. Is there any top 2 or top 3 value drivers for us to be more confident about this sequential recovery into the fourth quarter? Roberto Olivares: Thank you, Ricardo, for the question. Let me first address the first one related to Mexico. In general, let me first explain that in Mexico, we do have the retail business and the foodservice business. We have seen different dynamics in each one of them. Foodservice first being more soft on volume, particularly due to raw material cost increase, particularly beef, but also softer hospitality trends, as I explained in my initial remarks. If you divide the business, retail is actually growing a little bit more on volume and foodservice is decreasing in volume. And in retail, we have a good presence in both the modern and traditional channel and a good presence across the different value segments across the socioeconomic spectrum. So we do have brands that whenever a consumer is trading down or trading up, we manage to catch the consumer as they move. So we have been seeing a little bit of trading down. So volume from our value brands is growing a little bit higher than the premium and the mainstream brands. And also volume in some of our dairy brands, particularly yogurt, continues to increase. I would say those are the 2 main drivers of the resilient volume that we have seen in Mexico. Then let me address your second question regarding reiterating the guidance and what we see in the fourth quarter of 2025. First, let me just make the comment that last quarter was -- fourth quarter '24, we have some extraordinary impacts, particularly in Mexico. If you see the margin that we have seen through this year in Mexico up to today, up to the third quarter, we were almost at 15% EBITDA margin. If you normalize that effect, we have close to $30 million more in Mexico in the fourth quarter versus the fourth quarter of 2024 just because of that. Additionally, we do expect to receive -- to continue receiving the reimbursement from the business interruption insurance from the Torrente incident we expect between $15 million and $20 million of business interruption coming in the fourth quarter. We actually already received a small portion of that during the month of October. We do also expect the European operation to have better results than the fourth quarter of 2024 because of higher prices and the momentum that we have seen in the operation between $5 million to $10 million in that sense. And in the case of the U.S., we see that we will move from a decrease versus last year in this third quarter to actually being able to have a similar result in the U.S. versus the fourth quarter of 2024. So those are the main key drivers for us being in range with the guidance. Ricardo Alves: Exactly what we are looking for, Roberto. Operator: Our next question comes from Renata Cabral of Citi. Renata Fonseca Cabral Sturani: So I have 2 regarding the U.S. business. One -- the first one about category trends. How would you describe the overall competitive environment right now in the U.S. in packaged meats and refrigerated food? Are private label or value play is gaining share right now? And how is Sigma positioning to defend pricing? And still on the U.S. business, in the release, it's mentioned that we have volumes in the national brands. My question is to what extent was this driven by category contraction or share loss and how the company has just seen the product mix to reaccelerate volumes in 2026? Roberto Olivares: Thank you, Renata, for your question. Regarding category trends in the U.S., we have been seeing just more competition of private label in the category, particularly, I would say, because of all of our regions, probably the U.S. is the one that has a softer consumer confidence recently. Consumers in the U.S. are managing a tighter budget. They are more cost conscious. Having said that, we -- particularly in the national brands business, we play as a smart choice, I would say, very close to the segment where private label is playing. And although we have seen that private label is penetrating more in the category, has not necessarily impacted our brands, has impacted more of the mainstream brands in the category. We try to position ourselves as a smart value brand, playing a lot with innovation on convenience on -- not only on affordability that has helped maintain our position with the consumers. And actually, we, in that sense, have been doing well. In regards to what we see going forward, definitely, the category this year, mainly in the Americas has suffered a lot because of raw material cost. We have mentioned a lot that turkey, but also pork and also other -- beef, other materials has been increasing. We do expect for 2026 for raw materials to ease, to start to recover production, particularly in turkey, that will increase the supply in the production and also impacting raw material to the downside. And hopefully, with that, we do expect a pickup in the category for next year. Operator: Our next question comes from Federico Galassi of Rohatyn Group. Unknown Analyst: I don't know if I was allowed to speak. It's [ Matteo ] here. I wanted to know if you could give us some color on how is operating leverage looking in this scenario with lower volumes. I think the picture in terms of raw material costs is very clear. Everyone understands the pressure particularly turkey has had on your results. But I wanted to see if you could provide us some guidance on what we should expect in terms of OpEx as a percentage of sales with more granularity by country, if possible? Hernan Lozano: Matteo, this is Hernan. Let me see if we understand your question correctly. So the first part refers to operating leverage and whether the decrease in volume is creating some slack in terms of the level of operation that we maintain across the different regions. Is that right? Unknown Analyst: Yes, exactly. Hernan Lozano: Okay. So the answer is no. This is not creating any slack in terms of operating leverage. What we're seeing is we are operating at pretty much capacity, especially in the Americas, in Mexico and the U.S., if you look at many of our CapEx projects, these have to do with catching up with volume that has grown at a pretty strong rate before 2025. So from an operating standpoint, the operations are normal, I would say. Roberto Olivares: I will add that -- thank you. I will add that it's not that volume is necessarily decreasing a lot. I mean, again, in the case of the U.S., was 1% this quarter is -- we do expect to continue growing in volume in the next years. Unknown Analyst: And one quick follow-up related to cost of raw materials. It should be fair to expect that particularly turkey prices stabilize towards the end of the year and that we see lower raw material prices for next year. What's your strategy, your view on pricing, if you could give us any idea on that for next year? Roberto Olivares: Sure. Thank you, Matteo. I mean, in general, we do expect, I would say, more friendly raw material environment next year. We -- let me talk about turkey. We are starting to see some indications that some recovery in the turkey production is starting to happen. There was an inflection point in July where production is starting to increase versus last year. And actually, the rate of increment or the rate of how the production has increased has been at a good rate. Having said that, there is still some uncertainty on how it's going to continue that rate in the next months, particularly because, again, we're entering the winter in this hemisphere and potentially, there could be more diseases coming along. There was a particular disease that affected a lot the Turkey this year was a pneumovirus. And they developed a vaccine for that virus that started to help. They started to vaccinate the turkeys around April and May. So we do expect that, that continues helping with the production over the next months. We are cautiously optimistic. I will say that we do expect production of Turkey to continue increasing. But again, cautious about the rate of that increase. Operator: Our next question comes from Fernando Olvera of Bank of America. Fernando Olvera Espinosa de los Monteros: Roberto, Hernan can you hear me? Roberto Olivares: Yes. Fernando Olvera Espinosa de los Monteros: Perfect. My question, just a couple of follow-ups. Regarding or linked to the cost outlook, I mean, thinking that turkey prices should start easing going forward, how are you thinking about pricing mainly in Mexico towards year-end and next year, trying to see if any additional adjustments might be needed. And also thinking about volume softness overall, how are you thinking about CapEx for next year? Roberto Olivares: Thank you, Fernando. Let me just make the comment that although we have been seeing that some indication that production of turkey started to increase, prices of turkey has not reflect that. So prices of turkey continues to be at a record level, both in turkey breast and turkey thigh. And we do expect them to decrease in the following -- particularly in the following year. I will say more as the -- probably between the first and second quarter of the next year, that is our expectations. Regarding pricing, when that happened, we have been working very closely with the revenue management teams to be able to protect both margin and volume. We try to do any price increase that we do, we try to do it very -- with a lot of analysis in regards to elasticity, how the competition is moving and also how the consumer perceives that price increase. We want to maintain the preference of our consumers. So whenever there is something that we can see that we can act both on higher raw material costs and lower raw material costs, we will act upon that to be able to protect and to continue growing volume. In regards to that, your question about CapEx in general, again, particularly Mexico and the U.S. operation, for the last couple of years, we have been working at capacity or almost at full capacity. So we have been planning and investing in some projects to increase the capacity. We also have the recovery plan in Europe to recover the capacity that we lost in the Torrente flood. So we will be working also on that on next year. So at least, we still don't have our guidance number for CapEx for next year. But what I will say directionally, we'll continue to be around the same level that this year. Fernando Olvera Espinosa de los Monteros: Okay. Roberto, regarding pricing, I mean, at this point, do you feel comfortable with the price hikes implemented so far or additional hikes might be seen going forward in that sense? I mean, thinking about the turkey price that you were saying that they might start to decline until the first and second quarter of next year. Roberto Olivares: Yes. Thank you, Fernando. I will say that unless, again, the raw materials continues to increase, which we are not expecting that. We not necessarily will do something structural on prices as of right now. There might be the need to do some particular adjustments in some particular product, but not something that will be structural for the whole company. Operator: Our next question comes from Felipe Ucros of Scotiabank. Felipe Ucros Nunez: A couple of questions on my end. So one has to do with your pricing power. Can you talk a little bit about your capacity to maintain your pricing levels when costs start coming down and margins start expanding. Historically, what has been the behavior of your competitors? Are they typically disciplined? And I guess, how does that change by region? I have an impression that perhaps Mexico and the U.S. are stronger than Europe. But any color you can give us on that would be great. And then on the second question, is there any direction you can give us about which proteins are most important to you out of the ones you use? And I know this varies because there's reformulations depending on where the costs are at given times. But even if you can't give us precise numbers, perhaps you can give us a ranking or some directional idea of which ones are the most important proteins. Roberto Olivares: Thank you, Felipe. Let me first tackle the second one. So we -- regarding protein, -- and when we have this information in our website in our corporate presentation, around 40% of our protein -- of our raw material cost of -- the raw materials is pork. Then we have close to 20% is turkey, then around 10% is chicken and then around 30% will be dairy, mainly milk, but also cheese and some other dairy proteins. We -- particularly pork ham, I would say, is our largest material that we buy, both in -- particularly in Europe, but also in Mexico. And in the case of Mexico, more turkey, turkey thigh, turkey breast and in the case of the U.S., particularly chicken. Regarding your first question, I will say we -- again, as I explained to the question that Fernando did, we try to take a very disciplined approach in terms of price management. Whenever the -- we take a look of elasticity, how the competition is moving. And whenever we see an opportunity area where we can either protect margin or protect volume, we will be taking that opportunity. In general, I will say it varies by region. But in Europe, given the competition, the penetration of private label and some excess capacity that there's in the industry, we have -- it takes us more time to increase prices between the rest of the regions. Operator: There being no further questions, I would like to return the call to management. Roberto Olivares: Thank you, everyone. On a final note, we entered the fourth quarter focused on a strong close for 2025, building upon our positive sequential momentum. Looking ahead, we're preparing to capitalize on opportunities in 2026 and advance our long-term consumer-centered growth initiatives. Thank you very much for your interest in Alfa, Sigma. Please feel free to reach out to us if you have additional questions. Have a great day. We will now disconnect. Operator: This concludes today's conference call. You may disconnect.
Operator: Good afternoon, and welcome to the Boyd Gaming Third Quarter 2025 Earnings Conference Call. My name is David Strow, Vice President of Corporate Communications for Boyd Gaming. I will be the moderator for today's call, which we are hosting on Thursday, October 23, 2025. [Operator Instructions] Our speakers for today's call are Keith Smith, President and Chief Executive Officer; and Josh Hirsberg, Chief Financial Officer. Our comments today will include statements that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. All forward-looking statements in our comments are as of today's date, and we undertake no obligation to update or revise the forward-looking statements. Actual results may differ materially from those projected in any forward-looking statement. There are certain risks and uncertainties, including those disclosed in our filings with the SEC that may impact our results. During our call today, we will make reference to non-GAAP financial measures. For a complete reconciliation of historical non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today, both of which are available at investors.boydgaming.com. We do not provide a reconciliation of forward-looking non-GAAP financial measures due to our inability to project special charges and certain expenses. Today's call is being webcast live at boydgaming.com and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. With that, I would now like to turn the call over to Keith Smith, Keith? Keith Smith: Thanks, David, and good afternoon, everyone. The third quarter was another quarter of growth for our company with revenues once again exceeding $1 billion, while EBITDAR was $322 million for the quarter. After adjusting for our recent FanDuel transaction, we continue to deliver revenue and EBITDAR growth on a company-wide basis, while margins were consistent with the prior year at 37% as we successfully maintained efficiencies throughout our operations. During the third quarter, play from our core customers continued its long-term growth trend, and we saw further improvements in play from our retail customers. This strength in play drove healthy gaming revenue growth across all 3 of our property operating segments and more than offset the weakness in destination business. Across the portfolio, our results reflect continued broad-based improvements in customer demand, sustained operating and marketing efficiencies and the success of our capital investments focused on enhancing our property offerings. Now turning to segment results. Our Las Vegas Locals segment posted revenues of $211 million and EBITDAR of $92 million for the quarter. Gaming revenues continued to grow during the quarter, driven by strong demand from our locals customers. We continue to benefit from ongoing growth in play from our core customers as well as improving trends in play from our retail customers. This growth in gaming revenue was offset by declines in our destination business, primarily at the Orleans. Excluding the Orleans, our Locals segment delivered year-over-year growth of 2% in both revenues and EBITDAR with gaming revenue growth in line with the broader locals market for the quarter, while margins for the third quarter were consistent with the prior year at 47%, supported by disciplined marketing and operating efficiencies. For the broader Las Vegas Locals market as a whole, gaming revenue growth was up more than 3% over the last 12 months, reflecting the resilience of the Locals market. The health of the Locals market is supported by solid wage growth throughout the Southern Nevada economy. Through August, average weekly wages were up more than 6% over the trailing 12 months, outpacing the national average. Over the last 10 years, the local population has grown at twice the national rate, reaching 2.4 million last year. And during the same time frame, per capita income in the Las Vegas Valley has grown by more than 5% on an annual basis, while total personal income in Southern Nevada has nearly doubled. An important driver of this growth has been the increasing diversification of the local economy. While hospitality has continued to grow over the past decade and currently represents approximately 25% of the local job market, job gains have been more substantial in other sectors. These include education, health services, transportation, warehousing and professional and business services sectors. Construction jobs have also remained a steady performer, growing more than 5% since 2019. With more than $10 billion in projects currently underway across the Las Vegas Valley, construction employment should remain healthy well into the future. And as we head into next year's tax season, we believe that our customers around the country will benefit from the tax bill passed by Congress this summer, including new deductions for tips and overtime and an additional deduction for seniors as well as a larger standard deduction for all taxpayers. In all, the Southern Nevada economy remains resilient and is more diversified than ever, positioning our Las Vegas Locals business for continued success. Next, in our Downtown Las Vegas segment, revenues and EBITDA were in line with the prior year, supported by continued strength in play from our Hawaiian customers. Much like our local segment, growth in gaming revenues were offset by softness in destination business, including lower hotel revenues and reduced pedestrian traffic along the Fremont Street experience. Next, our Midwest and South segment achieved its strongest third quarter revenue and EBITDAR performance in 3 years. For the quarter, revenues rose 3% to $539 million, while EBITDAR grew to $202 million, more than 2% over the prior year. Operating margins once again exceeded 37% as we remain disciplined in our cost structure and marketing spend. Growth in the segment was broad-based, including continued gains at Treasure Chest more than a year after the opening of our new land-based facility there. Similar to our Nevada segments, gaming revenues increased year-over-year in the Midwest and South, driven by continued growth in play from our core customers and further improvements in play from our retail customers. Next, results in our Online segment reflected growth from Boyd Interactive as well as changes related to our recent FanDuel transaction. Given current trends, we are increasing our guidance for this segment to $60 million in EBITDAR for this year. For 2026, we expect approximately $30 million in EBITDAR from this segment. Finally, our managed business had another strong performance with continued growth in management fees from Sky River Casino. Demand has remained strong over the 3 years since Sky River opened, giving us in the Wilton Rancheria Tribe great confidence in the growth potential of the property's ongoing expansion. The first phase of this expansion will add 400 slot machines and a 1,600 space parking garage upon completion in the first quarter of next year. Once this first phase is complete, we will begin a second phase that will further enhance Sky River's appeal by adding 300-room hotel, 3 new food and beverage outlets, a full-service resort spa and an entertainment and event center. On its completion in mid-2027, we are confident this expansion will further strengthen Sky River's position as one of Northern California's leading gaming and entertainment destinations. So in all, the third quarter was another quarter of growth for our company. Across the country, we continue to see strengthening play from our core customers and improvements in play from our retail customers against the backdrop of consistent and efficient property operations. And while the fourth quarter has just started, it is worth noting that the customer trends we saw in the third quarter have continued into October, including improving play from both core and retail customers. Our strong operating performance is supported by the investments we are making throughout our portfolio as we enhance our casino floors, food and beverage outlets and hotel rooms. Hotel room renovations will be completed early next year at the IP and work is set to begin next month on our room renovation project at the Orleans. We are also continuing our modernization project at Suncoast with the complete transformation of our casino floor as well as enhanced meeting and public spaces. While we are dealing with ongoing construction, we are encouraged that Suncoast performance is in line with the prior year, further increasing our confidence in the long-term growth potential of this investment. Following completion of our Suncoast renovations around the middle of next year, we plan to begin a similar project at the Orleans as we look to further enhance our offerings at this important property. In addition to these property enhancements, we are continuing to work on our growth capital projects with an annual budget of $100 million per year. In September, we completed our expanded meeting and convention center in Ameristar St. Charles. By nearly tripling the size of its meeting space, Ameristar can now accommodate more and larger events. This will create incremental visitation from new customers as well as groups who had previously outgrown our space. We are already seeing great interest with strong bookings in the fourth quarter and into the next several years. In Southern Nevada, construction is progressing on Cadence Crossing, our newest Las Vegas Locals property, scheduled to open in the second quarter of 2026. Cadence Crossing will replace our existing Joker's Wild casino with a modern and appealing gaming and entertainment facility. This investment will allow us to better serve the adjacent community of Cadence, one of the fastest-growing master planned communities in the nation. And we are well positioned to keep pace with continued residential growth in the area with future plans for hotel, additional casino space and more non-gaming amenities. Next, in Illinois, we are continuing the design and planning work for our new gaming facility at Paradise and expect to start construction in late 2026, pending regulatory approval. Finally, development is well underway on our most significant growth opportunity, our $750 million resort development in Norfolk, Virginia. Pending regulatory approval, we are just a few weeks away from opening our transitional casino at the site. And while we look forward to reaching this key milestone, our focus remains on the development of our permanent resort scheduled to open in November of 2027. This market-leading resort experience will feature a 65,000 square foot casino, 200-room hotel, 8 food and beverage outlets, live entertainment and an outdoor amenity deck. In addition to offering the highest quality gaming experience in the market, we will have the most convenient location for much of the 1.8 million residents of the Hampton Roads region as well as the 15 million tourists who visit nearby Virginia Beach each year. In all, our capital investments are delivering strong returns for our company, enhancing our competitiveness and supporting our long-term growth. At the same time, our substantial free cash flow and strong balance sheet allow us to continue returning capital to our shareholders. During the third quarter, we repurchased $160 million in stock and paid $15 million in dividends. So far this year, we have returned a total of $637 million to our shareholders. Share repurchases and dividends are important components of our balanced approach to capital allocation, and we intend to maintain a pace of $150 million per quarter in share repurchases, supplemented by our recurring dividend. In closing, we are pleased to deliver another quarter of strong performance as we continue to execute on our strategy and create long-term value for our shareholders. During the quarter, we continued to benefit from strong growth in plate from our core customers as well