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Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Christy Kmetko with Investor Relations. Please go ahead. Christina Kmetko: Good morning, everyone, and thank you for joining us for today's third quarter 2025 earnings call. I'm Christina Kmetko, and I oversee Investor Relations here at NACCO. I'm joined by our President and CEO, J.C. Butler; and our Senior Vice President and Controller, Elizabeth Loveman. Yesterday evening, we released our third quarter results and filed our 10-Q with the SEC. Both are available on our website for your reference. Before we get into the results, let me remind you that today's discussion will include forward-looking statements. As always, actual outcomes could differ materially due to various risks and uncertainties, which are outlined in our earnings release, 10-Q and other filings. We undertake no obligation to update these statements. We'll also be referencing certain non-GAAP metrics to give you a clear picture of how we think about our business. Reconciliations to GAAP can be found in the materials we posted online. Lastly, as a reminder, during the second quarter, we changed the names of our reportable segments. Coal Mining was renamed Utility Coal Mining. North American Mining is now Contract Mining and Minerals Management was renamed Minerals and Royalties. Segment composition and historical reporting are unchanged. With the housekeeping comments complete, I'll turn the call over to J.C. for his opening remarks. J.C.? John Butler: Thanks, Christy, and good morning, everyone. I'm happy to report that our third quarter operating profit of almost $7 million improved sequentially from very disappointing second quarter breakeven results. Our Q3 2025 EBITDA increased to $12.5 million, up from $9.3 million in Q2. This sequential increase was driven by improvements in all segments and demonstrates solid progress in growing our businesses and boosting our profitability. I'm pleased we were able to overcome most of last quarter's temporary operational challenges to deliver these solid third quarter results. Our Utility Coal Mining segment is the foundation of our business, anchored by our long-term mining contracts. We continue to have solid demand in our unconsolidated coal mining operations. However, Mississippi Lignite Mining Company's results continue to be impacted by contractual pricing mechanics that are creating a reduced per ton sales price. The team is working diligently to run the mine as efficiently as possible to meet demand while keeping costs at a minimum, but they cannot outrun the contract mechanics. We anticipate that this contractual pricing anomaly will begin to rectify itself as we move into 2026. In our Contract Mining segment, which is operated by North American Mining, tons delivered grew 20% year-over-year and 3% sequentially. Higher customer demand and improved margins at the mining operations led to substantial improvements in both year-over-year and sequential results. These improved results stem in part from contracts negotiated in recent years and other growth initiatives for this business. Our Contract Mining segment is our growth platform for mining and we continue to add long-term contracts to its expanding portfolio. We provide contract mining services for several of the top 10 U.S. producers of aggregates and our expanding pipeline of potential new deals is strong. We believe this positions our Contract Mining segment as a core driver of future growth. Just last week, North American Mining executed a multiyear contract to provide dragline services for an embankment dam construction project in Palm Beach County, Florida, that is expected to be accretive to earnings beginning in Q2 2026. We are excited about this contract as it advances our growth into large-scale infrastructure projects. It also provides an opportunity to showcase the efficiency and environmental advantages of the new electric drive MTECK draglines, a key factor in our selection for the project. These new MTECK draglines enhance efficiency and uptime for our customers. We're an exclusive dealer for MTECK draglines in all the 2 U.S. states. Turning to our Minerals and Royalties segment. Catapult completed a $4.2 million strategic acquisition in July, which expands our mineral interest in the Midland Basin. The acquisition includes a mix of producing wells as well as additional upside opportunities through future development with existing operators in that region. The Catapult team continues to look for additional investment growth opportunities that will be accretive to earnings. Mitigation resources, a strong reputation and clear competitive strengths are supporting continued expansion into new markets. Although the business continues to be variable in performance due to permit and project timing, it is expected to achieve full year profitability in 2026 and more consistent results over time as new projects are secured. Overall, I believe we are well positioned for meaningful growth. Our business model is built on long-term contracts and investments, delivering strong earnings and steady cash flows that will help us deliver compounding annuity-like returns over time. We followed this approach over the last decade and momentum continues to build. That's why I'm confident in these businesses and our ability to deliver solid 2025 fourth quarter operating results with continued progress into 2026 and beyond. Our long-term strategy is laid out in our latest investor presentation. A copy of that presentation is on our website, along with recording from the end of August when we attended an investor conference in Chicago. In this presentation, we explained how we have built a portfolio of strong businesses focused on compounding growth and we describe our strategies for achieving our long-term target of $150 million of annual EBITDA in the next 5 to 7 years. If you've not seen that presentation, I encourage you to review it after this call. With that, I'll turn the call over to Liz to provide a more detailed view of our financial results and outlook. Elizabeth Loveman: Thank you, J.C. I'll start with some high-level comments about our consolidated third quarter financial results compared to 2024. Then I'll discuss the results at our individual segments. Consolidated revenues were $76.6 million, up 24% year-over-year, while gross profit of $10 million improved 38%. While consolidated earnings improved sequentially, as J.C. mentioned, they decreased compared with the prior year third quarter due to the 2024 $13.6 million benefit from business interruption insurance recoveries. Our third quarter 2025 operating profit was $6.8 million, down from $19.7 million last year. Excluding the insurance recovery income, the underlying consolidated operational performance overall was stronger with a net improvement in operating results. Substantial year-over-year operating profit improvements in our Contract Mining and Minerals and Royalties segments more than offset lower results in the Utility Coal Mining segment and an increase in unallocated expenses. We reported third quarter 2025 net income of $13.3 million or $1.78 per share versus $15.6 million or $2.14 per share in 2024. Significant favorable tax effects in the current quarter helped minimize the decline in net income. EBITDA was $12.5 million versus $25.7 million for the same period last year. Moving to the individual segments. At the Utility Coal Mining segment, the decline in operating profit and segment adjusted EBITDA was primarily driven by the 2024 insurance recoveries that I've just mentioned. The underlying Mississippi Lignite Mining Company business results were also affected by a reduced contractually determined per ton sales price in 2025. Looking ahead, we anticipate steady customer demand for the remainder of 2025 and in 2026 at our unconsolidated mining operations. At Mississippi Lignite Mining Company, fourth quarter 2025 results are expected to improve over 2024 due to operational efficiencies. However, this improvement is not expected to offset the effect of the reduction in the 2025 contractually determined per ton sales price, causing Mississippi Lignite Mining Company and the Utility Coal Mining segment's 2025 full year results to decline compared with 2024. We expect improving profitability in 2026, driven by anticipated improvements at Mississippi Lignite Mining Company in both sales price and cost per ton delivered, particularly as the customers' power plant is able to operate more consistently and formula-based pricing improves as expected. In the Contract Mining segment, revenues net of reimbursed costs rose 22%, driven by higher customer demand and increased parts sales. Improved margins at the mining operations and increase of part sales and lower operating expenses led to significant increases in both operating profit and segment adjusted EBITDA. Operational efficiencies, partly offset by elevated operating expenses are expected to lead to improved 2025 fourth quarter profits in the Contract Mining segment with momentum accelerating into 2026. These factors, combined with earnings from the new contract J.C. mentioned, are expected to lead to a significant increase in year-over-year results. At the Minerals and Royalties segment, operating profit and segment adjusted EBITDA increased year-over-year, primarily due to an improvement in earnings from an equity investment and increased royalty revenues, mainly driven by higher natural gas prices. Looking forward, Minerals and Royalties operating profit and segment adjusted EBITDA for the 2025 fourth quarter are expected to decrease compared with 2024, primarily driven by current market expectations for natural gas and oil prices as well as development and production assumptions. While fourth quarter 2025 results are projected to decline, full year operating profit is expected to increase over 2024, excluding a $4.5 million gain on sale recognized in the 2024 second quarter. In 2026, operating profit is expected to increase modestly over 2025 as income from Catapult's newer investments is expected to be mostly offset by reductions in earnings from legacy assets. Overall, we anticipate consolidated operating profit for the 2025 fourth quarter to be comparable to the prior year quarter. Full year operating profit will be lower than 2024 due in part to the 2025 second quarter breakeven results. We're also terminating our pension plan during the fourth quarter, which will simplify our financial structure going forward. While the plan is overfunded, the termination will trigger a noncash settlement charge. The pension settlement charge and lower operating profit are expected to lead to a substantial year-over-year decrease in net income and EBITDA compared with the 2024 fourth quarter and full year. We expect meaningful year-over-year improvements in both operating profit and net income in 2026. From a liquidity standpoint, at September 30, we had total debt outstanding of $80.2 million, down from $95.5 million at June 30 and $99.5 million at December 31, 2024. Our total liquidity was $152 million, which consisted of $52.7 million of cash and $99.3 million of availability under our revolving credit facility. During the quarter, we paid $1.9 million in dividends. And as of September 30, 2025, we had $7.8 million remaining under our $20 million share repurchase program that expires at the end of 2025. We are forecasting up to $44 million in capital spending for the remainder of this year and up to $70 million in 2026. Most of this is earmarked for new business development. As our returns from previous investments start to materialize, we expect cash flows to improve over the prior year. In 2026, we expect cash flows to be comparable to 2025. With that, I'll hand it back to J.C. for closing remarks. John Butler: Thanks, Liz. To wrap up, I have a lot of confidence in our trajectory and our future. We are operating in an increasingly favorable environment. There is strong and growing demand for energy and for the products and services that we provide. Recent government support is also helping to strengthen all of our businesses. I believe the building blocks for durable compounding growth at NACCO are firmly in place. Our team is focused on execution, operational discipline and driving long-term returns for shareholders. We remain confident in our ability to deliver sound fourth quarter 2025 operating results with momentum building as we move into 2026. With that, we'll now turn to any questions you may have. Operator: [Operator Instructions] Our first question comes from the line of Doug Weiss with DSW Investments. Douglas Weiss: So congrats on a good quarter. I guess starting with the Contract Mining segment. If I just look in your financial filings, you ascribed about $200 million of asset value to that segment. So it looks like at the moment, the ROIC is a little below your targets of mid-teens ROIC. I'm just curious, is that a function of how the contracts were priced historically? And going forward, you think you've made changes that will address that? Or are there other factors you would point to? John Butler: Yes. Good question. I would say that there's a little bit of I guess I'd call it timing. There's both past and future in there. You've got assets that are attributed to projects that we're working on contracts we've got that are fully operational and delivering full levels of profitability. There's also assets in that segment with respect to things that are yet to deliver. We've talked about the long-term nature of these projects and they tend to be invest and then harvest kind of projects where if we do put capital upfront, it's because we're going to earn returns later. I guess that one place I would point in the Contract Mining segment is the Sawtooth mine in Northern Nevada, where we've agreed to commit some of the initial capital for equipment. We get repaid for that over time. But that project isn't going to really fire up and start delivering full levels of profitability until, I think, end of 2027 is when we expect to start delivering lithium. '28, '29, beyond that, I mean, this thing -- this is going to be a great project for us. So some of the capital that you're seeing in that total asset number includes things like that. I mentioned Sawtooth. It's not the only one. I guess the other one I'd point out is we just -- yesterday, was it yesterday we released the announcement about the [ FAO ] project? Elizabeth Loveman: Tuesday. John Butler: Tuesday. Two days ago already. We announced -- we issued a press release for a new project that we signed up in Florida, which we mentioned in our comments. We've got some capital committed there as well and that's going to start delivering profitability early next year. So it's a bit of a mismatch between the assets that are there and the current profitability of the business. In all honesty, I think that's -- given the way we're growing the business and continuing to grow the business with these long-term projects, I think there will probably always be a bit of this mismatch in those metrics when you look at them purely on a period basis. Liz, do you have anything you'd add to that? Elizabeth Loveman: No, I think that is a good description. John Butler: Does that make sense? Douglas Weiss: Okay. It does, it does. And then you've traditionally done dragline work, but you've -- Sawtooth, I believe, is surface work. And I'm curious, are the economics any different as you move outside of dragline? And do you have a desire to -- do you have a preference between those types of projects? John Butler: Well, let me get to the preference piece at the end because I've got to think about that. So the Contract Mining segment is really mining services for things that are not coal or not coal related to energy generation. And you're right, there's one piece of the business. 15 years ago, we called it Florida dragline operations and it was using draglines to mine aggregates that were underwater for aggregates producers. Over the last 10 years, we've been expanding that. But really, we can kind of do any kind of mining. When you think about the very comprehensive scope of what we do in our coal mining operation, we can run draglines. We can do truck shovel operations for people. We run virgin surface miners. And as you get to Sawtooth, we're going to run the entire mine. Now there's no dragline at Sawtooth and there won't be. But it's much more akin to one of our surface mines where we're doing everything from start to finish with respect to the mining. That's different than the dragline operations where we are just running a single piece of equipment. We're really happy to deliver whatever kind of services a customer needs. Really, our preference is that we find a partner that's a good long-term partner where we can really be an integrated part of their operations. When you think of all of those things that we do in the Contract Mining segment, we're part and parcel of what happens with each customer's project. And if that's running a dragline, that's fine. If it's running lots of equipment, that's fine, too. I would say that the more work we do at a given location, the more opportunities we have to get paid for our service since we really are, at the end of the day, a service company. But it's really more about finding the right partners and the right projects than having a strong preference for one model over the other. Happy to grow in any way. Elizabeth Loveman: I would also add that our fee would be commensurate. If we bring capital to the table, we would structure our fee to cover the cost of that capital. John Butler: Yes, that's fair. If we're operating somebody else's equipment, we're going to have a lower fee there. If we bring capital, obviously, we need to be compensated for the capital we're bringing. Good point, Liz. Douglas Weiss: Right. I mean, in terms of your new business development, do you have a sales force that -- like your typical person out there in the field, are they -- do you have people who are entirely focused on aggregate and people who are focused on non-aggregate opportunities? Or does everyone sort of cover everything? John Butler: We operate with sort of a one-team approach, very much a one-team approach. So anybody that's out in a business development effort knows that they have specific things that they can offer as well as comprehensive things they can offer because as a good example, the [indiscernible] project we just signed up in Florida, we're going to be operating draglines there to build this embankment. But to the extent that that project needs assistance or wants advice from any other part of the business, we'll be there in a heartbeat no matter whether they're in the environmental part of the business, Mitigation Resources or an expert from North American coal. So our business development people really are very well informed and well educated about the range of capabilities that we have. And we approach each project and each potential customer with kind of a -- it can be specific or it can be very broad in terms of what they need. Douglas Weiss: Okay. In the Utility Coal segment... John Butler: Sorry, just one more thing I would add. We think that that approach helps us identify and secure more projects than if we're very specific. If you're -- I don't really think of any of our people as salesmen given the long-term nature of it. I think it's more like business development. But we believe that if they're focusing broadly on solutions that we can provide for potential customers, we're more likely to come up with success as opposed to having somebody focused on one specific area, they might not be addressing the larger opportunities that might reside with that potential customer. Douglas Weiss: I mean, so if you were to just look out 5 years from today, I mean, I think today, you're predominantly aggregate mining plus Sawtooth and then you had the phosphate opportunity and this new opportunity. And maybe there are others that I'm not aware of. But if you look 5 to 10 years from now, would you see the business as more diversified? Or would you still see aggregates as the predominant end customer? John Butler: Well, you're really talking about the pie chart of what's the mix of business. I think 5, 10 years from now, the pie chart is going to be a lot bigger. We're going to have a lot more projects given the opportunities that we're seeing on the horizon. And I would just add that as we expand the areas of the country where we operate and we expand the range of equipment and the customers we have, well, that just creates more opportunities to touch people and get to know people in various areas. So I think we're going to see an increasing range of opportunities just because we're operating in more areas. I think that the aggregates piece is going to continue to be a substantial part of the business. We operate equipment for some of the very largest aggregates producers in the United States and we continue to find new business for them. So I think that's going to continue to grow. I also think that we're going to continue to find more opportunities, perhaps even an increasing pace of new opportunities that are broader than just mining aggregates for aggregates production. You look at the [ Fail ] contract, I mean, it's kind of got one foot in both camps because in one respect, we're going to use a dragline to excavate aggregates, but the aggregate is going to be used to build this embankment dam. And it's really more of a civil earthworks project than it is delivering aggregates to an aggregates producer that's selling them for construction and cement and other things. So I think that's introducing a new market to us that we're very excited about. This happens to be a similar force project that we use as a dragline, but we now have our toe in a market where we could put the full range of skills that we have to work and find new opportunities. So I think -- I mean, I've got actually a fair amount of confidence that 5 to 10 years from now, you're going to see a lot more things inside this contract mining business than we're doing today. But I still think the limestone business is going to be a very important piece of that, given the strength of the customers that we work with. Douglas Weiss: Okay. Sounds good. Let's see. On the Utility Coal segment, you've had this pricing agreement that has pressured this year's results. In the K, you describes what sounds like a similar contractual structure in the unconsolidated operations. I'm just curious, obviously, those are doing well. So I'm just curious how those 2 contracts differ and if there's any risk on the unconsolidated? John Butler: You're asking about the difference between the unconsolidated mines and Red Hills? Yes. Douglas Weiss: [Indiscernible]. Yes. John Butler: Entirely different contract structures. The unconsolidated mines are purely fee-for-service. The customers pay 100% of the cost at a mine and they provide all the capital in one form or another, either through guaranteeing loans or funding us directly. And we collect a fee for every ton of coal that we deliver. So it's purely a service business. At the MLMC, Mississippi Lignite Mine Company Red Hills mine, that is a -- that's a more traditional contract generally. We own all the capital. We pay all the costs. Where it's a little different than a typical mining contract is the price that we sell the coal for is not market price. It's a price that's determined by a contractual formula. And this formula was devised in 1994, '95, long before any of us were involved. It's got very particular mechanics with respect to how we are able to charge for the coal that we deliver related to the change in indices, a basket of indices over time that reflect inputs that are used in mining. Think about things like diesel fuel and tires and labor. And so it's this set of indices that match those things and you look how those change over time, both over a 1-year and 5-year period. And then you do a bunch of math. And we're going through a period right now where if you think about 5 years ago, right, 5 years ago was November of 2020, we were going through all the whipsaws of index indices related to COVID. And so we're seeing the 5-year lookback piece of the formula sort of jerking us around. At the same time, you've got lower diesel prices. So it's an entirely different contract structure. I guess I would point out that, look, the operating profit can get beat up by this. I tend to look at EBITDA for this contract because even though we've spent a lot of capital in the past, that contract expires in 2032. So we're really kind of putting a lot more capital in there. So I think the EBITDA with respect to that mine and actually the whole segment is a better metric for me to watch. Douglas Weiss: Right. No, that makes sense. I guess what I was curious about is it sounds like the unconsolidated is just a fairly straightforward inflation adjuster. In other words, you just -- in terms of what fees you pay. John Butler: It's CPI and PPI for the most part. Maybe there's some other indices, but it's -- fee basically goes up by CPI and PPI. Douglas Weiss: Okay. Got it. Got it. You had a little bit of a larger-than-normal unallocated expense line this quarter. Could you say why that was up? Elizabeth Loveman: Yes. There's a few things in there that are causing that increase, mainly employee-related and there's 2 components to that. We had higher medical expenses. And we also had our share-based compensation. We had an increase in our share price if you look year-over-year. So when you include that component into our incentive compensation calculation, purely because of the increase in share price, we're going to have a higher incentive compensation expense. And we also had higher business development expenses running through the quarter. Douglas Weiss: Okay. Okay. Are you still moving ahead with your solar project? John Butler: Yes. Yes. We are working pretty diligently right now on getting those projects that are in the pipeline safe harbored for tax credit purposes. But yes, we're working on those very diligently. Douglas Weiss: And so it sounds like you're looking at multiple locations now for those? John Butler: Yes. Douglas Weiss: Okay. Let's see. That might be all I have. Well, I appreciate all the good work and it really seems like things are moving in the right direction. John Butler: Well, we appreciate your continuing interest and your great questions. Operator: There are no further questions in queue. I'll turn the call back over to Christina. Christina Kmetko: All right. With that, we'll conclude. Before we do, I'd like to provide a few reminders. A replay of our call will be available online later this morning. We'll also post a transcript on our website when it becomes available. If you do have any questions, please reach out to me. My number is in our press release, and I hope you enjoy the rest of your day. I'll turn it back to Tina to conclude the call. Operator: As Christina said, an audio recording of this event will be available later this evening via the Echo replay platform. To access the platform by phone, playback ID is 728-4609 followed by the # key. This replay will expire on Thursday, November 13, at 11:59 p.m. Thank you for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Primerica Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Nicole Russell, Senior Vice President, Investor Relations. Please go ahead. Nicole Russell: Thank you, Melissa, and good morning, everyone. Welcome to Primerica's third quarter earnings call. A copy of our press release issued last night, along with other materials relevant to today's call are posted on the Investor Relations section of our website. Joining our call today are our Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Tracy Tan. Our comments this morning may contain forward-looking statements in accordance with the safe harbor provisions of the Securities Litigation Reform Act. We assume no obligation to update these statements to reflect new information and refer you to our most recent Form 10-K filing as may be modified by subsequent Forms 10-Q for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied. We will also reference certain non-GAAP measures, which we believe provide additional insight into the company's financial results. Reconciliations of non-GAAP measures to their respective GAAP numbers are included in our earnings press release. I would now like to turn the call over to Glenn. Glenn Williams: Thank you, Nicole, and good morning, everyone. Primerica delivered solid earnings growth and generated strong cash flows during the third quarter of 2025, underscoring the resilience of our business model and consistent execution as our clients gradually adapt to economic headwinds. Our complementary product lines have proven to be a key advantage and powerful differentiator, while our sales force's commitment to serving middle-income families continues to set us apart. Starting with a snapshot of third quarter financial results. Adjusted net operating income was $206 million, up 7% year-over-year, while diluted adjusted operating EPS increased 11% to $6.33. We remain disciplined in our capital deployment strategy and returned a total of $163 million to stockholders through a combination of $129 million in share repurchases and $34 million in regular dividends during the quarter for a total of $479 million returned year-to-date. Looking more closely at our distribution results, both recruiting and licensing were down compared to the prior year period, which benefited from elevated post-convention activity. However, current levels remain healthy relative to historical trends in nonconvention years. During the quarter, more than 101,000 recruits became part of Primerica and nearly 12,500 people obtained a new life license, positioning us to end the year at around 153,000 life license representatives. This projection is slightly above last year's record level. Looking at our life sales results. During the quarter, we issued 79,379 new Term Life policies, down 15% year-over-year compared to record performance in the prior year period. Those policies contributed $27 billion in new protection for our clients for a total of $967 billion of in-force coverage. Productivity at 0.17 policies per rep per month was below our historical range, driven by a combination of lower life sales and continued growth of our life sales force over the last 12 months. As we close out the year, we project the total number of policies issued in 2025 to decline around 10% compared to 2024's record-setting pace. Lower life sales are largely driven by cost of living pressures in the middle market. However, our conviction in the future potential for our life business remains unchanged. Primerica is well positioned to reach and serve middle-income families, one of the largest and most underserved market segments. We're working toward improving productivity on several fronts. First, we continue to improve the accessibility and appeal of our Term Life products. Our next generation of products recently received approval for sale in the state of New York. For all U.S. states in Canada, we continue to work toward more convenient and faster underwriting and issue processes to make sales simpler for our reps and clients. In addition, we've introduced improved life product training for newer representatives with the goal of positively impacting their productivity. In the coming months, we will evaluate the effectiveness on productivity of this training alongside increased focus by field leadership with expectations of a positive impact. Moving to our ISP segment, where results continue to outpace our guidance. Sales grew 28% year-over-year to a record $3.7 billion during the third quarter of 2025. We continue to see strong demand for all product categories, including managed accounts, variable annuities and U.S. and Canadian mutual funds. Net inflows for the quarter were $363 million, comparing favorably to $255 million in the prior year period, while client asset values ended the quarter at $127 billion, up 14% year-over-year. Over the last few years, we've made meaningful improvements to our platform and fund offering, including the addition of over 50 new investment portfolios. In Canada, the principal distributor model continues to be well received and is driving strong sales. We believe demand for investment solutions will continue to benefit from inflows as the baby boomer and Gen X populations prepare for retirement. Given the strength in the equity markets and continued momentum, we expect full year ISP sales to grow around 20% in 2025. Through our mortgage business, supported by more than 3,450 licensed representatives, we remain well positioned to help middle-income families obtain a new mortgage or refinance to consolidate consumer debt. We're now licensed to do business in 37 states with the recent addition of South Carolina. Year-to-date, we've closed nearly $370 million in U.S. mortgage volume, up 34% compared to the first 9 months of 2024. We also have a mortgage referral program in Canada, bringing refinancing and new mortgages to our clients there. As 2026 approaches, we're laying the foundation for strong momentum by launching a series of major regional field events in the spring. Our goal is to build excitement and field engagement as we move toward our 50th anniversary convention in 2027, a milestone we're proud to share with our sales force. We remain focused as we close 2025 and look forward to the exciting opportunities ahead. With that, I'll hand it over to Tracy for the financial results. Tracy Tan: Thank you, Glenn, and good morning, everyone. Our third quarter financial results were strong across all segments, giving us confidence that we're well positioned to end 2025 with solid year-over-year growth in both revenues and earnings. Starting with Term Life segment. Third quarter revenues of $463 million rose 3% year-over-year, driven by a 5% increase in adjusted direct premiums. Pretax income was $173 million compared to $178 million in the prior year period, down 3% year-over-year. Results during the quarter included a $23 million remeasurement gain compared to a $28 million gain in the prior year period. Excluding the impact of these remeasurement gains, pretax income remains largely unchanged. As required under LDTI accounting, we completed our annual review of actuarial assumptions and made certain changes to our long-term assumptions, which resulted in a $23 million remeasurement gain in the current period. And the largest portion of the gain was from mortality assumption change, reflecting favorable trends observed since the pandemic in addition to a positive experience variance from the quarter. As a reminder, the prior year period included a remeasurement gain of $28 million, primarily driven by an adjustment to our best estimate assumptions for the disability incident rate under our waiver of premium rider. Persistency remained stable on a year-over-year basis in aggregate, although lapses remained above our long-term LDTI assumptions. We believe that our clients are resilient over the long term and value our services and products. Based on historical trends, we expect persistency to normalize as clients adapt to the evolving economic environment. As a result, we did not make a change to our long-term lapse assumptions during the recent review cycle. Turning next to our key financial ratios. Excluding the impact of the remeasurement gain, the Term Life margin at 22% and the benefits and claims ratio at 58.3% remains consistent with our guidance. Our other key financial ratios also remained stable with the DAC amortization and insurance commissions ratio at 12.2% and the insurance expense ratio at 7.5%. Given the size of our in-force block and the stable nature of our Term Life business, we maintain our full year guidance to the ADP growth at around 5%. After revising our updated mortality assumptions, we expect the benefits and claims ratio to remain stable at around 58% in the fourth quarter. Guidance for the DAC amortization and insurance commissions ratio remains unchanged at around 12% and the operating margin at around 21% for the quarter with expectation for some accelerated technology investments to support growth. This will result in full year operating margin above 22%. I will provide full year guidance for 2026 in February. Turning next to the results of our Investment and Savings Products segment, which continued to perform well on the strength of robust sales momentum and increasing client asset values. Third quarter operating revenues of $319 million increased 20% from prior year period, while pretax income rose 18% to $94 million. Sales-based revenues increased 23%, slightly outpacing the 20% increase in commissionable sales, primarily driven by strong demand for variable annuities. Asset-based revenues increased 21% year-over-year compared to a 14% increase in average client asset values as we continue to benefit from a mix shift due to customer demand for products on which we earn higher asset-based commissions, namely U.S. managed accounts and Canadian mutual funds sold under the principal distributor model. Sales commissions for both sales and asset-based products increased relatively in line with revenues. In the Corporate and Other Distributed Products segment, we recorded pretax adjusted operating income of $3.8 million during the quarter compared to a pretax loss of $5.7 million in the prior year period. The year-over-year change is due to higher net investment income, primarily from growth in the size of the portfolio and a $5.2 million remeasurement loss on the closed block of business in the prior year period. Finally, consolidated insurance and other operating expenses were $151 million during the quarter, up 4% year-over-year. The growth in expenses was driven by a combination of higher variable growth-related costs in the ISP segment and to a lesser degree, in the Term Life segment as well as higher employee-related costs. We continue to see year-over-year growth in technology investments and anticipate some acceleration as we move towards the fourth quarter. We expect fourth quarter expenses to grow around 6% to 8%, resulting in full year growth towards the lower end of our original guidance of 6% to 8% as we have realized expense savings that offset some of the investments we made this year. Our invested asset portfolio remains well diversified with a duration of 5.4% up -- 5.4 years and an average quality of A. The average rate on new investment purchases in our life companies was 5.25% for the quarter with an average rating of A plus. The net unrealized loss in our portfolio continued to improve, ending the September quarter with a net unrealized loss of $116 million. We believe that the remaining unrealized loss is a function of interest rates and not due to underlying credit concerns, and we have the intent and ability to hold these investments until maturity. We continue to generate strong cash driven by the superior growth of our fee-based ISP business and the steady premium contribution from our large in-force block of insurance policies. Our holding company ended the quarter with $370 million in cash and invested assets. Primerica Life's estimated RBC ratio was 515%. We have plans to increase capital release from our insurance companies in the fourth quarter and to continue our effective capital conversion for the long run. We are confident in our strong capital position to fund growth initiatives, absorb economic volatility and to provide superior return on equity to our stockholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joel Hurwitz with Dowling & Partners. Joel Hurwitz: Tracy, I just wanted