as improving plate from retail. Our capital investment program is delivering excellent returns and positioning us well for future growth. Our teams across the country are successfully maintaining efficiencies and delivering consistent property operating results, and we continue to return substantial capital to our shareholders while maintaining the strongest balance sheet in our company's history. Our success is a reflection of the dedication and contributions of thousands of Boyd Gaming team members across the country, and we are grateful for all that they do for our company and our guests. Thank you for your time today. I would now like to turn the call over to Josh. Josh Hirsberg: Thanks, Keith, and good afternoon, everyone. During the third quarter, play from our core customers continued its long-term growth trend, while retail customers play also continued to improve. Management teams did their part remaining focused on operating efficiently and generating returns from our capital investments. As a result, excluding the effects of our recent FanDuel transaction, we continue to deliver growth in revenue and EBITDAR despite weakness in our destination business. We are continuing our capital investment program to enhance our guest experience while expanding our opportunities for growth. During the third quarter, we invested $146 million in capital, bringing year-to-date capital expenditures to $440 million. We now expect total capital expenditures for this year to be approximately $600 million. Our capital plans include approximately $250 million in recurring maintenance capital, an additional $100 million in maintenance capital related to hotel room renovation projects. A $100 million in growth capital, which includes the recently completed meeting and convention space at Ameristar St. Charles and the ongoing Cadence Crossing development here in Las Vegas. And then finally, $150 million or so for our casino development in Virginia. Our growth capital projects remain on budget and on schedule. In terms of our shareholder capital return program, we paid a quarterly dividend of $0.18 per share during the quarter, totaling $15 million. Also during the quarter, as Keith mentioned, we repurchased $160 million in stock, acquiring 1.9 million shares at an average price of $84.05 per share. Actual shares outstanding at the end of the quarter were 78.6 million shares, an 11% reduction in our share count since the third quarter of last year. Since we began our capital return program in October 2021, we have returned more than $2.5 billion in the form of share repurchases and dividends while reducing our share count by 30%. Going forward, we intend to maintain repurchases of approximately $150 million per quarter, supplemented by our regular quarterly dividend. This equates to more than $650 million per year or more than $8 per share. With strong free cash flow, low leverage and ample liquidity, we are maintaining the strongest balance sheet in our company's history while continuing to invest in our business and return capital to shareholders. As you may recall, during the quarter, we closed on our transaction to sell our 5% stake in FanDuel. We initially used proceeds from that transaction to repay our Term Loan A balance and borrowings outstanding under our revolver. As a result, our total leverage ratio declined from 2.8x at the end of the second quarter to 1.5x at the end of the third quarter. Our lease adjusted leverage declined from 3.2x to 2.0x. Finally, beginning with this quarter's financial results, we have provided the tax pass-through amounts as a separate line item on our GAAP income statement. Excluding the tax pass-through amount for this quarter, company-wide margins for the third quarter this year would have been 510 basis points above the margin we reported. In conclusion, with strong play from our core customer and improving trends among our retail customers, efficient operations, robust free cash flow and a strong balance sheet, we have outstanding flexibility to continue executing our strategy for creating long-term value for our shareholders. With that, I'd like to turn the call to David to open the call for questions. David? Operator: Thank you, Josh. [Operator Instructions] Our first question comes from Barry Jonas of Truist. Barry Jonas: I wanted to start on Vegas. Can you talk about what you see as the main drivers of the weakness you're seeing in the destination business? And just help us feel comfort that you think the non-destination business won't see any of that related weakness. Keith Smith: So maybe starting with the second half of your question. I think as we noted, we've seen strong play from our core customers. And as we look at the database here and the source of our revenue here in Las Vegas, our locals customers are performing extremely well, and our core customers are growing extremely well. The shortfall really was all about the destination business has been kind of widely reported and talked about. How long that continues? We'll all have to see. We have seen, as we look at our kind of forward 90-day bookings in our hotels here in Las Vegas, we've seen improvement, still soft, but certainly better results than we saw 3 months ago. So we turned the corner, hard to say, but the 90-day booking results certainly look better than they did 3 months ago. Josh Hirsberg: And Barry, one thing I would add to Keith's remarks is when we -- pretty much the impact of the destination business, as we said in our remarks, are focused on the Orleans. So when you separate the Orleans from the rest of the business, you see a couple of things going on. You see growth in gaming revenues throughout the remainder of the portfolio. You see growth in overall revenues. You see growth in EBITDA. You see consistency in margins. So I think we see -- and the gaming revenue kind of is growing in line with the overall market. So I think we feel pretty good about the underlying customer trends overall. It's just one aspect of the business that we're trying to deal with. And in fact, when you look at the segment's performance, you could really attribute the EBITDA decline in Q3, all to the Orleans because it was down even more than what we're seeing in the segment for the quarter. Barry Jonas: Got it. That's really helpful. And then just as a follow-up, we're starting to see some M&A deals come about. Curious if you could share your thoughts on the M&A pipeline, the environment, either in terms of buying whole assets or opcos? Keith Smith: Look, we obviously have a fairly successful track record of M&A based on a disciplined strategy of making sure it's the right asset in the right market at the right price. And so we continue to look at it. We certainly note that a few things have traded recently. I don't know that we're necessarily seeing more pitch books across our desk, but we certainly pay attention and monitor opportunities. And for the right opportunity, we're certainly prepared to dig in. But other than that, I'm not sure we have a whole lot to comment on. Operator: Our next question comes from Steven Wieczynski of Stifel. Steven Wieczynski: So Keith or Josh, if we think about the Midwest and South properties, I mean, those results were really solid, came in much better than we were expecting. So if you think about that portfolio, wondering if the trends you witnessed there were pretty much broad-based or there were markets or pockets of strength versus other markets? I guess just trying to figure out if certain markets are kind of outperforming other markets. And obviously, you guys called out Treasure Chest, I guess, excluding Treasure Chest. Keith Smith: I think when we look across that portfolio that comprises some 17 properties, it was generally broad-based. Look, there's always 1 or 2 that don't perform maybe quite as strong in any given quarter, but it generally was broad-based strong results. We called out Treasure Chest because it's interesting to us and very positive that it continues to grow even after anniversarying its opening. So Josh, I don't know if you have anything to add? Josh Hirsberg: Not really, Keith. I think that covers it. Steven Wieczynski: Okay. And then, Keith or Josh, a little bit of a bigger picture question. But wondering if you kind of take a step back and look at your Vegas Locals assets, how do you think they're positioned today from a CapEx perspective? I mean -- what I mean is, do you think the majority of your assets in that market are in a pretty good spot relative to your peers in that region? And -- or is it something where you guys might have to spend a little bit more across your portfolio over the next couple of years to keep up with some of that newer supply? I heard your comment about Orleans and Suncoast there. Keith Smith: Right. So look, we've been talking about the renovation work we're doing at the Suncoast over the last year or so. And so that has been, I think, a very positive investment for us as we're not even fully through it yet, and we're seeing performance that's in line with the prior year. So that gives us confidence that this will be a successful investment. Look, the Orleans needs a little bit of an updating also. It's an important asset for us. Look, other than that, I think our portfolio of properties here in Las Vegas are well positioned. We're looking at a number of restaurant projects just as part of our overall capital plan to make sure the properties remain competitive. It's not significant capital, but it's an important capital to be competitive. So you look at our slot floors, and I would put them on par with anybody's in the market and probably better than most. And so I think we feel pretty good with the exception of once again, needing to make, I think, an important investment in the Orleans to make sure it's competitive for the long-term. Operator: Our next question comes from David Katz of Jefferies. David Katz: So I just wanted to get your updated thoughts on the investments that you're making internally in the portfolio and how you're thinking about returns, the timing to those returns or hurdle rates? And just -- it will help us think about forecasting out into the future. But what's the return process? And how should we think about the earnings potential on it? Josh Hirsberg: Yes. Dave, it's Josh. I'll take it and then Keith jump in and add anything. Generally, I think kind of for good rule of thumb and modeling purposes, we generally think of kind of a 15% to 20% kind of cash-on-cash type of return. And so we certainly achieved that with Treasure Chest. I think we're seeing the early signs of achievement with that with the meeting space at Ameristar St. Charles. The next one up will be Cadence, which is like a $60 million investment. So that will be in that, we fully expect that property once it comes online to generate incremental EBITDA above what we're getting today from the current Jokers Wild facility that would generate that return. And then after that, I think we're more dependent on regulatory approval for Paradise, but we're excited about that opportunity. So good rule of thumb is that 15% to 20%. We've been fortunate enough to kind of meet or exceed that on the projects that we've announced to date. We have as we've tried to condition the market to think about kind of a pipeline of these projects and we continue to kind of better choose the one that have the highest return potential throughout. A lot of the stuff around Suncoast, most of the hotel renovations even the Orleans will be in our maintenance capital budgets. But as Keith mentioned, the early signs that Suncoast or -- we're seeing new customers in the building. We're seeing people visit more frequently. And so we're encouraged by those type of investments even though they kind of qualify in our book as maintenance capital. So I hope that kind of gives you some color. David Katz: It does. And if I can just follow up and clarify, when we're thinking about the Orleans because it's in the maintenance budget, we aren't necessarily sort of holding it to the same standard or thinking about its earnings power longer term in the same way with that 15% or 20%, right? Josh Hirsberg: Yes, I think that's right, because it gets to be a blend of maintenance and capital and growth, and it's just hard to kind of distinguish between kind of what that project? Is it more maintenance or is it more growth. So I think that's why we put it in maintenance really. Operator: Our next question comes from Brandt Montour of Barclays. Brandt Montour: So first question is just a clarification about the Orleans project for next year, which you mentioned. Is that -- I mean, I imagine your hotel rooms, you mentioned a few things. Is that something we should consider some -- potentially some disruption impact? I know that it's got easy comps here, and there's a couple of different things going on in the market that's affecting that property. So how do you think about that property into next year? Josh Hirsberg: So I think it's a little early to try to figure out kind of disruption. I don't -- I think our view would be that at the beginning of a project like that, if we're even able to get it started in the second half of next year, it'd be more limited in terms of the disruption. Once we understand the actual program scope and the timing, we can provide better color on that. We've been -- our management teams at Suncoast have done a very good job to manage through the disruption to date at that property, and it's been significant and that construction activity continues. So we're learning how to manage that -- those processes. Each one will be unique and different. But to date, we've been pretty good at managing through it at the Suncoast. No doubt, it is affecting our performance in some way. But the fact that it is, like Keith said, in line with prior year at this point, that's pretty encouraging. So I think at this point, we wouldn't be calling out expectations for disruption related to Orleans and until we have better clarity on timing and the full scope of the project. Keith, I don't know if you want to add to that. Keith Smith: No, I think just tagging on to what Josh said, as you're thinking about 2026 and thinking about the Orleans, I wouldn't anticipate anything significant as we begin to have more clarity on the timing of all of that and what's going to take place first and second. And when we end up getting to "the middle of the casino," which, yes, we will have some disruption as we get into those types of things, yes, we'll be able to update you. At this point, as you're modeling out 2026, I wouldn't anticipate anything. Brandt Montour: Great. That's helpful. Just a quick second question about Midwest and South. How would you describe the promotional environment across your markets? Any sort of changes quarter-over-quarter? Or has it been pretty consistent from competitors? Keith Smith: In several markets, there have been competitors who've been stepping on the gas, so to speak, with respect to marketing spend and being more aggressive. We have generally remained very disciplined. It is reflective in our margins that remain consistent year-to-year. And while we may be up just a tick just a little bit overall, once again, it is highly efficient, highly productive dollars reflected and we're able to grow revenue, we're able to grow EBITDA and we're able to maintain margins. So we are seeing some enhanced marketing by our competitors, but we're not responding. Frankly, some of the enhanced marketing we're doing is in relation to declines in destination business, not in relation to what our competitors are doing. Operator: Our next question comes from Ben Chaiken of Mizuho. Benjamin Chaiken: On the Suncoast renovation, you mentioned in line with the prior year a few times, but I would think that there was still some disruption. So to the extent there was, could you quantify that impact in 3Q and then maybe how you're thinking about 4Q even just anecdotally? Keith Smith: Yes, I'd love to, but it's really difficult to quantify the disruption. Look, when we say it was in line with prior year revenue and EBITDA perspective, I think that says it all. There's clearly disruption. We have fewer slots on the floor today than we did a year ago because we're in the middle of the casino. There are a lot of walls up. There's ceiling work being done. So it is disruptive, and it will continue to be disruptive. If you were to walk in the building today, we have a temporary front desk because we're doing work around the front desk area. But to date and through Q3, and we'd expect it to be through Q4, things are in line with the prior year. Our customers are hanging in there with us. The management team is doing a great job of taking care of our guests. The guests have had very, very strong positive reactions to what we've unveiled thus far. And so everything is working, but hard to quantify. Benjamin Chaiken: Okay. Understood. And then you've got a large expansion at Sky River, I believe, that opens early next year, 1Q, I believe. Understanding you earn management fees here, is there anything we need to watch out for in Q4 in terms of construction, just ahead of that opening? Keith Smith: From a construction standpoint, everything is on the outside of the building. And so there really isn't any impact to -- on the negative side to the ongoing construction or "the opening whenever that happens sometime early next year," it's parking garage, along with some added casino space that will house the added slots. The second phase that I described, which includes hotel towers, more restaurants, also is on the outside of the building. And so there will be no immediate impact or construction disruption from that. Operator: Our next question comes from Steve Pizzella of Deutsche Bank. Steven Pizzella: Just curious, as we think about early next year, can you share any expectations you might have for a benefit from the tax bill? Josh Hirsberg: Yes, Steve, I mean it's a question we get asked quite a bit. I don't -- we've not really found a way that we're comfortable to kind of estimate the overall benefit from that. We -- there's several elements to it from -- and I think Keith mentioned in his remarks, ranging from tax on tips to certain higher standard deductions and credit for seniors. I think ultimately, we come away thinking it's just incremental benefit to us overall, but we have not quantified it in terms of revenue and EBITDA. Operator: Our next question comes from John DeCree of CBRE. John DeCree: Josh or Keith, I wanted to ask if you could provide a little color on kind of how the quarter played out and maybe the Cadence month-to-month. We kind of use the state GGR data to help us, but July and August looks pretty strong. September, maybe a little bit more mixed. So any color you could give us on kind of how the quarter played out, particularly in the Midwest and South regions. Keith Smith: I think as we look across our portfolio, it was fairly steady. You have to take into account like in September where the holiday fell different, and therefore, we got a little bit bigger benefit technically in August than we did in September. But that's over the course of a 10-day period, it flips in 1 month versus the other. But when we look at kind of core trends in the business week-to-week, not a lot of fluctuation. So I don't know that I have anything else to add other than that. John DeCree: That's great, Keith. And then maybe I know this one is difficult to kind of track given the limited data, but curious if you could give us a little bit more color, again, in the Midwest and South, specifically on the retail play, some of the better trends you're seeing there. Is that kind of year-over-year growth in kind of spend, more customers come in the door? And if you have any guesses, a number of theories, but kind of what might be driving that uptick in retail play? Keith Smith: So it's a trend that actually has been going on for a couple of quarters now. We've actually been talking about it, and it continued in through the third quarter with the improvements kind of increasing, so to speak. I think we're seeing generally on the rated side, increases in frequency and increases in spend. So both ADT or spend are going up and frequency is increasing, which are positive trends. Josh, I don't know if there's anything else to add. Josh Hirsberg: Yes. I would just add, just to clarify for everyone, retail is 2 buckets. It's the lower end of the rated. That's what Keith was just talking about in terms of spend and frequency. And then there's the unrated component as well. So we can kind of understand what's going on with the lower end of the rated piece. What's interesting as a group is the unrated business has also been improving sequentially over time as well and actually been a big driver of the retail component. So both the low end of the retail rated piece that we know about and the unrated segment have both been kind of in lockstep improving year-over-year as we've moved through this year. So -- and it's been a consistent trend. It's been very interesting to watch. Operator: Our next question comes from Dan Politzer of JPMorgan. Daniel Politzer: I was wondering maybe we can walk through the fourth quarter. It seems like there's a few moving pieces there. So maybe just to get some clarity. I think Tunica is closing in November in Norfolk. I think there's a temporary casino that opens also in November. And then I don't know if you gave -- I don't think you gave an update for Managed & Other, but then also that would help. And then any impact from the cybersecurity incident in the quarter? Keith Smith: I think as you think about Tunica, you should expect obviously a fairly negligible impact. I wouldn't adjust your models for anything related to that or for Norfolk for that matter. We've talked in previous calls about this is a very small, modest temporary facility, and our focus really is on the permanent. And so you assume that this will be a breakeven as you think about the fourth quarter or even next year. As you think about the cyber event, once again, not much we can say other than what was in the 8-K, which is it did not have any impact to our business operation and we've got cyber insurance to backstop us. There was a third question in there, I lost -- fourth I lost track of... Daniel Politzer: Managed & Other? Josh Hirsberg: Yes. I'll let you answer that. So Managed & Other, I think the key for Managed & Other, it's going to be a pretty stable business in Q4 relative to when you think about the trends of this year just because the business is operating at or very near capacity. And then once it gets the incremental slots early next year, that's in the quarters following that, I think, is where we'll start to see the benefit of that and then eventually from the expansion of the hotel and meeting space in mid -- probably mid 2027. So I think for Managed & Other for Q4 will be very similar to what you've seen in the quarters of other -- earlier quarters of this year. Daniel Politzer: Got it. And then just for my follow-up, I don't think you paid the taxes in the quarter on the FanDuel stake sale. When can we expect that? And then along with -- on the tax front, the one big bill, is there any impact or offset you could get from that, that may be applied here? Josh Hirsberg: Not much of an offset. More than likely, the payment will occur sometime in the first quarter of next year. Operator: Our next question comes from Stephen Grambling of Morgan Stanley. Stephen Grambling: I was hoping you could dig into the balance sheet a little bit. Just how are you thinking about the optimal leverage of the business, particularly if M&A opportunities maybe don't come to fruition, could we see that leverage tick back up? Or what would you be looking to do in terms of optimizing the balance sheet longer term? Josh Hirsberg: Steve. So before the FanDuel transaction, our leverage was about 2.8x as -- and our leverage target was around 2.5x long-term. Post -- as a result of the FanDuel transaction, which happened in late July, early August, our leverage is, as I stated in my remarks, around 1.5x. I think based on just the capital plans that we have now, primarily related to Virginia coming -- the capital related to the permanent of Virginia, our leverage will tick up over time. It will go back up to around probably in the next 1.5 years or so to around 2.5x. I think it's odd to talk about your optimal leverage being at least for us, it's odd for optimal leverage to be above where a target above where we are. But I think that it doesn't -- it's not something we strive to achieve given where we are today. To the extent that we have opportunities I guess the way I would say, in other words, we're not trying to hit the target just because we're a 1.5x, and we want to be at our target leverage. It could be that our leverage remains at 1.5x over time. We don't think that's probably the right leverage, but we don't have anything that warrants increasing our leverage at this point. And so we'll continue to think through this and continue to be kind of prudent on how we think about it. But it's kind of like we were in a good place and doing everything we were doing at 2.5x, happened to get a big windfall, we're 1.5x, and that doesn't really change the way we think about anything that we were doing before. If opportunities come along, if we decide to buy back more shares or return more capital, then that will be just part of our thought process that we develop over time. But until then, we'll be running the business between 1.5x to 2x and will gradually tick up as a result of our capital plans and the plans we have in place today. Keith, I don't know if there's anything you want to add to that? Keith Smith: No, look, I think what Josh was alluding to is, first, it's only been -- it's less than 90 days since we received the payment and leverage has been pushed down to 1.5. And we want to take a long-term view, be thoughtful about what to do with the current leverage, how best to position the company, could be M&A, could be other things, could tick back up. And so we don't have an answer for you right now other than we understand it, and we're having thoughtful discussions about where that should be. I'm sure we'll have more to talk to you about in future quarters, but nothing really to say right now. Stephen Grambling: That all makes sense. If I could sneak one unrelated follow-up in. As we look at the Locals market, and you talked about the 6% wage growth there. It seems like it's about as wide as I've seen it relative to the GGR growth for that market in aggregate. Do you think that there's a lead lag here? Or is there anything else that you would point out that's maybe creating that wider gap versus history? Josh Hirsberg: Yes. So Steve, I think that like -- I mean, it's a good observation, but I think you perhaps at least in our business, the impact of the destination business is shown and visible on the income statement when you look at hotel revenues year-over-year. You can look at that, see they were down about $5 million. But that destination business is a significant amount of hotel room nights. While it's primarily at the Orleans, it affected really every property in Las Vegas and outside of Las Vegas to some degree. And there is F&B. There's banquet business, is highly profitable to us, and there's a significant amount of gaming revenue associated with that business. So it's very profitable business to us. And while it's very difficult to estimate the impact, I think the reality is that, that's probably what's creating that gap. There's wage growth that we're seeing show up in our business in terms of a stronger local customer, but if you had backed up and said, okay, we had that wage growth and destination business, you would see probably a healthy gaming revenue growth that would mirror maybe what your expectations were. So that's how I think about it at least. Operator: Our next question comes from David Hargreaves of Barclays. David Hargreaves: So in terms of Hawaii, I think you said revenue was steady. I'm wondering about headcount and volumes. How are things there? Keith Smith: Specifically coming out of Hawaii? David Hargreaves: Yes, with Downtown. Keith Smith: Look, Downtown volumes on the street are down, and that's frankly driven by visitation to Las Vegas because there's a strong, strong correlation between visitor volumes Downtown and visitor volumes to Las Vegas. And so visitation on the street is down, which is what kind of impacted, we call it destination business in the downtown area for us. Kind of our core market, which is the Hawaiian market, performed normally. And -- but we felt softness in the destination business. We felt softness from lack of tourism on the street. David Hargreaves: And then with respect to the Tunica closure, I'm just wondering if there's just leaving the building and leaving town something that maybe happens with the gaming equipment. Did you try to sell that property? Curious as to what happened there? Keith Smith: I think the way to think about the closure of Tunica, first of all, when we're all done with this, the site will be scraped clean. We'll take everything down. We've already found homes for the equipment and all the recoverable assets, so to speak, in the building. The property had gotten to a point where EBITDA was fairly small and the level of maintenance capital required to maintain it at our standards was growing. And frankly, there was not going to be a good return on that capital investment to maintain that building or standards because we do have standards as to how we want our buildings to look and feel and what we want our guests to experience. And so we're just looking at the data, looking at the maintenance capital that's going to be required and the current level of EBITDA and where the market is, it just made sense to close the building down. Not a decision we came to lightly, but it's a decision we came to. And once again, we will be able to reuse a lot of the gear and a lot of the equipment, sell off some stuff that we don't have use for. Everything will be scraped clean. It will be turned back into just raw land, and we'll attempt to dispose of the land. David Hargreaves: Last one. I really applaud your conservatism with the balance sheet. If we look at your properties that are leased, are you happy with the EBITDA coverage of interest and rent at this point as you are with your leverage? How do you feel about the rent coverage picture? Josh Hirsberg: Yes. I think we're happy with it and our landlord is happy with it, quite honestly. They don't have a corporate guarantee, but they really don't need one given the coverage there. So everything is a happy partnership there. Operator: Our last question comes from Chad Beynon of Macquarie. Chad Beynon: First one on the opening or start of Missouri sports betting. I know you have a partnership with Fanatics. I believe it might be the first with them. And I know that includes some of their branded retail sports books at your properties. So could you maybe talk about anything you're willing to disclose in terms of the relationship and then maybe future opportunities with this company given their ascension on market share that we've been able to track? Keith Smith: Yes. So you're right. We have 2 properties in Missouri, Ameristar Kansas City, Ameristar St. Charles. And both of them received licenses as did Fanatics yesterday when the Missouri Gaming Commission issued licenses. So people could be prepared to open the 1st of December. It is our first relationship with Fanatics. And whether or not that expands, always hard to tell. It's a strong relationship thus far. We know some of the folks in that organization. So we have a good relationship there. And we'll see, once again, how it develops and what other opportunities exist to take that relationship further. Nothing really to report other than that at this point. Chad Beynon: Okay. Great. And then in terms of some of the near-term, I guess, an inflection in Vegas in the destination market, we met with a lot of the companies on the strip in the past couple of weeks and some pointed to November, others obviously talked about F1 maybe being more of a good guy this year and then the strength into Q1. Should all of that help you as well? And in terms of internal bookings, are you viewing maybe November as kind of an inflection point where you're starting to see good year-over-year growth? I guess that would be more Downtown, maybe excluding Orleans with some of the things that you've talked about? Keith Smith: Yes. So once again, I noted earlier that as we look at our kind of 90-day booking pattern, today, sitting here today or a week or so ago, it is much more positive than it was 3 months ago. And it's still soft, but it is significantly better than it was 3 months ago. And so that makes us feel good about kind of the next several months given those numbers, and that's true for Downtown as well as it is for our Locals properties with hotels. So we'll see how it all comes together. As the strip continues to do better, as occupancy and rate on the strip continue to rebound, clearly, that will benefit us. It's just an indication that people are traveling again and coming back out. So that will help us. But overall, our own bookings are once again better over the next 90 days than they were a couple of months ago. Operator: This concludes our question-and-answer session. I'd now like to turn the call over to Josh for concluding remarks. Josh Hirsberg: Thanks, David, and thanks to everyone for joining the call and the questions we received today. If you have any follow-ups, please feel free to reach out to the company. This concludes our call and you can now disconnect. Have a good day.
Operator: Welcome to the Enea Q3 Presentation 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Teemu Salmi; and CFO, Ulf Stigberg. Please go ahead. Teemu Salmi: Thank you so much, and good morning, everyone. This is Teemu Salmi speaking, CEO of Enea. And with me in the room, I have Ulf Stigberg, CFO as well. Today's agenda is going to be very similar to the way we have presented the previous quarter since I joined Enea after Q1 this year. A short introduction and summary of the quarter. We will do a more deep dive into our financial results. And then we will talk about the way forward and our outlook as well at the end of the presentation. And obviously, there will be time for questions and answers as well at the end of the presentation. But let's get straight into it and talk about the key numbers of third quarter, where we are reporting a net sales of SEK 213 million, which in reported currency is a decrease with 1.8% from last year, but in constant currency is a growth of 3% year-over-year. Our margin is coming in at 33%. Our net debt is at SEK 212 million and our cash flow coming in a little bit increased year-over-year at SEK 21 million. What I would say that we have spent quite a lot of time on the last 2 quarters is to clean up our balance sheet to ensure that the items that are impacting the financial net in our result is being handled. So the exposure from those have been taken down, and we can also see a clear improvement on our earnings per share with SEK 1.77 as a result in the quarter compared to SEK 0.18 in quarter 3 last year. We're going to come back to these key numbers in depth when Ulf takes you through the financial summary as well. Obviously, last but not least, we continue to invest in R&D, which is the key fundament for making sure that Enea stays relevant and ahead of the curve and competitive on the market. So 25% of our turnover is invested back into R&D. Some highlights from the market and business development in the quarter. I think that we see the continued trend that we reported in the second quarter as well that the geopolitical developments are fueling the need of increased Security Solutions in communication, and that has not -- it has accelerated, I would say, in the quarter, and I'm going to come back shortly to tell you about a couple of incidents in the quarter that actually are also fueling the need for the Enea solutions. We also see a good continued momentum for our traffic management business. The need for increased network intelligence is there and it's accelerating as well. So that's good. So fundamentally, we see traffic management business continue to grow. And then in the short term, at least in this year, year-to-date, the continued strengthening of the Swedish krona with more than 16% stronger currency or exchange rate today compared to the beginning of the year is creating pressure on us when it comes to our top line. So I'm actually very pleased to say that we show 3% growth in constant currencies in the quarter, even though this strengthening of the currency is impacting our reported top line result. On the business side, we have a good underlying business, and we have also a good and solid pipeline, which gives us confidence that we are well positioned to reach our ambitions. We see also from a market point of view that the business in Middle East and North America is developing well from a regional perspective. And those are also the regions where we made 2 press releases of new deals during the quarter for 2 different Tier 1 operators, respectively, and also for traffic management solutions. On top of that, we also see our Deep Packet Inspection developing well in the Security core area according to plan or maybe even a little bit ahead of the same. When we look at the new customers that we have acquired in the quarter, we have 5 in total, and they are all in the Security area. We have 3 new customers when it comes to our firewall solutions, and we have 2 new customers when it comes to Deep Packet Inspection, and they are spread across the world, as you can see on this slide. Then if we continue to look at, as I said on the previous slide, of course, the geopolitical development is just continuing to accelerate, not always in the most positive side. But on the other hand, it's good for Enea and our solutions become even more relevant than they have been before. I'm highlighting here 3 examples of incidents or happenings in Q3 that we see -- where we see an increased trend. For instance, when it comes to massive SIM farms, there are more and more of those out in the world that are being revealed. And of course, these pose a big threat to national infrastructure from many different perspectives and is used for fraudulent activities. Here, our firewalls can counter such threats by detecting and blocking fraudulent traffic in real time. Another thing that we see developing as well is that there's a lot of leaked location data that's been exposed and where users' movements into sensitive areas and private movements can be tracked. And then these movements are tracked by different apps that we all of us download from App Store or from Google Store and where we just accept the terms and conditions. And our location data is being saved when it comes to how we move and how we act. And that data is then in turn being sold to different actors in the world. The third, I would say, trend that we see and that we hear more and more about escalating is, of course, the increased drone traffic and threats in general. I think that we've seen in the quarter, we know the warfare that's happening all around the world. And of course, on that also the hybrid warfare with -- in the Nordic countries, many drones being, so to say, disturbing traffic around major airports in major cities in the Nordics and in Europe. And here, we -- at Enea, we are right now developing fingerprints so we can actually help our customers track drone traffic in mobile networks to make sure that we can help secure those threats in the world that we see emerging. Two other press releases that we've done in the quarter that is not related to new deals. We have renewed our partnership with Suricata. Suricata is an open source, rule-based framework where we contribute with our expertise from Enea, but we also use the Suricata framework for the development of our own solutions and products. We believe strategically and strongly that open source is a good way of developing and contributing to our product development for the future. We have also announced a new customer win with a French AI-based network detect and response supplier, called Custocy. Custocy is using our Deep Packet Inspection engine in their solution. And they have also announced a win with the French region, Haute-Garonne. It's a major department council in France, and they have chosen Custocy's MDR technology to secure their asset base that consists of more than 25,000 different assets and 1,500 subnets in their operations. We are very happy and proud to be part of that journey from an Enea point of view. Last but not least, before I hand over to Ulf and we dive deeper into financials, we continue to be very active on the market, sharing our thought leadership. This slide shares you 4 examples, and I will only comment one of them. I think that we focus very much on together with GSMA to impact and help the development of both existing and future standards when it comes to mobile communication. And we are very proud to be part of that and to help that and of course, also making sure that the products that we develop for the future also support the new standards that are being brought out into the market. We want to stay at the edge. We want to be relevant, and we want to make sure that our thought leadership is seen in different parts of the ecosystem out in the world. With that introduction, I would like to hand over to Ulf, who will take us through the more details of our financials. Please, Ulf. Ulf Stigberg: Thank you, Teemu. 3% growth in fixed currency for the quarter, and we report a 2% decline in reported net sales for quarter 3. Over 9 months, we also reported 3% growth in fixed currency, and we are in line with the 9 months net sales previous year. We reported 33% adjusted margin for the quarter. And for the 9 months result, we report a 30% adjusted EBITDA margin. And this is partly thanks to, of course, the net sales development, but also that our operational expenses are declining compared to previous year. And if we exclude D&A, we are in line with the cost base that we had previous year in quarter 3. We report a 16% EBIT margin for the quarter. Compared to last year, the reported EBIT margin was 13%. So it's a slight increase. But the major difference compared to last year is the development of the earnings per share, which is reported now in Q3, SEK 1.77 compared to SEK 0.18. If we look into our product area, Security Solutions, we report similar revenues in the different revenue categories. We have licenses almost at the same level. We have professional service almost at the same level and support and maintenance almost at the same level as previous year. For Network Solutions, we can see an increase compared to Q3 previous year and a sequential decrease actually in support and maintenance. But giving the increased number of new deals and solid recurring revenue, we foresee a good development of license sales going forward as well. If you look into the different product areas, we can see a growth of 9% within the Network area compared to Q3 previous year. And we are having a slight growth in the Security area, all in fixed currency, and we have a currency impact for the quarter of SEK 10 million. Looking at the 9 months report, we see a slight decline for Security and a 7% growth in Networks, all in fixed currencies. And if we sum up the core, putting Security and Network together, we report a growth of 3% in fixed currency for the 9 months period. Over to cash flow. We have an operational cash flow that's in line with Q3 previous year or a slight increase. We also can see that the investments and the buybacks are also in line. However, we have done some amortizations higher than previous year, and we are utilizing some of our credit facilities. That gives us a net cash flow that's better than last year, but mainly driven by financial items. We reported net debt of SEK 211.9 million, equity ratio of 71.1% and a net debt to EBITDA of 0.78. Coming back here to the improved financial net that Teemu mentioned initially. In the quarter 3 this year, we report a financial net of SEK 87,000. And this needs to put in perspective of that we had quite negative items in the beginning of the year. And an explanation to that is that we have a total impact for currency net of positive SEK 4 million this quarter. It's a combination of bank revaluation -- bank balance revaluations impacting us with SEK 1 million and impact from intercompany loans revaluations of positive SEK 5 million. And in the quarter, we have been active in reducing our dollar positions. We have optimized our cash balance. We also have worked harder with our global treasury to secure optimized operational liquidity. And also, we are reviewing, as we speak, our balance sheet to optimize our currency exposure in all different items in the balance sheet. And this will lead to a reduced exposure when it comes to currency fluctuations in the future. We continued with the buyback program. And in the quarter, we bought 232,000 shares for a total consideration of SEK 17.7 million. And this is part of the program that was decided by the AGM in May, and we are executing on this decision that gives us or that is on a plan of buying back up to 50 million share -- or SEK 50 million of shares until the next AGM 2026. Teemu Salmi: Good. Thank you, Ulf, for that. And we will conclude the presentation with a bit of a short-term outlook. We see that the market for us remains stable to moderately positive. And we also say our portfolio is highly relevant for the markets and the segments that we serve. I have myself spent quite some time on the road meeting quite many of our customers in Middle East and the North American region in the past quarter. And I can confirm that we are seen very strong as a partner to our customers serving both network intelligence, but also Security Solutions. We also expect to deliver on our short-term targets for the full year as we have stated since the beginning of the year. And also, as I mentioned from the first day when I started at Enea, we have been doing updates to our strategy, and we will communicate them now in quarter 4 as promised, and that content will be focusing on an accelerated growth agenda for us as a company. So we will come back with that message later on in quarter 4 of this year. So finally, our guidance stays exactly the same. We have not changed our long-term guidance or our short-term guidance. So we -- in the short term, our guidance for the year is that we will see continued growth in our focus areas, Network and Security, with an EBITDA margin in the range of 30% to 35% and a stable cash flow for the conclusion of 2025. And obviously, we're going to come back also in our strategy update with more information later on in the fourth quarter. That actually concludes our presentation, and we are now ready to take some questions. Operator, please. Operator: [Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Teemu Salmi: All right. Thank you for that, operator. We have actually a couple of written questions. We will take them now as we speak. We will start with the first one. How much of cost improvement is driven by FX? Ulf, do you want to comment? Ulf Stigberg: Yes. And round figure for this quarter is that the change in FX has improved our cost level by roughly SEK 5 million. Teemu Salmi: Thank you, Ulf. We continue with the next question. Could you please comment on the organic growth and the weakness seen despite late quarter deals, has there been any deterioration in end markets since Q2? Are deal closing extending further? I would say, well, I mean, our business is very volatile when it comes to kind of single deals that we are signing. They might come in a quarter or they might slip out into the next quarter. I would say that we actually see a stronger market, like I also shared in the presentation that we see a slightly moderate positive market development. That's kind of my and our assessment of where we stand right now. Then if a deal lands in one quarter or another, that can be depending on days, right? So we still report in constant currencies 3% growth. Under these circumstances, we are not happy, but it's an okay result, I would say. So -- and we have a strong and mature pipe that we are currently working on turning into sales as well. So I would not say that we see a weakness in the market, slightly on the opposite, actually. Then we have another question with 25% R&D investments, why are you not able to deliver better growth in the last couple of years now? Is 25% R&D needed to stand still? Well, I think that the answer to the question is that we have a mixed portfolio, right? We don't only have a growth portfolio, we also have a part of our portfolio that is in structural decline that we have discussed and presented many times. I think showing our core areas that we are growing in those, not to the speed that we want and that we hope to see moving ahead that I should be clear about. But we see a 9% growth of our Network business in the quarter, which is one of our focus areas. And then in the Security business, we see a bit of slippage when it comes to signing contracts and closing deals, not necessarily that we are losing. So I think definitely, we are -- we need to spend those money to stay relevant and to continue to grow. And the ambition is, of course, to have an accelerated growth further than we've had over the past couple of years. Do we have any more? I think those are actually the questions that we have in the chat. So with that, then I would like to thank you for listening. Thank you also for your questions, and I hand it back to you, operator. Thanks for today.