to start with your last comments there on the planned capital drawdown from the insurance entity. Just can you elaborate on what you're expecting in the fourth quarter and then maybe going forward? Tracy Tan: Yes. Good morning, Joel. Our capital position remains a very strong, particularly because of the excellent cash generation from our in-force block. And in the third quarter, we also had a really nice improvement on profitability from our statutory entities, and that's part of the reason why the RBC got higher. And from a cash generation standpoint, the continued strength of our profitability on the Term Life being consistent and being resilient is a big part of why the RBC ratio continued to be very strong. And as you know, that our ability to take the cash out of the life business is really based on the regulatory conditions as a limitation of how much you can take out as a percent of or limited by the prior fiscal year income. So we are taking maximum amount out as we speak. However, in the fourth quarter, we do have plans to increase that conversion from our insurance entities. The specific plan clearly will help us reduce that RBC ratio and while keeping a strong enough ratio above 400% to help support the growth. And as we continue to anticipate a growth for the long run for life insurance business, we know when the growth pace start to pick up, it's going to consume more cash because of how the cash flow is more front-loaded for a policy issuance. So that is part of our long-term plan. But for the fourth quarter, we have actions in place that could possibly include in the long run, looking at how dividend can be converted out, not excluding special dividend, but also including some other actions that we are putting in place to certainly increase that conversion rate. I hope that helps answer your question. Joel Hurwitz: Yes. No, that's helpful. I look forward to seeing what you do in Q4. Maybe shifting for my second one, shifting to the term sales. Can you just help unpack, I guess, sort of what you're seeing and what you think the drivers of the weaker sales relative to your prior expectations? Is this all cost of living? Or are you starting to see other headwinds emerge that are impacting sales? Glenn Williams: Joel, we think it's primarily cost of living and other general uncertainties. It seems like every day, there's something new about the future that's unknown that you thought you do the day before. And so it's -- as far as we can tell, it's all external. As I said in my prepared remarks. Obviously, we don't want to just be victims of the environment. We want to push back as hard as we can. So as we look at making our processes easier and faster, I had some conversations with some of our reps yesterday about the difficulties in the marketplace. And they're saying the conversations are taking longer. Clients are having to dig deeper into their budgets to reprioritize because their budgets are tighter. And so the discussions take longer. The decisions are harder for clients and we want to be able to work through that with them. We're not going to just say, okay, thanks, we'll check with you when things get better. And so that's part of the training process we were talking about earlier is to help our reps have those conversations with clients that can get them deeper into their budgets for prioritization, understanding the importance of protection in their family of putting in force and keeping in force. But there's still that uncertainty out there that has people in a wait-and-see mode in general. And I pulled our kind of an informal poll of a number of our reps that were in yesterday for a training session and said, how many feel like it's harder to make a life insurance sale this year than last year because of the economic and social circumstances around they all raised their hand. They said, life has gotten harder, investments for those clients that have money has gotten easier. And so I think what we're seeing is the result of the path of least resistance. And we've seen that before in our business when one line of business goes up and another one struggles a little bit, and then it turns around in future years. Operator: Our next question comes from the line of Jack Matten with BMO Capital Markets. Francis Matten: First one on the ISP business. Just wondering if you could talk about the sustainability of these kind of strong sales growth levels. And certainly, the VA or RILA market has been a tailwind. But I also do think of you all is having some structural advantages given your kind of built-in customer base. I know you've been adding new products and funds. So just curious, bringing it all together, whether there's kind of like an underlying kind of growth rate we should think about over time? Glenn Williams: Yes. As we look forward, Jack, we do -- we are pleased that we see the growth across the product lines. So we've seen strong growth of mutual funds, variable annuities, managed accounts, Canadian business and that breadth gives us -- adds to our confidence that this is a trend that probably has some legs. That said, a sudden turn in the market, a lot of discussion out there about is the market higher than it should be? Is the correction out on the horizon. Those are the types of things that can really turn this momentum around, again, far beyond our ability to control them. But the fundamentals of the breadth, the fundamentals that I mentioned in my prepared remarks of the demographics long term, we think there's true growth opportunities here. It might be a little choppier than it's been in 2025 if the market starts to reverse direction on us in a significant way or for an extended period of time. So I think we just have to keep that in mind, but the fundamentals are sound in that business. Francis Matten: Got it. Makes sense. And just a follow up on the cash flow outlook. I guess, are you suggesting that there is like the potential to have maybe like a structural improvement in your cash flow conversion ratio over time? Or were your comments more related just to this year where you've had better experience and so maybe more cash flow coming out and then it normalizes heading into next year? Tracy Tan: Jack, so on cash performance, what I would comment about is the question in terms of cash conversion was more specific about cash conversion out of life insurance business to the holdco, where the RBC ratio is. I think we have plans in the fourth quarter to improve that conversion, even though that conversion is largely limited by the statutory requirement. We do have plans that could help improve that conversion. Now in terms of a long-term cash flow generation, I think we're very confident of the ability to generate very positive cash flow. First and foremost, is that our fee business has been really outperforming in terms of the ability to generate cash and that conversion continues to be very strong. And we have very good momentum on those fee business growth beyond just what the market normal growth rate is. And as we look at our growth rate on these businesses, we've been outperforming the market in the comparatives. So that generation has been very strong, and that gives us a very good long-term potential from the fee business cash generation when I look at -- in the longer term, when I'm looking at more 4, 5 year out. At the same time, our Term Life is an extraordinarily important business that produces very consistent strong cash flow because of how big the in-force block is and how consistent that business performs. If you look at the margins, it doesn't really vary all that much more than 200 basis points. So combined, our total business profitability is very, very sound at over 20%, if you look at the overall profitability. So the consistency, the resilience and our ability to just convert the cash from subs into holdco and our ability to return from holdco to the stockholders. I mean, we've been performing at around 79% -- 80% capital return to stockholders, which really is superior to the health and life performance. And you look at our conversion from our subs of insurance to our holdco is around 80% and some years higher possibly, and that's also superior to our peers. So overall, our cash performance has been fantastic. And that's why that's also part of -- in the long run, look at our ROE performance at $0.30 return on $1 of investment, that's also superior to many peers as well. So overall, we're confident about our ability to generate cash and our ability to return good amount of cash back to the stockholders in various ways. Operator: Our next question comes from the line of Ryan Krueger with KBW. Ryan Krueger: I had a question on the 21% margin in the fourth quarter in Term Life. You had mentioned some higher investments. Can you elaborate on what you're doing there to start? Tracy Tan: Yes, Ryan. So our -- yes, our Term Life performance has been relatively consistent. Really, when we look at the ratios, they don't really vary more than 50 basis points much at all. Some quarters, there is a little bit of a pattern, maybe higher than the other quarters due to just the spending patterns. So in terms of looking at the fourth quarter, we do have some activities of accelerated technology investments that will be continuously supporting our growth potential from the front end. And if you look at the overall ratio on the Term Life business, it's pretty steady. If I look at the benefit, I look at the DAC ratio and look at the expense ratio, they're very consistent overall on a total year basis to our guidance. And the margin for the year is going to be well over 22% as well for the total year. Now in terms of fourth quarter, we do believe that some of this acceleration is specifically targeted addressing our front-end productivity side of the improvement purposes that makes the rep journey easier, and that will continue to be a focus of ours to support the technology side of the improvement and the digital marketing and then the reps and the clients' experience. I hope that answers your question, Ryan. Ryan Krueger: Yes, it does. And then the follow-up was in the ISP business, your net fee rate has been kind of gradually trending up for the last several quarters. Is there any specific thing that's driving that? I know you are growing the managed account platform more, which I wonder if maybe that has slightly higher revenue rates. But is that -- can you give any color on what's driving that and if this trend may continue going forward? Tracy Tan: Yes, Ryan, this is a great observation. I think certainly, on the ISP side, we do have a mix shift because of the client demand. And this is particularly driven by where the highest growth rates are. If you look at our -- the growth rate on managed account, it significantly outpaces most of the other categories and then variable annuity, as an example, also outpaces the other categories. All of those on a relatively basis, compared to mutual fund, they have higher from a margin and the variable side of the story, it's a little bit of a higher ending trend that pushes some of the improvement you see on the ISP business. Now again, as we talked about from previously when Jack even talked about the variable annuities there on the tailwind, I will say that some of this certainly has the impact of where the interest rate is that pushes people to try to capitalize on the opportunity to lock in higher rates. But secondarily, more importantly, is the demographic shift of people to Glenn's point, preparing for retirement as well as certain need to avoid the volatility possibly from equity market standpoint. All of those help push our good performance on the ISP rates and margins. Operator: Our next question comes from the line of Wilma Burdis with Raymond James. Wilma Jackson Burdis: Do you guys expect any forward impact from the assumption review? And maybe you can just walk me through this a little bit, but how is the assumption review so outsized given the 90% mortality reinsurance? Tracy Tan: Wilma, our assumption review in the third quarter generated $23 million of remeasurement gain. In relative terms, it is still a small percent when we consider reinsurance. And that's actually on the comparative speaking terms of size, if we didn't have reinsurance, this would have been several times bigger of an adjustment number. So looking at our overall mortality performance, we've been experiencing very good mortality for several years since middle of 2022. So we took a portion of that profit -- of that improvement and adjusted our long-term best assumptions. Now to your point, what the size would have been, well, without the reinsurance treaties and the size of that 90% YRT that we reinsure, this would have been several times larger of a number. So this $23 million total remeasurement gain in the third quarter is a very, very small percent in terms of what the size could have been. Hopefully, that helps answer the question. Wilma Jackson Burdis: Yes. And I realize you guys have given quite a bit of color on the Term Life sales. But I guess I'm just wondering what might change the trajectory of those sales. I've been looking at your recent surveys on households, and I'm not seeing that the trends appear sharply worse than they have in some of the recent results. So I'm just wondering if there's anything else that might contribute to the pressure that could potentially run off nearer term? Glenn Williams: Yes, Wilma, you're right. Fortunately, we have seen kind of some flattening of the increases in cost of living. As we talk to our reps and our clients and survey them, we find that the cumulative effect is still causing some struggles. So while it's not getting worse as fast, it's not getting better very fast either. But we do believe that clients are adapting. Over time, people become accustomed to where they are. I'm not going to say they like it, but they become accustomed to it and learn to deal with it. And that's where we've often seen these types of pressures start to ebb some is after a period of time. But clearly, it's better if we can have household incomes really start to gain some ground. The prices aren't going to come down significantly, I don't think, but it's household income catching up that will help us get out of this. We are seeing some of that begin to happen. I think it just takes time to get some traction. And fortunately, we've seen this kind of dynamic in the past. So we believe, number one, it is a temporary situation and that we can take some actions to help clients work their way through it because we've seen it before. If you look at our history as an almost 16-year-old public company, we've had a number of years where we see this exact dynamic that recruiting and life insurances down and investments is up. We've seen other years where recruiting and life insurance is up and investments is down, and we've seen a lot of years, which is what we strive for, where everything is up at the same time. So it's not unprecedented by any means. It's probably a little more severe than we've seen in probably 15 years or so and taking a little longer to get out of it. And then I would say there are also what we've termed government policy uncertainties that other things in life that aren't directly financial, there's everything from the government shutdown. And we've got federal employees on furlough right now that are saying, well, let's wait until this is over before we make a buying decision. So there's just an unusual amount of uncertainty to add to the financial pressure. But again, we think it's temporary, and we eventually will get out of it, and we think we can take some actions to work through it and sort of turn the tide along the way. Wilma Jackson Burdis: Can I squeeze one more? Glenn Williams: Go ahead. Wilma Jackson Burdis: Okay. Is there anything that you think is going to change near term for your customer base? So I know that there's some different tax impacts that are coming in next year. Is there anything like that, that you see on the horizon that could provide some relief? Glenn Williams: Wilma, not anything that we have enough confidence in to count on. I mean we always keep our ear to the ground on the types of decisions that might be made at government policy level or taxation level that will be helpful for the middle market. And you're right, there are some discussions out there that might provide some relief and that kind of thing. We want to build a plan about what we can control. And then if we get some breaks that are beyond our control, it will just be icing on the cake. So we're not counting on those to turn the direction, but we do know there are all types of discussions going on because I think everyone recognizes the pressure that middle-income families are under. There's a universal agreement, I think, among all the divisions in our 2 countries where we do business right now is that middle-income families are under a significant amount of pressure. So hopefully, there would be some relief that would give us a tailwind. Operator: Our next question comes from the line of John Barnidge with Piper Sandler. John Barnidge: Cost of living headwinds, I think the competition is clearly with space in your core customers' wallet. It's been talked about that rates are going lower -- it's also been talked about rates are going lower for seemingly longer time as well. But with the refinancing of a mortgage, when that does occur, how much on average do you save the consumer versus the average life policy premium? Glenn Williams: I can give you some directional answers, John. I don't have the averages at my fingertips. We can maybe follow up with you on that. But you're exactly right. Another area of uncertainty is the direction of interest rates. I think the entire mortgage industry has been struggling with that for a while. We assume for a long time they were going to come down and then they did and they actually went the other direction. And I think that's common among all in that business. When we help a family refinance in addition to their mortgage, we are also looking at their consumer debt, which is generally at a much higher rate -- interest rate than their mortgage and trying to bring all that in together to maximize their savings. When we're able to do that, we also can adjust the term as needed to make things affordable or to accelerate, which is what we'd rather do, accelerate their payment. But generally, when we help a family on the mortgage side, it frees up more than the cost of a life insurance policy. And it actually can, where appropriate, not only provide them the funding for that, but also to get a systematic investment plan started. And that's the reason that we like that business. I've said many times, we get approached all the time by people product providers wanting us to load additional products into our distribution system and more products tend to cannibalize existing products. And so we're very resistant to that. I think the product that doesn't do that is a refinance of a mortgage where we can lower the average interest rate and pull in those consumer debts that are at high interest rates and high payments, and then we can get the clients on better financial ground. So that's one of the reasons that we think that business is important. As you know, it's a highly regulated business. So we've got a significant licensing process to take people through to enter the business. And then it's also highly regulated as you transact the business. So it's a more complicated and sophisticated business. And so it will move at a slower pace in our growth than us being able to add on Term Life Insurance representatives. But you've hit directly on why we love that business is because it does free up money for clients to get on a better financial footing. John Barnidge: My follow-up question, do you track the amount of sales maybe on Term Life in any given year to government employees? I'm just trying to get a size of how much your total addressable market is directly impacted by the shutdown in 4Q as the revised or the Term Life guidance for the year suggests acceleration in the decline of Term Life policies issued? Glenn Williams: Yes, John, I wouldn't attribute the government shutdown specifically to a change or magnifying a change in the fourth quarter. I just use it as another level of uncertainty that we're dealing with. I mean we don't target government employees, but we cover a slice of the middle market that includes everything that's out there. And so there are government employees included in that. And it's just one more level of uncertainty that our reps have to deal with to get around. So I don't think it's the difference maker. It's just one more issue that I would add to the list. Again, I don't have the percentage of our clients that are government employees at my fingertips either. But I wouldn't attribute everything that happened in the fourth quarter to that. I would just say the uncertainty continues to be a headwind for us. Operator: Our next question comes from the line of Dan Bergman with TD Cowen. Daniel Bergman: To start, I guess, it sounds like with the 50th year anniversary coming up, the next convention was pushed out to 2027 instead of the typical biannual pattern. In the prepared remarks, I believe you mentioned a number of field events next year instead. So just given that the convention typically drives outsized sales force and new business momentum, I was just hoping you could provide more color on your plans for next year and whether the events are expected to offset the lack of a convention. Just -- and I guess just with the -- will the timing of these events drive any change in your typical seasonal pattern of sales and recruiting as we look into next year? Glenn Williams: Sure. You've read that exactly right. We moved the convention out for 2 reasons. One was it does coincide with our 50th anniversary being in '27. The other reason was because of the World Cup in 2026, you can't rent a stadium in the U.S. or Canada. And so it was convenient that it gave us a reason to push it out and have a payoff there that it does sync up with our 50th anniversary. But we do recognize the importance of those events and generating momentum and excitement and casting a vision for our business. So we certainly didn't want to go for another year in '26 without big events, but we also didn't want to compete with the '27 convention. It had to be big enough a plan to make a difference, small enough not to take anything away from the drive we have going already to the '27 convention. So working with our field leaders, we ran a play that we've run in the past. It's probably been more than a decade. But it's regional events, 5 locations, 3 in the U.S., 2 in Canada that will run in the spring, starting at the end of April for the first one, and we have one every week or every other week through the first week in June. So it's during the second quarter, it's a little earlier than our convention. That was intentional to give us more benefit during the year by getting them out there a little earlier. We wanted to avoid the kickoff of the year because we still do encourage all of our teams to have a big kickoff and engage quickly at the beginning of the year. We didn't want to step on that. We wanted to get beyond bad weather for travel. And so that's the reason we chose the spring. It was really early in the year as possible. So these will not be the size of our convention, but if you add them all together, they should be as big as our convention, is the thinking in attendance. And so we'll treat them differently. It will not be as long an event. It's a Friday afternoon, evening, Saturday event as opposed to a 4-day event, so people can get in and out more easily. Geographically being closer, we think it makes it more convenient and less expensive for people to attend. And we have another events that we've consolidated to offset the expense of doing these. So we're doing it kind of virtually an expense-neutral plan for our events budget next year by doing it this way. We're going virtual with some of our other events to make these live events possible. So we're excited about it. It's something that hasn't been done in a while. It should have the type of the impact we would expect around the convention. Remember, the convention is not just the event itself that drives momentum. It's the incentives that we announce and use around the convention. We use the convention as a platform to announce those incentives, and it's the combination of those 2. So we'll be doing a slightly smaller version of that. We'll have some incentives in play around these 5 events. We'll use this big stage as a recognition platform. We have people competing right now to be recognized on those stages. That's always an important driver of our business. And so we think in combination, this gives us an opportunity to really come off of what has been a slow year compared to the previous year in our distribution and life business, add some momentum to those 2 businesses and continue to maximize the momentum in our ISP business as we head into '26. Daniel Bergman: Got it. Very, very helpful. And then maybe just following up on the earlier questions around the rise in your RBC ratio so far this year. Is there any way to break down the drivers further? I guess, specifically, how much of the improved capital generation has been due to strong in-force earnings versus less capital strains from the lower level of life sales? I guess what I'm trying to understand is if life sales do remain somewhat subdued for a period of time, could this allow for an ongoing outsized level of dividends for the holding company and ultimately, share repurchases to help offset this slower sales trends for a period of time. So any way to size that or how you're thinking about that would be great. Tracy Tan: Dan, in terms of the RBC ratio being higher, obviously, one of the reasons is the higher profitability and income generated from the statutory side. Clearly, the statutory side of the cash impact is one of the reasons why RBC ratios are higher, but still primarily the reason is the overall ability to convert the cash out based on the regulatory restrictions of the 12-month rolling combined cash you can take out as an example, not exceeding prior statutory income. So as our income gets to be higher in the future period than the prior period combined, and you're limited to how much you can take out. So just by continually improving profitability on the statutory basis, as an example, there is a possibility of cash generating more than what your prior profitability combined would allow you to take out. That being part of the reason, we clearly are looking at the plans that we're going to putting in action in fourth quarter to help us be able to convert more cash out. And you will see when we get into the fourth quarter, how those actions take place. And to your point, the faster growth of the Term Life business will consume more cash than when it's at a slower pace. And that's part of the reason why when we look at the future rates that we want to keep for RBC, we always want to have a little bit of a cushion should when we get towards the 50th anniversary as the excitement starts to build and the momentum start to get stronger, we wanted to make sure that there is sufficient cash in place to capture that growth potential. Currently, we're on relatively lower growth speed compared to prior year because it was at such a record pace. But if you look at it on the longer 20-year term, 30-year term, our growth is still at pretty consistently good levels. Just the fact that last year was higher doesn't necessarily say the current growth is somewhat really unseen in the past. So that being said, that's part of what's driving our decisions on how much we keep in those entities and how much we take out. But in the long run, I think we have anticipation of keeping at relatively high historical level conversion. Some periods could even possibly exceed what we've seen historical ratios. But overall, I think we're confident and to keep at that very high-end performance in all the peer -- compared to all the peer sectors being able to continue that relatively predictable trend in terms of the ratios that we predict and use. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: Excellent. The asset-based revenue, you point out that has been growing faster than the underlying [Technical Difficulty]. Operator: Mr. Hughes, it seems like... Mark Hughes: Different categories. But is that -- should that sustain a positive trend? Glenn Williams: Mark, we lost you for the entire middle part of your question. Would you mind restating? Mark Hughes: Trend continue. Glenn Williams: Mark, we're only getting 2 or 3 words out of that. I apologize. I don't know if you've got a bad speaker or what, but we're only hearing every other word or so of your question, so it's not coming through. Mark Hughes: Yes. Can you hear me now, Glenn? Is this... Glenn Williams: Yes, that's much better. Much better, much better. Mark Hughes: Okay. All right. Appreciate that. Be a faster growth in asset-based revenue relative to assets, is there any reason that should -- that trend should not continue? Glenn Williams: I think, as Tracy said, it's driven by product mix and our managed account business and then also the principal distributor model in Canada, which has similar dynamics. Both are kind of our -- some of our fastest-growing product lines. They're smaller. And so on a percentage basis, they tend to grow faster, but they're also beginning to catch up in the overall mix. So we would expect, barring some unforeseen disturbance that, that should have some legs and should continue. You're right. That direction is not something we anticipate would change. Mark Hughes: Yes. And then, Tracy, the YRT ceded premiums, if you look at those relative to adjusted direct premiums, those have been moving up, that ratio has been moving up. What is the update on how that should trend over the next year or so? Will it just continue that upward drift? And again, this is YRT ceded premiums as a percentage of adjusted direct premiums in Term Life? Tracy Tan: Mark, I think the YRT ceded premium as compared to the adjusted direct premium is because for those life policies, as the insured age, the ceded premium start to creep up to cover for the higher mortality risk. So when you look at it, you actually don't want to look at it in its silo. You want to add it to the -- actually the benefit cost. So when you combine those as a percent of ADP's relatively steady. That's how you want to look at it. Operator: Our next question comes from the line of Suneet Kamath with Jefferies. Suneet Kamath: First question, just on the assumption update. Tracy, you had mentioned that you took a portion of the mortality or favorable mortality that you're seeing and put it through your assumptions. I'm not expecting a specific answer, but can you give a rough sense of like what proportion of the favorable mortality you put inside? Was it half? Was it 20%? Just a rough estimate would be helpful. Tracy Tan: Suneet, so our mortality performance since 2024, middle of that year has been consistently favorable. We had thought that it was possibly a pull forward from the pandemic increased unfavorable mortality experience and that it would end at some point, but we continue to see that consistently. It's been reasonably good size of favorability. So we took a portion of it. In terms of what the proportion is, I think the theory really is that we believe our best estimate assumption is that we've taken the portion that we think for the long run, it's the best estimate on what the mortality experience would be in the long-term trend. So if we had thought that it needs to be higher, we would have taken it in our assumption review. So this is our -- truly our best estimate. In terms of what we could expect for the future, I would say that because we have had favorable experience possibly bigger than what we've taken, so it wouldn't be unlikely that we might have some favorable period claims and mortality favorable experiences from period to period. But long-term trend, we have taken our best estimate on what that trend would be. Suneet Kamath: Got it. And just -- again, I don't want to box you into a corner, but is it like 20%, 25% of what you'd expect -- what you think just more than half? Just trying to get a sense of size. Tracy Tan: Yes. So that's a great question. The challenge really is there's a lot of complications of really deciphering the mortality performance on the cohorts and what that predictable trend, what cohort is a predictable trend for the long run. So I think that what our combined study looking at our experience really tells us this truly is the best estimate. So the future is uncertain. We believe that the portion we've taken truly represent what the long-term trend would be given our best estimate. So the period variance that we will experience, we'll continue to monitor and size that if that continue to be a pattern that we think becomes a long-term trend at that point, then we will recognize that if that were to come true. Suneet Kamath: Okay. That's fair. And I guess my second question, just on the annuity sales. So we've seen sales volumes increase for both you and the industry. Now some of that could be driven by just higher markets as essentially 401(k) rollover -- 401(k) asset balances are higher and so the rollovers are higher. So another way to think about growth would be growth in the number of contracts that you write. So I'm just wondering if you have any data on that. And then sort of relatedly, Glenn, do you think you're increasing the total addressable market for the annuity business? Or are you effectively selling products to the existing customer base, so you're seeing a lot of exchange activity? Any color on that would be helpful. Glenn Williams: Sure. Don't have specific stats, but I can give you some directional answers on that, Suneet. The annuity business is attractive. Again, some of it is a demographic change. I think Tracy mentioned it in an earlier answer. The demographic direction, the aging demographics, people have accumulated some amount of money, and they are looking for ways to preserve that in uncertain times or expecting volatile markets down the road. And so the guarantees within variable annuities, the floors that are created and the guaranteed income coming out of them are what makes them attractive. And as we've said before, our product providers have done a great job in making those products as attractive as actuarially possible. So they've done well there. Changes in interest rates and their ability to provide those guarantees may be adjusted. So it's -- nothing is forever, but I think the product providers have done a good job of making their products attractive. I think our salespeople have used that to both help existing clients as well as be referred out to other clients. So we are seeing not only larger transactions, but increasing transaction volume. And we believe that's coming not only from our existing clients where we would be able to see a move if it was out of one of our products into a variable annuity, but we have existing clients who have assets elsewhere outside of Primerica that bring them to Primerica to join the other assets that we already have with them. We see some of that. And we see brand-new clients as well as those satisfied clients as happens throughout the industry refer us to others. So we're getting some of all of what you described, Suneet, that's driving that business. Operator: Thank you. Ladies and gentlemen, this concludes our Q&A session and will conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Alaris Q3 2025 Earnings Release Conference. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amanda Frazer, Chief Financial Officer. Please go ahead. Amanda Frazer: Thank you, Tanya. Good morning, everyone, and thank you for joining us today to discuss our Q3, 2025 results. I'm joined on the call by Steve King, our President and CEO. Before we begin, I'd like to remind everyone that all financial figures discussed are in Canadian dollars unless otherwise indicated. Please note that some comments made during this call may include forward-looking statements. These statements are based on current assumptions and involve risks and uncertainties, so actual results may differ materially. For more detailed information on the factors, assumptions and risks involved, please refer to our press release issued last night and the management discussion and analysis under the headings Forward-Looking Statements and risk factors available on SEDAR @sedarplus.com and on our website. We will also be referencing certain non-IFRS financial measures, which may be presented differently than similar measures by other companies. Additional information and reconciliations related to these measures can be found in the press release and the MD&A. With that out of the way, let's turn to the highlight. Alaris delivered a record quarter in Q3 2025, underscoring the consistency of our model and the strength of our partner portfolio, we achieved strong fair value gains, solid recurring partner distributions and expanded our long-term revenue base through capital deployment. Net book value per unit increased 6% from last quarter to $25.10, a record high reflecting $1.90 per unit of earnings and comprehensive income, another Alaris record, which included a $0.41 per unit foreign exchange recovery, partially offset by the $0.34 quarterly distribution. Year-to-date, NCIB repurchases added approximately $0.06 per unit as we repurchased and canceled 465,000 units at an average price of $18.87, enhancing per unit value while maintaining balance sheet flexibility. Total revenue and operating income rose 7.8% compared to Q3 2024 supported by a $47.9 million net unrealized fair value gain across 9 investments, offset by a decline in 2. These fair value adjustments are noncash, but they reflect the underlying earnings growth and continued value creation within our partner base. Partner revenue exceeded guidance coming in at $58.1 million, which included $57.4 million in distributions and $700,000 in management and transaction fees. Fee increase was driven by new investments McCoy and follow-on in Carey, as well as higher-than-expected common distributions. Preferred distributions increased 7.3% in Q3 and 6% year-to-date, totaling $40.7 million and $120.8 million, respectively. While common distributions were, as expected, lower year-over-year. Notably, fleet's $10.3 million common dividend this quarter versus USD 14.7 million last year. The annualized yield on preferred capital remained strong at approximately 12%, highlighting the portfolio's continued ability to generate steady cash flow. Total return on invested capital was 6.6% for the quarter and 13.3% year-to-date, reflecting both strong reoccurring cash yields and improved valuation. Alaris' net distributable cash flow decreased 26% in Q3 and 14% year-to-date, largely due to the notable variability of common distributions, the timing of cash tax payments and transaction costs. Underlying portfolio cash generation remains solid and in line with expectations. Our payout ratio was 48% for the quarter and 50% year-to-date, both below our target range of 65% to 70%. Since conservative level provides flexibility to fund reinvestment and debt repayment, while sustaining unitholder distributions. Alaris generated free cash flow after distributions of $21.9 million in Q3 and $38.9 million year-to-date prior to the NCIB repurchases. In the quarter, we deployed $32.2 million including an initial USD 27 million investment in McCoy and a USD 5.2 million follow-on investment in Carey. Subsequent to the quarter end, we invested an additional USD 20.5 million into Cresa supporting their strategic acquisition. These deployments bring total capital invested year-to-date to approximately $228 million, reflecting continued demand for Alaris' Capital Solutions. Our portfolio fundamentals remain strong, with the majority of partners continuing to deliver year-over-year revenue and EBITDA growth. With a weighted average earnings coverage ratio of 1.5x and 13 of 21 partners maintaining either no debt or less than 1x senior debt to EBITDA, emphasizing strong balance sheets and stable earnings coverage. Looking forward, we expect Q4 partner revenue of approximately $43.5 million. This includes our previous estimate for FMP, although we continue to evaluate the impact of the ongoing U.S. government shutdown. FMP remains well positioned with a surplus of cash on the balance sheet and undrawn senior credit facility. The guidance also reflects lower expectations for GWM, while we continue to evaluate the longer-term impact to the 12-month cash flows and the navigation of GWM's banking covenants. And on that note, I'll turn it over to Steve for his comments. Stephen King: Great. Thanks, Amanda, and thanks, everybody, for tuning in. Obviously, very pleased with our record quarter that we've just published. As you can see, our portfolio is larger, more diversified and performing better than it ever has in our 21-year history. We've added another $1.50 in book value. Our coverage ratios remain near all-time highs. Debt levels remain extremely low and the nature of our businesses have been largely unaffected by tariffs or inflationary pressures. Having 19 out of our 21 partners performing at or above the expectations is exceptional for any private equity portfolio. Our payout ratio, even with the announced dividend increase remains below our target, leaving more upside for dividend increases in the coming year. Deployment outlook continues to be extremely vibrant. Alaris will shatter our previous record for deployment in this calendar year, and the outlook heading into 2026 remains very strong. Our unique structure, which delivers the majority of our return and low volatility cash payments allows us to be more confident and successful in environments, where traditional private equity, which relies on high debt levels and buoyant exit multiples are retreating. 2026 also promises to be a year, where some of our planned exits are scheduled to begin Alaris investors are already seeing the outsized returns coming from our common equity positions in our book value increases, and we expect to display some crystallization of some of these positions over the next 12 to 26 months and those won't just further grow our book value, but it will also be a huge part of funding our continued deployment into new quality companies. So Tanya, I'll open it up to questions, if you want to take them right now. Operator: [Operator Instructions] And our first question will be coming from Gary Ho of Desjardins Capital Markets. Gary Ho: Maybe just starting off with the Edgewater. It's just pretty sizable USD 18.5 million fair value gain. Maybe can you give us an update on kind of some of the contract wins? How does the rate reset look? I know anything nuclear-related trades at a pretty healthy multiples today? Just wondering how you're evaluating the equity piece of that business. Amanda Frazer: Yes. In the quarter, the contract win definitely played into the increase in value. Also, there was a decrease in the discount rate for that company. It's grown substantially since we initially invested. And with its continued growth in this contract, the business is now triple what it was when we initially invested. So that played into the company's overall discount rate as well as this increased outlook with regards to the contract. Also reset expectations on the press were updated this quarter and that played some role in the go-forward cash expectations and valuation on the preferred shares. I don't know, Steve, you'd like to expand? Stephen King: Yes. I mean the contract that they won was very much a transformational win for them. This has already been a very successful investment for us, but this new contract has taken that to a much higher level. And there's another contract that they are getting on that would be even larger than that, actually with the same group. So you're right, Gary. I mean, the nuclear space is a great space to be in, both from a defense and from an energy perspective. So it is a very hot space for private equity trading at very high multiples. And with the growth rate that Edgewater is putting up here, and this would be a very, very sought after asset when it eventually does transact. Gary Ho: Okay. Great. And then on the flip side, I just wanted to hear some comments on the GWM. It sounds like they're impacted by lower ad spending environment in the U.S. Can you provide some maybe outlook for when the turnaround could be? And any debt in that business? Just remind us. Stephen King: Yes. So I actually spent a day with GWM at their headquarters this week. So I'm pretty fresh on what's happening there, and they remain a very confident group -- they believe that they will pay us in full in 2026. And there have been some -- some pretty fundamental changes in that industry. So macro changes in addition to the economic environment, which you noted, just in the programmatic media space, there's been a few new entrants, including Amazon that has disrupted the space and made people change their patterns. So GWM is very confident that they can kind of adapt to the new environment. They've got a very good backlog of new contracts. And it's really cementing those contracts and continuing to add, but they do have some debt on their balance sheet, not a ton, but they do have some debt. So that always makes us more conservative, when we're dealing with these things in our book value and in our guidance. But certainly, kind of the feeling from GWM management is that they'll be able to pull through this. Gary Ho: Okay. Great. Maybe I can sneak 1 more in. Steve, it's good to see the recent capital deployment into a new partner and some follow-ons as well. How is the pipeline looking as we kind of sit here today, timing-wise as well, how far along in some of these could you look to transact? Stephen King: We're very far along in more transactions before year-end. So we do expect to be busy. That's why I made the comment about shattering our previous records. Those are very close by. In terms of McCoy, a new partner, they are a roofing company out of Omaha, Nebraska. Obviously, Nebraska being in the storm belt in the U.S., particularly Hail. So being a roofer in that market is very lucrative a normal roof will last about 20 years in Nebraska. It lasts about 7. So great young management team that is hungry and growing quickly. We've got the best reputation for ethics and how they treat their customers in the market. So we're very proud to be partnered with them, and they're super excited to keep growing. I think this 1 will see not just organic growth, but acquisition growth as well. And once you get up to a critical mass of size, that kind of a company is also going to trade at a very nice multiple. Gary Ho: Okay. And then just the dry powder at the quarter end, is it roughly USD 150 million out of McCoy? Amanda Frazer: Yes, I think, we're at about USD 160 million. Operator: Okay. And our next question will be coming from David Pierse of Raymond James. David Pierse: Just on GWM, is your increase on core run rate revenue in your 12-month outlook for them? Or is there some... Amanda Frazer: So we've reflected that there's -- we have our expectations in the payment or in Q4 we continue to evaluate what the additional 9 months will look like. Our expectation is there would be some level of payment over the 12-month period, especially in that later 9 months, first 9 months of 2026, but we continue to work with the company and the lenders to evaluate what that looks like. Stephen King: Yes. My sense from talking to them is that they may need some short-term flexibility in terms of kind of paying in -- kind for partial amounts for a couple of months. But we'll see how it plays out. But as I mentioned, they do expect to pay in full for the year. David Pierse: Okay. That's helpful. And then -- to increase the distribution -- last one. I'm curious, what's the change in rationale behind the capital allocation? Obviously, that's the first distribution increase we've seen a few years. So just your thoughts on that. Stephen King: Yes. We're not ruling out more share buybacks. I think, as I mentioned, we're going to likely see some exits in the coming months, and that will put us in a position to buy back more shares. But we're growing quickly. Our cost of equity is not keeping up with the lowering cost of debt and not keeping up, quite frankly, with the fundamentals of our business. So we thought it would be prudent to increase the dividend at this point. And if you look back at our trading history as a public company, we've always traded above book value until post COVID and pre-COVID we had a very, very set dividend growth strategy. And so, we're going to get back to that and see if that can help the cost of our equity because with our growing deployment. You look out down the road, there may be a situation in the next year or 2, where we might have to raise some equity. And I think having a higher share price and a growth multiple attached to us like we've had in our past is prudent for our investors, if we can -- we can keep on growing as we can, and that's absolutely my expectation. Amanda Frazer: We've always been committed to increasing the dividend with our growth proportionate to our cash flows. And with -- even with the NCIB, we would remain below that 65% to 70% target. Having our payout ratio dip below, I think we're at 40-some-percent for the quarter, even lower as we continue to grow, just was not in line with our overall business strategy. David Pierse: Helpful. And then maybe if I can 1 more. Sono Bello, I think stopped paying in time this quarter. It looks like cash flow has improved. What's driving that? Is that better expense management or demand starting to recover a bit? Amanda Frazer: Sorry, could you just repeat that? David Pierse: Just on Sono Bello, I think they stopped paying in time this quarter. Cash flow has improved. Just what's driving that? Is it better [indiscernible] coming back? Just your thoughts there, please? Stephen King: Yes. Sono Bello is doing extremely well. They're well above budget in the last 6 months and setting records. There are new Contour division, which is the breast augmentation that is added on to liposuction and skin tightening and tummy tuck is now doing better than expected. So yes, very good tailwinds there with Sono Bello, and we expect that to continue. Operator: And our next question will come from Zachary Evershed of National Bank Capital Markets. Zachary Evershed: Is that -- as we get close to the end of 2025, you're looking at shattering the all-time record for deployments, how are you thinking about deployment guidance for next year, though? Stephen King: Yes, almost impossible to say. I mean, all I can tell you is that the environment right now has probably never been better. There's a few factors for that. As I mentioned, traditional private equity is in a very kind of tempered place right now, I guess, we'll be saying it nicely. They're not aggressive. A lot of them are having a lot of difficulty raising capital. So we're seeing them having retreated a little bit multiples are a little more same. And the other factor is you'll see us do some Canadian deals here for the first time in 6 or 7 years. And I would also say that the political environment has led to some very good Canadian companies referring to deal with other Canadians. And we're quite proud to be adding some Canadian partners we're proud Canadians. And obviously, that hit home with us. So a few different different things. But in terms of next year, we only have about 3 months of visibility on our deployment. So I can tell you the next 3 months are extremely good, probably the best in our history. But after that, it really will depend on what kind of opportunities we decide to pursue after that. But I'll add on to that because our portfolio is growing. We're just going to have more follow-on deployment as well in '26. We do have several companies that are acquisitive. So I believe that part of our business will continue to grow as well. Zachary Evershed: Happy to hear it. And then for FMP, you guys previously made reference to about $1.2 million in distributions in the run rate. What's the plan for them these days? Amanda Frazer: The $1.2 million of distributions remains in the run rate. We collected a small amount of distributions in the quarter from FMP. With the government shutdown, we both concluded that it would be prudent for them to just hold on to that capital until the government opens back up and contracts are back up and running. So we don't expect a change to expectation at this point, but we continue to evaluate how long and the impacts of the government shutdown on both FMP and broader. Jeff Fenwick: Fair enough. And then for Ohana, how's the membership trending so far in Q4? Is that more of a Q3 story or ongoing? Stephen King: In terms of the 1 click, yes, it seems to be stable. They're really trying to find the happy ground there to have more new people join because it's easier to cancel versus some people hitting the easy button and canceling. So it was expected that, that would be a short-term phenomenon of people that had a chance now to just click cancel that maybe were too lazy to do it otherwise. And I think that's coming true. In general, we're super happy with Ohana, the fundamentals of that business are very strong. I think we're going to be looking at likely a price increase on the Black Card membership, which is about 2/3 of our members, which will also cycle through over the next couple of years. The acquisition that we did in Michigan is super strong, good synergies there. It's a higher-margin clubs than what we had in the past. And we are seeing some good acquisition -- some other acquisition opportunities there as well. So a really strong investment for us. Zachary Evershed: And then I think you guys mostly addressed this, but I'll just ask it head-on again. How are you thinking about balancing new deployments versus buying back shares under book value? Are you guys looking at that through an IRR lens cost capital lens? Stephen King: Yes. It's an IRR lens. The deals that we're doing and the deals that we have are extremely high opportunities. So that's where our focus is, as we have excess capital from exits, I think you'll see a two-pronged approach. But yes, we're adding some very high expected IRR situations into our portfolio. So that's by far the best use of our capital right now. Zachary Evershed: Could you comment on how recent deal IRRs compared to your historical average? Stephen King: Well, it's tough to compare because our historical average, we didn't have common equity in the structures. So on our typical prep-IRR expectations, they would be kind of high-teens to 20%. Now with the structures that we have, we're looking at in terms of mid-20s, blended IRR, so 20% on the prefs and typically around 30% on the common. So if not higher. So yes, our return profile has gone up considerably. We don't think our risk profile has. We're still protected by the exact same rates and remedies through our prefs that we always have been -- these are low to no leverage companies with a long track record, and they're choosing us because they want to keep more upside and keep control. So the alignment is much better than any other kind of structure out there. So yes, it's a very good time for us. Operator: And our next question will be coming from Bart Dziarski of Research Analyst. Bart Dziarski: RBC Capital Markets. Question around fleet. So a 2-parter here. The distributions were down 30% over a year, and then there was a quarter-on-quarter 11% fair value increase. So can you just maybe help us understand those 2 -- what drove those 2 dynamics? Amanda Frazer: Yes. The common distribution is always going to be variable. The distribution was within our expectations from basically the forecast from last year. So there was no surprise in that decrease. The previous year, fleet had a significant amount of cash flow on the balance sheet. And a fantastic year overall. The increase in fleet valuation is driven by just the outlook and growth in the business overall as well as there -- sorry, I just... Stephen King: The one thing I'd say about fleet is and the difference between our prefs distributions that are common is that the pref is very structured and known, whereas the common is completely up to the Board of Directors of each individual company. So fleet, even though their performance is very strong, had other needs for their capital to fund their growth. So the distribution was down year-over-year even though their performance was not. Amanda Frazer: I'm sorry, I just -- came back to me. In addition to the growth in the business and the forecast driving that fair value increase during the quarter, there was also a small redemption by the company of the final amount of shares outstanding to a founder. We completed a transaction a few years ago, which transfer that business into the hands of management. And as part of that transaction, there was a small redemption right, in the agreement that was exercised and the company repurchased and canceled those shares, which has led to a small increase in our overall ownership and that's also reflected in the fair value. Bart Dziarski: So was a lower discount rate as well? Or no, that didn't... Amanda Frazer: Just driven by market factors, so just market movement with overall interest rate and risk-free rate declines, nothing specific to the company's board. Bart Dziarski: Okay. Okay. Got it. And then -- just a follow-up question around kind of capital allocation. So you're sounding pretty bullish around exits for, call it, the next 12-ish months and funding NCIB. So should we be thinking that the NCIB can also ramp up here? Or -- or is that not the case? Stephen King: So is the NCIB being ramped up? Bart Dziarski: Yes. Their share buybacks? Stephen King: Yes. So no, I think for the time being anyway, in the short term, the focus is really going to be on funding new investments. But yes, I think there's lots of room here for a good mix of funding deployment, NCIBs or SIBs and also further dividend increases. Operator: Our next question will be coming from Trevor Reynolds of Acumen Capital. Trevor Reynolds: Most of the questions have been answered. But just in terms of the deployment opportunities that you're seeing here, would these primarily be new opportunities or add-ons? Stephen King: Yes. We've got some new opportunities in the short term. But as I mentioned, we're -- you can expect some add-ons over the next 12 months as well. We've probably got 5 or 6 companies in our portfolio that continue to be quite acquisitive and have opportunities for us. So it's a great way to grow very low-risk deployment for us. But yes, in the very short term, you can probably expect some new partners. Trevor Reynolds: Okay. And then it sounds as though the exit timing has maybe move forward a little bit on a few names here just based on the commentary quarter-over-quarter. Is that accurate? Would this be the same names that were kind of previously expected to undergo exits? Stephen King: Yes, same names. I think ramping things up for the first half of next year in terms of a couple of exits is the game plan. Obviously, no guarantees on that. It will depend on the market environment and the process, but that's the plan. So we're excited about that because we've got some situations that I think will surprise the market on the upside in terms of what kind of returns we're getting. Trevor Reynolds: Okay. Great. And then FMP, you mentioned returning to payments. potentially next year? Like would that include catch-up payments for those missed? Or is it just kind of starting off at a base level? Amanda Frazer: No. We had $1.2 million in the outlook for FMP. That amount remains in there. They will return to payments gradually. And as they recover, we can evaluate any catch-up payments. I think there'll be some -- like we did with SCR, just renegotiation of how that catch-up and how those partial payments are scheduled to play out over a few year period. Trevor Reynolds: Okay. Great. And last one, is there any update on Heritage? Stephen King: Sorry, on what heritage here -- nothing substantial. They're cash flow positive. They're performing well. We've got our consultant, our former partner that's consulting for us in there, very active almost on a daily basis. The management team is doing everything asked of them. They've just had a nice new contract win, which was super positive. So yes, happy there, but nothing dramatic Operator: I'm showing no further questions at this time. I would like to turn the call back to Steve King, President and CEO, for closing remarks. Stephen King: Thanks, Tanya. Thanks, everybody, for your questions and for tuning in. As always, if you have anything further, please contact Amanda and I directly. And we look forward to new news in the near term and another great quarter for year-end. Thanks very much. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Nexstar Media Group's Third Quarter 2025 Conference Call. Today's call is being recorded. I will now turn the conference over to Joe Jaffoni, Investor Relations. Please go ahead, sir. Joseph Jaffoni: Thank you, Kerri, and good morning, everyone. Let me read the safe harbor language, and then we'll get right into the call. All statements and comments made by management during this conference call other than statements of historical fact, may be deemed forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Nexstar cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those reflected by the forward-looking statements made during this call. For additional details on these risks and uncertainties, please see Nexstar's annual report on Form 10-K for the year ended December 31, 2024, as filed with the U.S. Securities and Exchange Commission and Nexstar's subsequent public filings with the SEC. Nexstar undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that, it's my pleasure to turn the conference over to your host, Nexstar Founder, Chairman and CEO, Perry Sook. Perry, please go ahead. Perry Sook: Thank you, Joseph, and good morning, everyone. Thank you for joining us on our call. Mike Biard, our Chief Operating Officer; and Lee Ann Gliha, our Chief Financial Officer, both with me this morning. During the third quarter, we made the milestone announcement of our definitive agreement to acquire TEGNA in a cash transaction valued at $6.2 billion. The proposed acquisition will strengthen Nexstar's position as the nation's leading local media company with high-quality broadcast stations, award-winning news operations and innovative local programming, all of which collectively demonstrate our commitment to trusted community-focused journalism. Operationally, TEGNA will enhance and expand Nexstar's scale, geographic reach and community impact by adding 64 top-performing stations primarily in the top 75 DMAs and to our growing portfolio of media assets. Financially, on a combined pro forma basis, Nexstar and TEGNA generated over $8 billion in revenue and $2.56 billion of adjusted EBITDA. Taking into account expected after-tax synergies and incremental interest expense, the transaction is projected to be more than 40% accretive to Nexstar's stand-alone adjusted free cash flow and with roughly $300 million in anticipated synergies, we expect only a modest increase in pro forma net leverage. We're making good progress on our path to closing. TEGNA filed its definitive proxy statement and the shareholder vote there will take place on November 18. We submitted our [ HSR ] filing on September 30, and as expected, we received a second request letter from the DOJ on October 30 as well as a handful of inquiries from state AG offices. Our FCC applications are ready to go once the federal government reopens, and our expectations for closing the transaction by the second half of 2026 remain unchanged. In the meantime, as previously announced, we are taking a disciplined approach to capital allocation, conserving cash that would otherwise have been used for share repurchases in order to fund the more accretive TEGNA acquisition. As we enter this next phase of Nexstar's growth, I've never been more confident in our strategy nor more energized about the opportunities ahead. This is a defining moment for our company, our industry, our shareholders and the communities we serve. When I said on our August conference call that I'm deeply committed to seeing this transaction through, I meant that. That's why I was pleased to extend my employment agreement as Chairman and Chief Executive Officer through March 31 of '29. Together with our teams, we will continue our mission to build a stronger, more competitive local media company and expand Nexstar's impressive long-term record of success and shareholder value creation. Turning now to our third quarter financial results. Nexstar delivered another solid quarter of net revenue and adjusted EBITDA, reflecting stable distribution and nonpolitical advertising revenue as well as strong expense management. It's clear that broadcast television remains the bellwether and the most profitable segment of the media ecosystem, delivering the most watched content and most valuable programming. According to Nielsen, time spent watching broadcast TV increased 20% from August to September, representing the largest month-to-month gain since 2021 and more time spent watching television on broadcast than the entire universe of cable networks. September's results were driven by a strong start to the NFL season as well as college football. Through Week 6, the NFL averaged 18 million viewers per game, the highest average viewership since a record 2015 season. And similarly, the average total audience for the first 2 games of the NBA season, newly launched on Broadcast Network NBC reflected a 36% improvement versus the first 2 games on TNT last year and double the total audience of the games on ESPN and 3.6x the average total audience of the games on Prime Video first week of the season last year. And of course, November started with a bang with Game 7 of the World Series delivering over 25 million viewers, the highest number for baseball in nearly a decade. These results underscore the enduring power and reach of broadcast and our consistent ability to aggregate mass audiences in real time, something other platforms just can't replicate. Major sports franchises continue to value the unmatched reach and advantage of broadcast television and sports programming continues to complement Nexstar's popular local news programming, which accounts for almost half of our total household viewership. In terms of the CW, Nexstar's own broadcast network, CW Sports delivered record performance with the best quarter since the launch of live sports programming in Q1 of 2023, driven by continued strong viewership of the NASCAR Xfinity Series as well as a strong start to the ACC and Pac-12 college football season. In fact, last Saturday night, our final Xfinity race of the season on broadcast in primetime beat college football on CBS in total viewers, adults 25 to 54 and adults 18 to 49. In addition, solid results from our entertainment programming lineup drove the CW's sixth consecutive quarter of primetime ratings growth. Year-to-date, the CW has surpassed competitive Big 4 primetime telecast 250x across total viewers among the 18 to 49 and 25 to 54 demos. That's an impressive increase over the 45 times we accomplished that for the full year of 2024. The continued success of our long-term strategic growth on high-impact news and sports programming, further validated by the performance of NewsNation, which ranked as the #1 basic cable network for year-over-year growth in the third quarter, continuing its trend from Q2. On a year-to-date basis, NewsNation surpassed MSNBC 57x and CNN 39x in head-to-head telecasts across total viewers and in the adult 25 to 54 demo. That compares to 2024 when NewsNation surpassed MSNBC 4x and CNN 2x in the head-to-head telecasts. These results reflect the fact that NewsNation's programming and unique fact-based reporting is resonating with viewers who are looking for a refreshingly balanced and impartial reporting and analysis. In summary, the continued strength and consistency of Nexstar's financial performance reflects our stable diversified revenue and operating base, our disciplined expense management and continued execution across our portfolio. Our proposed acquisition of TEGNA meets the deregulatory moment where it is and sets the stage for an incredibly bright future ahead for Nexstar, our industry, our shareholders and the communities we serve. With all of that said, let me turn the call over to Mike Biard. Mike? Michael Biard: Thanks, Perry, and good morning, everyone. Nexstar delivered third quarter net revenue of $1.2 billion, a decline of 12.3% compared to the prior year, primarily reflecting the year-over-year reduction in political advertising. Third quarter distribution revenue of $709 million was flattish compared to the prior year quarter, down 1.4% and primarily reflects MVPD subscriber attrition and the resolution of a nonrecurring disputed customer claim offset in part by increased rates and other contractual commitments, growth in vMVPD subscribers and the addition of CW affiliations on certain of our stations. Without the impact of the resolution of a legacy customer dispute, distribution revenue would have been slightly up. Advertising revenue of $476 million decreased $146 million or 23.5% over the comparable prior year quarter, primarily reflecting a $145 million year-over-year decrease in political advertising. However, nonpolitical advertising was essentially flat and better than our expectation of a low single-digit decline. Growth in national advertising, including at the CW and NewsNation, strong growth in local digital advertising and the absence of political crowd out that impacted last year's third quarter offset soft local advertising driven by the absence of the Olympics in the third quarter this year. No advertising category materially moved the needle in the quarter, and we have not observed any negative impact on the pharmaceutical category from recently introduced regulations. As a reminder, the pharmaceutical category represents less than 3% of our total nonpolitical advertising. Speaking of political, we generated approximately $10 million in political advertising revenue during the quarter, primarily driven by spending related to state-wide elections in Virginia, including the Governor's race as well as California's redistricting ballot initiative. Looking ahead to the fourth quarter, nonpolitical advertising is currently forecast to decline in the very low single-digit area on a year-over-year basis, benefiting in part from the absence of political crowd out in the quarter, but offset by advertising revenue softness and tougher year-over-year programming comps at the CW and our national digital business. Political advertising is expected to be consistent with 2021 fourth quarter levels. Turning to the CW. We are consistently delivering favorable results from our programming investments, especially from sports, which continues to account for more than 40% of the CW's programming hours. And we continue to build our CW Sports portfolio. During the third quarter, we expanded our relationship with the Pac-12 conference through the 2030-31 season to include 66 annual events, including 13 regular season football games, 35 regular season men's basketball games, 15 regular season women's basketball games and the semifinal and championship games of the new Pac-12 women's basketball tournament. During the quarter, we also completed a new multiyear agreement with the Professional Bull Riders to be the exclusive live broadcast partner of the PBR teams series on Saturdays and Sundays, which began airing this last August. The NASCAR Xfinity Series, transitioning to the NASCAR O'Reilly Auto Parts series next season is now firmly established exclusively on CW Sports, delivering strong momentum and benefiting from the scale and audience engagement of our broadcast model. Xfinity races delivered an 11% year-over-year increase in viewership for the first 30 races of the season with more than 1 million viewers for 20 of those races. By comparison to last season, only 8 of the first 30 races broke the 1 million viewer mark in 2024. Audiences are consistently showing up for our live sports lineup. Ratings for ACC and Pac-12 college football games in the CW have more than doubled year-over-year among adults 25 to 54, while WWE NXT continues to climb since moving to the CW from USA Network, up 12% year-to-date. That momentum is translating into progress toward our financial targets. In the third quarter, we reduced losses at the CW by $5 million or 24% year-over-year. In the quarter, growth in distribution and advertising revenue virtually offset lower licensing revenue and lower operating expenses, net of a small increase in programming amortization drove the improvement in losses. Our outlook for the year for the CW remains unchanged as we continue to project 2025 losses to be lower than 2024 by about 25%. And our expectation of achieving breakeven sometime in 2026 also remains unchanged. To close, I want to reiterate our confidence in our long-term outlook and the enduring strength of Nexstar's business model. Our programming strategy anchored by live news and sports continues to deliver results for the CW and NewsNation, and we remain committed to unlocking even greater value from these assets as our audiences grow. Our local programming strategy is similarly anchored by our unrivaled live news product, and the proposed TEGNA acquisition will create substantial and immediate value for shareholders while advancing the public interest by strengthening local broadcast journalism and providing an expanded range of competitive broadcast and digital advertising solutions across our portfolio of local and national assets. With that, it's my pleasure to turn the call over to Lee Ann for the remainder of the financial review. Lee Ann? Lee Gliha: Thank you, Mike, and good morning, everyone. Mike gave you most of the details on the revenue side and on the CW, so I'll provide you a review of expenses, adjusted EBITDA and free cash flow along with a review of our capital allocation activities. Together, third quarter direct operating and SG&A expenses, excluding depreciation and amortization and corporate expenses, declined by $23 million or 3%, primarily driven by our operational restructuring initiatives taken last year. Q3 2025 total corporate expense was $68 million including noncash compensation expense of $19 million compared to $53 million including noncash compensation expense of $19 million in the third quarter of 2024. The $15 million increase is primarily due to onetime expenses associated with the expense portion of a nonrecurring settlement of a disputed customer claim and the proposed acquisition of TEGNA, offset in part by the release of certain reserves. Q3 2025 depreciation and amortization was $190 million, matching the amount in the third quarter of 2024. Of these amounts included in our definition of adjusted EBITDA is $72 million related to the amortization of broadcast rights for Q3 2025 compared to $70 million for Q3 2024. The increase in amortization of broadcast rights by $2 million was primarily due to slightly higher programming costs at the CW versus the comparable prior year quarter given the mix of programming. Q3 2025 income from equity method investments, which primarily reflects our 31% ownership in the TV Food Network declined by $12 million versus the comparable prior year quarter, primarily related to TV Food Network lower revenue. On a consolidated basis, third quarter adjusted EBITDA was $358 million, representing a 29.9% margin and a decrease of $152 million from the third quarter of 2024 of $510 million due primarily to the election cycle. Moving to the components of free cash flow and adjusted free cash flow. Third quarter CapEx, together with payments for capitalized software cost net of proceeds from asset disposals were $34 million, an increase from $31 million in the third quarter of last year. Third quarter net interest expense was $94 million, a reduction of $19 million from the third quarter of 2024. On a cash basis, this compares to $93 million in the third quarter of 2025 versus $110 million in Q3 2024. The reduction in interest expense was primarily related to a reduction in SOFR and Nexstar's reduced debt balances. Third quarter operating cash taxes were $33 million compared to $10 million last year. As expected, our cash tax payments primarily in Q3 2025 and expected in Q4 '25 benefit from the One Big Beautiful Bill Act through the [ Marinne ] statement of bonus depreciation on CapEx and the ability to deduct amortization of internally developed software. The low cash tax in the third quarter of last year was due to the change of the timing of our tax payments using the annualization method. Cash distributions from the Food Network were $6 million in the third quarter, which amount is still captured in our free cash flow and adjusted free cash flow definition. This amount reflects our pro rata share of distributions to cover tax from our proportionate share of the income of the JV. Included in the third quarter's adjusted EBITDA, but excluded from adjusted free cash flow is $22 million of income before amortization from equity method investments, which is primarily our pro rata share of Food Network net income in the third quarter of 2025. In Q3, programming amortization costs were lower than cash payments by $17 million as certain deferred programming payments were paid and certain future programming was paid prior to [ airing ]. As a result, consolidated third quarter 2025 adjusted free cash flow was $166 million compared to $327 million in last year's third quarter. A few additional points of guidance with respect to adjusted free cash flow, we are currently projecting CapEx in the $32 million range in capitalized software payments in the $6 million range in Q4. In addition, we will acquire one of our buildings subject to a long-term lease for $21 million. Based on the current yield curve and our mandatory amortization payment, Q4 interest expense is expected to be in the $88 million range. Q4 2025 cash taxes are expected to be in the $45 million range. In Q4 '25, cash distributions from the Food Network are expected to be in the low single-digit million-dollar range compared to our share of adjusted EBITDA in the low teens millions and payments for programming are expected to be in excess of amortization by about $30 million due primarily to prepayment of future programming payments and payment of deferred programming. Turning to capital allocation in our balance sheet. Together with cash from operations generated in the third quarter and cash on hand, we returned $56 million to shareholders in dividends, repaid $25 million in mandatory debt repayments and did not repurchase any shares as we are conserving cash for our acquisition of TEGNA, which we expect will be more accretive than a stand-alone share repurchase strategy. Our cash balance at the quarter end was $236 million, including $13 