Operator: Good day, and thank you for standing by. Welcome to the ICON plc Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kate Haven, VP of Investor Relations. Please go ahead. Kate Haven: Hello, and thank you for joining us on this call covering the quarter ended September 30, 2025. Also on the call today, we have our CEO, Barry Balfe; our CFO, Nigel Clerkin; and our former CEO and Non-Executive Board member, Steve Cutler. I would like to note that this call is webcast and that there are slides available to download on our website to accompany today's call. Certain statements in today's call will be forward-looking statements. These statements are based on management's current expectations and information currently available, including current economic and industry conditions. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, and listeners are cautioned that forward-looking statements are not guarantees of future performance. Forward-looking statements are only as of the date they are made, and we do not undertake any obligation to update publicly any forward-looking statements, either as a result of new information, future events or otherwise. More information about the risks and uncertainties relating to these forward-looking statements may be found in SEC reports filed by the company, including the Form 20-F filed on February 21, 2025. This presentation includes selected non-GAAP financial measures, which Barry and Nigel will be referencing in their prepared remarks. For a presentation of the most directly comparable GAAP financial measures, please refer to the press release section titled Condensed Consolidated Statements of Operations. While non-GAAP financial measures are not superior to or a substitute for the comparable GAAP measures, we believe certain non-GAAP information is more useful to investors for historical comparison purposes. Included in the press release and earnings slides, you will note a reconciliation of non-GAAP measures. Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share exclude stock compensation expense, restructuring costs, foreign currency exchange, amortization, transaction-related and integration-related costs, goodwill impairment and their related tax effects. We will be limiting the call today to 1 hour and would therefore ask participants to keep their questions to one each in the interest of time. I would now like to hand over the call to our former CEO and Non-Executive Director, Dr. Steve Cutler, for opening remarks. Steven Cutler: Thank you, Kate, and good day, everyone. As I reflect back on the last 14 years I've spent at ICON, I feel a strong sense of pride for what we've accomplished over that time, growing from a company of 8,500 employees that was #6 in the industry to 40,000 people worldwide and a ranking in the top tier of global CROs. It's been an honor to lead this organization, and I have no doubt that the future opportunity for ICON is robust and the leadership team in place is the right one to move it forward. I want to sincerely thank all my colleagues and friends at ICON for their partnership and dedicated efforts that have fueled our success over the years. I also want to thank our customers for their partnership and loyalty in working with us to deliver their projects through some external challenges, including COVID and several geopolitical conflicts. Finally, I want to thank the analyst community and our many loyal shareholders who I've come to know well and who have supported our company and its evolution in my time here, particularly as the CEO. I look forward to continuing to support Barry and the rest of the ICON team in my role as a Non-Executive Director, and I remain confident in the continuing success of ICON over the longer term. Barry, I'll now hand it over to you. Barry Balfe: Thank you, Steve. And I'd like to start by expressing my gratitude to you for your partnership in ensuring such a smooth transition period and for your leadership and support over many years. On behalf of the whole ICON team, I wish you the very best in retirement and look forward to your continued engagement and contributions as a valued member of our Board. Turning to our results for the third quarter. Our performance was broadly in line with expectations as we successfully navigated a mixed market characterized by known challenges and emerging opportunities. We executed well on the encouraging level of RFPs that went to decision in the quarter. Similar to quarter 2, overall gross business awards were strong, totaling $3 billion and were up mid-single digits on a year-over-year basis. Encouragingly, these awards were broad-based across large, midsized and biotech customers with notable strength in the areas of oncology, cardiometabolic disease and FSP. Revenue increased on both a sequential and year-over-year basis in the quarter with therapeutic mix driving strong pass-through revenues. Our overall burn rate was flat sequentially in quarter 3 at 8.2% in line with our previously communicated expectations. While quarter 3 results reflect continued strong cost control across the business, our overall margin profile was negatively impacted by the higher pass-through revenue mix. Adjusted EBITDA margin was 19.4%, a 20 basis point sequential decline. During quarter 3, we bought back $250 million in shares, bringing our total share repurchases to $750 million year-to-date. This all translated into adjusted earnings per share of $3.31, a 1.5% increase over quarter 2. Additionally, we generated strong free cash flow totaling $334 million in the quarter and $687 million on a year-to-date basis. While I'm particularly pleased with gross business awards in the quarter, our net book-to-bill of 1.02x was negatively impacted by elevated cancellations of $900 million, broadly flat with quarter 2 levels with a bias towards previously awarded studies that were canceled prior to commencing enrollment. Looking to the remainder of the year, we expect largely similar conditions to persist in the market and have assumed this in our updated guidance. I am particularly encouraged by our strong pipeline of actionable opportunities, reflecting our continued focus on commercial excellence and broader and deeper market penetration across customer groups. A notable area of strength in quarter 3 was in the biotech sector with a significant increase of RFP flow on a year-over-year and sequential basis. However, despite recent improvements in biotech funding, the environment remains mixed regarding the time lines for conversion of opportunities to award and contract. We have amended our full year guidance range to reflect the nature and phasing of business wins and cancellations as well as stronger pass-through revenue activity. We now expect full year revenue to be in the range of $8.05 billion to $8.1 billion and full year adjusted earnings per share to be in the range of $13 to $13.20. While we're not providing 2026 guidance at this stage, our outlook for the year will in part be influenced by the extent which we can sustain the positive trends of the last 2 quarters regarding RFP flow and gross bookings, transition to more normalized levels of cancellations in 2026 and optimize the burn rate of studies that are actively enrolling. Accordingly, we remain focused on executing our strategy with an emphasis on accelerating top line growth, rigorous cost management, the deployment of novel technologies to enhance our offering and a balanced approach to capital allocation. Regarding revenue, our plans prioritize expansion of opportunity flow and win rates in biotech, diversification of our revenue streams in large pharma, increased share of market in the important midsized segment and further acceleration of strong growth in our labs, early phase and FSP business. ICON continues to manage costs effectively, and our investments in enhanced resource demand management and allocation technologies continue to play a key role in our ability to scale our workforce rapidly and effectively in line with business needs. While revenue mix and pricing pressure are expected to weigh on gross margins in the near term, we continue to differentiate primarily based on capability, expertise, solution design and technological disruption of the clinical trials process. This enables us to take time and cost out of the development cycle while creating and capturing value. A key priority for me is the deployment of innovative technologies that allow for greater speed and predictability as well as enhanced efficiency. We're building on the significant progress that we've made in the area of process automation and will accelerate investments in AI-enabled technologies and external partnerships that enhance our capabilities and provide for seamless analysis and interpretation of clinical trial data. We continue to see value in returning capital to shareholders, while our strong financial position also gives us latitude to invest organically in our capabilities and to consider opportunities for inorganic growth in the right circumstances. In summary, while recent cancellation levels are a headwind to revenue growth in the immediate term, ICON's global scale, industry-leading capabilities and financial strength provide us with an excellent platform for growth. The recent demand dynamics provide significant grounds for optimism regarding the midterm trajectory as we move beyond a period of volatility and return to normalized levels of growth. I'm excited by the path ahead given the strong market position we've established and how we can continue to evolve our offering to better serve our customers and patients around the world. I'll now hand it over to Nigel for a more detailed review of our financial results. Nigel? Nigel Clerkin: Thanks, Barry. Revenue in quarter 3 was $2.043 billion, representing a year-on-year increase of 0.6%. Revenue was up approximately 1.3% sequentially on quarter 2 2025. Overall, customer concentration in our top 25 customers was broadly aligned with quarter 2 2025. Our top 5 customers represented 24.6% of revenue in the quarter, our top 10 represented 39.8% and our top 25 represented 66.6%. Adjusted gross margin for the quarter was 28.2% compared to 29.5% in quarter 3 2024 and down 10 basis points on quarter 2 2025. Adjusted SG&A expense was $179.2 million in quarter 3 or 8.8% of revenue. Relative to the comparative period last year, adjusted SG&A was down by $1.2 million in quarter 3. Adjusted EBITDA was $396.7 million for the quarter, an increase of $0.7 million sequentially. Adjusted EBITDA margin decreased 20 basis points over quarter 2 2025 to 19.4% of revenue. Adjusted operating income for quarter 3 was $356.9 million, while adjusted net interest expense was $47 million. The effective tax rate was 16.5% for the quarter. We continue to expect the full year 2025 adjusted effective tax rate to be approximately 16.5%. Adjusted net income for the quarter was $258.8 million, equating to adjusted earnings per share of $3.31, a decrease of 1.2% year-over-year or an increase of 1.5% on quarter 2 2025. U.S. GAAP income from operations amounted to $86.6 million or 4.2% of quarter 3 revenue. U.S. GAAP net income in quarter 3 was $2.4 million or $0.03 per diluted share compared to $2.36 per share for the equivalent prior year period. From a cash perspective, quarter 3 had cash from operating activities coming in at $387.6 million. This resulted in free cash flow in the quarter of $333.9 million, bringing our total year-to-date to $687.2 million. Overall, cash collections were solid in quarter 3 with our free cash flow higher than quarter 2, reflecting the timing of interest and tax payments as well as restructuring expenses. At September 30, 2025, cash totaled $468.9 million and debt totaled $3.4 billion, leaving a net debt position of $2.9 billion. This was broadly in line with net debt at June 30, 2025, of $3 billion. We ended the quarter with a leverage ratio of 1.8x net debt to adjusted trailing 12-month EBITDA. Our balance sheet position remains very strong, which affords us the flexibility to continue to strategically deploy capital. We are focused on an approach that balances further investment in our business as well as future growth while also returning capital to shareholders. We made significant share repurchases in quarter 3, totaling $250 million at an average price of $175 per share, bringing our total share repurchases year-to-date to $750 million. With that, we'll now open it up for questions. Operator: [Operator Instructions]. And your first question today comes from the line of Elizabeth Anderson from Evercore. Elizabeth Anderson: Congrats, Steve, and congrats, Barry. Excited for the next steps for both of you. Maybe turning to the question. Could you maybe dive a little bit more into the cancellation dynamics? I appreciate that the cancellations in the quarter came spot on with what Steve previewed on the 2Q call. So how do you kind of think about those trends going forward? Are you sort of saying maybe we'll see elevated levels in fourth quarter and then you kind of -- that should taper down? Is there something other kinds of dynamics that are sort of driving some of that? Just a little bit more color there would be helpful. Barry Balfe: Elizabeth, it's Barry here. I'll take that. I think as you say, cancellations came in broadly in line with where we projected -- there was a balance of cancels across the group, some significant activity in pharma, it has to be said, within the quarter. And as I mentioned in my prepared remarks, there was a bias in those cancellations towards studies that had been awarded prior to quarter 3 and were canceled prior to commencing enrollment. And I suppose that addresses your question in the context of the profile of cancels. These were not, by and large, studies that were in flight and burning at a good clip, so perhaps moderately preferable in that regard. I still think that as we reflected in our guidance, we expect conditions to remain broadly similar throughout the rest of the year, but I also think we will see this moderate as we move into 2026, certainly over the course of the year. So I'm not quite sure where the high watermark and the low watermark is, but I do think we're certainly closer to the end of the period of elevated cancels than to the... Operator: And the question comes from the line of Michael Cherny from Leerink Partners. Michael Cherny: Maybe if I can dive in a little bit on some of the gross margin commentary you had. I think the dynamics on mix and pass-through clearly were in place. Is there anything that you're working on proactively from a gross margin side to try and offset some of those dynamics? And especially on the pricing side, how you think about firming up price in certain markets, areas where you'll compete, where you won't compete? Anything more you can give on that front would be great. Nigel Clerkin: Michael, why don't I start and then, Barry, obviously, feel free to chime in. So you are right in terms of the gross margin picture. Obviously, earlier in the year, we had hoped to exit the year at a margin closer to where we exited last year in terms of EBITDA margin. Clearly, as we've gone through this year, we have seen an increase in the proportion of pass-throughs. We've talked about that as we've gone through the year. So that is certainly weighing on the margin outlook for the balance of this year and frankly, into next year as well. We've also, of course, talked about the increasing pricing competitiveness that we're seeing in the market generally. Barry can touch more on that, which again is not so much of an impact for this year but is a factor that might weigh on margin outlook for next year. Having said all of that, you're absolutely right. ICON, of course, always has had a very long track record of managing its cost base appropriately, and we've continued to do that through the course of this year. That is partly through adjusting our resourcing to the demand environment that we see out there. And you can see that, for example, in our staffing numbers are about 5% lower now than they were at the end of last year, just as an example of that. But also, and Barry touched on how we are leveraging technology as well, for sure, in terms of efficiency and how that can help in terms of margin profile, but also in terms of effectiveness in how we deliver to our customers as well for all the reasons you mentioned. And Barry, I don't know if you want to add in, in terms of how we can use that to help deliver for our customers and ultimately improve our own margins over time, too. Barry Balfe: Yes. I think it's a fair question, Mike. I mean the first and obvious thing you do is you try and win more opportunities with heavy direct fee on them. I don't want to give back any of the opportunities that have high pass-through mix. I just want to augment them with even more direct fee awards, and that's -- our focus in terms of driving commercial excellence, making sure we can see more of this market and convert more of it into wins, that's important to us. We'll continue to do that. And I'm certainly pleased with our progress in quarter 3 in that regard. In terms of technology, Nigel's point is well made. We are looking to enhance the technological ecosystem here at ICON. We'll continue to do that. The deployment of agents to whom we can delegate workflows rather than simply ask questions is really important to us. Of course, in parallel, we do manage the processes that underline those workflows, manage our geographical footprint. And as I mentioned in my remarks, utilizing some of our existing technology to resource just in time and appropriately, identifying those projects that will burn faster when they benefit from some additional resources or frankly, areas of the organization where we might have a surplus of resource, migrating those resources where they can be more impactful. On your last point about pricing, I suppose there's a degree to which that will always bleed into the gross margin line, but we remain really focused on how we win. We're not going to cut our way to victory in terms of pricing. We've never done that. We're not going to do it now. We do tend to differentiate. When we win, we win by virtue of superior capabilities, greater expertise, scientific and operational and frankly, better solution design, being able to bring a study in faster and more cost effectively is a function of those things more than it is with pricing. So they're all factors, but they're some of the top level... Operator: Your next question comes from the line of Justin Bowers from Deutsche Bank. Justin Bowers: And I also echo Liz's sentiment, Steve and Barry. So Barry, can you maybe discuss the industry environment a little bit and bifurcate between pharma and biotech? And maybe more specifically around the tenor of those conversations in light of what seems to be a regulatory and trade environment of increasing clarity? Barry Balfe: Yes. It's a good question, Justin. There's a lot in there. So I'll certainly do my best. I think the first thing to say is I understand why people have been looking very carefully at biotech funding and taking some heart from the Q3 numbers, albeit it is a single quarter. Likewise, in pharma, I think we're pretty clear on why the markets reacted positively to some of the news over the course of the quarter around TrumpRx and the interactions with pharma in that regard. So there is certainly a sense that we may be getting closer to a point of some consistency. And I think we've said this before on the call, good policy or bad, consistent policy, certainty, dealing with some of the uncertainty that our customers have been facing is certainly net good for the sector. Whether or not that's what has driven the significant double-digit increases in RFP flow, whether that's what's trickling down into the successes we've had over the last couple of quarters in terms of gross bookings, it's a little early to see, but we're certainly glad to see it. What I would say just in terms of balancing that, though, is we said for a while, we would expect to see improvement on those leading indicators like RFP flow and gross bookings being trailed somewhat by follow-through onto the revenue and earnings line. So some positive indicators in terms of the environment, some interesting signs that perhaps deal flow is starting to tick up around large pharma as well. They're encouraging signs. But of course, we're still untangling the consequences of the last couple of years of volatility. So I think we should characterize the environment as encouraging, but still somewhat mixed. Operator: Your next question comes from the line of Jailendra Singh from Truist Securities. Jailendra Singh: I want to get more color on the competitive pricing environment. You gave some flavor of that. Has this got worse than what you guys have talked about in the past? Is it across the board? Are there any particular market segments you're seeing it? And based on your observation, are you seeing pricing pressure more driven by clients looking to squeeze extra dollar? Or is it more driven by your competitors trying to win more business? Barry Balfe: It's a good question, Jailendra. I don't think it's gotten worse for sure. I think what we've talked about over the last couple of quarters is that the prevailing environment in '25 is more competitive than in certain prior years. But I don't think that's something that we've seen continue to deteriorate by any means over the course of the year. I think that's fair to say. I think it's also fair to say that just given the structure of the relationships we have in large pharma that that's where a lot of the pressure comes from, which is not to say that our biotech customers don't require significant support, not just getting to the right price, but getting to really good predictability about that price. And this is a significant priority for us at ICON. We invest not just being in cost-effective, high-quality and speedy, but we also invest carefully to make sure we can be predictable. Our biotech customers really need to know when their studies are going to start, when their patients are going to be enrolled and when they're likely to be completed. So that's certainly something we've focused on. So I don't think it's something that's gotten worse over the course of the year, but I would characterize it as a particularly competitive environment. And to the last part of your question, I think when the bowl is smaller, the dogs are hungrier to a certain degree. So I think one feeds the other. We certainly see heightened level of competitive activity among our competitors, but I think that's driven by the upstream dynamics that are impacting our customers. Operator: Your next question comes from the line of Patrick Donnelly from Citi. Patrick Donnelly: Maybe one that kind of following up on some earlier ones in terms of the pricing and pass-through environment. I know you guys don't want to talk '26 too much. But just in terms of what those impacts could look like on the moving pieces on margins into next year. It seems like higher past-throughs will continue a little bit on the pricing that you've talked about. So can you just talk about just the levers on margins as we get into next year, just high level in terms of moving pieces? Again, obviously, pricing pass-throughs are an impact, but just trying to think about potential offsets and the opportunity to keep those flat to potentially up. Is that on the table? Nigel Clerkin: Patrick, it's Nigel. So yes, no, look, I think you've touched on the key major moving pieces there. And again, just as Mike asked through earlier. So you're absolutely right, pass-throughs and the increasing component of -- our composition of pass-throughs within the overall revenue mix is certainly going to be a weighing factor for next year. The pricing environment, to Barry's point, it has been tougher through the course of this year than perhaps previously. That's not so much going to impact us really too much this year, but it certainly would be more of a weighing factor as you go through next year. And again, countering that, all of the stuff that ICON has always had a long track record of doing, managing the business efficiently, investing in technologies that allow us to be more efficient as well as being more effective for our customers, all of the above. So exactly what that means in terms of margin outlook for next year, Patrick, we -- you'll understand we're not going to walk through today. We will provide that when we provide our guidance for next year in January or February when we get to there. So I appreciate your patience as we work through that ourselves. Operator: Your next question today comes from the line of Jack Meehan from Nephron Research. Jack Meehan: I wanted to follow up on kind of the margin question. I was wondering if you could provide more color on the level of pass-throughs. I'm not sure if there's any metrics you can share like as a percentage of gross revenue, where it was in 2024, where it's tracking in 2025? And based on what you look at the backlog now, like how much that could shift in 2026? I think just trying to get a sense for where gross margins can start to bottom out. Do you think 27% is close to a floor. Nigel Clerkin: Jack, yes, so Nigel, again. I'll take that. So yes, look, we report revenue in aggregate. So we don't obviously break that out between pass-throughs and direct fee. All we can really do is give you qualitative commentary around that as we have done in terms of that increasing proportion of pass-throughs. So -- and likewise, in terms of margins, I think we've touched on the various factors that are weighing on margins next year and also how we can hopefully help mitigate some of that challenge. So again, it's premature for us to give you any guidance on margin outlook for next year. Again, we'll do that when we get to there. Barry, I don't know if you wanted to add anything else to that. Barry Balfe: No, I think you covered it really well. I mean there's multiple different puts and calls. One of the big ones is business mix. The degree at which awards in different therapeutic areas manifest into revenue is not always linear and it's not always obvious. But as an indicator, over the last year, our level of RFP activity and indeed our level of awards in an area like cardiometabolic, which carries a very significant pass-through load have increased by more than an order of magnitude. So when we see significant shifts in pass-through [ heavy TAs ], this is good news. These are gross bookings that will drive direct fees, that will drive margins in time. But they do also make us consider what the pass-through load will be. So it takes time to work how that works through the flow, and we'll certainly be taking that into account when we set guidance early in the new year. Operator: Your next question comes from the line of Eric Coldwell from Baird. Eric Coldwell: I am curious, when looking at backlog and bookings, you've always had an approach of taking written confirmations as opposed to formally contracted awards, which is a bit unique versus the rest of the group, but you've been clear about that. How have those ratios changed over time? And when you parse the higher cancels that you're facing today, what percent of those cancels are coming from the noncontracted bookings, the ones that don't have formally legally bound terms and conditions in them? I'm just curious what that -- again, the ratio of noncontracted in bookings and backlog and then how that ratio has changed and then where the cancels are coming from? Nigel Clerkin: Eric, maybe I'll take that, and Barry, obviously, feel free to add. I can't really comment on what others do, frankly, in