million of cash related to the CW, our debt balance was $6.4 billion. Because we designate the CW as an unrestricted subsidiary, the losses associated with the CW are not accounted for in the calculation of leverage for purposes of our credit agreement. As such, our net first lien covenant ratio for Nexstar as of September 30, 2025, which is now calculated on the last 8 quarters annualized basis was 1.73x, which was well below our first lien and only covenant of 4.25x. Total net leverage for Nexstar was 3.09x at quarter end. These leverage statistics are calculated pursuant to the description in our credit agreement. With that, I'll open up the call for questions. Operator, can you go to our first question? Operator: [Operator Instructions] And our first question will come from Dan Kurnos with Benchmark. Daniel Kurnos: Two for me. Perry, I appreciate the update on the deal timing. It was implied yesterday that the SEC might address the cap in early '26. And I appreciate all of the color you gave us around what you guys are doing behind the scenes. So I just wanted to give you the floor to maybe talk about why you're confident that the deal will close and close on time as you proposed it? And then for Mike, just a housekeeping question on the Q3 distribution stuff. I appreciate the color. Any more granularity you could give us? And is that onetime in nature? Is there any flow-through into Q4? Perry Sook: I think as it relates to the timing, I mean, the pieces are falling in place. The Eighth Circuit mandate was issued on October 21. That eliminates the top 4 ownership rule, that will go into effect as soon as that order is published in the federal register and it's effective 30 days later. So we need the government to reopen for that to happen. We have prepared 37 applications seeking approval of the transfer of control of TEGNA's licenses to Nexstar as well as the request for waivers unless they are rendered moot by other rulemaking. And we, again, continue to believe that this administration, the Trump administration and Brendan Carr at the FCC are focused on deregulating business, allowing businesses to breathe, allowing businesses to compete and that we've been spending a lot of time in Washington to reinforce at the regulatory agencies and on the hill that we are indeed here to help meet the regulatory moment, where it is, which all of -- which continues to point toward the regulatory rulemakings happening in the first half of next year, concurrent with the processing of our application. I will add that while there's a lot of work ahead of us in complying with the DOJ request, and I've read our FCC applications. I think they're very good and make very good public interest showing as to why this transaction is in the public interest which is, by the way, the standard at which the FCC will hold it to. But I can also tell you that internally here with several meetings over the last week in conjunction with our Board meeting, in conjunction with the integration plans here, there is genuine enthusiasm in this building for this acquisition for the opportunity it creates to grow our business, for the opportunity it creates to make sure that we secure a future for our business and the opportunities that we see downstream with 3.0 and spectrum, additional local content distributed across multiple platforms and allowing us to compete on a much more level playing field with big tech. And all you have to do is look in the news that things going on around us to see indeed why these -- why deregulation and further consolidation to preserve local journalism and our industry is necessary. So there's a lot of work to be done on our end, but people are -- we have a coalition of the willing that is really pitching in to comply with all the regulatory requests and to make sure it's done in a timely fashion. Michael Biard: To your second question on the distribution item, no, Dan, that was truly a nonrecurring onetime only anomaly that will not linger into the fourth quarter at all. Operator: We'll go next to Benjamin Soff with Deutsche Bank. Benjamin Soff: So you obviously already have your big transaction in place, but I'm curious if you have any thoughts on what the rest of the industry might look like a few years down the line. in particular, are there any implications for Nexstar if the rest of the industry goes through consolidation or not? And then I have a follow-up. Perry Sook: I'll start from the end of your question back. I mean I think you -- a good, strong industry needs to have good, strong companies comprising it. So we think that we will be the poster company for not only what the future of the industry will look like, but also the strength of our balance sheet, management team, financial profile and the amount of local content that we deliver as well as leading on innovation for the industry. But we can't do it all by ourselves. And so we're very much in favor of having good and strong companies in our industry. And if that means they're good and strong competitors to us, well, hopefully, that will just make us that much sharper. So Mike, I don't know if you want to add more to that? Michael Biard: No, I think you've covered it. I think we're not afraid of competition by any stretch of the imagination. And I think as Perry says, dealing with all of the forces around us, whether that's dealing with big tech on the advertising side, dealing with big media, whether that's the networks or other big media having others in the broadcast space that are good, healthy companies is something that we absolutely support. Benjamin Soff: Great. And then I'm just curious to get your thoughts on the outlook for the next political cycle. And in general, how do you view the dollars and how they might flow between broadcast and CTV in the future? Perry Sook: Well, we've already done our way too early 2026 political forecast internally here. And suffice it to say, we think that our company, based on our geography, even before the integration of TEGNA -- the TEGNA acquisition will produce a prodigious amount of political revenue in 2026. And again, it's all based on our geography, the states that we're in, where we see toss-up races, ballot propositions, redistricting, all the things that will cause money to flow. Our, again, way too early take is that broadcast will continue to be the dominant repository for political advertising. However, the fastest growing will probably continue to be CTV advertising as it was in 2024. So no change thematically, and we do project that we will have substantial political revenue in 2026. And to those that follow the company, that should be no surprise. Operator: Moving on to Steven Cahall with Wells Fargo. Steven Cahall: I have a couple of strategic questions. So first, Perry, I made the mistake once of writing that you might be nearing retirement. That's clearly not the case. So as you think out to the end of the decade, we'll be in a different administration. We'll be in some different NFL contracts. What are some of your biggest priorities sort of post TEGNA that you still have in mind for the company as you look forward? And then pro forma for TEGNA, I think Nexstar will have local news in something like 80% of the country. We've seen your network partners not be shy about going into the streaming market where there's a lot of households that just aren't on linear. How do you think about your ability to be in the CTV market at that level of scale, whether that's working with a big platform provider or doing something on your own? Perry Sook: Sure. Well, let me speak to what we see post TEGNA. First of all, our eyes are on the prize in getting the TEGNA acquisition to and through the finish line, and we're going to run through the tape. So that is our total focus now. But I will say, I don't think that, that means that we are forever done with acquisitions. We will continue to look opportunistically for acquisitions that make good industrial logic and, most importantly, are substantially accretive to the company. I think we've got a pretty good track record of finding those, and we will continue that quest. I think also with the combined entity, we will have spectrum holdings reaching approximately 80% of the country. And I think that's the next big frontier for the industry and certainly for Nexstar, who will have more spectrum assets than any other company in our space and the opportunity to develop monetization of the non-video uses of our ATSC 3.0 spectrum continue, in my view, to be the biggest value creation lever in our business as we know it today. And so that's -- we'll spend a lot of time on that. And then probably more to the mundane, but we need as an industry and Nexstar will need to lead this, need to be much more sharp around our business processes, how you buy and sell television time. It is inefficient from a cost and process standpoint for agencies to do business in linear television, yet look at the linear television revenue that is generated in this country, but it's not growing anywhere near the digital alternatives, which are much easier and cheaper to buy from a process perspective. We need to compete on a level playing field with the buying and selling of advertising with the rest of the industry. And I think if we can get to that point, which will require enhanced and better measurement, it will require enhanced and better processes. But we've got some very big goals in that regard and see opportunity in the future. What if the World Series was going into the 11th inning and you had a chance to bid for inventory at the next break, like you can in digital, whether it's in real time or on some sort of a delay for those additional inventory spots that came available, why can't we vision that and then make it happen in linear television. It's hard, but it's not impossible, but that's where the future is. So business processes, acquisitions and ATSC 3.0 will be our focus post the successful acquisition and integration of TEGNA. I think your second question related to CTV inventory. It's interesting. I mean we are and have rolled out CTV applications in the vast majority of our marketplaces as -- and are producing alternative programming to fill the hours on those apps, and that will still be an emphasis and a growth area for the company. But by the same token, why does anyone go into streaming? It's because they can't ubiquitously reach consumers outside of the pay-TV ecosystem. Well, we do every day. It's called over-the-air television. And so while streaming and CTV will all be a part of our product offerings, our core tenet is people are trying to get what we've had all along, which is a direct-to-consumer relationship with our content and with our advertising messages. And by the way, we don't have to lose billions and billions of dollars to ramp that effort up. It already exists. So I don't mean to be Pollyanna about it, but if you look at -- and I think we gave the example of what sports looks like on Amazon and what sports looks like on broadcast and what sports looks like on cable, you can put a lot of money into streaming, but you won't achieve the same results as you can one-to-many with broadcast television, which is kind of our definition. So I hope that's responsive to your question, but we don't see that as doom and gloom. It will be an additional competitive factor. But at this point, people are trying to duplicate what we already have. Operator: [Operator Instructions]. We'll go next to Craig Huber with Huber Research Partners. Craig Huber: Perry, my first question is you talked about $300 million of synergies with TEGNA. I would think, if anything, that's conservative. Can you talk a little bit about how you get to that number? Just repeat that, if you would. And then with all those synergies here, once this deal supposedly closes, I would imagine it's going to free up a lot of money on your end, if you wanted to enhance the news programming, for example, at TEGNA. I've always viewed TEGNA as one of the better run companies in the group, but nothing is perfect, and I think you could potentially increase maybe the number of hours on the news programming side for local, but also the quality of it even further. Maybe just touch on that, please. And to talk about what's better for the public. I mean, that would certainly be appealing, right? That's my first question. Perry Sook: It would, Craig. And we have, just through our desk review, identified 9 markets where we can create additional local news broadcast on stations that either have a de minimis presence or no local news presence using the combined power of the 2 stations in the marketplace. Dallas is a perfect example. WFAA does a fine job producing local news in the marketplace. We have a CW affiliate that has a half hour kind of news magazine type program, but not a serious, credible local news effort. We can use the newsroom of WFAA and their people and maybe some additional resources to create a news presence on our CW affiliate here in the marketplace, which is right down the road from where I'm speaking to you from. But there are at least 9 markets where we have those kinds of opportunities, and we are now in our discovery phase or Diligence 2.0, if you will, which we'll do a deeper dive into the operating and financials of each of the operating business units as we continue to look for additional opportunities and additional synergies. But at this point, we feel very good about the number and about the enhanced operating opportunity we'll have by virtue of making this acquisition, all of which you'll read about in our FCC filing once it's made. I'll let Lee Ann talk a little bit more about the synergies. Lee Gliha: Yes. Craig, so I think as we've talked about on our call when we announced the transaction, there's about $300 million of synergies. It breaks out very similarly to how the synergies broke out on the Tribune deal, which was about 45% from net retrans and the remainder coming from operations. And then on the operations side of things, that's really a combination of things. It's looking at corporate overhead. You don't need duplicative corporate overhead. We have a number of hubs that we use that we can expand to help service the larger station footprint. And then it's looking kind of within the operations for efficiencies. We look at how we operate our stations versus how TEGNA operates theirs, and there are many areas where we do things a little bit differently that generates synergy. And then there's obviously the significant amount of 35 or 51 markets that are the overlap markets that we can really operate 2 stations off of 1 infrastructure. And so that's an area where there's a significant portion of those synergies are coming out of that. As Perry said, this has been our initial analysis. We did a very deep analysis in terms of looking at line by line, person by person, what these costs could be. We're going to be in the market and doing a little bit more work and looking to see what else is there. I think as we also mentioned on a prior call, this really was reflective of the near-term synergies. What can we generate kind of in the next 1 to 2 years after the close. I think there are some medium-term synergies because there is so much overlap, there will be an ability for facilities consolidation, but that takes a little bit longer time, right? You have to move people, move equipment, sell a business or sell a piece of real estate and then benefit from those synergies. So we think there will be more over time. But for right now, we're feeling good about that number and look forward to providing you some updates as we kind of move forward. Craig Huber: I have one final just housekeeping question, Lee Ann. Are you guys still expecting gross and net retrans revenue this year to be flat versus a year ago for the full year? Lee Gliha: We don't reupdate our guidance. That was our guidance for the year. As you know, in this quarter, we did have a onetime impact of an old dispute that got resolved in this quarter, and that impacted our revenue for the quarter. If we didn't have that, our actual distribution revenue would be up. And so you can start to see for the first 3 quarters of the year, that was flattish. And so you can kind of extrapolate from there. Operator: And Patrick Sholl with Barrington Research has our next question. Patrick Sholl: I was wondering if you could talk a little bit more about the ad trends expectations that you laid out for the fourth quarter. I was wondering if there was like any specific like weaknesses in local markets or any category drivers of what you kind of called out? Lee Gliha: I'll take that. We're not anticipating any sort of particular changes in the category. I think we're getting a little bit of sports betting money because of Missouri which is nice. But from a local perspective, I don't think there's going to be a whole heck of a lot of change in sort of the trajectory in terms of the trends for the third quarter versus the fourth quarter. I think where we're coming in the fourth quarter that's putting a little bit of pressure on the numbers is just we're lapping NASCAR at the CW, which we had in the fourth quarter last year, we had in the fourth quarter of this year. And there's just some other kind of onetime items in our national digital business that have -- that are putting a little bit of pressure on that number. Operator: And we'll go next to Aaron Watts with Deutsche Bank. Aaron Watts: Clearly, there's optimism that 2026 will be a strong year of political spending. Typically, with that setup, we're used to seeing pressure on core advertising growth due to the crowd out effect. That said, you'll have more sports on the air notably with NBC, broadcasting the NBA as well as other big sporting events next year. With the benefit of those incremental sports, curious if you think core advertising could be stable or even grow next year compared to '25 or at least perform better than it has in election years in the past. Perry Sook: That's really technical, Aaron. I think that as far as the Olympics go, it's the Winter Olympics, so it will be earlier in the year, which is further away from the peak political activity. So we ought to be able to monetize that pretty well with core advertising. I think it's hard when you look at the kind of political revenue that we'll run through the system next year to expect that you'll see core advertising revenue grow because the displacement will be substantial. We're not issuing guidance at this point. But listen, I think that if interest rates continue to come down and confidence continues to grow. We have resolution on tariffs and all of those things go into confidence and eliminating uncertainty, all of which I think is good for people's confidence in spending money on advertising. So I think we'll have more tailwinds than headwinds in 2026 overall, but it's too early to quantify the way that you'd like us to. Aaron Watts: Okay. And if I could ask you one follow-up around sports, Perry. There's been reports that the NFL may look to open up negotiations on its media rights as early as next year. I think there's clear benefits to that for local TV broadcasters, but also some concerns. Would be curious to hear how you're thinking about that potential and whether it is actually a good thing for you and the universe. Michael Biard: Yes. I'll take that one. I think on balance, we're optimistic about that. I think when you look at the trends that Perry talked about in his opening remarks, on broadcast, there really is a very sort of clarifying view of the ecosystem that broadcast brings more eyeballs, more viewers, bigger events than any other platform by far, right? You've seen that happen in the NBA with the move of some incremental games to broadcast from cable. We expect that will probably happen around Major League Baseball as well. You can see it on other sports. So we think the NFL, given its traditional conviction around the importance of local broadcast will not be any kind of principle that they move away from as part of an early discussion. Certainly, I think an early discussion leaves the networks in a position, probably a stronger position than they would be at the end of that deal. And to the extent that the NFL is moving any games to streaming, we really think that will be at the margin, may be part of increasing the overall schedule to an 18th game and largely around potentially, I would think, producing a package of international games. So on the whole, we think that's actually a strong thing, and we think broadcast is going from strength to strength at this moment. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Perry Sook for closing comments. Perry Sook: Thank you very much. I'll just say quickly in closing that Nexstar's strong third quarter financial results extended our long-term operational track record, and we plan to put that expertise to work in our pending acquisition of TEGNA. We couldn't be more excited nor more energized about our prospects here at Nexstar. In the near term, we see a decreasing interest rate environment, the reset of the majority of our distribution contracts at the end of this year, the acquisition of TEGNA and an election year in 2026, all of which we expect to drive shareholder value. Longer term, we expect to accelerate our CW and NewsNation network growth strategies, our deployment of applications for ATSC 3.0 and innovation around how we go to market and the products and services we bring to benefit our viewers and our advertisers. Thank you for joining us. We look forward to updating you on our year-end results in February of next year. Happy holidays, and have a good day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Welcome to the Twin Vee Powercats Company Third Quarter 2025 Investor Call. As a reminder, this call is being recorded. [Operator Instructions] Your speakers for today's program are President and CEO, Joseph Visconti and Chief Financial Officer, Scott Searles. Before I turn the call over to Joseph, please remember that certain statements made during this investor call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements on this call, other than statements of historical facts, including statements regarding the company's future operations and financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. In some cases, forward-looking statements can be identified by terminologies such as believes, may, estimates, continue, anticipates, intends, should, plan, expects, predict, potential or the negative of these terms or other similar expressions. The company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks and uncertainties and assumptions described, including those set forth in its filings with the Securities and Exchange Commission, which are available on the company's Investor Relations website at ir.twinvee.com. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Finally, this conference call is being webcast. The webcast will be available at ir.twinvee.com for at least 90 days. Audiocast quality is subject to your equipment, available bandwidth and Internet traffic. If you experience unsatisfactory audio quality, please use the telephone dial-in option. [Operator Instructions] I will now turn the call over to Joseph Visconti. Joseph Visconti: Good afternoon, everyone, and thank you for joining Twin Vee Powercats Quarterly Investor Call. Today we'll outline how we're navigating current conditions with a clear focus on sales, dealer expansion and customer engagement. As we know, high interest rates, inflation and cautionary consumer spending have slowed new boat sales across the sector. Pressure on new unit demand and higher-than-normal inventory levels across the industry are still a challenge. As a builder of premium Twin Vee and Bahama boats, these headwinds create a complex environment for manufacturers and dealers alike. At Twin Vee, we're addressing these challenges head on by controlling what we can, our costs, our inventory, our relationships with dealers and customers. Our primary focus is driving sales and rebuilding our backlog. We're channeling all resources into sales, marketing and strengthening customer demand. In Q2 and Q3, we added 10 new dealer locations, expanding our reach into regions like the Southeastern Seaboard, the Gulf Coast and a brand-new stocking dealer in Australia. We're working closely with all dealers offering hands-on support through personalized customer consultation, demo events and any guidance required to shorten the sales cycle for customers. Operationally, we've made strategic moves to improve efficiencies. Our Fort Pierce headquarter expansion is complete. This gives us the capacity to produce new models, expand our production and integrate additional brands. We have also completed the installation of our 46-foot 5-axis CNC router, which allows us to handle precision in-house tooling. This reduces our reliance on external vendors, cuts lead times and lower costs on product development. These upgrades are now operational, enabling us to respond to demand without significant further capital investment. On the product front, we're seeing steady progress with our 22-foot BayCat, which continues to resonate with customers for its versatility and value. Production remains efficient with manufacturing output is aligned with dealer orders to avoid overstocking. You can explore this BayCat in other Twin Vee models on twinvee.com using our new 3D configurator, which lets customers build and price their boats and also customize options like upholstery, colors and engines in real time. We also completed integrating the recently acquired Bahama Boat Works known for its premium offshore fishing vessels. We've completed the relocation of all Bahama molds and the tooling into our expanded -- our recently expanded Fort Pierce facility. We are carefully pacing the Bahama rollout to match market demand, ensuring we don't overextend inventory while building excitement for these amazing products. As a public company, our priorities are clear. We're going to drive revenues through sales, marketing, rebuild our backlog and maintain financial disciplines. We're positioning Twin Vee to capitalize as conditions improve. We will continue to expand our dealer network and drive efficient operations. We've taken additional steps to ensure success in this challenging market. One significant decision was the sale of our North Carolina property. This move has further reduced overhead, particularly the insurance and carrying expenses associated with the facility. And more importantly, the proceeds from the sale will bolster our balance sheet. Looking ahead, our strategy is straightforward: stay lean, focus on sales and deepen customer and dealer relationships. We are confident that our disciplined approach positions us to outperform competitors. The sale of the North Carolina property has strengthened our financial foundation. Our expanded product portfolio enhances manufacturing capabilities and our growing digital presence are all aligned to drive revenue and rebuild our backlog. We remain committed to delivering value to our shareholders by focusing on what we do best, building high-quality boats, supporting dealers and engaging directly with customers. The marine industry may be navigating rough waters, but Twin Vee, we are focused on emerging stronger than ever. In closing, our operation, upgrades and strategic acquisitions position us to compete effectively while protecting our financial health. I want to thank you for your support, and I will now hand it over to our interim CFO, Scott Searles. Scott Searles: Thanks, Joseph. Good afternoon, everyone. My name is Scott Searles, I'm the Interim CFO for Twin Vee. This is my first earnings call with Twin Vee, and I want to begin by thanking all the shareholders, employees and dealer partnerships for their warm welcome and for your continued support. It's been great getting to know the business, and I'm excited to be part of Twin Vee's story moving forward. As Joseph mentioned earlier, the boating industry continues to face a challenging environment. High interest rates, inflation and cautious consumer spending has slowed new boat sales across the sector. Inventory levels across the industry remain elevated, creating a complex environment, both for manufacturers and dealers. At Twin Vee, we're tackling these headwinds head on by focusing on what we can control, our costs, our inventory and our dealer relationships. Our approach is simple, stay lean, stay disciplined and keep supporting our dealers to rebuild momentum. For the third quarter, net sales were $3.43 million, up 18% year-over-year from $2.9 million last year. Gross results showed a small gross loss of about $45,000, a meaningful improvement over last year's $146,000 loss reflected better production efficiency and cost control. Selling and general and administration expenses were down roughly 16% from the prior year. Our net loss for the quarter was $2.76 million, an improvement from last year's $3 million loss and consistent with our expectations given the industry backdrop. For the first 9 months of 2025, we generated $11.8 million in sales with a gross margin of 9.6%, up significantly from 2.7% a year ago. These results demonstrate the early benefits of our operational discipline and focus on aligning production with dealer demand. Turning to the balance sheet. We ended the quarter with $2.7 million in cash and equivalents and continue to maintain very low leverage. Our only long-term debt remains the SBA economic injury disaster loan, which carries a fixed 3.75% rate and is fully current. After the quarter end, we completed the sale of our North Carolina property for $4.25 million. That included $500,000 in cash at closing and a $3.75 million secured promissory note earning 5% interest payable in [ installments ] between '26 and '27. This transaction immediately reduces overhead and strengthens our balance sheet. We are managing working capital carefully, producing to order rather than to stock to preserve liquidity and to protect dealer profitability. Operationally, our Fort Pierce expansion is now complete, and our 5-axis CNC router is fully operational. This capability allows us to handle precision tooling in-house, reducing outside vendor costs and shortening development times. It's a good example of what we're doing more with what we have, not spending more to grow but investing smarter. And I wanted to thank all of the operations and finance teams for their hard work in achieving this balance. Looking ahead to the fourth quarter, our priorities are clear: protecting liquidity, support dealers, sell-through and remain ready for the growth when demand improves. We're entering Q4 from a position of stability with a leaner cost base, stronger dealer coverage and healthier balance sheet. Our focus is on rebuilding the backlog and strengthening our relationships with our dealers and customers. The sale of the North Carolina property gives us flexibility to invest in marketing and dealer support without taking on debt. We'll continue to expand our presence in high-potential coastal regions and ensure our dealers have the training and tools and support to succeed. Before we open the call to questions, I want to thank you all for -- and the shareholders and employees and our partners. Your confidence truly motivates our team every day. We're focused on what Twin Vee does best, building high-quality boats, supporting our dealers and engaging directly with customers. The marine industry may face rough waters, but we are steering through them with focus and discipline. Our mission is clear: to whether the storm, emerge stronger and create a lasting value for our shareholders. Thank you for your continued support. With that, I'll turn it over to the operator for questions. Operator: [Operator Instructions] There are no questions at this time. And this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Hello, ladies and gentlemen. Welcome to Himax Technologies, Incorporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tiao, Head of IR/PR at Himax. Ms. Tiao, please go ahead. Karen Tiao: Welcome, everyone, to the Himax Third Quarter 2025 Earnings Call. My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer. After the company’s prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today’s results release, please e-mail hx_ir@himax.com.tw or himx@mzgroup.us, access the press release on financial portals or download a copy from Himax website at www.himax.com.tw. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth and forward-looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call. A list of risk factors can be found in the company’s SEC filings, Form 20-F for the year ended December 31, 2024, in the section entitled Risk Factors as may be amended. Except for the company’s full year of 2024 financials which were provided in the company’s 20-F and filed with the SEC on April 2, 2025. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by independent auditors, to which we subject our annual consolidated financial statements and may vary materially from audited consolidated financial information for the same period. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. On today’s call, I will first review the Himax consolidated financial performance for the third quarter 2025, followed by our fourth quarter outlook. Jordan will then give an update on the status of our business, after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. During the quarter, U.S. tariff measures continue to see [indiscernible] global trade dynamics, adding to the macroeconomic and [indiscernible] uncertainty. [indiscernible] we are pleased to report that our third quarter revenue and profit both significantly exceeded the guidance range announced on August 7, 2025, while gross margin came in within guidance. Third quarter revenue registered $199.2 million, representing a sequential decline of 7.3%, which significantly outperformed our guidance range of 12.0% to 7.0% decline, primarily driven by better-than-expected sales from automotive IC and Tcon product lines. Our gross margin was 30.2%, in line with our guidance of around 30%. Q3 profit per diluted ADS was $0.06, substantially exceeding the guidance range of a loss of $0.02 to $0.04 attributable to the stronger-than-guided revenues. Revenues from large display drivers came in at $9.0 million, representing a decline of 23.6% on the previous quarters. All three product lines within the large panel driver IC segment declined primarily due to the absence of the traditional seasonal shopping momentum amid a volatile macroeconomic environment as well as the customers pulling forward purchases in prior quarters. Sales of large panel driver IC accounted for 9.5% of total revenues for the quarter compared to 11.6% last quarter and 13.8% a year ago. Revenue from the small- and medium-sized display driver segment totaled $141.0 million, reflecting a slight decline of 2.4%. Q3 automotive driver sales, including both the traditional DDIC and TDDI increased single digit quarter-over-quarter, outperforming our guidance of a slight sequential decline, indicating resilient underlying demand despite global softness in automotive sales. The sequential growth was mainly driven by replenishment in both TDDI and DDIC products with customers adhering to a make-to-order model and keeping inventory lean in view of an uncertain demand outlook. Our automotive business comprising DDIC, TDDI, Tcon and OLED IC sales remain the largest revenue contributor in the third quarter, representing over 15% of the total revenue. Meanwhile, revenue for both smartphone and tablet IC segments declined quarter-over-quarter as customers pull forward purchases in prior quarters. The small and medium-sized display driver IC segment accounted for 17.8% of total sales for the quarter compared to 67.3% in the previous quarter and 69.9% a year ago. Q3 non-driver sales reached $39.2 million, a 13.7% decrease from the previous quarter but outperforming our guidance range, primarily attributable to increased shipment of Tcon for automotive application. Himax continued to hold an undisputed leadership position with a dominant market share in automotive Tcon. Tcon business accounted for around 12% of total sales with notable contributions from automotive Tcon. Non-driver products accounted for 19.7% of total sales as compared to 21.1% in the previous quarter and 16.3% a year ago. Third quarter operating expenses were $60.7 million, an increase of 24.2% from previous quarter and roughly flat compared to the same period last year. The sequential annual bonus compensation, which we award employees at the end of September each year, typically resulting in much higher Q3 employee compensation expense compared to our quarters of the year. Increased tape-out expenses, salary expenses as well as the appreciation of NT dollar against the U.S. dollar in Q3 were also factors behind the sequential increase. Our annual bonus compensation grant for 2025 was $7.7 million, slightly higher than the guidance of $7.5 million as the bonus amount determined based on the expected full year profit was revised upward following a much improved Q3 financial performance. Of the $7.7 million, $7.5 million was immediately invested in expenses in the third quarter. Including the portion of the awards granted in prior year, the total bonus expenses for Q3 2025 amounts to $8.1 million, significantly lower than $13.9 million recorded in Q3 2024. For reference, the annual bonuses granted for 2024 and 2023 were $12.5 million and $10.4 million respectively, of which $11.2 million and $9.7 million were vested and expensed immediately. Amid ongoing macroeconomic challenges, we continue to exercise strict budget and expense controls. Third quarter operating loss was $0.6 million, representing a negative operating margin of 0.3%, compared to 8.4% in the previous quarter and 2.6% for the same period last year. The sequential decline was primarily attributable to higher employee bonus which, as stated earlier was $8.1 million, compared to $0.8 million last quarter, coupled with lower revenues and gross margin. The year-over-year decrease was mainly due to the reduced sales. Q3 after-tax profit was $1.1 million, or $0.006 per diluted ADS, compared to $16.5 million, or $0.095 per diluted ADS last quarter, and down from $13.0 million, or $0.074 in the same period last year. Now, turning to the balance sheet, we had $278.2 million of cash, cash equivalents and other financial assets as of September 30, 2025. This compares to $206.5 million at the same time last year and $332.8 million a quarter ago. The sequential decline in cash balance mainly reflected the $64.5 million dividend and $13.1 million employee bonus payout. Q3 operating cash inflow was $6.7 million, compared to an inflow of $60.5 million in the prior quarter. The sequential decrease mainly reflected higher accounts payable payments in Q3 for inventory procured in prior quarters to support customer demand, along with employee bonus payment mentioned above. The employee bonus paid out this year included $7.3 million for the immediately vested portion of this year’s award and $5.8 million for vested awards granted over the past three years. We had $30.0 million of long-term unsecured loans at the end of Q3, of which $6.0 million was the current portion. Our quarter end inventories were $137.4 million, a slight increase from $134.6 million last quarter and lower than $192.5 million a year ago. After several quarters of inventory decline from its peak during the industry-wide supply shortage, Q3 inventory slightly increased but remained at a healthy level. As macroeconomic uncertainty limits visibility across the ecosystem, we will continue to manage our inventory conservatively. Accounts receivable at the end of September 2025 was $200.7 million, decreased from $219.0 million last quarter and down from $224.6 million a year ago. DSO was 87 days at the quarter end, as compared to 92 days last quarter and a year ago. Third quarter capital expenditures were $6.3 million, versus $4.6 million last quarter and $2.6 million a year ago. Third quarter capex was mainly for R&D related equipment for IC design business and the construction in progress for the new preschool near Himax’s headquarters built for employees’ children. As of September 30, 2025, Himax had 174.5 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the third quarter was 174.4 million. Now turning to our fourth quarter 2025 guidance. We expect Q4 revenues to be flat sequentially. Gross margin is expected to be flat to slightly up depending on product mix. Q4 profit attributable to shareholders is estimated to be in the range of $0.02 to $0.04 per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q4 2025 outlook. Jordan, the floor is yours. Jordan Wu: Thank you, Karen. The U.S.