terms of how they book awards. I'll leave you to assess that on what they do. You are right, our practice has been to take bookings on award and the logic rather than on contract and the logic for that is that, that is closer to now, if you will, in terms of what's happening on the ground commercially because obviously, there is a lag from awards to signing a contract that can be several months. So it is a more real-time measure, if you will, of what's happening in terms of commercial demand. On your question on the timing of that over time or the pattern of awards and cancels, I think Barry touched on the point that the predominance of the cancels that we've seen have been in awards that haven't yet moved to enrollment. So that is a mixture of both. Frankly, I don't have at my fingertips the mix of that between the 2. But it is reflective of, again, the factors that we've seen and touched on over the last few quarters around cancels being elevated because of reprioritization decisions because of, for example, in the biotech arena, funding environment and companies hoping to raise money or haven't raised money or have been delayed and so on and reprioritizing where they spend and likewise in large pharma. So it is a mixture, frankly, and that's what we've seen so far. Operator: Your next question comes from the line of Charles Rhyee from TD Cowen. Charles Rhyee: Maybe if I could follow-up to Eric's question. When you look at the backlog, and I'm sure you've done sort of analysis of the backlog itself. I mean, do you feel comfortable that maybe we've gotten through most of the potential projects that could -- that you think could get canceled? Or I mean, do you have a better sense of what the quality of that -- of the remaining backlog that you're looking at today? And then a follow-up, Barry, at the beginning, you kind of talked about good RFP flow in biotech. Any kind of additional information you can kind of give us in terms of sort of win rates in biotech and how your market share has changed in biotech? Has that increased during the third quarter or in 2025 versus 2024 and maybe sort of what you're seeing there? Barry Balfe: Expertly managed 2-parter, Charles. I'll do my best to address both. I think on the backlog, look, as we said, there are a mix of reasons why studies cancel, whether it's emerging clinical data from an ongoing study, whether it's reprioritization of the portfolio or other reasons. And there are a mix of contracted and ongoing, ongoing and precontract, et cetera. So there are really a mix. What I would say is that to the degree that the turmoil of the last couple of years did result in some delays and some disruption in terms of awards proceeding to contract and contract proceeding to study start. I am confident we are closer to the end of that process than the beginning. Now who knows what normal looks like in this business. But as I said earlier, I do anticipate that we will return to more normalized levels of cancels, which I think is germane to the question that you're asking about backlog. I'm also encouraged by the profile of the awards that are going into backlog of late. I do think there's a much healthier association between the awards that are coming in now and in the last number of quarters than perhaps those that are coming out of backlog or at least those that are driving us above historical norms for cancel. So I'm encouraged by that for sure. In terms of biotech RFP flow, I mean, retrospective rationalization is a dangerous thing. We know biotech funding has improved somewhat. We've spoken repeatedly that that's sort of a 2-sided coin. There's the level of funding, but there's also the amount of the allocated funding that gets deployed. And I think that's probably the underdiscussed side of the argument. We do see a number of our biotech customers not just moving forward to deploy capital, but to deploy it in indications where they're running larger studies relatively deep into the development cycle. Now is that good for us? Yes, I think it is. Does it mean occasionally you see some larger cancels come out of that biotech organization or that biotech field? Yes, it does. But I think in the main, I am optimistic and encouraged. We made a strategic priority out of seeing more of the biotech market. We are being successful in that regard. We're looking at very significant increases in RFP flow quarter-over-quarter, year-over-year trailing 12 months. That's a good thing. We also, in balance, said that we wanted to see a significantly higher win rate in biotech, and that's materially flat on a quarter-over-quarter basis. So there's work to do for ICON there. In all honesty, there's areas of the biotech market where ICON wasn't historically as present or as focused as I want us to be and as I believe we are now. And if that means we show up on other people's radar more than we did in the past, then I think that's a really good thing and the focus of the teams will be converting that elevated RFP flow into sustained higher book. Operator: Your next question comes from the line of Michael Ryskin from Bank of America. Michael Ryskin: Great. I love the -- when the bowl is smaller, dogs are [ hungrier, a metaphor ]. That's a great way of putting it. I want to sort of go back to that and maybe comment the pricing and the pass-through component from another angle. Just curious, there's obviously fluctuations in therapeutic mix, customer mix, pricing dynamics, pass-through. This all happens on a regular quarter-to-quarter basis. Just anything you could say in terms of what you're seeing now? Is it -- how short term is it? Is it a little bit more cyclical, more structural? As you look forward longer term, just any visibility or any comments you can make on the duration of this dynamic and when you think things could sort of normalize a little bit? Barry Balfe: I think I said on our last call, Mike, that history makes fools of us all. So I'm going to be careful of prognosticating around what the pricing environment might be like a year or 2 or 5 from now. I think the important thing to note is that it's stable, right? It is an elevated competitive market. And I've always said, good companies have great competitors, and that's a good thing. So there's an onus on all of us to realize that drug development is too expensive, and it takes too long. And the over-under on more cost-effective drug development skews substantially towards better process, more effective interaction with regulators to reduce the onerous burden on patients and on drug developers and on the deployment of technologies to move this whole industry in the right direction. I think that will drive up net spend in the sector actually. I don't think it will drive it down. I just think we'll get more research done per dollar spent. So I don't want to overstate the impact of pricing per se on the cost pressures that are actually creating those pricing dynamics in the first place. So it's stable. Is it competitive? Yes. Do I think that's a function of the upstream dynamics, be they regulatory, geopolitical or LOE related for our customers? I absolutely do in pharma and likewise, funding for our biotech customers. I said a few times now, we didn't get to where we are in a heartbeat, and I don't think we'll get back in a heartbeat. But as things begin to normalize in terms of funding, in terms of deployment of capital, in terms of a clearer regulatory and political picture, I imagine we will see things graduate back towards more normalized levels right across the sector. But I'm afraid I'm not going to throw out a number and a date for you. I think that would be a little [ premature ]. Operator: Your next question today comes from the line of David Windley from Jefferies. David Windley: Best wishes to Steve and Barry for your next phases. I wanted to try to combine 2 of the major themes here, margins and bookings together and ask the question, how do you balance labor force stability and the benefits of that in both productivity and also perceptions of clients of stability of their project teams and things like that with the defensive margin. I figure over multiple years, ICON has had several risks, both synergy driven by PRA and the market environment demand-driven. So again, how do you balance that stability of workforce and the external perceptions that, that can create? Barry Balfe: It's a pretty broad question, Dave. And I think I appreciate where you're coming from, albeit I'm not entirely sure how to answer it to be candid. Maybe the easiest way is to say that our headcount moved by about 100 FTE over the course of the quarter, which in a 40,000-person organization isn't substantial. I think our trailing attrition remains near historic lows, and that's been a good number for us, pretty much in a straight line since the COVID peaks where the whole industry saw a bit of a peak. So we focus on really driving efficiency, making sure we have the right resources in the right roles, in the right locations at the right times. And that's not so much a function of bookings actually as it is a function of what is required to move these studies forward. I talked earlier on about a more algorithmic approach to resource management. Part of that is being able to spread your risk over your portfolio. You remember earlier in the year when we talked about some very large studies coming in, then going on hold, some canceling, some renewing and then stopping. And we didn't see massive swings in the labor force. We didn't see massive swings in the margin dynamics, and we didn't see massive disruption of the customers on the other studies that were in the books. So I think the answer is we pull all the levers that any professional service company does. We continue to invest in the best talent. I believe we have the best expertise in the industry. It's absolutely vital to me that we sustain and improve that position. But I don't really see it as a trade-off of margin and bookings. It's more about making sure that we give our customers the best people, and we give our people the best environment in which to be successful. Operator: Our next question comes from the line of Dan Leonard from UBS. Kyle Crews: This is Kyle on for Dan. It sounds like you expect cancellations to moderate in 2026, given your current view on the backlog. But is there a risk that elevated cancellations related to order not yet started studies will persist throughout 2026? Separately, could you provide an update on BARDA-funded COVID-related trials that you continue to service? Barry Balfe: I'll take the second one, Dan (sic) [ Kyle]. I mean, I think we've talked about 1% to 2% COVID revenue. So there's not much of a cliff to fall off there, more of a curve? Kate Haven: On a full year basis expectation. Barry Balfe: Yes. I think any change there is to the upside, very honestly. In terms of cancels, I mean, no one can ever say there's not a risk of anything happening probabilistically. I think it's unlikely. What we think we're seeing, at least my sense of it is we are seeing the consequences of the last couple of years. You've got the confluence of a couple of issues, funding pressures, LOE, driving reprioritization, perhaps some of the science that got funded when money was cheap and abundant not perhaps being followed through. And that has put a different light on some of the studies that were planned, awarded and in some cases, started. Am I confident that we will see a return to more normalized level of cancels in 2026? Yes, I am. Am I willing to sign on the dotted line and say that will be linear from January 1? No, I'm not. But I do think we're closer to the ninth inning than the first. On the basis of how we interpret the backlog, on the basis of how we speak with our customers and on the basis of the broad demand dynamics across the industry, I think that's a reasonable assumption. How far, how fast and how soon, I think it's a little early to say. But as we've said, we do consider them likely to remain elevated in [ quarter 4 ]. Operator: Your next question comes from the line of Luke Sergott from Barclays. Luke Sergott: I just want to talk a little bit about the burn rate and the -- it's been relatively stable here. Your 4Q based on the midpoint kind of implies like a little bit of a step down there. Talk about the recent bookings that you're getting, what's coming out of the backlog and just the visibility that these burn rates will stick around this like 8 to 8.2 level as we think about kind of modeling in the toggles for '26. Barry Balfe: Luke, it's Barry here. I'll start, and Nigel might want to elaborate a little bit. I would point you first in my remarks that the cancels that we took during the quarter, not entirely, but they did skew disproportionately towards studies that had not yet started that were sitting in the backlog effectively at a 0% burn rate. I'd also point you to the increase in gross bookings, which in the immediate term actually are a drag on burn rate as studies take time to ramp up. So I think there are some of the primary dynamics. But Nigel, you might want to expand. Nigel Clerkin: Yes. Look, I think you -- look, again, you're right. Obviously, we had expected burn to be approximately stable -- stable at approximately 8% through the course of the year, and that is what we have seen. In fact, it's come in a little better than that, as you've noted, year-to-date. So let's see exactly where we land in Q4, but in and around 8% was what we anticipated and what we are seeing. Going into next year, absolutely, it will be a function of, of course, what happens in terms of cancels, as Barry touched on, and importantly, gross wins as well, but also on all the initiatives that we are driving, frankly, to enhance and improve that burn rate over time. Look, again, that's also, of course, one of the important components of how we frame our guidance for next year, which we will provide you more color on when we get to there. Operator: Your next question comes from the line of Max Smock from William Blair. Christine Rains: It's Christine Rains for Max. I wanted to echo the congratulations to both Steve and Barry. In terms of our question, hoping you can discuss if you're still seeing strength in early phase work that you called out previously? Or if there's been more of a shift towards late phase work? Barry Balfe: Thanks, Christine. Appreciate your good wishes. The answer is yes. We continue to see good activity in our early phase business with strong growth, both on a year-over-year and a sequential basis. That's a business that's grown at double digits on a year-over-year basis, and that's growth that we intend to sustain and improve... Operator: Your next question comes from the line of Casey Woodring from JPMorgan. Casey Woodring: Yes, Steve, Barry, congratulations. So just quickly, 2 quick ones. First one, any more granularity on the trial mix that drove the higher pass-throughs this quarter? Was it all cardiometabolic? And then just one on the cost management side. Automation has been a theme you've called out in the past as a margin driver. Going back to your last Analyst Day, you talked a lot about the advancements you've made there on taking man-hours out. So just curious on kind of the progress you've made on that front and how much you can offset pricing pressure there via automation and AI? Nigel Clerkin: Casey, I'll start on the trial mix. Certainly, that is a factor, and Barry touched on the strength we're seeing there in terms of opportunities and wins. Of course, he touched on the COVID study as well or the vaccine study that was ongoing that was particularly active in the third quarter, was a particular impact there. But in general, the comments we've made before around pass-throughs being an increasing proportion of our revenue over a more sustained period is not so much that. It's more around the therapeutic mix as we've talked about. On automation, you're absolutely right. That is, of course, one of the levers that we lean into always in terms of driving more efficiency and it's something we will continue to do. Barry, I don't know if there's anything you wanted to add to that in terms of -- I know you've touched on already our priorities there. Barry Balfe: Yes. I think you've dealt with it well. I mean at the end of the day, Casey, our customers depend on us to take time and cost out of the development cycle and create value in that regard, we get to share in some of that value. That's the basic premise of our partnerships. So when we think about cost management, there's puts and calls there in terms of what we save and what we share. But certainly, technology is a huge part of it. And I've talked before about the importance to me of leaning more assertively into some of these AI-enabled technologies. We just actually progressed the project to roll out an end-to-end project management, workflow management system, which is a really important evolution for us to be able to bring all the data together, put it in the hands of the PMs and inform more rapid and accurate decision-making. We're obviously engaged in a range of external partnerships where these technologies allow us to recruit patients more effectively, more quickly to manage patients, both in terms of their care, the stipend that they're paid more effectively, our clinical trial management systems with our external partners and indeed risk-based quality management. One of the big areas that will drive efficiency is actually in the area of agentic AI. So we started deploying over the course of the last year or so agents across our business to help us delegate workflow and process to these agents rather than simply information gathering via large language models, et cetera. And one that I would call out is a proprietary technology we developed by the name Orbis, which is effectively a multi-agent digital assistant. If you think about multiple agents across the ICON landscape, this is the front door through which employees can go in and relate to multiple agents at the same time without needing a PhD in the organization's digital infrastructure to access that information. So effectively an agent of agent that allows you to run multiple analyses, source multiple different data points from multiple different agents across the system. Now that's early days, but that's exactly the kind of thing that would create and I hope capture value for the company and its customers. Operator: We will now take our final question for today. And the final question comes from the line of Rob Cottrell from Cleveland Research. Rob Cottrell: I guess I want to dig back into the margin and potential benefit from technology investments that both Barry and Nigel, you focused on to help offset some of the price and pass-through margin pressure. Can you just share how some of these customer conversations are developing as it relates to how you balance sharing the savings with customers versus capturing the savings to help your margins in the near term? And when you expect these potential efficiency savings to begin to flow through for you all into 2026 or 2027? Barry Balfe: It's a good question, Rob, but a multifaceted one. I guess I wouldn't encourage you to think about it as a single day on which we start managing margin through technologies or otherwise. That's an organic process. It's been going on for the 20 years I've been here, and it's continuing. The other thing I would point out before I get to the heart of your question is we are calling out sustained margin pressure in the immediate term. It's not like we're calling out massive upside in the immediate term because of a particular technology that's going to solve all of our problems. But to your question about the customer conversation, one of the interesting things that's cropped up as we're developing and in many instances, co-developing these transformational technologies and capabilities with our customers, it forces us to think in the context of long-term relationships about whether our pricing and commercial arrangements now will be reflective of the situation by the time those relationships come to maturity. So if you're signing a 5-year partnership 10 years ago, you probably agreed your terms, plus or minus inflation. Now we're very much building into those discussions. Hey, guys, here's how efficient we believe we can be together based on the nature of that relationship. But let's build into the governance model a forum and a format where we can recognize efficiencies as these new capabilities come on stream. That's a big part of the attraction of working with a company like ICON. We're going to get incrementally more efficient with you, through you and for you, and we want to be in a creative conversation about how we share the benefits. And that co-development piece is actually quite a high bar because there's a huge level of IT and technological investments between ourselves and probably 1 or 2 others and the larger customers in the space, but we are very much having conversations with them about how we will revisit commercial terms as the clinical trial paradigm gets disrupted and as we become more efficient as a company. Nigel, I don't know if there's anything you want to add there. Nigel Clerkin: Yes. No, I think you've outlined it well, Barry. Rob, I guess the only things I would add is that as Barry just went through, that's a clear example of the benefits of scale that, frankly, we can bring to those conversations, we are able to. We have the capability of making those investments, providing that sort of longer-term perspective. And secondly, the only other thing I would add is that point of how do we share these benefits together, it's a great question, but also it's fundamental, frankly, to the philosophy and culture that you should have as a service organization to your customers. In the end, it is about delivering better service to them more effectively and more efficiently and jointly sharing in that. And that is how we always have and will continue to approach these topics. Operator: I would now like to hand the call back to Barry Balfe for closing remarks. Barry Balfe: Well, thank you. Very briefly before we close out, I would like to extend my thanks to our 40,000 dedicated employees across ICON for their continued commitment and outstanding delivery for our customers and the patients we all serve. And for all of you joining us on the call today, we thank you for your support. We look forward to connecting again over the course of the coming quarters. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the First Merchants Corporation Third Quarter 2025 Earnings Conference Call. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the future performance and financial condition of First Merchants Corporation that involve risks and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains financial and other quantitative information to be discussed today as well as a reconciliation of GAAP to non-GAAP measures. As a reminder, today's call is being recorded. I will now turn the conference over to Mr. Mark Hardwick, CEO. Mr. Hardwick, you may begin. Mark Hardwick: Good morning, and welcome to First Merchants Third Quarter 2025 Conference Call. Thanks for the introduction and for covering the forward-looking statement on Page 2. We released our earnings yesterday after the market closed, and you can access today's slides by following the link on the third page of our earnings release. On Page 3 of our slides, you will see today's presenters and our bios, including President, Mike Stewart; Chief Credit Officer, John Martin; and Chief Financial Officer, Michele Kawiecki. Slide 4 has a map with all 111 banking centers, a few awards that we've received recently and some Q3 financial highlights, including a 1.22% return on assets for the 9 months ended September 30, 2025. On Slide 5, our strong balance sheet and earnings performance reflects strength and resilience of our business model. We delivered another 9% loan growth quarter and $0.98 of earnings per share. ROA totaled 1.22%, the same as our year-to-date number I mentioned previously, and the efficiency ratio was 55%, which is consistent with the high performance we strive for. As you all know, we announced the acquisition of First Savings Financial Group on September 25, adding approximately $2.4 billion in assets and expanding our presence into Southern Indiana, which is part of the Louisville MSA. We are confident in our ability and excited about building on their meaningful deposit franchise to create a true community bank in Southern Indiana, much like we've done in previous acquisitions. [indiscernible] Bank in the Northwest part of Indiana and IEB in Fort Wayne are 2 great examples of acquisitions where we saw potential and successfully built them into high-performing parts of the First Merchants franchise over time. We also believe the verticals will prove beneficial by enhancing fee income through their originate and sell models for SBA loans and first lien HELOCs by adding an additional loan growth and liquidity lever through their triple net leasing business, and we will now have an SBA product offering available throughout our current footprint. You may know that we have completed $8 million of SBA originations so far in 2025, while First Savings has originated over $100 million. Our commercial and small business teams are excited to finally have a more robust offering for our communities. Larry Myers will be joining our Board of Directors upon the close of the acquisition, and Tony Shane will stay on Board to lead their verticals and enhance the financial expertise of our commercial team. We anticipate a mid-first quarter closing, a mid-second quarter integration and are confident in achieving the announced 3-year earn-back. On Slide 6, year-to-date net income totaled $167.5 million, an increase of $31.9 million or 23.5% from the 9 months ended 2024, while earnings per share totaled $2.90, an increase of $0.59 or 25.5% during the same period. Michele will discuss our capital position to include our tangible common equity of 9.18%, which provides meaningful capital flexibility. And John will discuss nonperforming asset data to include our 90 -- our NPA plus 90 days past due to total loans of just 0.51%, down from 0.62% a year ago. Now Mike Stewart will discuss our line of business moment. Michael Stewart: Thank you, Mark, and good morning to all. Allow me to share some context for my portion of this call. I'm calling in today from Charleston, South Carolina, where the First Savings Bank, SBL team is gathered. SBL stands for Small Business Lending and represents First Savings Bank's dedicated 45-person team that has a national footprint delivering SBA loans. They gather once a year in person to review their accomplishments and prepare for their upcoming year, and I am pleased to be able to meet this team later this morning as an early bridge to the integration with First Merchants. So back to our earnings call. The business strategy summarized on Slide 7 remains unchanged. We are a commercially focused organization across all these business segments and our primary markets of Indiana, Michigan and Ohio. So turning to Slide 8. As Mark stated earlier, this was another great quarter of loan growth across all segments and across all markets. It is very pleasing to see our Midwest economies continue to expand, our clients' businesses continue to grow and see our bankers continuing to win new relationships. $268 million in commercial loan growth for the quarter, over 10% annualized. $699 million of loan growth year-to-date, over 9% annualized. CapEx financing, increased usage of revolvers, M&A financings and new business conversion are the drivers of this growth. Another encouraging bullet point on this page is the quarter ending pipeline, which is consistent with prior quarter end and gives me optimism that we will be able to maintain our loan growth and increasing market share activities into the fourth quarter. The Consumer segment also shared in the balance sheet growth with residential mortgage, HELOC and private banking relationships driving the $21 million of loan growth for the quarter. Pipelines for these segments also ended at consistent levels to June. So we can turn to Slide 9, deposits. I will start with the Consumer segment on the bottom page, which was the driver of our deposit growth during the quarter, $96 million in total. The mix is particularly pleasing with the non-maturity categories growing at nearly 5% annualized. Maturity categories also grew by $27 million. The primary driver of the nonmaturity balance increase is market share and household growth. Note the last 2 bullet points on this page. Maturity deposit balances have decreased $198 million year-to-date with nonmaturity deposit balances increasing by $178 million. Commercial Business segment on the top of this page has a similar story. While total deposits declined by $23 million in aggregate, core relationship or operating account balances grew by 4.9% or $56 million. Improving the mix of all deposit categories has been the focus of our teams for the past year and has been accomplished by focusing on primary core accounts and deposit cost. Overall, I'm gratified with the active engagement our teams are having with their clients. We have continued our pricing discipline, specifically maturity deposits and public funds and remain hyper focused on relationships and converting single product users into a broader bank relationship. So before I turn the call over to Michele, one last comment regarding First Savings Bank. I'm excited to be working directly with them. Larry, his executive team and his Board have been welcoming and supportive of building their market presence in Southern Indiana with First Merchants as a partner. I have already spent time with their teams, visiting banking centers and meeting their clients. They have a strong reputation within Jeffersonville, New Albany and their Southern Indiana footprint. Their community bank model and reputation are well established. Continuing their growth within this community will be our priority as their branch network and commercial capabilities are well positioned. Being able to meet their SBL team and other verticals is also a priority for me as these businesses drive a solid fee-generating revenue stream for the bank. So Michele, I'll let you take it from here. Michele Kawiecki: Thanks, Mike, and good morning, everybody. Slide 10 covers our third quarter performance, which reflects positive trends in all categories. Total revenues in Q3 were strong with meaningful growth in both net interest income of $0.7 million and noninterest income of $1.2 million. This resulted in overall pretax pre-provision earnings of $70.5 million. Tangible book value increased 4% linked quarter and 9% when compared to the same period in the prior year. Slide 11 shows our year-to-date results. The first 3 lines highlight continued balance sheet growth alongside an improved earning asset mix. Over the past 12 months, we reduced the lower-yielding bond portfolio by $280 million and increased higher-yielding loans by $927 million. Reviewing lines 11 through 14, total revenue increased by 4.5% when comparing year-to-date 2025 with the corresponding period in 2024, while expenses remain unchanged, demonstrating positive operating leverage. Adjusted pretax pre-provision earnings increased by 4.7% and totaled $208.6 million year-to-date 2025. Slide 12 shows details of our investment portfolio. Expected cash flows from scheduled principal and interest payments and bond maturities over the next 12 months totaled $283 million with a roll-off yield of approximately 2.18%. We plan to continue to use this cash flow to fund higher-yielding loan growth in the near term. Slide 13 covers our loan portfolio. The total loan portfolio yield continued to expand, increasing 8 basis points from the prior quarter to 6.4%. This increase was primarily driven by loan originations and refis during the quarter at an average yield of 6.84%. The allowance for credit losses is shown on Slide 14. This quarter, we had net charge-offs of $5.1 million and recorded a $4.3 million provision. The reserve at quarter end was $194.5 million and the coverage ratio of 1.43% remained robust. In addition to the ACL, we have $14.4 million of remaining fair value marks on acquired loans. When including those marks, our coverage ratio is 1.54%. Slide 15 shows details of our deposit portfolio. The total cost of deposits increased 14 basis points to 2.44% this quarter, reflecting the competitive deposit dynamics in our markets. We expect the rate paid on deposits to decline as a result of the September rate cut and plan to reduce rates more, assuming there are cuts in October and December. On Slide 16, net interest income on a fully tax equivalent basis of $139.9 million increased $0.7 million linked quarter and was up $2.9 million from the same period in prior year. Our quarterly net interest margin of 3.24% was stable linked quarter and continues to be resilient. Next, Slide 17 shows the details of noninterest income. Noninterest income totaled $32.5 million with customer-related fees of $29.3 million. Customer-related fees were strong in all categories, reflecting continued momentum. Moving to Slide 18. Noninterest expense for the quarter totaled $96.6 million and included $0.9 million of severance and acquisition costs. When excluding those onetime charges, core expenses were $95.7 million and in line with our guidance from last quarter. The core efficiency ratio remains low at 54.56% for the quarter. Slide 19 shows our capital ratios. The tangible common equity ratio benefited from strong earnings and AOCI recapture, increasing 26 basis points to 9.18% while returning capital to shareholders through share repurchases and dividends. During the quarter, we repurchased 162,474 shares totaling $6.5 million, bringing total share repurchases year-to-date to 939,271, totaling $36.5 million. We remain well capitalized with a common equity Tier 1 ratio at 11.34% and are well positioned to support continued balance sheet growth. That concludes my remarks, and I will now turn it over to our Chief Credit Officer, John Martin, to discuss asset quality. John Martin: Thanks, Michele, and good morning, everyone. I'll begin with an overview of our loan portfolio on Slide 20. In Q3, we saw robust loan growth across the portfolio with a $289 million increase in total balances quarter-over-quarter or 8.7% annualized. C&I lending grew by $169 million this quarter, continuing its strong momentum from last quarter. Commercial real estate added $87 million, reflecting steady demand and disciplined execution. We continue to be well below the CRE regulatory concentration guidance. And with the pending FSB merger, we have ample room for new originations in the portfolio. Our Midwest footprint remains the core of our portfolio with 82% of borrowers located in our 4-state region. Turning to Slide 21. Our sponsor finance portfolio continues to perform well with $911 million in outstandings across 100 companies in diverse industries. The credit metrics in this portfolio remains solid with 85% of the borrowers having a senior leverage under 3x and 63% maintaining a fixed charge coverage ratio above 1.5x. Losses have remained nominal over the life of the portfolio with only $15.1 million in losses over a 10-year history with nearly $2 billion in funded loans. We also continue to manage our shared national credit exposure prudently with $1.1 billion across 94 borrowers, primarily in Wholesale Trade, Agriculture and Manufacturing. Underwriting and credit quality remains strong across consumer and residential mortgage portfolios with over 96% of our $727 million in consumer loans and more than 91% of $1.9 billion in residential mortgage loans originated with credit scores above 669. Turning to Slide 22. Our investment real estate portfolio now stands at roughly $3.1 billion, as shown above, with the more significant concentrations highlighted here on Slide 22. Within non-owner occupied office, we continue to monitor our exposures with the top 10 loans representing 53% of total office exposure with a weighted average LTV of 62.8% at origination. The largest individual office loan is $25 million, secured by a single-tenant mixed-use property at 67.2% loan-to-value. The second largest is a $24.1 million medical office facility. Turning to Slide 23. Asset quality remains solid with nonperforming loans declining 3 basis points from $72 million to $68.9 million. Our nonaccrual loans tend to be small and granular, with the largest being $12.9 million to a multifamily secured loan. Classified loans finished the quarter lower with improvements across the C&I portfolio. Our charge-off -- our net charge-offs for the quarter were 15 basis points of average annualized loans. Performance was strong coming out of the second quarter and resulted in a solid performance for the portfolio in the third quarter. Then turning to Slide 24. Closing out the nonperforming asset roll forward highlights the strong performance just mentioned. We added $15.5 million on Line 3 and various nonaccrual loans. The largest was a $4.3 million contractor. We resolved the $6.8 million brewery relationship from last quarter, which is included in the $9.4 million on Line 3. With a $6.5 million -- or with $6.5 million in gross charge-offs at Line 5. We added $1.3 million in OREO from the mortgage portfolio and had a $2.5 million decline in 90 days past due. Overall, our credit portfolio continues to perform well as we continue to use consistent underwriting and proactive credit risk management. I appreciate your attention, and I'll now turn the call back over to Mark Hardwick. Mark Hardwick: Thanks, John. Turning to Slide 25. The compound annual growth rate of tangible book value per share on the bottom left continues to grow at a healthy 7% level post dividends, post buybacks and post acquisitions. When adjusted for the AFS AOCI volatility, which is now at $2.72 the combined annual growth rate is actually 8.5%. And then differential back in 2002 was nearly $4 per share. So we've made up some ground as the portfolio has matured and as rates have changed slightly. Slide 26 represents our total asset CAGR of 11.5% during the last 10 years and highlights how acquisitions have improved our footprint and helped fuel our growth. As we look forward to the last couple of months in 2025, we expect more of the same strong performance. Thank you for your attention and your investment in First Merchants. And at this point, we're happy to take questions. Operator: [Operator Instructions] Our first question comes from Damon DelMonte with KBW. Damon Del Monte: Just wanted to start off with kind of the expense outlook. I know going into '26, it gets a little confusing because of the merger closing at the beginning part of the year. But just kind of wondering, Michele, your thoughts on kind of core expenses here in the fourth quarter and kind of what you anticipate for core growth as we look through '26? Michele Kawiecki: Yes. Well, I'll start with the fourth quarter. We would expect Q4 to be relatively in line with Q3. And that is, I would say, after you back out those onetime expenses. And so really looking at Q3 core expenses. We always use Q4 to true up with incentive accruals and such, but not expecting any meaningful increase. So we should have a pretty disciplined finish to the year. and we're going through our planning process for '26 right now. And so we'll be more prepared to give guidance, I think, on our next call for 2026. Damon Del Monte: Got it. Okay. And then with regards to the margin, nice to see it hold up pretty steady quarter-over-quarter. Can you help us think a little bit about the impact if we do have 2 rate cuts here in the fourth quarter and kind of remind us how the margins kind of position for future cuts? Michele Kawiecki: Yes. I mean, assuming we get rate cuts in October and December, I would expect to see a few basis points of margin compression in Q4. As I've shared before, if there are rate cuts, our ALCO model predicts that for each 25 basis point cut, our margin declines about 2 basis points. And of course, that's because 2/3 of our loan portfolio is variable rate. So it will -- the loan yields will decline. But we're actively moving rates paid on deposits down in response. And if you look back at last year, we were really successful in doing so at that time. And so we'll have to see what the deposit dynamics in the market are like, but we're hopeful that we'll be able to try to minimize the compression as much as we can. Damon Del Monte: Okay. And just kind of along those lines, it looks like the deposit costs were up this quarter. Any color on kind of what occurred during the quarter? Michele Kawiecki: Yes. We really had to juice up some of our specials in order to stay competitive. And so I feel like that's the primary driver. Damon Del Monte: Okay, that's all that I had for now. So... Mark Hardwick: Damon, I would just add we had such strong loan growth that we needed to make sure that we had the funding on the other side and decided that it was worth being a little more aggressive with specials this quarter. Operator: Our next question comes from Nathan Race with Piper Sandler. Nathan Race: Just going back to the deposit pricing and cost increase in the quarter. Just curious if you're seeing any rationality or improvement from a competitive pricing perspective these days now that we have the Fed cut from last month and likely 1 or 2 more in the fourth quarter. And just can you remind us how much in the way of kind of managed or exception rate deposits you guys have that can reprice following those cuts in the future as well? Michele Kawiecki: Yes. With the September rate cut, we've been watching the market closely. And I wish I could tell you that we see some of our competitors backing off of rate. But I got to tell you, it still feels pretty high. So we're hopeful that with this next one, we'll start to see the competition get a little more rational. We have probably about $2.5 billion in deposits that are indexed. But as Mike Stewart covered in his remarks, even on our consumer portfolio, we're a little more variable than we were even at this time last year. And so we'll be able to -- we'll have the ability to move pricing on a pretty good chunk of deposits down. We already have with the September rate cut, and we think we'll have the ability to do more over the next 2, assuming we get those before the end of the year. Nathan Race: Okay. That's helpful. And then just thinking about the impact from First Savings. I believe you're picking up around a $700 million or $800 million portfolio of kind of lower yielding single-tenant lease finance loans. So just curious how you feel about that asset class. Is that a portfolio you want to grow in the future? Or do you think there's an optionality to maybe sell that book just to maybe reduce kind of the rate accretion that would be associated with marking that portfolio to market upon closing? And just any other thoughts on maybe repositioning part of the legacy First Merchant securities portfolio with the cover of the deal closing in 1Q? Mark Hardwick: Yes, Nate, good question. I think what I love about the triple net lease portfolio is we have optionality. So if we continue to feel bullish about loan growth in the core bank or in the legacy bank, First Merchants, at a 6.84% kind of yield like we had this quarter. And if there are rate cuts, obviously, that will come down. But the triple net lease portfolio is marked to about 6.25% and it's fixed rate. So it kind of just depends what our loan growth looks like in the variable rate portfolio and the yield differential. And we know that we have outlets if we wanted to sell a portion of it. And yes, we're always looking at the rest of our balance sheet. We have some mortgage loans that are yielding a little over 4.5% and some public finance loans that are in the same place and then the bond book. And so we're always just trying to look for opportunities to take advantage of shifting that liquidity into a higher-yielding asset. Nathan Race: Got it. And it seemed like a pretty opportunistic addition to add first savings. But maybe, Mark, just curious if you can touch on future M&A ambitions into next year. Are you seeing more opportunities to maybe consolidate some subscale banks across your footprint? Or are you just going to be more focused on kind of the organic runway that you have in front of yourselves? Mark Hardwick: Yes, I would say we're busy. I mean when I look at the talent that I have within our organization and just performing organically, and then throwing on top of that, the acquisition that will require time and energy to do it right and the opportunity that exists still in our Detroit MSA as well as now the Louisville MSA. I don't feel like M&A is a priority. We're in a position where we have the one we were looking for and the one we were most interested in. We love our geographies. And at least for now, that's 100% of our focus. And I would just add, the Comerica, Fifth Third announcement is an opportunity for us, and we're actively looking at how we take advantage of that. And so I know every time we have an acquisition, competitors do the same thing in the markets that we're moving into. But we're very aware of the 50-plus commercial bankers in that marketplace. We're very aware of the 24 locations that are within a mile where there's overlap and would love to find a way to turn First Merchants into a more meaningful franchise than it already is in the Detroit MSA as Fifth Third and Comerica come together. Nathan Race: Yes. To my follow-up question on Detroit specifically, and it seems like you're really well positioned there, particularly given that I think a lot of the Level 1 commercial bankers came out of Comerica way back when. So I appreciate all the color. Mark Hardwick: Yes, it's interesting. I was talking to Pat Ferring, who is the CEO of Level 1, and he said his phone has been ringing off the hook. And so he's been helpful in helping us figure out the best way to approach the disruption. So thank you. Operator: Our next question comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Let's see. The loan growth was very strong this quarter. You've talked about it, particularly on the C&I side. You've had significant momentum there over the last few quarters. I think you said pipelines are pretty stable. Does this feel like -- I mean, I'm looking at 14% loan growth on a year-over-year basis in the C&I space. Does this feel relatively sustainable to you guys for the next few quarters? Is there anything that is unusual about the strength of the pipelines? Michael Stewart: I'll jump in on this, if you don't mind. I do think it's just good normal activity. I don't think there's anything unique about it. Businesses in the Midwest, like I referenced before, still have good outlooks themselves. They've taken a deep breath on what this tariff mean, so to speak, and they're navigating that. We've got a really focused segmented group of bankers that have great reputations in the market. And we haven't even got into that disruption that Mark talked about potentially in Michigan. I think that will add to the potential there. So what I'm saying is it is just core bread and butter, if you will, C&I activity that we really like. And then in the investment real estate side, which I think we stay to our knitting there, but lower interest rates, capital stacks, understanding of cap rates, those have become better understood. So developers are able to push projects to a faster pace and the way we underwrite fits that really well, too. So I do feel good about the fourth quarter. And there's nothing -- typically at the end of the fourth quarter, there's like something with taxes or year-end closing. There's not any crazy activity like that. This is just -- I feel like normal run rate. We'll see what happens with rate cuts and how businesses want to start out 2026. John Martin: I might add, contributing to what I agree with everything Stewart just said, with the asset-based lending team coming online actually gives even more optionality and momentum to the C&I team. Michael Stewart: John, I'm glad you brought that up. That's so true. Absolutely. Daniel Tamayo: Terrific color guys. And I apologize if I missed it, but did you give the impact that paydowns had on the CRE book? You did have significant growth in the non-owner occupied bucket in the quarter and kind of across the industry, we saw pretty sizable paydowns. Mark Hardwick: Did you say CRE book or... Daniel Tamayo: Yes. I want to make... John Martin: Yes. I mean our non-owner occupied for the quarter was, as I mentioned earlier, was up $87 million. So what we're booking primarily, we've got a concentration, as you can see in the real estate slide is in multifamily. And then obviously, we've got -- we continue to look at opportunities there. And what we're seeing this year is largely driven by the commitments, particularly in the construction side by what we booked last year [Technical Difficulty]. Operator: Please standby. Daniel Tamayo: Can you guys hear me now? Michael Stewart: John, we lost you when you were talking a little bit about last year's production in IRE multifamily and how the construction draws are funding out through this summer. So and then we lost you. John Martin: Okay. Thanks for getting in there. And so what we're seeing, obviously, last year yield itself into this year, produces what we're seeing this year. But there's no question that higher rates. I was just ending with what higher rates obviously have reduced the rate at which that portfolio has grown. So I still feel good about it, but it's not 2 years ago, 3 years ago. Daniel Tamayo: Yes. No, I appreciate that color. I recognize it grew significantly. I guess it was I was more curious kind of how that was able to happen despite paydowns. So that's terrific. And then I guess last one, just maybe for John on the credit side. Classified loans came down in the quarter, which was nice to see. Just curious pace of that -- those balances going forward, if you have any color. John Martin: Yes. When I look at classified loans in the quarter, we've been able to address in the -- really it was in the commercial real estate side when rates jumped, we had interest reserves that needed to be addressed, and we've done that really over the last 1.5 years, which we're on the grading. And so that will drive -- potentially drive those higher. We've addressed a lot of those issues. We've resolved some nonperformers, which has helped as well. But as I look forward, we're kind of -- I feel like we're in a place right now where we're kind of just trading dollars in the classified buckets to maybe seeing some improvement. There are a couple of segments that are maybe a little bit more challenged than others, but we're kind of just, I'd say, trading dollars at this point. Operator: Our next question comes from Brian Martin with Janney. Brian Martin: Just maybe, Michele, just maybe one for you or 2 on the margin. Just can you remind us the fixed rate loan repricing that you kind of got coming up here? And then also, I think just on the securities portfolio, I think someone asked about optimization and/or just runoff in that portfolio to fund loan growth. I guess, how are you thinking about that kind of the legacy First Merchants bond book? Is there more room to use cash flows to redeploy the loans? Or is some optimization possible? Michele Kawiecki: Okay. Well, I'll start with your first question on fixed rate loans. And so in the fourth quarter, we have about $130 million of fixed rate loans that will mature, and those are sitting at about a yield at about 