-China tariff negotiations recently reached a preliminary framework, sending a positive signal to the market. Yet most panel customers continue to adopt a make-to-order model and maintain low inventory levels. In the automotive display IC business, Himax's most important market accounting for over 50% of total revenues, demand visibility remains low as customers continue to act conservatively and sustain lean inventory levels. Despite the limited short-term visibility in the automotive market, remains optimistic about our automotive business outlook for the next few years, backed by our leading new technology offerings and comprehensive customer coverage. Meanwhile, we continue to focus on the expansion into emerging areas beyond display ICs, including ultralow power AI, CPO, and smart glasses, all novel applications characterized by high growth potential, high added value, and high technological barriers that are well-positioned to become new growth drivers for Himax soon. Before I [ leverage ] on those [ new ] business areas let me touch base on the Automotive IC business. Himax has been deeply engaged in the automotive display market for nearly two decades, offering a comprehensive range of display IC technologies spanning from the LCD to OLED. Amid intense industry competition, Himax holds a solid leadership position with #1 global market share across all segments of automotive display ICs and an overwhelming lead over competitors. As smart interiors advance, demand for automotive displays continues to grow, shifting toward larger, higher resolution and more innovative displays, including the adoption of OLED displays for high-end vehicles. Himax is well-positioned to benefit from this trend. Looking ahead, we expect further growth in automotive TDDI and Tcon technologies, driven by continued adoption from global panel makers, Tier 1 suppliers, and automakers. Both TDDI and Tcon are advanced display solutions for vehicles and have already been successfully designed into hundreds of projects worldwide. Meanwhile, in the traditional DDIC segment, shipments remain relatively stable due to long product life cycles and the nature of many applications such as dashboards, head-up displays, and rear- and side-view mirrors that do not require touch functionality, thereby continuing to generate long-term and stable DDIC revenues for Himax. In addition, Himax has been deeply engaged in automotive OLED technology development for many years. With a continuously expanding product portfolio and an increasing number of leading global automakers accelerating adoption of OLED technology in new vehicle models, we expect OLED display adoption in the automotive sector to grow rapidly starting in 2027. Despite lingering economic uncertainty, Himax continues to actively expand its business beyond display ICs, focusing on ultralow power AI, CPO, and smart glasses. Through years of dedicated investment and R&D, Himax has established a solid technological foundation and a strong patent portfolio in these areas, while closely collaborating with partners to drive products toward mass production and real-world applications. As these emerging businesses gradually materialize, they are poised to become key growth engines for Himax, reduce our reliance on the display IC market and further enhance both profitability and long-term competitiveness. First, on the WiseEye AI domain; WiseEye enables battery-powered endpoint devices with real-time analysis, precise recognition, and environmental awareness at ultralow power consumption of merely a few milliwatts. Leveraging these core strengths, WiseEye has been successfully adopted by multiple leading global notebook brands with ongoing collaborations with customers to integrate more AI features into next-generation laptops. WiseEye has also been widely deployed across various domains such as smart door locks, palm vein authentication, and smart home appliances, partnering with top-tier global customers to co-develop a range of innovative applications. Our WiseEye module business features a simple design and ease of integration, making it highly suitable for diverse AIoT applications. It has already been adopted in applications such as smart parking systems, access control, palm vein authentication, smart offices, and smart home, with the number of design-in projects fast expanding. Further, a recent major application addition is in smart glasses, a new product category characterized by extremely demanding low power. WiseEye enables real-time AI functionality at industry-leading ultralow power consumption while supporting always-on sensing for surroundings and event-based eye-tracking to deliver a natural and intuitive human–machine interaction. It has been adopted by numerous major tech giants, traditional ODMs, brands, and startups to integrate into their new smart glasses projects. Looking ahead, the WiseEye business is entering a phase of rapid growth, becoming one of the [indiscernible] key growth engines. In the field of Co-Packaged Optics or CPO, Himax leverages its proprietary WLO advanced nano-imprinting technology. Together with our partner, FOCI, we have achieved significant breakthroughs in silicon photonics technology, with the first-generation solution being validated by customers and partners [indiscernible] towards mass production readiness in 2026. In parallel, joint development efforts with leading customers and partners are underway, focusing on future-generation high-speed optical transmission technologies to meet the explosive bandwidth demands of HPC and AI applications, while addressing the critical challenge of overheating in high-speed transmission. Himax expects CPO to become a major revenue and profit contributor in the years ahead. Last but not least let me touch base on the status of our Smart Glasses businesses. Driven by generative AI and Large Language Models, the smart glasses market is experiencing a resurgence and is seen as the next high-growth, high-volume market opportunity. Smart glasses has been one of Himax's long-term strategic focus areas where we are among the few in the industry that possess three critical enabling technologies for smart glasses, namely ultralow power intelligent image sensing, micro-display, and nano-optics, giving Himax a unique opportunity to take advantage of the potentially explosive growth of smart glasses. In intelligent sensing, Himax's WiseEye AI delivers always-on, ultralow power contextual awareness with average power consumption of just a few milliwatts. It significantly enhances the interactivity and perception of smart glasses while preserving battery life of the smart glasses device. In micro-display, Himax's latest Front-lit LCoS micro-display specifically tailored for AR glasses has attracted strong market attention since its debut. It achieves an optimal combination of form factor, weight, power consumption, and cost, while delivering high brightness and high color saturation in full-color display performance, all key attributes for AR glasses. With over a decade of mass production experience with leading tech names and a proven record of reliable delivery, Himax's new LCoS product, now in sampling stage, has attracted the attention of numerous AR glasses players worldwide. In the field of nano-optics, Himax offers proprietary WLO technology for advanced nano-optical foundry service to selected customers to develop waveguide solutions which, when bundled with micro-display, forms the display system required of AR glasses. Looking ahead, we expect revenues from AR and AI glasses related applications to grow substantially over the next few years. With that I will now [indiscernible] with an update on the Large [ Panel ] Driver IC Businesses LDDIC. In Q4, large display driver IC sales are expected to increase single-digit sequentially, driven by new notebook TDDI projects entering mass production, along with customers' restocking of monitor IC products following several subdued quarters. Despite a challenging market environment, we continue to advance our technology roadmap for next-generation displays to achieve faster data transmission, lower latency, improved power efficiency, and high-speed interface for next generation premium and gaming displays. In the Notebook sector, we continue to focus on the growing adoption of OLED displays and advanced touch features in premium models, driven by the rise of AI PCs and demand for more interactive, productivity-enhancing experiences. Himax is well-positioned to capitalize on opportunities with a comprehensive range of ICs for both LCD and OLED notebooks, including DDIC, Tcon, touch controllers, and TDDI. Multiple projects for OLED displays, as well as gaming monitors and notebooks, are currently underway in collaboration with leading panel makers in Korea and China. Turning to the Small and Medium-sized Display Driver IC business. In Q4 small and medium-sized display driver IC business is expected to slightly decline from last quarter. However, Q4 automotive driver IC sales, including TDDI and traditional DDIC, are set to increase single digit quarter-over-quarter, largely driven by the continued adoption of TDDI technology among major customers across all continents. Despite the challenging macro environment, our automotive driver IC sales for the full year 2025 are projected to grow single-digit year-over-year, with total volume projected to outgrow the global automotive shipment. Himax remains the leader in this market, with a market share well above 50%, far outpacing those of competitors. Traditional automotive DDIC demand remains solid despite partial replacement by TDDI. The transition continues to be gradual, as many automotive displays, such as dashboards, HUDs, and rear- and side-view mirrors, do not require touch functionality and typically have long product lifecycles. Himax holds a solid 40% market share in traditional DDIC and remains the go-to supplier for both legacy and next-generation automotive display applications. Himax also continues to lead in automotive display IC innovation by pioneering solutions across a wide range of panel types while addressing diverse design needs and cost considerations. For example, in ultra-large touch displays, we led the industry by introducing LTDI solution which began mass production in Q3 2023. LTDI has been gaining traction, driven by increasing popularity of larger in-vehicle displays that demand higher performance, improved signal integrity, and simplified system design. Additional LTDI projects with multiple leading global brands are on track to enter mass production as move into 2026. For smaller displays with form factor and budget constraints, we provide single-chip designs that combine TDDI and local dimming Tcon. This enables advanced local dimming in small-size displays, reduces overall system cost, and improves power efficiency, making it an attractive choice for customers. For high end displays, during the recent SID Vehicle Displays and Interfaces Symposium, one of the industry's leading events for automotive display and HMI technologies, Himax showcased the industry’s first OLED touch IC that supports both tactile knobs and capacitive touch keys, enabling flexible design options and delivering a safer, more intuitive control experience for OLED automotive displays. Himax continues to advance interactive display technologies that enhance driver safety and cabin ergonomics. Looking ahead, OLED panel adoption in automotive displays is expected to accelerate starting in 2027. This presents an attractive opportunity to further solidify our leadership in the automotive display market where we already has a dominant market share position across DDIC, TDDI, and local dimming Tcon for LCD displays. We provide ASIC OLED driver and Tcon solutions that entered mass production a few years back, and now we also provide standard ICs ready for broader deployment. In parallel, we are collaborating with major panel makers on new custom ASIC developments to address diverse customer requirements. Additionally, our advanced OLED on-cell touch control technology delivers an industry-leading signal-to-noise ratio, ensuring reliable performance even under challenging conditions such as glove or wet-finger operation. These OLED on-cell touch ICs entered mass production in 2024 and are being increasingly adopted by major global automotive brands for their upcoming car models. As the industry transitions to next-generation OLED display for high-end vehicles, Himax is uniquely positioned to capture the accelerating adoption of OLED in future automotive displays, replicating our success in the LCD by leveraging nearly two decades of automotive display expertise, strategic partnerships established with leading panel makers across China, Korea, and Japan, and a proven record in mass production and product quality that adheres to the world's most stringent global standards for quality, reliability, and safety. Moving to smartphone and tablet IC sales for LCD panel, we expects revenues for both segments to decline quarter-over-quarter, as customers pulled forward purchases in prior quarters. However, in the smartphone OLED market, we are making solid progress in collaborations with customers in Korea and China, with mass production set to ramp in Q4 this year and volume to increase further in the following quarters. Meanwhile, for OLED tablets, several new projects with top-tier brands are expected to enter mass production heading into 2026. In parallel, we are developing new technologies that enable value-added features such as active stylus, ultra-slim bezel designs, and higher frame rate to further differentiate our products and reinforce its competitive edge. I would like to now turn to our Non-Driver IC business update [indiscernible] we expect Q4 revenues to increase single digit sequentially. First for an update on our Tcon business. We anticipate Q4 Tcon sales to be flat sequentially. However, Q4 automotive Tcon sales are well-positioned to grow single digit sequentially, fueled by a strong pipeline of more than 200 design-win projects gradually entering mass production. Many of these projects feature local dimming functionality, an area where Himax maintains a dominant market position. Our full year 2025 automotive Tcon sales are set to grow by approximately 50% year-over-year, laying a solid foundation for sustained growth as we move into 2026. In contrast, Tcon for monitor, notebook and TV products are expected to decline sequentially, primarily a result of customers pulling forward inventory purchases early this year. We continue to lead in automotive Tcon innovation. Our new generation local dimming Tcons offer advanced features such as edge sharpness and high dynamic range, ideal for customers looking to upgrade their displays for better panel performance. Meanwhile, head-up displays are rapidly emerging, evolving beyond simple text and symbols to deliver high-brightness, high-contrast, AR-enhanced visuals within automotive displays, fueling demand for advanced Tcon solutions. To address this trend, we launched an integrated Tcon that features the industry's first full-area selectable local de-warping function, combined with Himax's market-leading local dimming and on-screen display technologies. The newly introduced multifunctional Tcon offers industry-first full-area selectable local de-warping capability, a major advancement over existing solutions that typically offer only full screen or limited split-screen de-warping. Built on Himax's dominant local dimming technology, the new de-warping Tcon solution continues to deliver exceptional contrast performance and effectively eliminates the undesired postcard effect commonly seen in HUDs, caused by backlight leakage typical of conventional TFT-LCD panels. Our industry-leading OSD function is also integrated within the new Tcon, allowing critical safety information to remain visible on the display even when the main system is shut down, thereby enhancing overall driver safety. The new Tcon solution supports a broad range of HUD architectures, including Windshield HUD, Augmented Reality HUD, and Panoramic HUD systems, [Audio Gap] design and cost requirements. Several customer projects are already underway, reflecting strong market recognition of our advanced HUD Tcon technology. Switching gears to the WiseEye Ultralow Power AI Sensing Solution, a cutting-edge endpoint Ultralow Power AI processor, always-on CMOS image sensor, and CNN-based AI algorithm at its core. As AI continues to advance at an unprecedented pace, WiseEye is uniquely positioned with context-aware, on-device AI inferencing that delivers industry-leading power efficiency of just a few milliwatts with a compact form factor while fortified by industrial-grade security. This combination enables advanced AI capabilities in endpoint devices that were once constrained by power and size limitations, driving expanding adoption across a wide range of applications, including notebooks, tablets, surveillance systems, access control devices, smart home solutions, and, more recently, AI and AR glasses. This growing momentum highlights WiseEye's role as a trusted on-device AI sensing enabler, powering smarter and more power-efficient solutions across everyday devices and AIoT applications. In notebooks, WiseEye's human presence detection has seen expanding adoption across leading global brands, driven by its ultralow power consumption of merely a few milliwatts, instant responsiveness, and privacy-centric design, perfectly aligned with the industry's transition toward always-aware, AI-driven PCs. More notebook models are scheduled to enter mass production starting in 2026. Meanwhile, additional feature upgrades are being developed with our notebook customers to tackle more complex real-world scenarios and deliver greater user experience, all while maintaining exceptional power efficiency. One such feature is gesture recognition that mimics keyboard input, allowing page scrolling or volume adjustment without keyboard. With large language model AI driving a shift from predefined command inputs to natural language human–machine interaction, another advanced feature currently under development is the voice-activated keyword-spotting function, in which WiseEye serves as an ultralow power front end that performs wake-word detection, activating the CPU only when a specific trigger phrase is detected, enabling continuous audio monitoring while consuming very little power. In the surveillance domain, WiseEye AI enhances security systems by combining accurate human-object distinction with event-driven activation, significantly reducing false triggers. In addition to the China market, where shipments to leading smart door lock vendors are already underway, we are now partnering with world-leading door lock manufacturers to introduce novel on-device AI features such as palm vein biometric access, parcel recognition, and anti-pinch protection. Recently, we introduced a state-of-the-art bimodal solution combining palm vein and facial authentication to meet customer demand for greater flexibility and reliability in smart door lock. The dual-authentication approach enhances both security and user experience, marking a significant advancement in biometric technology while still consuming extreme low power, making it ideal for door lock application which is extremely demanding for power consumption. Several of the projects are slated for mass production starting in 2026. Notably, Himax solution complies with Europe's General Data Protection Regulation or GDPR, one of the world's strictest data privacy laws. Our recent exhibitions at Sectech Sweden 2025 illustrate Himax's proactive expansion into Europe's security and access control market, one of the most privacy-regulated and innovation-driven markets globally. Himax demonstrated its technological readiness and credibility to European system integrators, OEMs, and customers seeking secure, contactless, and power-efficient authentication solutions. Next for an update on our WiseEye Module business, which integrates [Audio Gap] image sensor, AI processor, and pre-trained no-code/low-code AI algorithm. It's designed to make AI simple and accessible, helping developers accelerate innovation and scale their products from prototype to commercial deployment. Thanks to its broad applicability, the WiseEye Module has been adopted across a wide range of domains, including leading brands' upcoming smart home appliances and various security applications. Notably, our Palm Vein module has attracted strong interest across multiple industries, rapidly securing design wins in smart access, workforce management, smart door locks, and more. Many of our WiseEye Module projects are scheduled to enter mass production in 2026. In the AI sensing domain for AR and AI glasses, WiseEye AI processors continue to build strong momentum, being adopted and integrated into next-generation smart glasses by a growing number of customers, while deepening collaborations with major tech companies, brands, and startups worldwide. Smart glasses makers are leveraging WiseEye to deliver instant responsiveness for a wide range of AI applications while maintaining extended battery life. The increasing number of design-in activities reflects broad recognition of WiseEye's unique ability to bring intelligent, context-aware vision sensing to next-generation wearable and AR devices, specifically to empower both outward and inward vision sensing. Outward vision sensing supports surrounding perception, object recognition, and spatial awareness, while inward sensing tracks eye movements, gaze direction, and pupil dynamics to enable natural and intuitive user interactions. Together, these capabilities redefine how users engage with both digital and physical environments, paving the way for more immersive, power-efficient, and personalized AR experiences. Moving on to our latest advancement in LCoS micro-display technology; following years of dedicated R&D and close collaboration with leading industry players, our proprietary Dual-Edge Front-lit LCoS micro-display has achieved a breakthrough, delivering an optimal combination of form factor, weight, power efficiency, performance, and cost, while offering ultra-high luminance and vibrant RGB display that meets the industry's stringent specifications for next-generation see-through AR glasses. This breakthrough is showcased in our industry-leading Front-lit LCoS micro-display, which combines the illumination optics and LCoS panel into an ultra-compact form factor of just 0.09 c.c. and 0.2 grams, delivering up to 350,000 nits of brightness and 1 lumen output with a maximum power consumption of just 250 megawatts. This exceptional luminance performance ensures outstanding user visibility even under bright sunlight, while the ultra-compact design enables sleek and lightweight AR glasses suitable for everyday use. Samples of our Front-lit LCoS were released early this quarter and are now being actively evaluated by several leading global tech companies and specialized smart glasses makers, with joint development efforts progressing steadily. We will announce further progress in due course. That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today’s call and are now ready to take questions Operator: [Operator Instructions] Now we'll have the first question, Donnie Teng, Nomura. Donnie Teng: My first question is regarding to your fourth quarter guidance. So it looks like the revenue and gross margin can sequentially improve from third quarter. But just curious why we have a little bit conservative EPS guidance for the fourth quarter? And the second question is that for the CPO progress, I noticed that I think in the past couple of quarters, you indicated some breakthrough on the CPO business. And it looks like we have another progress in the revenue. So just wondering if you can elaborate more on [Technical Difficulty] we can deliver meaningful revenue from the CPO business into 2026. Jordan Wu: Thank you, Donnie. For your first question about our seemingly better top line and gross margin guidance compared to bottom line. Well thank you for pointing that out. One of the key reasons is income tax adjustment. We -- as a standard practice, we estimate our quarterly income tax based on our assessment of full year total income. And in Q3, as you know, we actually underestimated the Q3 profit in our guidance, right? And therefore, we have a major [ bit ] in our guidance. And so we underestimated Q3 profit and therefore, also the income tax expense. So [indiscernible] at the time we provided our guidance last quarter. Therefore, we have to kind of [indiscernible] income tax that we accrued in Q3 into Q4 and that turned out to be rather significant given that compared to our current level of income. So we have to add back the income tax expense in the fourth quarter. Another major reason is higher R&D expenses during Q4. So in addition to a few relatively expensive [indiscernible] scheduled for Q4, which is just the timing issue, right? It's not -- I mean we don't necessarily plan it that way, but it just happened that way. So we have a few more expensive tape-out schedule for Q4. And also in addition to that, we have recently been awarded the major R&D grant by Taiwan Government's so-called -- I don’t know what is called IC innovation program, [indiscernible] IC innovation program. The government actually announced that publicly so I'm allow to talk about it. The schedule of the grant is such that we are kind of [indiscernible] R&D spending related to that project, which by the way, is about our WiseEye product line. So we are kind of requested to speed up the spending. We are also getting a speed up in our grant but as you know, our spending has to be much higher than the grant and that's how the [ game ] is made, right? So we have to kind of speed up the R&D spending related to that project in Q4 as well. So these are the reasons. So you are right. If I take a longer term view, there is no particular reason why our expense in Q4 are higher than those of the other three quarters of the year, but it just happened a few factors together. And again, thank you for pointing that out. And in regard to the CPO progress, your second question, together with our partner [indiscernible] our focus right now is getting the first generation product validation completed and at the same time, finalizing the development for the second generation product, which, by the way, is in a very advanced stage, i.e., the second generation product, which is targeting CPO or GPU product line, customer GPU product line. So to recap this year, 2024 -- 2025, sorry, 2025 has been a year for engineering validation with small quantity sample shipments. So in all likelihood, we will be fully ready for volume production in 2026. Now, as for the timing of the customers' mass production and also the revenue contribution for us in 2026 next year, it is much harder for us to comment. And again, the main goal of 2026 is to complete the validation of our product and manufacturing process by key customer/partner. And we believe conservatively, there could be revenue contribution, but we don't really estimate the revenue contribution to be significant compared to our overall revenue. Rather, we believe it will be [ still ] limited because the switch to CPO involves a pretty complex ecosystem which requires long lead time, right? So we -- our technology may be ready and our immediate customer may be ready, but then the repercussion of the switch throughout the whole ecosystem all the way down to the data center operators can be quite complex. So that is why we are not -- we don't necessarily hold a very aggressive view on that timing. However, we believe we can potentially see rather meaningful top line and bottom line contribution starting in 2027. When we expect shipments for engineering runs, that is actually, by the way, based on our assessment, it is still [indiscernible] that is only engineering loss. But that again, [indiscernible] contribution we believe can already contribute rather meaningfully to our top line and bottom line. And after that, after 2027, we should enter official [indiscernible] when the growth will likely be explosive. But again, I want to emphasize all this -- everything I said about timetable and contribution and all that are just our own best estimate for now. Ultimately, when and how the ramp will take place is a call to be made by the customers. Actually related to this we are seeing offline a question about potential market penetration of the CPO technology. So I will address the question online as well. Naturally, a bit on the timetable, our best estimate is 2028, it will be full blown mass production. And again, the growth will be explosive. And naturally, as the technology becomes proven and more mature CPO adoption, we believe will rise for AI data center application. So we believe with all the obvious benefits like substantially [indiscernible] transmission bandwidth and reducing power consumption and all that right of data transmission we all know the drill and all at a relatively low cost compared to the overall cost of a complex AI system. The CPO technology has the potential of very, very high market penetration of data center eventually. And we are not just saying this as our own opinion. We actually got opinions from across the board, our direct customer or end customer. Everybody seems to be holding that view. So everybody is like holding the breath and watching our step by step for validation to engineering up to mass production. And so it's very exciting times for us, we certainly under a lot of pressure, but we are quite confident we should be able to achieve what I just mentioned. But again, the ultimate timetable will be a call to be made by the customer. Operator: [Operator Instructions] Jordan Wu: There's one of the question about our outlook for -- particularly for automotive market products 2026. I guess the question is because we do hold a very significant market share in the automotive display market. So Display IC market, Automotive Display IC market. So I guess is probably meaningful for investors. We believe the auto market seems to be showing signs of bottoming out or bottoming out judging by the customers' low inventory levels and strong rush orders over the last few quarters, and that is also actually the main reason for our exceeding our guidance last quarter. Having said that, the automotive market is quite sensitive to the overall economic condition and tariff. And therefore, we don't really anticipate a very strong recovery next year. And in our view, and in our internal business projection, we are budgeting for a mild recovery only next year. So our strategy is to maintain the technology leadership and we start to further deepen customer engagement. And a very important focus for us next year is to continue to diversify our supply chain, and this is in response to the customers' request, some customers' request or need for our geographical diversification of our supply chain and our production. So we have very strong confidence of our overall dominant market share right now, backed by leading technology offerings and strong design win pipelines, numbering hundreds of programs across a very diverse customer base. So we feel we are probably reaching the bottom, but next year, if there's a rebound, we don't anticipate a very, very strong rebound. We believe it's a mild recovery. That's our [indiscernible]. Another question is what is driving your confidence in AI revenue growth? Is this a design win with a single customer or [ much ] smaller ones? Presumably you are talking about smart glasses. In our prepared remarks, we have three things for smart glasses; WiseEye for [indiscernible] application, both looking outward and inward for smart glasses that covers both AR glasses and AI glasses. And the second thing is our LCoS micro-display, which is only applicable to AR see through glasses, right? And the third one is our WLO [indiscernible] technology where we are holding what we call optical foundry service business model targeting only a very selective small number of customers. So the third one, evolving rather complex design [indiscernible] development. So it is going to be a few years away, although we are talking about some of the most significant customers, the biggest names, some of the biggest names in the industry. So we still feel obligated to mention that as a business potential in our prepared remarks. But in terms of revenue contribution the third thing with WLO as a foundry service for [indiscernible] very big name customers, I think it's still a few years away. WiseEye AI is an ongoing, very active ongoing progress. Customers big and small across not just U.S. major names, but also Chinese, even Koreans and Japanese are coming to us. And also there are also major customers who are offering a platform of AI or smart glasses solution. And we have been working very closely with them for WiseEye solution and our solution, our technology has been taken as the standard offering part of the standard offering. So that platform solution based into -- more production, which is anticipated to take place starting next year. I think we will see revenue contribution from our WiseEye product line. And for [indiscernible] display, which is for AR see-through glasses only, not AI glasses, you need to have glasses with display to meet our [indiscernible] solution. We -- again, in our prepared remarks, we believe we are offering a combination of factors with a real product, which is quite very promising, and we believe it's something that is fully addressing the very difficult requirements of AI gasses for now. However, that product we are only in sampling stage. So from sampling stage to ultimate mass production, it is going to take some time. So I don't really anticipate [indiscernible] sales contribution from [indiscernible] next year and hopefully the year after because again, we are only in sampling stage and customers need to take our [indiscernible] solution to match [indiscernible] and then we start as a display solution that develop the full set of smart glasses products. So that is still going to take some time, although our solution has been anticipated by a lot of customers, big and small across the board. But this is very new, and we are in sampling stage so it's going to be quite an effort for us to mass production to [indiscernible] our customers. Could you give us an update on the second generation [indiscernible]? Do you expect higher revenue number with second gen? I cannot comment on specifics, but the key difference of first gen and second gen is the number of channels, right? And basically, we are more than doubling up from first gen to second gen. And actually, the technical challenge is tremendous. And that also involves a pretty fundamental revision of our optical design to achieve that goal. And customers have made it very specific that they -- customers are very hopeful for the success of our second gen because with the success of our second gen, it will be a very good product idea for GPU, which as you know is something requiring high bandwidth transmission. So upon the success and mass production of second gen, we believe certainly the revenue contribution will be significant. However, as I mentioned in my earlier Q&A we think -- I think to our timetable for next year, the year after, 2028. So we don’t want to overpromise and make people feel that it is going to be immediate revenue contribution. But second is a big deal, is a huge deal for us, for our partner, and our customer. Operator: Okay then thank you for all your questions. I think that will be the end of the Q&A session. And I'll pass the call back to Mr. Jordan Wu. Thank you. Jordan Wu: Thank you, operator. As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences, and we will announce the details as they come about. Thank you and have a nice day. Operator: Thank you, Jordan. And ladies and gentlemen, this concludes third quarter 2025 Earnings Conference. You may now disconnect. Thank you again. Goodbye.
Operator: Ladies and gentlemen, thank you for standing by for Autohome's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. If you have any objections, you may disconnect at this time. A live and archived webcast of this earnings conference call will also be available on Autohome's IR website. It is now my pleasure to introduce your host, Mr. Sterling Song, Autohome's IR Director. Mr. Song, please go ahead. Sterling Song: Thank you, operator. Hello, everyone, and welcome to Autohome's Third Quarter 2025 Earnings Conference Call. Earlier today, Autohome distributed its earnings release, which can be found on the company's IR website at ir.autohome.com.cn. Joining me on today's call is our Chief Financial Officer, Mr. Craig Yan Zeng. Management will go through the prepared remarks, which will be followed by a Q&A session, where it is available to answer all your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange. Autohome doesn't undertake any obligation to update any forward-looking statements, except as required under applicable law. Please also note that, Autohome's earnings press release and this conference call include discussions of certain unaudited non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures can be found in our earnings release. I'll now turn the call over to Autohome's Chief Financial Officer, Mr. Craig Yan Zeng, for opening remarks. Please go ahead, Craig. Yan Zeng: [Interpreted] Thank you, Sterling. Hello, everyone. This is Craig Zeng. Thank you for joining our earnings conference call today. In the third quarter, we continued to advance our AI and O2O strategies. On AI, we significantly strengthened the integration of AI technologies with our products, fostering business innovation while enhancing both user experience and customer operational efficiency. On O2O, we continuously improved our O2O platform by integrating online and offline resources, optimizing the end-to-end user experience and building a comprehensive closed-loop ecosystem that spans the entire customer journey from initial traffic acquisition to transaction completion to after sales services. In terms of AI technology applications, we completed a comprehensive upgrade of our AI assistant by strengthening model capabilities, integrating user inquiries with specific vehicle models and expanding usage scenarios we achieved precise matching between user queries and car models. This has created a decision-making loop of content drives engagement, engagement lead to action. In addition, we've also introduced 2 new features, the AI car selection system and AI vehicle for diagnostics, providing users with more intuitive and efficient tools for their car-related needs. In September, we launched the first inaugural Global AI Technology Conference. This established a premium platform for technical exchange among leading enterprises, showcased cutting-edge advances in China's intelligent automotive technologies, and elevated the collective image for Chinese auto brands. The conference's success also serves as a testament to Autohome's professional influence as a trusted media platform. The conference received authoritative endorsements from 5 major automotive associations and was strongly supported by 14 key corporate partners. 7 top executives from leading companies in the industry delivered impact keynote speeches. Following the conference, over 30 automotive brands engaged with Autohome's official Weibo account, while more than 60 professional editors, technical experts and PGC creators formed a multidimensional communication matrix that drew widespread attention across the industry. In building our auto ecosystem, we soft launched our Autohome Mall on September 20, marking a major milestone and significant progress in our one-stop online to offline strategy. This initiative further improves our new retail business model through continuous upgrades and makes our model more complete. This strategy extends Autohome's role from being a decision-making hub for car selection and research to the final car purchase and ordering per transaction creating a full digitalized closed loop for the entire car purchase experience and significantly increasing the value of our traffic. Specifically, on content, we strengthened our content matrix by increasing professional depth and expanding the breadth of perspective, while continuously advancing our diversified content ecosystem. For our 2025 series of coverage on domestic and international auto shows, we adopted a dual-track approach to achieve comprehensive reach from global influence to local penetration. At the Munich Auto Show, we took a global perspective, focusing on world's premiers and the Chinese brands going global. We built a professional and exclusive content matrix through intensive bilingual live streaming and video production that leveraged global mainstream media networks to amplify China's automotive innovation and brand recognition worldwide. At the Chengdu Auto Show, we focused on new car launches and purchase guidance, integrating resources from 18 automakers to create Autohome exclusive live streaming sessions. This provided users with an immersive auto show experience. On the first day of the auto show, we achieved 100% coverage of all new car launches. Beyond our professional auto show coverage, we made significant strides in developing a content-centered interactive ecosystem. The newly established Autohome Media MCN is committed to building a multi-category influencer matrix that centers on automotive vertical, while expanding into technology, travel and overseas content. We've also developed a rich and diverse content ecosystem that combines professional and engaging PGC content, in-depth and authoritative OTC insights and authentic user-generated experiences that resonate. To date, we have gathered over 200 high-quality creators across multiple platforms covering professional car reviews, technology, travel and other areas, continuously enhancing Autohome's platform influence. According to QuestMobile, the average mobile DAUs reached 76.56 million in September 2025, up by 5.1% from the same period last year. In NEVs, we continue to focus on user and client needs while building a comprehensive automotive ecosystem. Online centered around our newly soft launched Autohome Mall introduced in late September, provides transaction services, while our offline network of franchise stores, CARtech outlets and used car dealerships is designated to integrate the entire process from online ordering to offline delivery and service. Building on the success of trial, we plan to officially launch the Autohome Mall during the Double 11 shopping festival. By integrating resources from across the industry value chain, we are committed to providing users with more precise, professional and efficient car purchasing experiences. Furthermore, total revenues from NEVs in the third quarter, including those from the new retail business has continued to grow, increasing by 58.6% from last year. On digitalization, our 5 major digital intelligence product lines are leveraging Autohome's platform capabilities of full life cycle data tracking to continuously help clients improve targeting accuracy and service efficiency. Furthermore, at the Global AI Technology Conference, we officially launched the Tianshu Intelligence Service Platform powered by Autohome's proprietary Cangjie Large Language Model, the platform uses an open toolkit and service distribution capabilities to redefine collaboration among users, the platform and the ecosystem partners. This advancement drives Autohome's transformation from an automotive information platform to an industry-wide intelligent hub, further strengthening our field advantages in technology and ecosystem. For our used car business, we continue to advance the standardization of both transactions and services. The AI car inspection expert developed based on historical transaction data and algorithmic models have achieved industry-leading accuracy in vehicle valuation. Meanwhile, our flagship certified used car stores have further expanded its network of partner dealers. In the future, we will continue to uphold integrity and standardization as our foundation, deepen our collaboration with high-quality used car dealers and continuously strive to provide consumers with a more reliable and worry-free used car buying experience. In summary, this year, we focused on AI and O2O to comprehensively accelerate our business expansion. Looking ahead, we will continue driving innovation in both products and business models, building a more efficient automotive ecosystem and service system that creates sustained value for the industry and ensures our long-term stable development. With that, now please let me briefly walk you through the key financials for the third quarter 2025. Please note that, I will reference RMB only in my discussion today, unless otherwise stated. Net revenues for the third quarter reached RMB 1.78 billion. To break it down further, media services revenues contributed RMB 298 million, leads generation services revenues were RMB 664 million and the online marketplace and others revenues increased by 32.1% year-over-year to RMB 816 million. With respect to cost, cost of revenues in the third quarter was RMB 646 million compared to RMB 408 million in the third quarter of 2024. Gross margin in the third quarter was 63.7% compared to 77% during the same period last year. Turning to operating expenses. Sales and marketing expenses in the third quarter were RMB 620 million compared to RMB 877 million in the third quarter of 2024. Product and development expenses were RMB 279 million compared to RMB 339 million in the third quarter of 2024. General and administrative expenses were RMB 125 million compared to RMB 137 million during the same period last year. Overall, we delivered an operating profit of RMB 147 million in the third quarter compared to RMB 83 million for the same period of 2024. Adjusted net income attributable to Autohome was RMB 407 million in the third quarter compared to RMB 497 million in the corresponding period of 2024. Non-GAAP basic and diluted earnings per share in the third quarter was RMB 0.87 and RMB 0.86, respectively, compared to RMB 1.02 for both in the corresponding period of 2024. Non-GAAP basic and diluted earnings per ADS in the third quarter were RMB 3.47 and RMB 3.45 respectively, compared to RMB 4.09 and RMB 4.08, respectively, in the corresponding period of 2024. As of September 30, 2025, our balance sheet remains robust with cash, cash equivalents and short-term investments of RMB 21.89 billion. We generated net operating cash flow of RMB 67 million in the third quarter. On September 4, 2024, our Board of Directors authorized a new share repurchase program under which we are permitted to repurchase up to USD 200 million of Autohome's ADS for a period not to exceed 12 months thereafter. On August 14, 2025, the Board approved an extension of the term of this program through December 31, 2025. As of October 31, 2025, we have repurchased approximately 5.48 million ADS for a total cost of approximately USD 146 million. In addition, in accordance with our dividend policy, our Board of Directors has approved a cash dividend of USD 1.20 per ADS or USD 0.30 per ordinary share payable in U.S. dollars to holders of ADS and ordinary shares of record as of the close of business on December 31, 2025. The aggregate amount of the dividend will be approximately RMB 1 billion and expected to be paid to holders of ordinary shares and ADS of the company on or around February 12, 2026, and February 19, 2026, respectively. On September 30, 2025, the company announced the approval of a cash dividend of approximately RMB 500 million. Overall, the company has fulfilled its commitment to shareholders to distribute no less than RMB 1.5 billion in dividends for the full year of 2025. Looking ahead, we remain committed to maintaining a long-term stable and proactive approach to shareholder returns, and we sincerely thank our shareholders for their continued strong support to the company. So that concludes our financial summary. We are ready to open up Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from the line of Thomas Chong of Jefferies. Thomas Chong: [Interpreted] I have 2 questions. The first question is about the outlook for 2026 auto market. How should we think about the industry trend? And my second question is about AI. We mentioned AI in our prepared remarks. So, I just want to get some more color about the progress of our AI product offerings. Yan Zeng: [Interpreted] Thank you for your question. First, let me share some market recent developments and the future trends with you. First of all, the price war in the auto market has shown some signs of easing and the automakers are accelerating their intelligent technology efforts. In recent months, multiple government agencies have rolled out intensive policies calling for the industry to end devolution and provided policy guidance to ease the ongoing price war in the auto sector. So, all these measures have helped to cool down the price war in the auto market. And we have also observed that over 20 automakers have gradually phased out their fixed price promotions. Since the start of this year, major automakers have successfully announced their plans for intelligent driving technologies, to accelerate the adoption and application of intelligent driving. So, from this, it's quite clear that future industry competition will depend more on the company's comprehensive capabilities in integrating intelligent technology, user scenarios and meeting user needs, et cetera, rather than any single technological advantage. So, for next year, the price competition is expected to shift more towards a battle of technological cost effectiveness. Secondly, the NEV market still remains the core growth driver, even though this year, their growth number is comparatively a little bit slower than last year. But according to the data from the China Passenger Car Association, CPCA, the NEV penetration rate exceeded 50% in 7 out of the first 9 months of this year. So, this was mainly driven by the extension of favorable policies, et cetera. So, we believe for next year, the overall market -- auto market is expected to continue to undergo structural adjustments, which will redefine how consumers to make their purchasing decisions. At the same time, the China's auto industry continues to remain under high pressure, which has been lasted so long. And this pressure includes severe capacity -- overcapacity, declining profit margins and intense or fierce market competition, et cetera. So, we see both traditional automakers or dealers also undergoing such business pressure. So confronted with both price wars and shrinking profit and margin, we see OEMs and dealers alike. So, they have raised their expectations for both online consumer acquisition and offline sales conversion efficiency. Looking ahead to next year, we believe the following few points merit our attention. We believe there are short-term challenges, but it coexists with long-term opportunities because the auto market still face significant short-term pressures, mainly stemming from the shift of the NEV purchase tax exemption policy from full exemption to half exemption and the expiration of tax incentives for the ICEs. So combined with the price war in traditional ICEs, all such factors may further impact the auto market. Despite the above short-term pressures that we just mentioned, there are still upgrades in intelligent technologies, improvements to and recovery in the market order, and if there's further supported by introduction of additional long-term policies, we believe it will still stimulate consumer demand in the auto market and the market is expected to achieve modest and steady growth in 2026. So, for us, for Autohome, we will continue to deepen our AI and auto strategies, as I just mentioned. On one hand, we will keep advancing the product innovation and upgrades, accelerating the application of AI technology across content, intelligent customer services and scenario-based services, et cetera. On the other side, we will continuously explore ways to leverage our online and offline resources to achieve integration, build a closed loop for auto transactions and better serve our users and clients. The second question is our AI product progress. So, in the field of intelligent technologies, we have already completed the strategic layout of multiple products, built a technology product mix. Spans the entire life cycle of auto consumption and continuously we drive improvement in both user experience and customer business efficiency. For our users, our AI smart assistant and the used car AI smart buyer are continuously being upgraded. The new generation of the smart system has moved beyond simple question-and-answer model to proactive understanding and links provision. So, it can automatically identify the car models and series mentioned in the conversation and directly push product links. So, it shortened the users' search process and improve our decision-making efficiency. And for our clients, we have deployed 5 major AI product lines covering core business scenarios such as marketing insights, online customer acquisition, store visit invitation, dealer store operations and used cars, et cetera. So, through the intelligent tools, we can continuously empower our business team members and to realize the full chain digital operations. And for our technology foundation, we have our own proprietary Cangjie large language model. For example, our used car AI smart buyer is powered by this Cangjie engine, and it is -- besides, it is combined with Autohome's unique data assets, so it can deliver highly accurate and efficient recommendations, achieving a high degree of matching between the vehicle sources and the user needs. So currently Autohome is comprehensively and vigorously promoting the AI-driven upgrade of the products, achieving a comprehensive transformation from the underlying architecture to application scenarios. So, in the future, we will continue to deepen the integrated application of AI across multiple scenarios using the technological innovation to drive an efficiency revolution in the auto sector in the industry. Operator: The next question comes from the line of Xiaodan Zhang from CICC. Xiaodan Zhang: [Interpreted] So can management share your outlook on the traditional business for the upcoming quarters? And also, is there any update on the shareholder return plans? Yan Zeng: [Interpreted] Thank you for your question. In the third quarter, we do see that the OEM promotional discount still remains at high level and the price war has been there for so long. And the overall discount for OEMs has already exceeding 23%. So, for the car sales volume and profit, I still remain concentrated among the leading companies. So, the price cutting for volume strategy has made a lot of OEMs to control their marketing budgets. For the media services revenue in Q3 still declined year-over-year, but the decline has narrowed down significantly. And the continued decline is mainly due to the continued pressure from the OEMs price war in the market. And as Q4 approaches to the year-end, and we believe OEMs is expected to maintain high professional discounts to boost their sales revenues and this still put pressure on our media services revenue. So, we do expect we will achieve a slight year-over-year decline. For our lead generation business, because of the market inventory backlog and the inverted pricing, so dealers continue to face operational pressure, and we see that over 50% of dealers operating at a loss in the first half of the year, and it doesn't look very optimistic for their survival for many dealers. So accordingly, our lead generation services also faced some ongoing pressure in the second half of the year. Nevertheless, our customer penetration rate still remains at a good level. As the market -- once the market and customer operating conditions improve, our traditional business can be hit the bottom, rebound and stabilize. As I just mentioned, our media segment, business segment already narrowed down their decrease. And on the other hand, our innovative business developed quite strong, quite well. So, to some extent, our -- it offsets the situation of our traditional businesses. On the shareholder return on dividends today, we just announced a cash dividend of RMB 1 billion for the second half of this year. And combined with RMB 500 million we announced in September, we have fulfilled our commitment to a total annual cash dividend of no less than RMB 1.5 billion for the whole year 2025. Our Board of Directors will continue this stable dividend policy. On the share repurchase program, of the USD 200 million share repurchase program, until today, we have completed over 70% and the overall execution of this program is progressing quite well. So, in the next few months, we will continue to carry out the remaining share repurchase program. For a long time, we have been committed to building a comprehensive shareholder return plan centered on the continuous dividends and the share repurchases, providing shareholders with predictable and stable shareholder returns. So, over the long term, we are very confident in our business operations in the future. So, we will continue to uphold our long-term stable and proactive approach to shareholder returns. We sincerely thank all shareholders for their long-standing strong support to the company. Operator: The next question comes from the line of Ritchie Sun from HSBC. Ritchie Sun: [Interpreted] So I have 2. First of all, the gross profit margin it has been dropping year-on-year and Q-on-Q in first quarter. So why is that? And what is the trend going forward? Secondly, I want to ask about the energy space stores and satellite stores. So, what is the development progress and the 2026 target? Yan Zeng: [Interpreted] Thank you for your question. Since the beginning of 2025 this year, so in order to accelerate the development of our new innovative businesses, we have been actively expanding in -- we have been actively developed our business and so it increased our upfront investment and consequently, it resulted in higher costs. Specifically, our innovative business such as the new retail business has scaled up in the third quarter, as compared to the same period last year. For example, we soft launched Autohome Mall business in September. And although, this model is quite early in its early stage, but we observed where we get quite positive market feedback. And we believe such staged investments is quite necessary to -- for our future development for our -- to explore new avenues of growth and create much greater room for future development. So, the gross margin of our transaction business, it cannot be -- of course, it cannot be compared for our traditional business. For example, the media business and the lead generation business is much lower than our traditional business. So going forward, we will adhere to our consistent practice of the strict cost controls, and we'll hold the prudent principles in managing the scale of our investment. So, we will pay attention to our gross margin change. We will focus on that. The second question is about Autohome space station and satellite stores development. The development of our offline network is always centered on using our digital technology to streamline the car purchasing process and improve the transaction efficiency. So, our advantage is in our ability to cover areas in low-tier markets where OEMs or dealers, they don't reach. So, we can help them to expand their sales network. So, this business model is also being continuously upgraded and iterated. As I just mentioned, we are integrating the online and offline resources, bringing our online technology and the traffic advantages to offline. So, we try to transform from an auto content-oriented platform to a transaction service platform. So, after we complete the controlling shareholder, we will continue to working on combining our online and offline efforts to provide platform services that are more convenient and efficient, and we try to find new ways to grow beyond our traditional business model. Operator: Our final question comes from Brian Gong from Citi. Brian Gong: [Interpreted] I will translate myself. The used car market seems still a little bit weak recently. How does management view the outlook for used car market ahead? Yan Zeng: [Interpreted] Thank you for your question. Since the beginning of this year, the used car market has generally shown a trend of rising transaction volume and the falling prices according to China Automobile Dealers Association, CADA, for the first half, the transaction volume for used cars rose 2% year-over-year, while the average transaction price decreased by 12% year-over-year. At the same time, we see there are 2 notable structural trends emerged in the market. First is the increased cross-regional flows. Second is the rapidly increasing NEV used cars sales. While the transaction volumes are expanding, the operational pressures in the industry continue to intensify due to the impact of price wars in the auto market, we see the proportion of loss-making used car companies has expanded to over 70%, with lengthening average inventory cycles, continued high customer acquisition costs and intensified homogeneous competition, et cetera. But despite this, positive factors still remain. For example, the trade-in policies have stimulated replacement demand and brought more high-quality used cars into the market with the new energy used car becoming a key growth engine. So, the CADA forecast for the full year, the used car transaction volume could exceed 20.5 million units, an increase of 4% to 5% year-over-year. Currently, the used car sector has entered a crucial stage of deep adjustment and value chain reconstruction. The negative impact from the price cutting for volume model are gradually becoming apparent. However, China's large vehicle ownership base and relevant consumer demand provide strong support for the mid-to long-term development of the used car industry. So Autohome will continue to collaborate with industry partners to actively address challenges through refined operations and service upgrades, exploring new business models, unlocking new value to advance the used car industry towards high-quality development. Operator: There are no further questions at this time. I'll turn the conference back to management for closing remarks. Yan Zeng: [Interpreted] Thank you very much for joining us today. We appreciate your support and look forward to updating you on our next quarter's conference call in a few months' time. And in the meantime, please feel free to contact us if you have any further questions or comments. Thank you, everyone. Operator: This concludes the conference for today. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Welcome to the Curtiss-Wright Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jim Ryan, Vice President of Investor Relations. James Ryan: Thank you, Erica, and good morning, everyone. Welcome to Curtiss-Wright's Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Chair and Chief Executive Officer, Lynn Bamford; and Vice President and Chief Financial Officer, Chris Farkas. A copy of today's financial presentation and the press release are available for download through the Investor Relations section of our website at curtisswright.com. A replay of this webcast will also be available on the website. Our discussion today includes certain projections and forward-looking statements that are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward-looking statements in our public filings with the SEC. As a reminder, the company's results and guidance include an adjusted non-GAAP view that excludes certain costs in order to provide greater transparency into Curtiss-Wright's ongoing operating and financial performance. GAAP to non-GAAP reconciliations are available in the earnings release and on our website. Now I'd like to turn the call over to Lynn to get things started. Lynn Bamford: Thank you, Jim, and good morning, everyone. As you saw in last night's results, we continue to deliver on our Pivot to Growth strategy. Our top line is accelerating. We continue to drive operational and commercial excellence initiatives throughout the organization while making focused investments and remaining measured in our approach to capital allocation. Looking ahead, I am encouraged by the positioning of our technologies across the A&D and commercial markets we serve and see meaningful growth opportunities for Curtiss-Wright well into the next decade. Later in our prepared remarks, I'll spend some more time discussing Curtiss-Wright's opportunities for growth within those markets and we'll provide some high-level commentary on our outlook for 2026. The momentum continues to build, and the team and I are excited about the long runway ahead. With that, I'll turn to the highlights of our third quarter 2025 results. We delivered another strong operational performance with revenue and growth in operating income across all 3 segments. Overall, sales of $869 million represented an increase of 9% year-over-year, in line with our expectations and highlighted by 6% organic growth. Operating income increased 14% year-over-year, exceeding our sales growth and driving 90 basis points of overall operating margin expansion to 19.6%. This translated into a 14% year-over-year increase in diluted earnings per share. This result slightly exceeded our expectations based on improved operational performance and fewer shares outstanding. Free cash flow was $176 million, up 8% year-over-year, reflecting nearly 140% conversion due to higher cash earnings and lower tax payments while increasing growth investments in capital spending. Regarding our order book, new orders increased 8% and resulted in an overall book-to-bill, providing continued confidence in future top line growth. Starting with our A&D markets, we continue to experience strong demand for commercial aerospace products, signaling a low risk of destocking as production ramps across the major OEM platforms. In naval defense, we saw higher orders for nuclear propulsion equipment, supporting the U.S. Navy's current and next-generation submarine programs. Those increases in demand were partially offset by the timing of orders within our aerospace defense and ground defense markets where despite some delays due to the extended continuing resolution. Within our commercial markets, we experienced tremendous growth in commercial nuclear orders, including 2 new DOE-funded multiyear contracts in support of Idaho National Laboratory and other government sites. This is a small but growing opportunity, which leverages Curtiss-Wright's nuclear pedigree and broad portfolio of products and services in support of increased government focus towards commercial nuclear. We continue to experience solid demand for aftermarket equipment supporting planned outages and restarts in addition to new development contracts supporting SMRs. Overall, the continued growth in orders builds on Curtiss-Wright's already strong backlog, which is now up 14% year-to-date, reaching a new record in excess of $3.9 billion. Regarding our updated full year 2025 guidance, our strong year-to-date performance and growing backlog have provided confidence to once again raise our overall outlook for sales, operating income and earnings per share. We now expect sales to increase 10% to 11%, reflecting the strength within our A&D markets. This, in turn, supports a new range of 16% to 19% growth in operating income. We continue to expect more than 100 basis points in margin expansion and remain on track to deliver record operating margin in excess of 18.5%. Diluted EPS is now expected to grow 19% to 21%, which also includes the benefits of our increased 2025 share repurchase activity. And lastly, we maintained our free cash flow guidance while accelerating overall capital expenditures to support future growth initiatives, and we continue to expect strong free cash flow conversion exceeding 105%. In summary, Curtiss-Wright's strong year-to-date execution and demonstrated success under our Pivot to Growth strategy ensures that we remain well positioned to deliver exceptional results for the full year. Now I would like to turn the call over to Chris to provide a more in-depth review of our financials. K. Farkas: Thank you, Lynn. Turning to Slide 4. I'll begin by reviewing the key drivers of our third quarter 2025 performance. I'll start with the Aerospace & Industrial segment where overall sales increased 8%. In the segment's commercial aerospace market, growth was driven by continued strong demand supporting increased production on both narrow-body and wide-body platforms. In aerospace defense, we experienced modest growth for sensors and surface treatment services supporting both domestic and international fighter jet programs. Within the segment's ground defense market, our results reflected increased EM actuation sales supporting ground-based mobile launcher systems for the U.S. Army's IFPC program. In the general industrial market, sales were flat overall despite the ongoing macro challenges affecting global industrial vehicle markets. And turning to the segment's third quarter profitability. Operating income grew 17%, while operating margin expanded 140 basis points to 18.6%. These strong results were driven by favorable absorption on higher A&D sales, restructuring savings and a more favorable mix of business. Next, in the Defense Electronics segment, sales growth of 4% exceeded our expectations, mainly due to the timing of tactical communications equipment revenues within ground defense as some revenues and deliveries accelerated into the third quarter. Within the segment's aerospace defense market, growth for embedded computing equipment supporting European fighter jets and domestic UAV programs was partially offset by the timing of revenue on helicopter programs. Growth in the segment's naval defense market was driven by higher embedded computing equipment revenues supporting both domestic and foreign military customers. In the segment's commercial aerospace market, we once again experienced solid sales growth mainly for our flight data reports supporting the FAA's 25-hour safety mandate. Regarding the segment's operating performance, we delivered a strong operating margin of 29.2%, up 270 basis points and ahead of our expectations, reflecting favorable absorption on higher revenues, the benefits of our ongoing operational excellence initiatives and a more favorable mix of higher-margin business. Of note, this favorable mix is mainly due to the timing between the third and fourth quarters, and we expect this to normalize across the remainder of the year. Turning to the Naval & Power segment, where overall sales increased 12%. In the naval defense market, we once again experienced strong revenue growth driven by the acceleration of production on both the Columbia-class and Virginia-class submarine programs. Those gains were partially offset by lower sales within the segment's aerospace defense market based on the timing of arresting systems revenues. And as a result, as we look ahead to the fourth quarter, we now expect a strong sequential increase in revenues for arresting systems products, principally supporting international customers. In the power and process market, our results reflected yet another solid contribution from our I&C Solutions acquisition, formerly known as Ultra Energy, driving higher sales to both our commercial nuclear and process markets. On an organic basis, commercial nuclear sales grew more than 10%, reflecting the ramp-up in development across several SMR designs as well as higher government nuclear revenues. Sales in the process market were down slightly overall, but reflected modest growth in subsea pump development revenues. Regarding the segment's operating performance, operating income grew 14%, while operating margin expanded 20 basis points to 16.6%, mainly reflecting favorable absorption on higher sales, which was partially offset by higher research and development supporting next-generation SMR designs. To sum up Curtiss-Wright's third quarter results, the strong top line performance resulted in an overall operating margin of 19.6%, driving 90 basis points in operating margin expansion. Turning to our full year 2025 guidance. I'll begin on Slide 5 with our end market sales outlook, where total sales are now expected to grow 10% to 11%, driven by improved expectations for organic growth across our A&D markets. Starting in aerospace defense, our outlook of 7% to 9% sales growth remains unchanged and continues to reflect strong growth in defense electronics as well as higher sales of aircraft arresting systems equipment. Within ground defense, full year sales are now expected to grow 7% to 9% based upon increased EM actuation sales as well as higher tactical communications equipment revenues. In naval defense, while we expect a sequential decline in revenues in the fourth quarter based upon the timing of material receipts, the strong year-to-date performance on submarine platforms provides us with confidence to raise our full year sales guidance to a new range of 9% to 11%. Looking more broadly across all 3 defense markets and based upon our strong backlog supporting key platforms globally, we're well positioned for continued solid growth in these markets in 2026. Turning to commercial aerospace. Our outlook for 13% to 15% sales growth is unchanged, and we remain on track to deliver strong growth based upon both the ramp-up in OEM production as well as increased sales of flight data recorders within our Defense Electronics segment. Additionally, our order book in commercial aerospace continues to demonstrate tremendous growth, providing increased confidence in our 2025 outlook and our ability to once again deliver strong growth in this market in 2026. Wrapping up our Aerospace and Defense outlook, we now project total sales in these markets to increase 10% to 11%. Moving to our commercial markets. In power and process, despite some timing between the third and fourth quarters, our outlook for 16% to 18% sales growth remains unchanged. Of note, the continued strength of our commercial nuclear order book now provides us with increased confidence to be closer to the high end of our full year guidance range in this market. Overall, our outlook continues to reflect a combination of strong organic revenue growth as well as the contribution from I&C Solutions. And lastly, in the general industrial market, while we continue to expect flat sales in 2025, our team has done a great job positioning Curtiss-Wright to overcome the ongoing global macro challenges facing industrial vehicle markets. Wrapping up our total commercial markets, we continue to target strong full year sales growth of 9% to 11%. Moving on to our full year 2025 outlook by segment on Slide 6. I'll begin in Aerospace & Industrial, where we raised the floor of both our revenue and operating income guidance based upon the strong year-to-date performance in our A&D markets. Overall, we continue to project sales growth of 4% to 5%. Regarding the segment's profitability, we continue to project operating income growth of 6% to 9% and operating margin expansion of 30 to 60 basis points, ranging from 17.3% to 17.6%. Next, in Defense Electronics, we increased our revenue guidance to a new range of 10% to 11%, reflecting solid growth projections across all A&D markets and improved confidence as we close out the year. Regarding the segment's profitability, we now expect operating income growth of 19% to 22% and operating margin expansion of 220 to 240 basis points to a new all-time high range of 27.1% to 27.3%, reflecting more favorable absorption, the benefits of our commercial and operational excellence and mix on higher sales. At Naval & Power, we now expect sales to grow 13% to 15%, including 7% to 8% organic growth, reflecting our increased naval defense market outlook and our overall strong backlog, which provides solid long-term visibility. Regarding the segment's profitability, we raised our operating income guidance to a new range of 17% to 20% based on the higher revenue growth. However, we maintained our prior margin outlook of 16.3% to 16.5%, reflecting the increasing mix towards naval revenues. To summarize our 2025 outlook, overall, we now anticipate total Curtiss-Wright operating income to grow 16% to 19%, and we continue to expect operating margin to range from 18.5% to 18.7%, up 100 to 120 basis points. And as a reminder, we are delivering these strong results while continuing to grow our total research and development across the portfolio, positioning us for future organic growth. Continuing with our financial outlook on Slide 7. Building upon our year-to-date performance and expectations for continued strong growth in earnings, we have increased our full year adjusted diluted EPS guidance to a new range of $12.95 to $13.20 or up 19% to 21%. Note that our guidance now includes a reduction in other income due to lower year-over-year interest income resulting from the accelerated share repurchase activity, which also supports a lower share count. We also reduced the bottom end of our tax rate, which now reflects a range of 21.75% to 22% as we continue to pursue and demonstrate success in our tax optimization strategies. Overall, we remain well ahead of the EPS growth targets that we set at our May 2024 Investor Day as we continue to compound earnings at a mid-teens pace over time. And lastly, we're maintaining our free cash flow outlook and expecting to deliver record free cash flow of $520 million to $535 million, up 8% to 11%. Of note, based on the strength in earnings, we increased the low end of our expectations for operational cash flow by $10 million. That increase was equally offset by a $10 million acceleration in anticipated capital expenditures. As a result, our outlook for $85 million in capital expenditures now reflects an increase of approximately 40% year-over-year and is reflective of our ongoing investments to support near- and medium-term growth. And despite these increased investments, we continue to expect cash flow in excess of earnings and a free cash flow