5%. If we look into 2026, we've got about $350 million that have a yield of about 4.50% million that will mature in 2026. And so hopefully, that answers your first question. On the securities portfolio, our plan is to continue to use that roll-off, the cash flow to fund loans on a go-forward basis. And as Mark said, particularly when we close with First Savings, we'll continue to evaluate options to optimize our earning asset mix, looking at their portfolios, our portfolios, et cetera. In the First Savings deal, we did assume that we would sell their bond portfolio, which had about $240 million, but we'll also continue to evaluate our own. Brian Martin: Got you. And the roll-off of the securities portfolio, if you don't do anything with the legacy book, Michele, what does that look like in the next 12 months? Michele Kawiecki: We have about $280 million of cash flow that will be generated from the bond portfolio over the next 12 months. Now that includes interest. And so about $100 million of that will have -- will be interest. And so -- and then the rest is paydowns and maturities, and that will be rolling off at a 2.18% yield. Brian Martin: 2.18%, okay. Perfect. And then just on the sensitivity, how does First Savings impact your asset sensitivity, I guess, as you kind of look at once we get the combined company... Michele Kawiecki: It actually reduces our asset sensitivity a bit. So we actually land in a really nice place. We're still going to be a little asset sensitive, but less so than we were on a stand-alone basis. Brian Martin: Got you. Okay. And then you talked about -- I'm not sure if it was you or somebody else, just on the competition on the deposit side, are you seeing similar competition on the loan side in terms of where new yields are coming on, given, I guess, some of the repricing we've got to look at in terms of the fixed rate. But what does competition on the loan side look like today? Unknown Executive: Pumping down a little bit. Go ahead. Mark Hardwick: If I go back to Danny's comment just about loan growth, what we're having fun with now because we're growing at a pretty strong clip is just looking at the yield of everything we put on the balance sheet and trying to make sure that we're prioritizing the highest yielding products given the credit constraints as well. But it's been fun for us to have this kind of growth success to feel like we're winning despite competition in the marketplace and then just being smart about which loans we're putting on the books and at what yield, which is -- it's a good place to be. I'd rather be here than the alternative. Brian Martin: Yes. Okay. And then last one, Mark, I guess you -- just the opportunity. It sounds like the loan growth, I think maybe one of the other people mentioned just the strong loan growth you've had, particularly on the C&I side. But is some of that -- I know you've talked recently about maybe a couple of quarters ago about some pretty good hires you had brought on Board and kind of if they're contributing. And just it sounds like that's something you're thinking about with the -- if you're not looking at M&A next year, do you see opportunities to kind of lift out some more talent to kind of sustain the good momentum you've got here? Mark Hardwick: Yes. That is the reason that you saw a little uptick in our noninterest expense, and it was in the salaries. It's the talent that we've added to the team. And I would think next year, there's going to be an opportunity, especially in the Detroit marketplace to take advantage of some additional recruiting that just strengthens our franchise. Operator: Our next question comes from Terry McEvoy with Stephens. Terence McEvoy: Maybe just to start with a question for you, Michele. Were deposit costs at the end of the quarter below that 2.44% average? And what are your thoughts on where that could go in the fourth quarter? I know you talked about a decline, but just to frame some expectations, where do you see that trending in Q4? Michele Kawiecki: Yes. Good question. Yes, we did see them come down a few basis points at the end of the quarter, and that was just because we were anticipating that September rate cut and made some adjustments really quickly that we were able to get pushed in even before the end of the quarter. And so with anticipated rate cuts in October and December, we're going to keep pushing those rates down. Terence McEvoy: And then just a small question when I look at the First Savings presentation, and I think Mike Stewart was with that group today. The SBA lending, those that are on the balance sheet, are those guaranteed or unguaranteed loans? And then what are your thoughts on managing that business going forward in terms of retaining some of the unguaranteed portion, which has a higher risk profile than the rest of your commercial portfolio, I would assume. Michael Stewart: Yes, I do think the -- go ahead, Mark. Sorry, I can't see you. Mark Hardwick: Yes, we're in different locations. The unguaranteed portion is what is on the balance sheet. And the spread is about 2.75% over prime. And so it's a pretty high-yielding portfolio. And we're really excited about just putting that entire team on top of our current footprint. And Mike, maybe you want to talk about the volume we think we can add just within the First Merchants franchise. And I know that's where you are today. Michael Stewart: Yes. One last comment on the team, as I'm learning, self-contained within their SBA group, is a dedicated, I'll call it, workout team, and they've had a really good track record of low losses in that portfolio. They understand the process. They have a really nice documentation and relationship to the SBA flow. So they manage that portfolio, I think, in a very positive manner. And then to Mark's point, what's on the balance sheet is their unguaranteed piece. Getting my arms around and working with the team is they've built a model and built an infrastructure that they feel really comfortable that generates about $150-ish million of SBA volume a year. You heard Mark say they probably did around $110 million or so last year. Their fiscal year is in September. Their earnings release is next week, so you can pick up some of that information. And then juxtapose that to what Mark said earlier, First Merchants originated $8 million of SBA volume, [indiscernible], and that's what they do really well. So when you think about Indiana, Michigan and our Ohio footprint and having an outlet, if you want to call it that, or an opportunity for our business banking teams or community banking teams to have a place to send SBA volume. I think it becomes really easy for us to fill in their capacity in a meaningful way and just use it as another wonderful fee opportunity and be more relevant in our local communities. So that's how I feel like the strategic fit is in place. Mark Hardwick: And you may already know -- Terry, you may already know all this, but the SBA program loans can't exceed $5 million, which means the unguaranteed portion can't exceed $1.25 million or $1.25 million. And then if you originate $150 million and we kept all of the unguaranteed, it'd be $37.5 million for the year. And obviously, you have runoff as well. So it's a portfolio that has some higher risk. That's why the ACLs are higher and especially what we purchased will come on at more like 4% or 5%. And -- but the yields are really nice, like I said, with a spread of about 2.75% over prime or yield of 2.75% over prime. Operator: Our next question comes from Brendan Nosal with Hovde Group. Brendan Nosal: Maybe just starting off here on capital. TCE ratio back above 9% for the first time since late 2021. I know that you'll deploy some here with First Savings soon, but ratios remain healthy pro forma even for the deal and you'll be building pretty healthily off that base. Can you just walk us how you think about capital generation and uses of excess capital, particularly considering the near-term lack of interest in additional M&A? Mark Hardwick: Yes. I mean we'll continue to use 1/3 or more for our asset generation. It's been requiring a little bit more than that recently, 1/3 for dividends. And the remaining amount, we're just going to continue to look at ways to either take advantage of our current multiples. Pretty interesting if you just look at buybacks and this is -- if I think about next year, I think we're trading at $1.16 of our adjusted book value if you make the adjustment for AOCI back in or $1.27 of stated book value. And if we make $4 a share, just where we are effectively today, we're trading at 9x earnings and 9.25x. And so I feel like it's smart to be active in the share buyback space. And then we're also just looking at ways we can optimize our balance sheet, like I think Nate was asking us about earlier and whether or not it's smart use of the capital to optimize some of those loan categories that are underpriced where we don't have a deposit relationship or maybe a little bit of our bond restructuring. But I've looked at a couple of -- actually, last night, I was going through the releases of Horizon Bank and Simmons Bank and their major bond restructurings. And I would just tell you that's not happening here. We're not interested in anything that would require a tangible common equity raise. If we were to do something smaller that might require a piece of sub debt, then that is interesting to us. But we're performing at a level despite some of those underyielding assets that we're really proud of, and we think we have the ability to just make incremental improvements. Brendan Nosal: Okay. Great. Thank you for the definitive answer on a wholesale restructuring there. Maybe turning to asset quality and the reserve. I'm just kind of curious why you're still carrying such a large reserve at 143 of loans like before you even factor in remaining fair value marks. Like credit has been really healthy this year, and you're something like, I don't know, 20 or 30 basis points above your peer group when it comes to ACL coverage. Michele Kawiecki: Yes. I mean it has come down over the last couple of years. And some of it is just the methodology that you select when you build your model and ours, the quantitative model produces a higher, more conservative number. The good news is we had really positive credit migration this quarter. When you think about -- and so we always consider loan growth first and how much provision we want to take and we had really strong loan growth this quarter, but really positive credit migration. And then even looking at the macroeconomic scenarios, some of the changes in a couple of the macroeconomic variables moved in a direction such that we were -- it actually lowered the amount of provision that we required. And so despite the high loan growth, that kind of landed us at the $4.3 million provision. Mark Hardwick: And I would just add, that's the perfect GAAP answer, and it's the right answer. I would say if we tried to be more aggressive and put more in earnings, I don't have confidence that we would get paid for it. Brendan Nosal: Yes. Yes. No, that's totally fair. Better to have more than enough. Final one for me. Just thinking about like the progression of NII dollars from here, even if we get the rate cuts that are forecasted, which I think is 2 this quarter and then maybe 2 more in 2026, do you think you can continue to grow dollars of NII even as the Fed is cutting rates as expected? Michele Kawiecki: Yes, we do. And I say that because we've got confidence in our ability to manage deposit costs down, as I talked about earlier. And then even just if you look specifically at this quarter, our end-of-period loans is really quite a bit higher than our average for the quarter, average loans for the quarter. And so I think that will produce some good interest income coming into Q4 as well. Operator: Our next question comes from Nathan Race with Piper Sandler. Nathan Race: Just want to clarify on the buyback appetite. It sounds like there's still interest there just given the valuation disconnect that you discussed, Mark. And then I just want to confirm that with FSG pending, you guys aren't precluded from additional share repurchases. Mark Hardwick: Yes. That's -- thanks for the clarification. I wouldn't anticipate anything between now and closing. Just when you think about capital deployment, if we stay at these higher levels and our price continues to be where it is, we would be active. Nathan Race: Okay. But you're not necessarily precluded with the deal announcement pending? Mark Hardwick: We're not intending to do anything between now and close. Operator: I would now like to turn the call back over to Mark Hardwick for any closing remarks. Mark Hardwick: Well, thanks, everyone, for the great questions. It was an exciting quarter for us. We're really proud of the performance, the core organic performance of the company. We're excited about our M&A, announced M&A opportunity that we have. And as I mentioned, we're really kind of thrilled with the markets that we're in and the future that it can provide for our company. So just thank you for your investment, and it was a fun call. Thanks. Have a great quarter. Operator: Thank you. This concludes today's conference. Thank you for your participation, and have a great day. You may now disconnect.
Juha Rouhiainen: Good afternoon, good morning, everyone. This is Juha from Metso's Investor Relations. And it's my pleasure to welcome you to this conference call, where we discuss our third quarter 2025 results that were published earlier this morning. The results will be presented by our President and CEO, Sami Takaluoma; and CFO, Pasi Kyckling. And after that, we will have a Q&A session. And as usually, we try and limit the length of this call to 60 minutes. Before we go, I want to remind about forward-looking statements that will be made in this call. And I think without further ado, it's time to hand over to President and CEO, Sami Takaluoma. Sami, please go ahead. Sami Takaluoma: Thank you, Juha, and good morning, good afternoon also from my side. Without further ado, let's start to look for the Q3 highlights. The market activity was very much in line with our expectations, and that also resulted us then to deliver healthy order growth. We had also strong sales growth for the quarter, and our adjusted EBITA was good, normal strong. And for this quarter, cash generation was very solid and gave us quite a clean sheet for the Q3. Looking more than from the group perspective of the key figures. So orders received growth compared to the previous Q3 last year was 2%. And as we have highlighted in the Q3 '24, we did have significant large minerals CapEx orders that we did not have in the Q3 '25. Sales growth was then 10% compared to the previous quarter last year. And adjusted EBITA grew by 9%. All in all, the EBITA as the second quarter was having this dip, so we are now back in the normal Metso EBITA numbers. Looking for our 2 segments, let's start from the Aggregates. We had healthy orders growth coming in the quarter, EUR 280 million. That is 13% in constant currencies. This growth was mainly driven by the normalized market in North America and then the pickup that we have seen coming from the Europe. Equipment orders did represent growth of 11% and the aftermarket, 2% of the order growth. Sales was also stronger than a year ago. Equipment sales growth was 14% and aftermarket 1%. Aftermarket share now with these numbers was then 32% compared to 35% that it was 1 year ago. And adjusted EBITA improvement by EUR 3 million, so EUR 48 million for the quarter, and that represents then 15.6% margin for the segment. And Minerals had a very solid quarter in many ways. Orders grew 5% in the constant currencies, and aftermarket orders growth was now 12%. We saw in the CapEx side, very solid order intake when it comes to the small and midsized equipment orders. And in the aftermarket side, increase of the upgrades and modernizations as we have commented that they are in the pipeline. Regarding the sales, EUR 1 billion plus compared to the EUR 928 million a year before. Aftermarket was delivering 4% growth and the equipment side was now a 19% growth for the quarter. Aftermarket share of the sales in this quarter was 60%, and the adjusted EBITA EUR 184 million was reported, and that gives the margin of 18.0%, which is pretty much in line from the last year, 18.1%. And now Pasi, the CFO, will go more in detail the financial aspects. Pasi Kyckling: Thank you, Sami, and good day, everyone, on my behalf. I would like to start by reminding that we have restated our comparative figures for 24 quarters and first 2 quarters this year regarding the Metals & Chemical processing business that we decided to retain. And consequently, we have reclassified the comparative information. Let's then look at our group income statement more in details. I mean, sales increased 12% in constant currencies from the comparative period to EUR 1,328 million. Adjusted EBITA, EUR 222 million, which is EUR 18 million or 9% improvement from the comparison period. Net financials slightly up, reflecting the higher debt load that we have in our balance sheet. And income tax rate for the quarter, 24%, and then for the first 9 months or 3 quarters this year, 25%, so very much a standard -- within the standard range that we expect. Earnings per share from continuing operations, EUR 0.17, up by EUR 0.01 from the comparative period. If we then look at our financial position. The average interest rate for the period was 3.4%. Our net debt, roughly EUR 1.1 billion. Liquid funds continue to be solid, EUR 460 million is end of September. And our net debt-to-EBITDA KPI when using rolling 12 months in EBITDA was 1.3x which is below our 1.5x target and also down from 1.5 that we had end of second quarter, thanks to good earnings in the quarter as well as strong cash flow during the third quarter. When it comes to available credit facilities, our position is unchanged. We have our fully undrawn RCF. And then we have also a CP program, which is currently not in use. And then our ratings also, no changes. So a BBB flat from S&P and Baa2 from Moody's. If we then move to the cash flow. So we delivered a healthy cash flow during the quarter, the strongest quarterly cash flow this year, EUR 266 million from operations. And overall, we have delivered during the first 9 months, EUR 609 million. A positive note is that working capital is not a drag for us anymore. Of course, the release, EUR 12 million is small. But given that we -- that the business growth was solid, we are quite happy with this and continue to work with further working capital efficiency improvements. With that, I would like to hand back to Sami to talk about our strategy execution and outlook. Sami Takaluoma: Thank you, Pasi. So in Q3, we also launched our new strategy. We go beyond. We are very happy of the launch, both internally and also externally. And in a nutshell, we are striving for being the best in the customer experience in our industries. We are working for the higher and higher aftermarket share of our businesses, and we also set a target for ourselves to be the frontrunners when it comes to sustainability and safety. And all this combined will then also ensure that we do deliver the financial excellence. This is a growth strategy. We have set the target for ourselves for annual growth, and excellence means everything that Metso does, and that will be resulting then that Metso will be the #1 in our selected areas. We do count a lot to our very engaged employees, Metsonites out there. So the customer-centric growth culture is one of the key success factors and also ensuring that we do have the industry-leading capabilities in our organization to help our customers for the upcoming years. I'm talking about the revised financial targets, just a reminder here. So annual sales growth target is 7%. And, well, starting point now looking for the year-to-date '25 numbers. So 2% we have been able to do. So this is clearly the ambition to accelerate this growth. Adjusted EBITA margin, we upgraded that to 18% from the 17% previously divided by the segments so that Aggregates to deliver more than 17% and Minerals more than 20%. And year-to-date so far, we are in 15.7%. Net debt-to-EBITDA, the target for ourselves is that we will be below 1.5x. And that one currently, we are well on track already, and we are targeting to keep that, that way. And regarding the dividends, so the payout is going to be at least 50% of the earnings per share. And as you all remember, 2024, that was 63%. The strategy execution is already ongoing. We have done investments, acquisitions to improve our selected areas. Screening business, Saimu, was acquired in China that made Metso to be in top 3 in the Chinese market for this business. And then 2 smaller ones, TL Solution, which is sustainability-related, mill liner recycling technology company. And then Q&R Industrial Hoses, which is linked to our pump businesses where we are also having accelerated growth targets. We are currently reviewing some of our businesses. One of them is the loading and hauling business and looking for the next strategic steps regarding that business. Investments we have done already during the last year, some investments, especially to support our intentions to grow our aftermarket share, and one of them, the latest one is screening manufacturing center that we are currently building up in Romania. And when it comes to the market outlook, we expect that the market activity in both of our segments, Minerals and Aggregates, will remain at the current level. And we also want to highlight in this context now that the tariff-related turbulence is not over. We do hear this from our customers, and there is potentially effect then for the global economic growth and also the market activity. Juha Rouhiainen: All right. Thank you, gentlemen, for the presentation. And operator, we are now ready for Q&A. Operator: [Operator Instructions] The next question comes from Michael Harleaux from Morgan Stanley. Michael Harleaux: I have two, if I may. The first one would be on your impressive aftermarket order growth. If you could help us unpack what's underlying and if there are any one-offs in that, that would be very helpful. And then regarding the Aggregates segment, one of your competitors mentioned dealer restocking. So I was wondering if you could tell us if you are seeing any of that happening? Sami Takaluoma: Excellent questions. Regarding the aftermarket growth in orders especially so, we have commented in these calls earlier that one element of the aftermarket portfolio that we have is the upgrades and modernizations. They do have a small cyclic element, and that has affected them so that the comparison period, especially last year, did not see almost any of those coming through. And then our pipeline has been quite solid at the funnel. We know that the cases are there. There has been slight hesitation from the customers to make the decision, the timing of the decision. And now in Q3, they started to come through from the funnel as an order. So that was in line of our expectation in that sense. When it comes to the Aggregates, the distributor network in -- especially in the U.S. had a situation that 2024, the end customers did not purchase machines at a normal pace, and that created the situation that the distributor stocks were quite full. What we have seen from our side is that the normalization of the U.S. market started to happen at the end of last year, beginning of this year, and that's visible for us when we look at the stock levels of our distributors. They have gradually month after month coming down from the very high levels that they were at the mid '24. So from that perspective, there is element of distributor stock has an impact also to our numbers, but we also see that the market has normalized from that behavior during this year. Operator: The next question comes from Edward Hussey from UBS. The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I want to start on Aggregates. At the CMD, you mentioned equipment utilization was down 20% or so from the year before. Obviously, interested then in the OE order growth in that segment at 11% and some of the comments in the release that you're seeing a better demand environment in both North America and Europe. What's driving that? And also, I wonder if you could perhaps give an indication on the average age of the installed fleet on that side of the business? Sami Takaluoma: Yes. So the running hours is having an impact mainly for the aftermarket demand. Then the new equipment need is not always clearly linked for this because the new technology will enable more cost-efficient operation for the customers. So the renewal of fleet is depending on customers' own behavior in his or hers business case. So from that perspective, it varies based on the customer, normal age, we have a very wide portfolio and deliveries every year, and that makes that there is also second owner or even third owner for the equipment normally. So this is how the aggregate mobile equipment business works. And the typical full lifetime, if well maintained, is between 15 and 20 years when the life is fully ended. Christian Hinderaker: That's helpful. Maybe we can turn to working capital. At the CMD, you set out ambitions to take share in the aftermarket. I guess, keen to understand if we should think about this requiring higher inventory levels over the coming years, either in euro million terms or in percent of sales, or whether you think you can unlock some efficiencies that mean you can grow the top line whilst improving that inventory number? Pasi Kyckling: Thanks, Christian, excellent question. And indeed, one of our pillars -- main pillars in the strategy is to grow the aftermarket business. And I mean, it's not a straightforward question to answer. But of course, if we