conversion rate of approximately 108%. Now I'd like to turn the call back over to Lynn. Lynn Bamford: Thank you, Chris. And turning to Slide 8, where I will wrap up today's prepared remarks. As we demonstrated today, we continue to build momentum and deliver consistently strong financial performance through our relentless focus on execution. As a result, we are positioned for a strong finish in 2025 with expectations to generate record full year financial results across all major metrics. As mentioned in my opening remarks, as I look to the future of Curtiss-Wright, I am excited about the positioning of our technologies across the A&D and commercial markets we serve. This position is driven by thoughtful and targeted investment to ensure that our businesses remain deeply aligned to the major near, medium and long-term growth vectors within our end markets. I would like to spend just a few of the next minutes highlighting several of those critical market dynamics that have and will continue to provide compelling upside for Curtiss-Wright well into the future. Starting in defense, we are well positioned to capitalize on the continued acceleration in global defense spending based on the accelerated pace of growth in NATO and allied funding and our strong alignment to U.S. priorities. For example, in shipbuilding, which ranks near the top of the priority list of the combined FY '26 budget and reconciliation bill, we have significant content on Columbia-class and Virginia-class submarines and the Ford Class aircraft carrier program and also continue to receive significant development funding on the next-generation SSN(X) submarine. Additionally, Curtiss-Wright's position as a mission-critical partner to the U.S. Navy has led to a meaningful increase in maritime industrial base funding, now up to $40 million and nearly double our pace entering the year for investments in capital equipment and capacity expansion to support our near- and long-term growth, and we continue to believe there's still more funding expected to come our way. Beyond the strong support for shipbuilding, I would also like to highlight our confidence in defense electronics, where we continue to maintain a leading position with the broadest and most differentiated portfolio of products and with our alignment to open standards like SOSA, MOSA and CMOSS. We are investing in and developing a broad range of technologies to support the battlefield of the future focused on the highest processing capacity, interconnect speeds and secure communications, which in turn will allow us to secure positions on a wide range of applications at the tactical edge. We also have a great opportunity to support Golden Dome. Curtiss-Wright has the potential to provide numerous solutions across our Defense Electronics segments, including embedded computing, tactical communications, tactical data links and EM actuation equipment. Elsewhere, we remain aligned with Rheinmetall to support increases in ground vehicle production throughout Europe with our Turret Drive stabilization systems, and we were pleased to recently announce Curtiss-Wright's collaboration on the prototype phase of the U.S. Army's new XM30 combat vehicle program. In commercial aerospace, we have a strong foundation with established content on every Boeing and Airbus platform and remain well positioned to support the anticipated production rate increases going forward. Beyond our existing content, we continue to address our customers' future needs through development of sensor technology in the hottest sections of the engine, EM actuation equipment and specialized coatings, all of which are yielding new opportunities for growth. And as Chris noted earlier, we are delivering improved cockpit voice recorder solutions to the market to meet FAA and EASA safety mandates for longer recording capacity. While we have yet to define the full opportunity set, this has begun to translate into meaningful revenues this year and is forecasted to accelerate over the next several years to support both retrofit and new build opportunities. Turning to our commercial markets and starting with general industrial. Despite the ongoing global macro challenges affecting the industrial vehicle market, our order book has remained generally stable over the past 12 months and actually inflected slightly higher in the third quarter, which is an encouraging sign heading into 2026. Our team has done a great job navigating the impact of tariffs, driving pricing initiatives and building upon its leadership positions to generate market share gains, which is enabling us to remain essentially flat despite the declining industry growth rates in this market. In the process market, we continue to drive innovation and diversification of our critical valve technologies to position the business to support future growth segments, such as the LNG market, which is expected to experience a significant surge in production by the end of this decade. In addition, we are developing applications to drive enormous value and savings to customers that operate deep sea drilling and offshore production facilities. Our first subsea pump was delivered to Shell in the third quarter, while our development testing and support activities with Petrobras and others continue to progress. Through the advancement of this new technology, we have an opportunity to win significant new business by the end of this decade. Lastly, turning to commercial nuclear, which continues to play an important role in meeting future energy demand. Curtiss-Wright is very well positioned to support the strong growth anticipated to drive this market over the next 25-plus years. Our technologies are aligned to support the entire life cycle, both in new build from AP1000 reactors to small modular reactors and in our growing global support in the aftermarket. Our opportunity to reach our Investor Day objectives has been reinforced by the administration's focus on nuclear as a matter of national security. In addition, it is encouraging to see more and more technology companies address their base node power needs and support future data centers through nuclear power. Adding to that, while we have been seeing continued progress from Poland and Bulgaria and other European countries to build new 1 gigawatt plants, private enterprises such as Fermi in Texas have raised the possibility of beginning construction on new AP1000 plants within the next 12 to 18 months. As a result, we see the potential for significant orders supporting AP1000 reactors likely as soon as 2026. This, in turn, provides us with increased confidence in our ability to meet our 2028 target to double our 2023 revenue base in this market and then generate more than $1.5 billion in annual commercial nuclear revenues by the middle of the next decade. The momentum and pace of activity continue to grow. Overall, looking across all our end markets, these are just a few of the many examples highlighting the alignment of our technology to strong positive market growth vectors that are driving confidence in our outlook for 2026 and beyond. Next, I wanted to share a few comments on the topic of capital allocation and highlight our third quarter announcements regarding the acceleration and timing of our share repurchase activity. In May, the Board approved a $400 million increase in our share repurchase authorization, reflecting their confidence in the company's strong free cash flow generation and the momentum we are building in the Pivot to Growth strategy. Subsequently, in August and then again in September, the Board approved our request for 2 separate $200 million expansions of our 2025 share buyback program. As a result, we now anticipate a record of more than $450 million in share repurchases this year. We continue to see the value in our stock price relative to the strong growth and earnings potential in front of Curtiss-Wright. Aside from share repurchases, our record free cash flow generation and efficient balance sheet continue to provide flexibility to enable future growth under our strategy, including ongoing investments in R&D, talent and systems as well as acquisitions, which remains our top priority beyond fueling the core. Lastly, to conclude our prepared remarks, overall, we remain on track to exceed the 3-year objectives provided at last year's Investor Day. Note that these targets exclude an AP1000 order, which, as we mentioned earlier, is anticipated in 2026. As we look ahead to next year and beyond, the strength of our order book, expanding positions across our end markets and the contributions from our capital allocation strategy ensure that we are well positioned for continued profitable growth well into the future. In 2026, we are targeting solid top line growth in each of our 3 segments and continued operating margin expansion while increasing investments in research and development. In summary, we are executing on our Pivot to Growth strategy by compounding earnings at a mid-teens pace and delivering consistent financial performance across all major metrics. Momentum continues to build at Curtiss-Wright, and we remain committed to driving our business to new heights and delivering exceptional results for our shareholders. Thank you. And at this time, I would like to open up today's conference call for questions. Operator: [Operator Instructions] Our first question is coming from Myles Walton with Wolfe Research. Myles Walton: Lynn, I was wondering if you could pick up where you left off on the AP1000 and maybe speak to the shipset content that you have currently on that reactor. I've classically thought about it as $30 million for reactor coolant pumps. But is the complement of your work scope improving there, increasing? Maybe just to level set us. Lynn Bamford: Thank you. It's a timely question as we've been really looking into this and making sure we're appreciating the full range of content we have. And you start out with the RCP, the last time they were sold was just over $28 million per RCP. So you're in line with what you're thinking there. I'm really pleased, we've made some rough comments on this in the past, we've historically said our content on top of the RCPs is $10 million to $20 million of content. And the team is doing a really good job of increasing that incremental content. I think 2, 3x from what we had prior had is what today is in play for Curtiss-Wright. These are ongoing pursuits. So nothing is assured yet. But I do think we are going to really add meaningful business on top of the RCPs to the content we have for AP1000 plant. Myles Walton: Okay. Great. And then just a follow-up, if I could, on the bookings. Could you provide that by segment? And Defense Electronics, in particular, did that bounce back? And is there any concern on the government shutdown? Lynn Bamford: So maybe I'll start with a little color on bookings and then maybe Chris can walk through a little bit more of the specifics after that. So broadly speaking, good quarter, 1.1x book-to-bill. But the government shutdown and CR and now shutdown is having some impact on portions of our business. Our largest end market, the naval defense market, there really hasn't been much disruption. Our year-to-date results and especially the growth in submarine programs are very strong. We work on large multiyear contracts. And so that portion of the business has not been very affected. The most prominent impact within our order book has been in the Defense Electronics segment, where the team has identified over $50 million of orders that have pushed out of Q3 during the CR. And so this is definitely something that we're very closely tracking. We feel very confident none of this business has gone away. The guys in the field talk to the customers, and it's really a matter of being able to process this business that the pipeline of business across defense electronics is healthy and growing. And there's a lot of things -- I want to take the time to just talk on a couple of things that we're doing that is -- gives understanding as to why we are able to grow the pipeline of business for this so much. And the things that have kind of come up, but just to touch on them briefly. We are confident we have the strongest MOSA, SOSA, CMOSS aligned offering in the marketplace. And this year alone, we've introduced 20 -- over 20 new product introductions into this family of products, which is a very strong contribution out of the team and something we're really proud of. We have talked about our NVIDIA partnership that we are now delivering NVIDIA-based products at the GTC show just a little while back, we were the only company to demo a CMOSS-based Blackwell processor. So again, that's something very special to Curtiss-Wright. Our Fabric100, which is the highest speed interconnect available in the marketplace is out and helping really provide a very unique differentiator for Curtiss-Wright and our ability to provide solutions at that tactical edge. But we're also doing things that we also are continuously looking at new capabilities that widen the application space where we can sell our products to keep pushing those walls out. And to name just one, we recently achieved Microsoft Azure validated across several of our small form factor products. And that means these products have been added to the Microsoft Azure local or catalog, which obviously has a huge customer reach. And so that's something we're very excited about. And again, another notable capability of taking cloud applications to the tactical edge. So I list those to say these are the types of things the team is always doing that is ensuring that, that pipeline is healthy and growth in spite of the fact we did see the pushout in Q3. So Chris, I don't know if you want to add some color on the segments. K. Farkas: Sure. Yes. Let me try to jump into some of the numbers here, Myles. And I think it's important to note, I think, as you look at the overall orders and what's been happening for Curtiss-Wright, that we had a very strong first half in naval bookings. The first thing is if you just remove that off the table, we have seen sequential growth in our orders since Q1, and that includes Defense Electronics. So important to kind of pull that out. The Q3 book-to-bill was about 1.1x, and that was on 9% sales growth. We had a 1x book-to-bill in aerospace and defense, and we had a 1.2x in commercial. So the orders were up 8% year-over-year and the backlog was up 14%. We're at a record backlog right now at $3.9 billion. Diving into the segments and just the book-to-bill for the quarter, we were about 1.04 on Aerospace & Industrial, and we were about 1.14 in Naval & Power. We talked about the strength of the commercial aerospace orders and the nuclear orders on the call. But to dive into Defense Electronics, maybe just a little bit more on that topic. The order book did improve sequentially here in the third quarter. As Lynn had mentioned, the pushouts had affected that. It was a 1x book-to-bill. Had we not had the pushouts, we're confident that it would have been 1.1x book-to-bill. The backlog in that segment is up 3%. Strong revenue growth of 10%. It's above the prior year September backlog number. But the book-to-bill has been holding steady at 1x. So as we look ahead, I mean, right now, we're assuming that the shutdown is going to get resolved here in mid-November. We believe that once that gets resolved, it's a 30- to 45-day turnaround time before orders begin to resume a more normal flow. But fortunately, for us, the businesses that are most impacted are generally short cycle in nature, and we would expect to recover very quickly. So I think it's important to note that there's nothing that's affecting our 2025 guidance. Lynn mentioned the pipeline is strong. We have good confidence levels in 2026 and strong alignment to the customers' priorities. next year's defense spending between the budget and the reconciliation bill are up 13%. So we see positivity as we look out into the future. We just need these guys to come to agreement in the meantime. Myles Walton: That's great. And Lynn, I'm sorry, just to clarify on your prior AP1000 comment, is the $10 million to $20 million of incremental content on AP1000, is that a historical benchmark of which I should think about it's grown 2 or 3x? Or is that the current benchmark? Lynn Bamford: No, that's the historical benchmark, Myles, that we had back in the mid-teens. Operator: And we'll go next to the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: And maybe following up on Myles' question on the AP1000 pricing. I just want to make sure we get it right. When -- I mean in the past, when you guys looked at your content, so each cooling tower used to be like $250 million roughly. And then so a build with a twin towers would be about $500 million. And I think the Poland one, they're doing triplets. So that would be $750 million. So the numbers that you're saying incremental to that, the 2x, 3x, is that off of that specific base? Or are we talking about the initial U.S. order from 2007, which is a much lower amount? Lynn Bamford: So maybe just to back up a second. And if you look in our -- like even in our Investor Day briefing from last year, we think of as a plant, which has 4 RCPs, and that's how we've -- when we talk about our revenue per plant, that's the framework for it. We talked about we have $110-plus million of revenue per plant. So Poland is talking about building 6 plants. Bulgaria is talking about building 2 plants. Fermi is talking about building 4 plants. So that's just to keep the terminology because it's easy to get confused between the RCPs versus the plants and such. And so having that as a baseline, prior, we had the RCPs and about $10 million to $20 million of content per plant. And that is the area where we've been working very purposely to see where else we can supply Westinghouse as a supplier to them and engaging with them on different work scopes. And at this time, it looks like we are targeting taking that incremental on top of the RCP's content, that $10 million to $20 million and doubling it or tripling it. And it's still a work in progress as they're still working through their supply chain things, and we're just trying to be there and support them as much as we can to make them successful. So pretty excited that, that would be pushing that content per plant up into the mid-100s for sure. Kristine Liwag: Got you. That makes sense. And maybe digging more into this on AP1000, I mean, it looks since your Investor Day last year, and we've seen a lot more support for U.S. large nuclear power plant builds. And so we've seen the support of executive orders from the White House. But then also last week, we saw Cameco and Brookfield established a transformational partnership with the U.S. government to accelerate deployment of Westinghouse nuclear reactors. I was wondering, can you give us more color regarding the potential of the U.S. market and the timing? And also following up on the expected order that you have for 2026, are you expecting a Poland order and the U.S. order? Or is that just Poland and Bulgaria? Lynn Bamford: Yes. So we work very closely with Westinghouse to try and -- I mean, this is a fast-moving market, and that announcement was, a, just fantastic to see because it's really the money that needs to really get this machine running. So we are very excited to see that partnership get announced. And then there was also the announcement with Japan of putting some money into building nuclear in the U.S. And all these things are sort of taking form, but 2 separate pretty positive announcements in October relative to that. So really, what's in the public knowledge is funding for these 10 plants, how the Japan money overlaps with that, I don't think there's a clear vision of it. And we have some insights from Westinghouse, but really sticking to what's in the public eye. We're focused on those first 10 plants, which is great. And so today, the team still does believe the first order we get will be driven by the Poland opportunity, although Bulgaria is right there with it. And the thinking is those will be ahead of the U.S. But how this billion, which is targeted at long lead material types of expenditures is going to play out. That still needs to take some form. But -- so whether that happens in 2026 is very much TBD. I wouldn't foreshadow that yet at this point. But we do feel good overall about getting our first order in 2026, and the team is doing a lot of work to get ready for it and to think through the various ramp scenarios with this accelerated activity in the U.S. and then what's going on elsewhere, along with -- it's exciting that our work on our SMR opportunities continues to grow and move towards prototyping, too. So the team is busy. I'll leave it at that. Kristine Liwag: Yes. I mean it seems like when it rains, it pours. And so can you just remind us, Lynn, what your capacity is to build an AP1000, especially because, right, the U.S. Navy content is also increasing. So just trying to understand what could you produce in a given year? And you had called out elevated CapEx this year or next year. What is that supporting? Is this in anticipation of commercial nuclear power or the opportunities in the other segments that you had highlighted? Lynn Bamford: Yes. So we think of our capacity as 12 to 16 reactors per year. But again, that needs dovetailed exactly as you just said, with the naval work. And I will say the team is committed from a CapEx standpoint to our Investor Day targets of 105% free cash flow conversion. And we increased our CapEx spending both last year and this year by 30% each year. And a lot of that is geared around preparing for expansion in this space and the $10 million that Chris spoke of in his prepared remarks is geared at expansion capabilities tied to nuclear. And so how -- what we need to be prepared for to support Westinghouse is a very active discussion with them. But we're trying to make sure we're doing the things that were ahead of it. and prepared to support them and that $10 million is part of us getting ahead of it. Operator: And we'll take our next question from Peter Arment with Baird. Peter Arment: Nice results. Chris, maybe just to stay on the theme of AP1000. If you get an order in 2026, maybe could you just give us a high level how quickly you begin to recognize revenues on that? I remember back with the China direct order, how that all works back in the day, but maybe just to level set us on how quickly that begins to flow through on the financials? And then I have a follow-up. K. Farkas: Yes, sure. I think we've had a lot of discussion on the call today regarding reactor coolant pumps and then other content, and I'll focus on the reactor coolant pumps to begin with. When we get that first order, I think a lot of it is going to depend upon the timing of receipts and long lead materials and how quickly we can get that in the door. Lynn has talked about the fact that we're in active discussions with our customer regarding capacity and how to accelerate potentially some of those flows. So as you look at the receipt of the order, it's going to be under POC accounting. And typically, in the past, it was maybe a 5-year bell curve. I think the China contract went out 7 years because their schedule was delayed. But with this flood of activity that we're seeing here, I could see that be accelerated into a tighter window than a 5-year period of recognition. So again, a lot is going to depend upon the timing of the material receipts and then the labor that kind of follows that. But there would be some revenue recognition upfront to 2026, but then it would quickly accelerate in 2027. When we talk about this extra or the other product that kind of can go into the AP1000 power plants, a lot of that won't be long lead material type items. You've got to get some of that bigger stuff into the plant first. So I would expect that to be recognized a little bit further towards the back end of the bell curve, but certainly an opportunity for us as well. Peter Arment: I appreciate that color. And then just, Lynn, on the, I guess, near term more when you think about your targets that you put out there for a doubling of the business by 2028, did you contemplate a lot of these restarts that we're seeing, whether it's Palisades or Three Mile Island or some of the others when you were thinking about that planning just because it seems like that is, again, an incremental tailwind to all things else nuclear. Lynn Bamford: Yes. I mean that was -- there might have been talk about it, but that was not on the table at a level that we would have had that in how we put together our targets. So there's a lot of things -- a lot of good things have happened since we put our targets out. Just 15 months ago, 18 months ago, however long it was, it's amazing how the industry has come alive. And announcements around Europe, the GBN announcement with picking Rolls-Royce. I mean, there's just -- there's a lot of things that are incrementally happening. But you're right, that is new. K. Farkas: Yes. This whole AI wave has been something that's been new for us as well. That's a lot of positive momentum. And I would just remind the listeners is you go back and look at what we provided at Investor Day, and we said we would be doing $1.5 billion in annual commercial nuclear revenue by the middle of this next decade, that really only contemplated the European opportunity at that point in time. So I know we're still several years away from that in the middle of this next decade, but we feel much stronger and more confident in the art of the possible as it was labeled at that point than we did back in May. Operator: And we'll go next to Scott Deuschle with Deutsche Bank. Scott Deuschle: Lynn, are you seeing meaningful retrofit demand for the 25-hour flight data recorder yet? Or is it primarily only OEM demand at this point? And then how should we think about the retrofit gross margins on that product relative to the OE gross margins? Lynn Bamford: So it is a blend, but a lot of the retrofit is, I think, staging of material to prepare for the retrofit more than the actual retrofits is our understanding with dealing with our customer that is Honeywell. And so I think that's very much another layer that's ahead of us as this market -- we just have continued to say it's going to continue to grow through the back half of the year as that comes to reality. But it's not even just the retrofit market, it is also we are working with Honeywell to figure out how we would have an appropriate product offering that would target the regional jets that are over 30 seats that are also part of this mandate. Those are obviously big, big numbers. And our work with Airbus continues on in a positive manner, and we think we will receive certification in the first half of 2026. And then we need to see how our production ramps with those. So we've really not given a 10-year view of revenue on this program yet because there are still a lot of moving parts that are taking form and really how this retrofit is going to take place is -- it's still a little bit of a work in progress. And really, we haven't given much color on the shipset content nor the margin on this for the OEM or the production. But I will say it's inside of our Defense Electronics segment, as you know, and we like the products we produce to support the margins in the segments. Scott Deuschle: Okay. And then, Lynn, can you give an update on the state of the M&A pipeline and how we might think about the opportunity for a reacceleration in M&A activity in 2026? Lynn Bamford: Yes. So I mean, it's -- we're not bashful about saying it's our top priority, and the team is definitely out there. We have some -- a couple of properties that we are having discussions with that are more ones that I like when we work with somebody possibly to come join Curtiss-Wright in a proprietary fashion more than we're in an auction. But I know some people have noted we've kind of acted that there was more excitement and then not announced anything over the past earlier part of 2026. I do remind everybody, we only closed on Ultra, I&C at the end of last year, changed by terminology at the end of last year. So that's going great. But we do have some properties we're looking at that are very strategic in nature for how they would add to our portfolio, and there's still a lot of focus on it. But strategic fit and financial fit. We're not going to overpay for a property. And some of the things that we thought were strategic fits, just the price tag, I just -- I don't think it would create value for our shareholders, and we're not going to do it if it won't. Operator: [Operator Instructions] We'll take our next question from Nathan Jones with Stifel. Nathan Jones: I guess I'll ask you a non-nuclear question. You talked about a stabilization in industrial vehicles and maybe a little bit of a positive inflection in orders during the quarter. So maybe just a little bit more color on regions, geographies or end markets that might be driving that improvement or any color you've got for us there? K. Farkas: Yes. So I'll start out. I mean, obviously, it's been a very challenging situation for industrial vehicle markets as a whole. And the team has been doing a great job at staying above that and flat for the year. I think as we position ourselves for this next year and look forward, while we do recognize that the North American on-highway markets are going to continue to be challenged, we do feel that there are some opportunities in pockets in Europe as the team continues to try to expand its customer and market reach in a few areas. But the team is doing -- we're seeing some good signs within the order book. We actually had an improvement here in the third quarter that was roughly 4% year-over-year. And again, I'm sometimes reluctant to talk about these data points that are hot off the presses, but we're we had a very strong October. And that's a real positive kind of a standout month over the past few years. And with the conversations that we're having with some of our customers, we feel like we're positioning ourselves for a very strong fourth quarter. So I don't want to diminish the fact that there will be challenges again for this market in '26. We expect uplift in '27. But the team is doing a great job, and they continue to kind of push the boundaries to gain more share. Nathan Jones: Then maybe one just on -- following up on the government shutdown potential impact. I think historically, that's when we've had these kinds of disruption, it tends to make the Defense Electronics business, especially maybe a little more second half weighted once it gets resolved. But I think, Chris, you were talking about some of the delays being more on the short-cycle side. So maybe just any color you can give us on expected cadence through the year in 2026 relative to historical patterns just based on what's happened so far and what you know so far? K. Farkas: Yes. So we have been very focused over the past few years of trying to make the fourth quarter less dramatic. And I think as you look at what's happening here in the fourth quarter, we've got very strong backlog. We raised the bottom end of our guidance here to show a little bit of increased confidence as we go to close out the year in 2025. But to the extent that the government shutdown continues and we have delays in the receipt of those orders, yes, it will take a little bit of time to kind of pick back up. So I'm assuming that there will be a little bit more pressure on Q1 at this point in time than there would historically and that, that will force us to be a little bit more back half weighted. But we are confident in the orders that are out there and coming our way, and we'll cautiously balance that against things like advanced buys and other positions in inventory that will help us to kind of recover and deliver those revenues to our customers as fast as possible because I know that they want the orders, they want the part, they're equally disappointed with what's happening here right now. So I would expect there to be a little bit of pressure on Q1, but then we will recover over the course of the year, and we'll continue to try to keep the fourth quarter from being a dramatic data point. Operator: And we'll go next to Pete Skibitski with Alembic Global. Peter Skibitski: Nice quarter. I wanted to ask specifically about the Switzerland business and defense electronics, the Turret Drive stabilization business because it seems like some of your key customers like Rheinmetall, for instance, are getting a good amount of new orders for ground vehicles. So I just wonder if you could talk to kind of the visibility in that business. It seems like the growth outlook could maybe even outperform your -- the rest of that segment. So I was wondering if you could talk that through with us. And maybe valid also, I'm assuming that unit doesn't use commercial pricing unlike some of the rest of DE. Maybe you can clarify that as well. Lynn Bamford: So this is just to put the nature on the team and they have been part of Curtiss-Wright for several decades. It's had periods of strength years gone by. We talked about the Kingdom of Saudi Arabia program about a decade ago when it was on a growth trajectory. And prior to the Ukraine war and such, it had been a very slow growth portion of our business. We expected it to pick up when -- I think when Europe woke up and realized what they had for militarized vehicles. And it has been slower than we thought, but it's pretty exciting that it does feel like it has turned the corner and those orders are going to deliver. And we have a very good relationship with Rheinmetall and their strategic partner for turret drive stabilization. It was nice -- I mentioned in the prepared remarks, the win for the XM30. So that's a first for them getting outside of the European market. But Germany is kind of leading the charge of being committed to ramping their vehicles, and we're very much aligned with them to be participation of that. So I don't think it's appropriate really to talk about the pricing at this point. They're not subject to the far, obviously. And the product does have applicability into some commercial markets outside of defense. We sell it into tilting trains and a couple of other end markets. So there is a commercial capability, but I'll just leave it at that. Operator: And we'll take our next question from Tony Bancroft with Gabelli Funds. George Bancroft: Congratulations, Lynn, Chris and Jim, great numbers and great job doing -- managing this. I just had a bigger picture here. You have 4 businesses that have very strong growth outlooks going forward, a lot of secular tailwinds for the long term. And you've talked about M&A relighting. Can you just maybe sort of just very high level, walk me through -- these are 4 big opportunities. How do you see you prioritize them? I mean you only have so much CapEx that you can probably do and reinvesting in the business. Can you sort of prioritize those for me? Lynn Bamford: So I think we've been pretty transparent that our CapEx allocation and acquisition focuses over the recent past have been around our aerospace and defense and commercial nuclear markets. And those are priorities for the company in places where we see really strong growth, really differentiated technologies. But I think one of the things we always remind people of you take just, for example, pick one thing randomly, the electromechanical actuation capability that goes into industrial markets. It also is the same capability, engineering teams, manufacturing floors that builds this for the aerospace and defense market. So even though our business lays on paper as if it has these different buckets and there's isolated pieces, from an engineering capability, manufacturing standpoint, our businesses are intertwined across those end markets. And it's something we're proud of and pursue that we've always believed that investing in a technology once and taking it to different end markets is part of how Curtiss-Wright has achieved the margin expansion we've achieved over the past years. And the latest very visible example of that is the flight data recorder technology that was developed over decades ago for defense applications and now has this fantastic foothold in the commercial application. So I know I didn't really directly answer your question, but it's hard because the -- I see a business and I see it going across many of our end markets. They're not just like I can look at that business over there and that business over there and say it's just serving one of the end markets. Operator: And we do have another question. We'll go to Alexandra Mandery with Truist Securities. Alexandra Eleni Mandery: This is Alexandra Mandery on for Michael Ciarmoli with Truist Securities. How are you guys thinking about 2026 in terms of growth trajectory for end markets and margin expansion? Lynn Bamford: So I touched a little bit on 2026 in the prepared remarks that we feel good about driving growth across all 3 of the segments. So that's really positive. There's -- I try to talk about with some of the things that are going on in those closing remarks of what are the market dynamics, what are our technologies that support you can look at things in the industry, whether it's the growth rates in commercial aerospace that Boeing and Airbus are talking about the defense spending to all things nuclear is sort of the ones that are top of everyone's minds that will support that growth into 2026. We do believe we'll be well ahead of our 2024 Investor Day targets really down the line. And we're committed to driving operating margin expansion faster than cash, and we'll be giving more specific guide, obviously, on 2026 when we close out the year and have our Q1 call. K. Farkas: So I would just say, I hope we were able to kind of project some of that confidence in the script today. We -- in the areas that we kind of called out. We're excited for what's happening now and as we look out into the future. Operator: At this time, there are no further questions in queue. And I would like to turn the floor back over to Lynn Bamford, Chair and Chief Executive Officer for additional or closing remarks. Lynn Bamford: Thank you, everybody, for joining us today, and we look forward to speaking with you possibly on the road or with our Q4 results out in the beginning of 2026. So have a good day. Operator: Thank you. This concludes today's Curtiss-Wright earnings conference call. Please disconnect your line at this time, and have a wonderful day.