grow the business in absolute terms, it will require more inventory. But then what we also believe is that in relative terms, when it comes to inventory turns or inventory in comparison to our top line. And there is room for improvement across the board, but then also in the aftermarket part of the business. So that's how we are looking at that. Operator: The next question comes from Chitrita Sinha from JPMorgan. Chitrita Sinha: Congrats on a strong set of results. I have two, please. So my first one is just on the Minerals margin, which was broadly flat at 18% despite the aftermarket mix. Could you provide more color on the organic development here? Sami Takaluoma: Yes. I think 18% is something that at this point, we are happy. It's okay. It's in line of our expectation. As we build the road map in the Capital Market Day that how we are going to be reaching the 20% targeted number for the strategy period, so there are several elements. And in this quarter, the aftermarket was having a good contribution for that one. There is a need for the capital equipment sales to be higher in terms of leveraging that part as well, and then we continue to work with our self-help initiatives, and as 75% of the company is Minerals segment, the impact will be mostly seen there when we do company-wide actions. Pasi Kyckling: Sami, I would like to complete or complement a bit. I think what you have also seen or what we have experienced in the third quarter is the strength of our capital business. I mean, relative share of the capital increase overall, but especially in the Minerals. And we have a good healthy business there and then it supports also delivering this kind of margins, and we are quite satisfied with that. Chitrita Sinha: Great, very clear. So my second question is on the Aggregates margin where you've brought back some costs, I think, in Q2 in anticipation for a ramp. So what is the best way to think about the volume threshold where you can comfortably achieve more than 16% again? I'm trying to drive whether we should expect to pick up in Q4? Will it be more 2026? Pasi Kyckling: Yes. So first of all, this cost that we have taken gradually back in Aggregate refers to our Finnish operations there and the fact that the local legislation here enables laying people off on a temporary basis. And during this low period, we have used that opportunity and are now during first half of this year when our order books have been strengthening, we have taken people back to work, and they are busy, currently working with the order book that we have. Then I'm afraid we are not in a position to give you exact volume guidance on when certain thresholds when it comes to margins are reached, but overall, I mean, we delivered a few percentage points below 16% now in the third quarter. And this is also a volume gain. So there is still capacity in the system to deliver higher volumes without, for example, increasing manpower and then the drop-through from additional business comes with significantly higher margins. Operator: The next question comes from Vivek Mehta from Citi. Vivek Mehta: I hope you can hear me well. It's Vivek on behalf of Klas. First question is around the restatement of the Minerals EBITA from discontinued operations. That impact grew in the second quarter. And curious to know what was the uplift to the Minerals EBITA from this in the third quarter? Was it similar to the second quarter? I appreciate that it doesn't impact the organic growth in margin. Just curious about the absolute impact. Pasi Kyckling: Yes. No, thanks, Vivek, for that, and we published the restated numbers with quarterly breakup of '24 and first half of '26 earlier this month. And while we will not provide a specific third quarter numbers and then going forward, we'll not comment specific business lines, what we can say is that the impact was sort of a similar in third quarter as we experienced in average during these periods that we have restated. And I know that in the second quarter with these numbers, it was slightly higher than in average. But what we had was sort of the average from these restated periods. Vivek Mehta: Understood. My second question is just following up on the outlook and your comments around tariff uncertainty and so on. We're seeing very good growth in Minerals, excluding the larger orders. Appreciate maybe the Section 232 and tariff concerns might be more applicable to Aggregates. So curious, given the strong commodity price backdrop, why you've not potentially raised that Minerals outlook? Sami Takaluoma: Yes. It's true that the tariff situation has impact on both of our segments, but it's also true that the impact potentially is higher for the Aggregate. So, tariff, in Minerals side is a little bit related to the U.S.-based customers and projects. And then generally, globally, the uncertainty, which is not helping making the significant decisions of the investments of multibillion for the new projects. But that, hopefully, is stabilizing and not having impact on that side. And then in the Aggregates, it's really all about how the U.S. market will be reacting because the tariff situation is having an impact on, for example, what is the end customer pricing and these kind of elements. So that might slow down the U.S. now normalized the market from that perspective, potentially. Pasi Kyckling: And also when it comes to Aggregates, and you made a reference to this Section 232. So the cross advance screens have been something that have been earlier excluded. Now it seems that they will be included in the tariff. And then certainly, it will have some impact on Aggregates market in the U.S. going forward. Operator: The next question comes from Panu Laitinmäki from Danske Bank. Panu Laitinmaki: I have a couple of questions. Firstly, on the Minerals market outlook, how do you see the kind of likelihood of receiving very large orders still in this year? We haven't seen any so far, and it's a bit more than 2 months left. So do you think it's still likely or is it more like 2016? And maybe related to that, what is the kind of pipeline or sales funnel for these large projects now compared to what it was like a year ago, for example? Sami Takaluoma: Yes. Thank you. A very good question. And this is something that we also are very interested to get the answers, but unchanged situation, how we read the customer negotiations and discussions, meaning that there are these projects, they are there, they are having a lot more tangible way of discussing, meaning that there is already customer organizations for the greenfield projects and so forth. And that's answer maybe for your second question, that this is something that we see as a difference for 1 year or 2 years ago that there is more concrete, tangible actions happening already on the customer side. And then we remain in the same view that we have had, 2026 is almost like guaranteed that these orders start to come through and still staying on a positive that one, two might be even coming at the end of this year, but as you said, the clock is ticking, and there is 2 months to go. So that remains to be seen. But then beginning of '26, definitely. Pasi Kyckling: From a commodity split point of view, these are gold and copper projects that are more advanced in our pipeline. Panu Laitinmaki: Okay. Let's hope for that. So secondly, I wanted to ask about the Aggregates and the European outlook. So you talk about European recovery. Can you talk a bit more about like what you see, which countries are driving this? Is it the German infra package already? Or what is driving this? Sami Takaluoma: Yes. We believe that the German infra package actually had an impact. The orders that we have been receiving in the last 2 quarters, they are not so much from the Germany. But that decision created the trust in the European countries close by for the future. So the orders are coming from multiple countries into Europe and they are related to infrastructure projects in those countries moving forward and then the customers making the equipment orders to be ready to serve what they have promised to serve. Panu Laitinmaki: Okay. I have a third one, if I may. On Minerals aftermarket, so really good growth in orders, obviously, from the service projects. But if you take that out, how has the kind of underlying spare parts. Spare parts business growth developed? Is it like at the same level? Or has that accelerated significantly? Sami Takaluoma: No major changes there. We have seen already a long time, solid, good single-digit growth for that, what we call day-to-day spare parts and consumer pools and service orders. So that continues the same way also in the Q3. Operator: The next question comes from David Farrell from Jefferies. David Richard Farrell: I'll go one at a time. First question relates to Aggregates. I was wondering in terms of the 9% organic order intake growth, what percentage of that is related to tariff-related surcharges on your U.S. business? Can you kind of unpick that element for us, please. Pasi Kyckling: Thanks, David, very, very good question. I mean a small part is from that factor. But I mean, it's not very material. I mean, I'm afraid I can't -- we can't quantify it, but that's the way to look at it. David Richard Farrell: Okay. And then my second question relates to the Minerals margin. It looks kind of -- by the increase in OE revenue and the impact that has on absorbing fixed costs probably played quite an important role in driving the margin up. Yet, if I look at the book-to-bill for OE so far this year, we're below 1x. Is there a risk that, that is a bit of a headwind as we think about 2026 margins that you simply don't have the OE levels that you had this year, and therefore, margins will face an incremental headwind? Pasi Kyckling: David, good question there. I mean we are not thinking that way. I think when it comes to Minerals capital, book-to-bill, we have basically sold similar amount as we have gotten orders this year. And obviously, some of the orders that we are receiving now in the fourth quarter, they will still play a role also in 2026 sales delivery. But under the assumption that we continue to get healthy order book build during the fourth quarter, maybe some of those larger projects moving forward that we discussed earlier. So we don't see that situation. And then obviously, already this year and also going forward, when we look at, within Minerals, there is quite different situation in the underlying business lines. Some of them are more busy than the others. And that's also the reason you may have seen that we announced and started some labor discussions earlier this month just to adjust our capacity in some of the business lines where we have less work currently. Operator: The next question comes from Vlad Sergievskii from Barclays. Vladimir Sergievskiy: Yes. It's Vlad from Barclays. I'll ask 3 questions, if I may, and go one by one. Firstly, could you give us some maybe initial idea what directional sales growth outlook could we have for 2026. On one hand, commodity prices are super supportive. But on the other, book-to-bill slightly below 1 this quarter, backlog broadly flat. Do you think you could grow next year top line in line with strategic targets, which you recently released or it will be some kind of different phasing here? Pasi Kyckling: Yes, Vlad. Excellent question. And you know also that we are not in a position to give such guidance. However, what we can confirm is that our target is to grow 7% CAGR going forward. And with that clock starts ticking 1 January next year, and we are working hard day in and day out to make sure that we can grow. And if I look at across the portfolio from 1 January onwards to end of September, our order book has increased by EUR 200 million, so -- or EUR 180 million to be specific. So that gives us a much stronger starting point for next year compared to the starting point that we had when we entered 2025. Vladimir Sergievskiy: Excellent, and that's great to hear. And if I could ask you on the consolidation point that you -- the changes you have made this quarter. I appreciate you are not giving the precise numbers for Q3. Would you be able to go to give us some idea what was the impact on the orders because orders for this business that you are consolidating has been super volatile. I think in the comparative quarter, it was almost no orders Q3 last year. Any color you can give us here would be very helpful. Pasi Kyckling: Yes, I can comment on that order specifically. So it was a very low order number also in the third quarter this year. So the order growth is certainly not driven by this MCP business. Vladimir Sergievskiy: Excellent. And the final one from me. On the inventories, trade receivables, obviously, they are optically up sequentially this quarter compared to what we saw before. Is it largely driven by the gain, the consolidation scope that you've done? Or there are some underlying changes there as well? Pasi Kyckling: Yes. Thanks, Vlad. And the consolidation change, for example, in inventory terms has some tens of millions impact on our inventories, i.e., increasing when we brought the MCP business back from discontinued to be part of the normal business, so to say. And then what we see overall happening in the underlying inventories is that we continue to decline the Finnish product inventories. And if I look one level below the balance sheet that we published, the Finnish products have continued to decline from end of June to end of September, order of magnitude EUR 50 million. And then we see a bit growth in the other areas, which is work in process and then raw materials. And you may remember that this EUR 200 million inventory program that we completed by end of June this year, that was really focused on Finnish goods. And then we continue on that journey. And overall, both inventory, trade receivables, but then over the larger working capital continues to be a focus area going forward. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: A couple of questions. Firstly, could you perhaps talk a little about the pricing environment and the price realization you've achieved across Minerals and Aggregates in Q3 in your efforts to fully offset any other remaining inflationary pressures? And secondly, against the review in Minerals of the backlog up and the orders strong in the smaller and conversion business, can you talk a little to the seasonality of the business revenue realization in the fourth quarter? Historically, there has been seasonality. What should we think about the Q4 versus Q3 in this year regarding your bookings and realization of revenues off backlog? Sami Takaluoma: Thank you, William. I can take the pricing one. Two segments. In the Minerals side, we see a very little pushback for our pricing. So we use our pricing power where we see that applicable. And that part is working okay. There is some discussions with the customers when they are not sure when they will be ready to release the orders for the capital side to get the price validity longer than we usually do. And so far, we have not gone that route. Then in the Aggregates side, it is a little bit more the current situation in the markets under pressure. So there, it's difficult to use our normal way, the pricing power, and that is quite obvious at the moment in the Aggregate market. Pasi Kyckling: And then, William, when it comes to Minerals seasonality. Overall, in Aggregates, we see clear seasonality, for example, third quarter, also this year was a slower period compared to some of the other quarters. In Minerals, we see much less of that. And we are delivering, we are completing the projects from our backlog also during the fourth quarter normally. So we don't expect anything specific there. Then of course, if I compare to third quarter, for example, there is Christmas and there is holiday seasons, and that may have some limited impact, but that's how we see it. William Mackie: One follow-up, if I may. Building on the earlier question regarding the order pipeline in Minerals. Can you talk a little to the discussion around the upgrades and modernization pipeline rather than large, normally highlighted projects? Do you see the ongoing trend that we've seen in Q3 with exceptional strength continuing in the fourth quarter? Sami Takaluoma: Yes, that's an excellent question. And as you might remember, I was responsible of this business area. And typically, we had the funnel of these upgrades and modernizations, 6 months ago, it was the largest ever in the euro value. So a lot of projects in a very good state of the discussions with the customer. And now we have started to see that they are released. And typically, I'm now referring what has happened in the past. They tend to then follow for 1, 2, 3 quarters in a row as a cycle when the customers make these orders. So expectation is that we do see also those orders coming in the Q4 and maybe also Q1. Operator: The next question comes from Tore Fangmann from Bank of America. The next question comes from Mikael Doepel from Nordea. Mikael Doepel: I have a few questions. I can take them one by one. So just firstly on the Aggregates business and what you see there, particularly in the U.S. If I hear you correctly, you seem to expect Europe to continue to recover into the fourth quarter, but I didn't really catch your views in the U.S. market clearly. So is it so that you see distributor inventory levels currently at normal levels? Or do you also expect some restocking effects there? Have you seen any negative impact of tariffs thus far? Or is it just an expectation that it must come? Just a bit of a clarification on how do you see the demand in the U.S. Sami Takaluoma: I'll try to open that a little bit up. We have not seen yet, but what we look is the distributor inventory levels. And from that perspective, it supports that the business that we see coming from the U.S. would be the normal as the levels are not over high as they used to be 1 year ago, for example. Then on the other hand, there is a risk that the new tariff included price levels of equipment and also parts might have an impact on how the end customers are evaluating their investment timing. Are they doing it now or expecting to look a little bit later. And even might have some challenges to fulfill the business plans with the new pricing coming through. So these 2 are both there and giving this a little bit uncertain situation, if I put it this way. The other one is supporting that the business continues normally and the other one is putting a little bit of the dark clouds out there. Mikael Doepel: Okay. No, that's helpful. And then second question relates to the mining business and maybe the project pipeline you're talking about. Just wondering, if I'm not wrongly remembering things, I think there should be a bit of a tail still left, for example, from the Uzbekistan, fairly large copper smelting order you got back in 2024. There might also be some other tails from other bigger projects. I assume when you talk about larger projects, you are not referring to these ones, but if you could maybe just give an update on the ones that you have won but haven't yet gotten all the orders from, the bigger ones. Pasi Kyckling: Yes. So first of all, Mikael, you have understood it the right way. So when we spoke earlier about the larger projects, so we were talking about future orders, which we have not yet seen and our expectation when they will realize, et cetera. Then when it comes to sort of existing pipeline, you are indeed correct that there is the Uzbekistan project, Almalyk, which is ongoing. And then there is also a number of other not only tails, but activities from the past, which are under delivery, and they are moving forward as per the plans. And then from financial statements point of view, we recognize revenue based on the percentage of completion. And typically it takes quite some time from the order until we start deliveries because of either engineering needs to go forward or if that is done, then just manufacturing activities with some of these equipment takes quite some time. And then the local construction projects, also, they are not small by nature. So it could be 24, 36 months from the order until we are complete with our deliveries. But yes, that's part of the backlog realization that we see every quarter. Mikael Doepel: That's fair. And maybe just a follow-up on that. So what is the reason? I mean, why the tails from Uzbekistan is not coming through? It's a question about the progress on site, which is slow? Or is it financing? Or is it anything else? Just wondering enough when we should expect that one to go through? Pasi Kyckling: Mikael, which way are you thinking? Because I mean, the project execution is moving forward, and we are realizing revenue and so forth, or how are you thinking about this? Mikael Doepel: No, I think there should be still some order value less from project. Have you already received everything? Pasi Kyckling: No. I mean, there is further potential on this and some of the other cases, but we cannot really comment single customer cases in such manner. Operator: The next question comes from Edward Hussey from UBS. Edward Hussey: Sami and Psi, can you hear me now? Pasi Kyckling: Yes, Edward, we can hear you. Edward Hussey: Okay, cool. Sorry about earlier. Just sticking to the rebuild and modernization theme. So first question is just on the order side. My understanding is that the comps in Q4 were also extremely weak. So should we expect to see a similar growth rate on the rebuild and modernization side in Q4? Sami Takaluoma: Yes. I said that these ones are those aftermarket orders that are not super critical from the timing perspective. And that's also the reason why they have this cyclic element. So we do have -- now we got the orders. We are happy of those. They were expected that they start to come during this year. We also expect that we see some of a similar way coming through in the Q4, but fully to be able to estimate or quantify the amount is challenging because they do not have this criticality the same way as other aftermarket products. Pasi Kyckling: And you are right that it's a -- sorry, you are right that it's a weak comparison point in the Q4. We did not see these orders last year in Q4. Edward Hussey: Okay. And then maybe just thinking about the mix in orders. I mean, is it -- when you think about these rebuild modernization orders, do they make up a sort of normalized mix in Q3? Or are they still below what you'd consider a normalized mix? Sami Takaluoma: I would say that when looking at the backlog, for example, so they look normal, and then orders that we are expecting once again, difficult to really estimate very accurate way that how much we will get those. But I would say that they are normal, if something. Edward Hussey: Okay. That's very helpful. And then final question just on the theme is just on the revenue side. Clearly, it seems to be margin accretive from the aftermarket business. In terms of the revenue mix, the rebuild modernizations, are these at normalized levels now? Or is there -- I mean could we potentially see a sort of acceleration in rebuild modernization revenues in Q4, and therefore, support from a margin perspective? Sami Takaluoma: Generally, I can comment that much that upgrades and modernizations for us, they are good and very healthy business when it comes to the margins. So they are in a good level from our sales mix perspective. Operator: The next question comes from Tore Fangmann from Bank of America. Tore Fangmann: Sorry, can you hear me now? Pasi Kyckling: Yes, we can. Tore Fangmann: Perfect. Sorry for before. A little bit of tech issues and cut out sometimes. So excuse me if this was asked before. Just one more question from my side. The Aggregates margin has recovered quite nicely quarter-on-quarter despite the lower revenues total and also like in equipment itself. I was expecting before that the main kicker for a margin improvement would be basically the volumes coming back for the cost absorption. So what would you say is the reason now quarter-on-quarter with the margin recovery that we've seen? Pasi Kyckling: Yes, it's a good question. And Tore, you may remember that, overall, we had some extra costs in the second quarter. And while, of course, Minerals is the one carrying larger share, Aggregate was also impacted. And from that angle, situation has normalized. And overall, not only in Aggregates, but generally, we had sort of a good cost control quarter, and that helped also Aggregate to deliver the margins they did. Tore Fangmann: Okay. Then just as a brief follow-up, if I remember correctly, then the main part that could have impacted aside from the ramp-up of the production cost would have been the ERP system rollout in Q2? Or am I missing out something here? And then when you say good cost control, is this something that you would then expect to continue into Q4? Is it like basically structurally now better cost control? Or is it a little bit more by circumstance that we have better cost control in Q3? Pasi Kyckling: I mean, I was mainly referring to the extra costs, i.e., ERP that we had in the second quarter, and like we said 3 months ago, that was one-off costs. Those have not repeated third quarter. And from a cost performance point of view, our expectation is to remain in a similar position going forward. Juha Rouhiainen: All right. There seems to be no further questions. So we are able to wrap up this conference call well in time. Thanks again for listening. Thanks again for asking questions. We will be back with our fourth quarter and full year results on February 12 next year. But in the meantime, we are sure to meet many of you on the road in different events during the remainder of this year. Looking forward to that. And now we say thanks again, and goodbye. Sami Takaluoma: Thank you. Pasi Kyckling: Thank you.