Operator: Hello, and welcome to the National Fuel Gas Company Fourth Quarter and Full Year Fiscal 2025 Earnings Call. My name is Harry, and I'll be your operator today. [Operator Instructions] I would now like to hand the conference over to Natalie Fischer, Director of Investor Relations. Please go ahead. Natalie Fischer: Thank you, Harry, and good morning. We appreciate you joining us on today's conference call for a discussion of last evening's earnings release. With us on the call from National Fuel Gas Company are Dave Bauer, President and Chief Executive Officer; Tim Silverstein, Treasurer and Chief Financial Officer; and Justin Loweth, President of Seneca Resources and National Fuel Midstream. At the end of today's prepared remarks, we will open the discussion to questions. The fourth quarter and full year fiscal 2025 earnings release and November investor presentation have been posted on our Investor Relations website. We may refer to these materials during today's call. We'd like to remind you that today's teleconference will contain forward-looking statements. While National Fuel's expectations, beliefs and projections are made in good faith and are believed to have a reasonable basis, actual results may differ materially. These statements speak only as of the date on which they are made, and you may refer to last evening's earnings release for a listing of certain specific risk factors. With that, I'll turn it over to Dave. David Bauer: Thank you, Natalie. Good morning, everyone. As we reported in last night's release, National Fuel had a great fourth quarter with adjusted earnings per share of $1.22, an increase of 58% from last year. The quarter capped an excellent fiscal year where each of our segments delivered meaningful growth. On a consolidated basis, adjusted earnings per share increased 38% compared to fiscal 2024. At our integrated Upstream and Gathering businesses, we continued our impressive trend in capital efficiency, a trend that is unmatched by our Appalachian peers and perhaps across the industry. Since we began our EDA transition in mid-2023, we've grown production by approximately 20% while reducing our overall capital spending by 15%, which is a testament to both the quality of our Tioga County assets and our team's dedication to operational improvement and execution. Given the productivity of our acreage and the depth of our inventory, I fully expect our capital efficiency will continue to improve in the coming years. To that end, last night, we announced a significant expansion of our Tioga County inventory, adding approximately 220 prospective well locations in the Upper Utica formation. Over the past few years, we've been testing this horizon across our Tioga acreage and the strong performance from the 4 highly productive wells turned in line to date in the Upper Utica give us the confidence to increase our inventory in this area. The addition of Upper Utica locations nearly doubles our inventory in the EDA. At our current pace, we now have almost 20 years of development locations that are economic at NYMEX prices below $2 per MMBtu. As we've discussed in the past, another key driver for future growth at Seneca is additional firm transportation and firm sales to ensure we have an end market for our production. Consistent with that objective, in September, we signed a proceeding agreement with a third-party pipeline that will provide us with an additional 250 million a day of takeaway capacity out of Tioga County starting in late 2028. This new capacity, along with the Tioga Pathway project that should come online in late 2026, underpins the mid-single-digit production growth we've been signaling for the past year or so. Justin will have a full update on Seneca later in the call. Turning to our regulated operations. Momentum continues to build at Supply Corporation, which has 2 great growth opportunities in progress. First is the Tioga Pathway project for Seneca that I just mentioned. Development of that project remains on schedule. We received our certificate in May and are on track for a spring construction start. Second is the Shipping Port lateral off of our Line N system in Western Pennsylvania. Supply Corp made its prior notice filing in late August, and we expect to receive FERC authorization in the coming weeks. In addition, we recently ordered the key materials and awarded the construction contract for the project, keeping us on schedule for a fall 2026 in-service date. As a reminder, this $57 million data center-driven project will create 205 million a day of new delivery capacity and generate $15 million in annual revenue. As I've said on prior calls, I'm optimistic that we can provide additional transportation capacity to the Shipping Port site as it advances its development. The potential for pipeline expansion doesn't end with shipping port. We're in dialogue with multiple parties on expansion projects across our system. Our unique portfolio of pipelines in the Appalachian producing region are well positioned to provide speed to market for potential data centers. Our interconnectivity with numerous long-haul pipelines and our significant experience in developing and constructing infrastructure in the region are competitive advantages that position us well to deliver projects on an accelerated time frame. I'm confident we'll have additional such projects in the years to come. Switching to our utility business. As we announced a few weeks ago, we've entered into a definitive agreement with CenterPoint to acquire their Ohio Gas LDC. At closing, this highly strategic acquisition will double our utility rate base, add significant customers in a state that is supportive of natural gas and provide us with another opportunity to recycle the substantial free cash flow from our Upstream and Gathering businesses into an enterprise that adds both scale and future earnings. We're excited about this transaction and the value creation potential that it offers. The assets are high quality and have a strong outlook for continued rate base growth. Further, they're operated by a talented workforce that will be a great fit with National Fuel. We had the chance to meet most of the Ohio team last week, and it was clear that they share our dedication to safe and reliable natural gas service. We look forward to working with CenterPoint to ensure a seamless integration of the Ohio assets into the National Fuel organization. Before closing, a quick word on energy policy in New York State, where the momentum towards an all-of-the-above approach to energy continues to build. In both public statements and publications like the draft State Energy Plan, elected officials and policymakers are at last beginning to acknowledge the importance of natural gas as a reliable and affordable source of energy that supports economic development in the state. They readily admit New York won't meet the Climate Act goals on the time frame originally required and have even seen fit to suggest that lawmakers modify the Climate Act in the months to come. From the beginning, we've advocated an all of-the-above approach to energy, and I'm confident that policymakers will ultimately reach that conclusion as well. In closing, fiscal 2025 was a terrific year for National Fuel. Our financial results were the best in the company's history. And perhaps more importantly, we took actions across each of our businesses that lay the foundation for long-term growth and continued operational excellence. The outlook for the company is as strong as it's ever been, and I'm excited to execute upon our strategy in the years to come. With that, I'll turn the call over to Tim. Timothy Silverstein: Thanks, Dave, and good morning, everyone. We ended fiscal 2025 with a strong fourth quarter. As Dave highlighted, adjusted earnings per share increased 58% from the prior year, driven primarily by excellent results in our Upstream and Gathering operations. For the quarter, production increased 21% from the prior year as Tioga Utica well performance exceeded our expectations. In addition, our realized price after hedging increased by 9% on the back of improved commodity prices, while total per unit operating expenses were lower. Altogether, adjusted earnings per share in our integrated Upstream and Gathering business increased 70% year-over-year. These great results were also supported by continued operational excellence in our regulated businesses, where lower-than-expected expenses led us to beat our projections. Before I discuss our outlook for the business, I want to highlight a change in our segment reporting structure. Historically, we've reported our Exploration and Production and Gathering segments separately. We've streamlined our financial reporting by combining those 2 segments into one, which we are calling our Integrated Upstream and Gathering segment. We believe this approach best aligns with how we make capital allocation decisions, how we think about the integrated cost structure benefits and how we will continue to manage the businesses going forward. Shifting to fiscal 2026. All of our underlying operating assumptions and capital spending ranges remain consistent with last quarter's guidance initiation. Over the past few weeks, NYMEX prices have averaged approximately $3.75. So we are using that assumption to initiate formal guidance. At that price, adjusted earnings are expected to be within the range of $7.60 to $8.10 per share. As you may recall, with the natural gas price volatility we saw over the summer, we provided preliminary EPS guidance at various NYMEX prices. Volatility on the front end of the curve remains, so we're sticking with the same approach. While prices move around in the near term, the long-term outlook remains strong, and we've continued to lock in additional hedges to protect earnings and cash flows at prices that are highly economic for our development program. We've modestly added to our fiscal 2026 position and now sit at 65% hedged with a base of NYMEX swaps at an average price of approximately $4 and a similar level of collars with an average floor of $3.60 and cap of $4.80. More recently, we've been focused on fiscal 2027 and 2028, where we've added a number of swaps north of $4 and collars with floors in the mid- to high $3 area. At these prices, we generate strong returns and free cash flow, while the collars allow us to capture upside potential to prices. Sticking with free cash flow, at our current NYMEX assumption, we expect to generate $300 million to $350 million in fiscal 2026. This is well in excess of what we generated last year. In addition to fully covering our dividend, the additional cash will be directed to further strengthen our balance sheet as we move towards the closing of our Ohio Gas utility acquisition in the fourth quarter of calendar 2026. Notably, we are able to generate this level of free cash flow while increasing the amount of growth spending during the year. As a reminder, capital expenditures are expected to increase approximately 10% from fiscal 2025, driven principally by growth-related spending on our Tioga Pathway and Shipping Port lateral pipeline projects. In addition to the revenue from these projects, which is expected to total approximately $30 million annually starting in early fiscal '27, we also expect to see an increase in earnings from rate cases that we plan to file. First, Supply Corporation is targeting a FERC rate case in the second half of the fiscal year. As you may recall, we reached a settlement on our last rate case and new rates went into effect in February 2024. We did not agree to any stay-out provision as part of the settlement. We've seen a continued need to invest in modernization to maintain the safety and reliability of our system and have also seen the ongoing impacts of inflation. This puts us in a position to seek an increase in our rates to account for those impacts and ensure we earn an adequate return for our shareholders. We are also likely to file a rate case in our Pennsylvania utility division this fiscal year. Our last rate settlement was in 2023, and we've done a good job over the past 2 years controlling costs and deploying capital in line with our modernization tracker. However, we expect to exceed the revenue cap on this tracker in early fiscal 2027, and therefore, plan to file for a base rate increase in advance of that to achieve timely rate relief. Looking at this in total, our 2026 consolidated earnings per share guidance represents a solid 14% growth at the midpoint. With additional growth expected in fiscal '27, we remain on track to comfortably exceed our multiyear earnings guidance we initiated last year. While our outlook for organic growth remains strong, we expect a further benefit when we close on the acquisition of CenterPoint's Ohio Gas utility. The significant scale provided by this acquisition will enhance our long-term outlook for regulated earnings growth. We're excited about this opportunity and in the near term, are focused on working through the regulatory approval process, which we expect to kick off early next year. Over the past few weeks, we've also made progress on the financing front with the successful syndication of our bridge facility. We had overwhelming support from our bank group. As a result, we bifurcated the initial bridge into 2 components. The first is a 364-day term loan commitment and an amount equivalent to the proceeds due at closing. Funds, if needed, wouldn't be received until closing, and we would have 364 days from that point to repay. Relative to a traditional bridge facility, this structure reduces our costs and provides additional optionality around the execution of our permanent financing strategy. Second, we will also maintain the traditional bridge facility that aligns with the size and maturity of the promissory note that will be issued to CenterPoint. With the syndication process behind us, we will move into executing our permanent financing strategy, which we expect to commence in the spring. Bringing it all together, this is an exciting time for National Fuel. Our underlying business is very strong. Our industry is flourishing, which creates great opportunities across each of our businesses. Our balance sheet is in great shape and the acquisition of CenterPoint's Ohio Gas utility provides an additional avenue to reinvest free cash flow into rate base growth. We expect to be able to drive meaningful growth in earnings per share over the long term, supporting our commitment to returning capital to shareholders via our growing dividend. We are excited about the future of our industry and the growing role National Fuel will play within it. With that, I'll turn the call over to Justin. Justin Loweth: Thank you, Tim, and good morning, everyone. As Dave mentioned earlier, fiscal '25 marked another year of strong operational and financial performance for our integrated Upstream and Gathering business. We grew our [indiscernible] reserve base to nearly 5 Tcfe and achieved record net production of 427 Bcfe, surpassing the high end of guidance and growing 9% year-over-year. This meaningful growth was achieved with capital expenditures of $605 million. A reduction of approximately $35 million from the prior year. Since 2023, we've achieved a 30% improvement in capital efficiency, highlighting the strength of our asset base, the effectiveness of our development strategy and our strong operational execution. And we expect this capital efficiency trend to continue to improve in the years ahead. Beyond capital efficiency improvements, over the past year, we've made substantial strides in further increasing our peer-leading inventory depth. As noted in last evening's earnings release and our updated investor presentation, we've significantly increased our core Tioga Utica development inventory. Our delineation efforts have unlocked additional resource potential in the Upper Utica, a distinct zone separated by a large frac barrier from the Lower Utica. We currently have 4 producing Upper Utica wells, each of which was codeveloped on a pad with lower Utica development wells, which allowed us to delineate a large swath of acreage over a multiyear period. As such, we have significant production history and all wells have demonstrated productivity on par with our Gen 3 Lower Utica wells. This successful appraisal campaign more than doubles our Tioga Utica inventory to approximately 400 future development locations. We estimate net recoverable gas from the future Tioga Utica development of over 10 Tcf, underpinned by an approximately 300-foot Utica resource column. In addition, we have approximately 60 Marcellus locations in Tioga and Lycoming counties. Combined, we now have almost 2 decades of core EDA development inventory with breakevens below $2 NYMEX, a depth of high-quality core inventory that is unmatched by our peers in Appalachia. Looking ahead to fiscal '26, we expect continued improvement in well results and resource recovery, driven by key well design tests on 3 upcoming pads. These tests will include higher-intensity fracs, wider inter-well spacing, upsized gas processing units and co-development of the upper and lower Utica zones, all aimed at enhancing capital efficiency and maximizing long-term value. Turning to guidance. We are maintaining forecasted production between 440 and 455 Bcfe, representing a 5% increase at the midpoint year-over-year. Operationally, we plan to run 1 to 2-rig program and a dedicated frac crew throughout the year. Regarding capital, integrated Upstream and Gathering segment expenditures are expected to be $550 million to $610 million this year, down 3% at the midpoint compared to fiscal '25 and more than $100 million lower versus fiscal '23. Longer term, we anticipate capital further decreasing to $500 million to $575 million per year for this segment with average annual production growth in the mid-single digits. Pivoting to the natural gas market, we anticipate a constructive pricing environment in 2026, supported by a tightening supply-demand balance. Production growth has been slowing across key gas-producing regions, while deferred volumes have been absorbed amid accelerating demand from LNG exports and power generation. Weather remains one of the most unpredictable impactful variables, driving continued volatility in the forward natural gas strip. Seneca is well positioned to manage these pricing fluctuations through our marketing and hedging strategy, which offers price stability while maintaining upside exposure. Approximately 85% of our expected fiscal '26 volumes are covered by physical firm sales and/or firm transportation, leaving only a minimal amount of our production exposed to spot pricing. Where possible, we have also sculpted our spot exposure to capture higher expected in-basin pricing during winter and summer months when in-basin demand is strongest. To further strengthen our long-term access to premium markets and support Seneca's growing production and core inventory, in September, we entered into a preceding agreement for new firm transportation. This capacity expected to be in service in late calendar 2028 provides an incremental 250 million a day of new takeaway from our core Tioga producing area to advantaged markets elsewhere in Pennsylvania, giving us access to growing data center-driven demand areas and additional connectivity to long-haul pipes that reach back to the Gulf. This is yet another great step forward in securing access to premium markets for our growing production and something we've been working towards for well over a year. I'm optimistic we'll find additional opportunities to expand our marketing portfolio through additional firm transport and/or long-term firm sales in the quarters ahead. Switching gears, we remain focused on developing gathering infrastructure to support our growth while pursuing incremental third-party opportunities. In fiscal '25, we executed an amendment with a third-party shipper to gather production from 2 additional pads. This amendment will add an expected 40 Bcf of throughput and approximately $15 million in revenue over the next 5 years. We also remain focused on enhancing system reliability and capacity and have completed and placed into service a number of pipeline projects as well as commissioned the first compressor unit at our [indiscernible] station. 2025 also marked a significant year with respect to sustainability. NFG Midstream improved its Equitable Origin rating from A- to A, while Seneca maintained its Equitable Origin rating of A and also maintained its MiQ certification of an A grade. These results reflect our unwavering dedication to environmental stewardship and responsible practices and provide an opportunity to capture additional margin through our responsibly sourced gas sales. In conclusion, fiscal '25 was a transformative year for our integrated Upstream and Gathering business. We achieved record production and throughput while driving meaningful improvements in capital efficiency and significantly expanding our core inventory. These operational gains were complemented by a strong and growing marketing portfolio that provides reliable long-term access to premium markets. Underlying these results is our large-scale integrated asset base, which enables a differentiated low-cost structure and reinforces our ability to realize strong returns across commodity cycles. As we enter fiscal '26, we are energized by the opportunities ahead and remain focused on executing with discipline, innovating across our operations and delivering strong results. With that, I'll turn the call back to Natalie. Natalie Fischer: You may open the line for questions. Operator: [Operator Instructions] Our first question will be from the line of Greta Drefke with Goldman Sachs. Margaret Drefke: I first wanted to touch on the incremental core inventory and the economics of the Upper Utica. Can you provide more details on how long you've been examining the Upper Utica zone and what was the process like that has given you confidence that these 220 locations are competitive with the rest of the portfolio? Timothy Silverstein: Greta, thanks for your question. This has been something we've been working on for years. Our team saw this opportunity early on in our initial integration of the Shell acquisition and frankly, our prior results. So it's something we've seen the possibility of for a long time. We really began delineating it and getting a better understanding starting within the last 3 years. And so over a period of time, we were able to drill test wells while drilling lower Utica development pads. And so the opportunity we had in front of us was to test this, do it very efficiently and very effectively from a capital efficiency perspective and then bring these wells on at the same time as we were bringing on the balance of the production from these pads. So we've had a lot of opportunity to cover both a large swath of our acreage position and also to have a significant production history. And what we see is outstanding results. The other thing just to note about this that's very exciting to us is we're developing these and going to co-develop them in the future exactly where we're developing the Lower Utica now. So as an integrated Upstream and Gathering company, we will also capture additional margin and efficiencies by reutilizing our midstream infrastructure. So this is yet another step forward in our driving lower capital and increasing production over the long term. Margaret Drefke: Great. And I also wanted to ask on your outlook for in-basin demand a little bit more broadly. Beyond the Shipping Port project, are you continuing to see interest from other potential project partners for opportunities in basin? And how beneficial would you characterize NFG's fully integrated operations in these discussions relative to producers that might just have Upstream supply? David Bauer: Yes, Greta, we've had some really good interest from other data center developers, from other entities pursuing power projects, we're really excited about it. The momentum really continues to build behind it. As I said in my remarks, I think we -- our integration gives us a big advantage because we can offer a whole suite of alternatives, ranging from basic plain [indiscernible] pipeline service to gas supply to any combination of those things. So we're real optimistic about the future and I think we'll have multiple opportunities going forward. Operator: The next question today will be from the line of Noah Hungness with Bank of America. Noah Hungness: For my first question here, this is maybe for you, Justin. How can we think about when the Upper Utica will become a larger part of the NFG program? Timothy Silverstein: Yes. Noah, thanks. We are already incorporating some Upper Utica into our 4 plants. And so I think what you should expect is that we're really going to continue to do what we've been doing with our lower Utica development, which is trying to optimize our operational planning to allocate capital that we deem to be the highest integrated returns between Seneca and Gathering. We're going to look at the Upper Utica and that same -- through that same prism. -- where we're going to focus on the balance of uppers and lowers that optimize both the land use in terms of the pads we're building, the midstream infrastructure we're building and optimize our development plan along that. So while our program to date has been certainly focused on a lower Utica, we will start having more uppers in our plan as we move forward. Noah Hungness: Well, I guess my question was, if you guys are going to pill 26 wells this year and let's say, 25 are the Tioga Utica, what percent of that would be uppers? And is that a good number to assume moving forward into '27 and beyond? Timothy Silverstein: Yes. So we will have a number of Upper Utica wells over the course of '26. It will be a much smaller percentage relative to the lowers. And then as we go into '27 and '28, I would expect the team to continue to optimize to figure out the right mix. I think near term, you should expect that we'll certainly have more lowers, but then over time, that may become more balanced between uppers and lowers. Hopefully, that answers your question more and certainly know over time, we can dig into that more with you and others. Noah Hungness: Yes. No, that's very helpful. And then the next question here is just on debt. I mean with the CenterPoint deal, you guys are obviously going to be taking on a large amount of debt. The utility can only handle so much. So how are you thinking about allocating the remainder of that debt across the rest of your business? Timothy Silverstein: That's a good question. I mean the reality is we do all of our financing at the parent company. So the credit rating agencies look at the total debt at the holding company level relative to the entire cash flows of the system. So we'll look across the system as to where those cash flows are being generated, and we'll issue intercompany promissory notes. But at the end of the day, all of that debt is fungible amongst the segments. And so it's a bit of a balancing act looking at cash flows, looking at capital structures at the various segments as it relates to ratemaking and a whole bunch of considerations. But I'd really stay focused on the capital or the debt being at the parent company and looking at the aggregate cash flows of the entire NFG system. Operator: [Operator Instructions] And our next question will be from the line of Timothy Winter with Gabelli & Company. Timothy Winter: Congrats on another strong update. A couple -- one real quick one though, Tim. The Supply Corp going in for a rate case, what are the returns you're earning currently on the Supply Corp? Timothy Silverstein: Yes. I mean, typically, think of a rate-making return there and recognizing everything is a black box settlement in kind of the low double digits is a typical ratemaking return. So north of the utility ratemaking ROEs, but in that general ZIP code. Timothy Winter: Under an assumption of a 50-50 structure equity? Timothy Silverstein: Yes. Yes, 50-50, you have the ability to earn a little bit higher there. And given where our cap structure is north of 50-50, we believe we can earn on that. But again, it's all black stock settlement. So you typically lose the identity of the individual components. Timothy Winter: Okay. And then with the update and new numbers in, are you still looking at $300 million to $400 million of equity for the CenterPoint, Ohio? And any more thinking on the timing or how you're going to go about that? Timothy Silverstein: Yes. I mean if you look at the outlook for the business, which commodity prices being the bigger near-term driver, they're still pretty consistent with where we were a couple of weeks ago when we announced the transaction. So I'd expect that sizing to be similar to what we talked about. And as I mentioned on the call, around the acquisition, we will need pro forma financial statements for the offerings. And so that will take a little bit of time to put together. So we're still looking towards later in the first quarter or spring time frame for accessing the capital markets. Timothy Winter: Okay. Okay. And that assumes the free cash flow, I guess, what you're talking about the $300 million to $350 million generated. Is there any more thought on like a creative way to finance it? As I think I mentioned in the last call, maybe like sell a portion of Seneca or any assets that are less core that you could consider to use as equity? David Bauer: Yes. Tim, this is Dave. I don't think we have much in the way of noncore assets anymore to consider selling. And in terms of, call it, alternative or creative ways to finance things, I think given the amount of equity that we're looking at in this transaction, it's probably a little small to really change the -- our whole approach to financing it. But that's today. As we go through time, if other opportunities come along, we're certainly going to do the -- we're going to finance them in the way that shareholders will get the best answer. Operator: With no further questions on the line at this time. I would now hand the call back to Natalie Fischer for closing remarks. Natalie Fischer: Thank you, Harry. We'd like to thank everyone for taking the time to be with us today. A replay of this call will be available this afternoon on both our website and by telephone and will run through the close of business on Thursday, November 13. Please feel free to reach out if you have any follow-up questions. Otherwise, we look forward to speaking with you again next quarter. Thank you, and have a nice day. Operator: This will conclude the National Fuel Gas Company Fourth Quarter and Full Year Fiscal 2025 Earnings Call. You may now disconnect your lines.
Operator: Good morning. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the BSR REIT Third Quarter 2025 Fiscal Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Spencer Andrews, Vice President of Investor Relations and Marketing. Please go ahead, sir. Spencer Andrews: Thank you, Tina, and good morning, everyone. Welcome to BSR REIT's conference call to discuss our financial results for the third quarter ending September 30, 2025. I'm joined on the call today by our CEO, Dan Oberste; our Chief Financial Officer, Tom Cirbus; and our Chief Operating Officer, Susie Rosenbaum, who are all available to answer your questions after our prepared remarks. Before we begin, I want to remind listeners that certain statements made on this conference call about future events are forward-looking in nature. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially. In addition, we will reference certain non-GAAP financial measures that we believe are useful supplemental information about our financial performance. For more information, please refer to the cautionary statements on forward-looking information and a description of our non-GAAP financial measures in our news release and MD&A dated November 5, 2025. Dan, over to you. Daniel Oberste: Thanks, Spencer. The third quarter represented a significant inflection point for BSR as the REIT completed its redeployment of capital midway through the quarter, continued the integration of our newly acquired assets and, frankly, powered through a softer leasing environment than most anticipated. Despite some continued challenges in the macro level operational backdrop, the REIT's capital allocation and stewardship has positioned our unitholders for upcoming growth. The results will speak for themselves as they have many times in the past when we have executed similar capital allocation decisions. The most recent example being our cancellation of approximately 20 million units or 39% of the outstanding units in the REIT since 2022. To that end, in the third quarter, same-community NOI increased 2.7% compared to Q3 last year. Same-community weighted average occupancy was 94.3%. Our retention rate was 58.2% at quarter end, a further 80 basis point expansion from 57.4% at the end of Q2. Leasing momentum at Austin lease-up Aura 35Fifty continued with occupancy reaching 86.6% at quarter end, up from 59.7% at the end of Q2. We also experienced continued green shoots on the rate front. Blended same community rental rates increased 0.4% over prior leases, representing the first time that blended rental rates have increased since the third quarter of 2024. And we acquired The Ownsby for $87.5 million during the quarter. The Ownsby, which comprises 368 apartment units, is located in the Dallas suburb of Celina, which was the fastest-growing city in the U.S. in 2023 and grew by a further 19% in the 12 months ending July of 2024. The fundamentals of our business are undeniable, though continuing to percolate a little longer than originally anticipated, supply will materially exit the picture in the relative near term. As I highlighted last quarter, CoStar and several other data providers have adjusted their expectations for new deliveries from Q4 '25 through '27, which should ultimately yield additional elasticity and pricing power for our apartment units. Therefore, we believe that this is just the beginning of a period of consistent growth in rental rates. Above and beyond rental rates, we have significant internal growth opportunities in front of us, given the going-in occupancy of the assets we acquired in 2025. As our team stabilizes these new properties and optimizes our existing best-in-class Texas portfolio, unitholders stand to benefit. I'll now invite Tom to review our third quarter financial results in more detail. Tom? Thomas Cirbus: Thanks, Dan. Our operational performance in the third quarter was in line with management's expectations as our blended trade-outs continued to improve and as Dan highlighted, turned positive in the quarter. Blended rates increased 40 basis points in the third quarter, which follows a 3.2% and 0.7% decline in Q1 and Q2, respectively. Clearly, we are seeing the results of the market absorption of previous deliveries. More broadly, the REIT's same-community revenue was $26.5 million in Q3 2025, a decline of 1% from last year. This was primarily driven by the negative trade-outs we have experienced up to the third quarter, which resulted in a 1.2% year-over-year decline in average monthly in-place leases. That decline was partially offset by an increase in other property income driven by enhanced resident participation in our credit building service, an increase in utility reimbursements and an increase in properties receiving valet trash service over the prior year. We're thrilled to see these internalization activities help drive results and believe it is a case study of the value-add potential embedded in our portfolio. It's worth noting that there are several of these internalization activities, including expansions of our valet trash and bulk Internet initiatives, which will provide meaningful acceleration to expected organic growth and will begin to materialize in 2026 and beyond. Same community NOI for Q3 2025 was $14.4 million, a 2.7% increase from Q3 2024. Our acceleration in same-community NOI was mainly driven by a 5% decline in same-community expenses, the primary drivers of which were a $0.6 million decrease in real estate taxes and a $0.2 million decrease in property insurance. Below NOI, G&A improved by approximately $0.1 million or approximately 5% and net finance costs declined 2.7%, largely due to our net paydown of debt following our 2025 disposition and acquisitions activities. In total, FFO in Q3 was $0.19 per unit compared to $0.23 per unit last year. On an AFFO basis, total AFFO per unit was $0.17 per unit compared to $0.21 per unit last year. The year-over-year declines in FFO and AFFO per unit are primarily driven by: one, the time lapse in redeploying our disposition proceeds into new acquisitions; and two, the occupancy concentration of our development and new acquisitions, which we expect to stabilize to similar levels of our same community properties in the coming quarters. In addition, during the third quarter, the REIT declared cash distributions totaling $0.14 per unit, a 2.5% year-over-year increase. Turning to our balance sheet. The REIT's debt to gross book value as of September 30, 2025, was 51.3%. This amounts to $726.6 million of debt outstanding with a weighted average interest rate of 4.0%, 99% of which is either fixed or economically hedged to fixed rates. On the liquidity front, total liquidity was $63.4 million as of September 30, including cash and cash equivalents of $6.6 million and $56.8 million available under our revolving credit facility. As usual, we have the ability to obtain additional liquidity by adding properties to the current borrowing base of the facility. During the quarter, we amended our 3.27% $105 million interest rate swap to lower the fixed interest rate to 3.1% and extend the counterparty optional termination date to January 1, 2027. Note that, as I highlighted last quarter, we have undergone some material changes to our derivative book this year as we were called out of in-the-money swaps. Accordingly, ongoing finance costs will reflect the higher cost replacement of these derivative instruments, particularly evident when viewed on a per unit basis. However, as a reminder, our use of swaps to hedge our interest rate exposure was laddered by design when we initiated this program. We continuously monitor and adjust various hedges with the goal of achieving the best cost of capital for the REIT. Finally, our financial and operating results continue to be affected by very recent property acquisitions, lease-ups and the replacements of swaps. So with so many moving pieces, we are continuing our suspension of more detailed annual guidance at this time. I will now turn it back to Dan for his closing remarks. Daniel Oberste: Thanks, Tom. As we quickly approach the holiday season, I will remind everyone that 2025 has been a transformative year for the REIT. We've sold 10 fully stabilized apartment communities at extremely attractive pricing to best-in-class buyers, once again, underlining the veracity of our NAV. In turn, we have traded those 10 stabilized communities for recently developed assets with higher embedded growth potential while increasing our relative concentration to Houston. With the acquisitions of the Ownsby and Venue Craig Ranch in Dallas, Forayna Vintage Park and Botanic Living in Houston and the lease-up of Aura 35Fifty in Austin, we have now added a tremendous new cohort of assets to the REIT. These new communities will help us capitalize on the improving market fundamentals and generate sustained cash flow growth that results in increased value for unitholders. While we have now redeployed our 2025 disposition proceeds, it doesn't mean we're out of the acquisition business. We continue, as always, to examine acquisition opportunities in markets where the external growth environment is improving. However, we're not in the business of taking unnecessary risks with our investors' capital. To that end, we want to see a future return profile in excess of our weighted average cost of capital. Before wrapping up, I would like to call your attention to the fact that BSR was recently named one of the best places to work in multifamily for the fourth consecutive year. This is a tremendous achievement and speaks to the culture and team we have built at BSR as we approach our 70th year in the real estate business. We're proud of our management platform and firmly believe that it represents the secret sauce that brings us the best team in the business. That concludes our prepared remarks this morning. Tom, Susie and I would now be pleased to answer your questions. Operator, please open the line for questions. Operator: [Operator Instructions] The first question will come from Tom Callaghan from BMO Capital Markets. Tom Callaghan: Maybe just to start, nice to see the blended lease spreads turn positive there this quarter. Just wondering if you can add some color in terms of the cadence of those spreads and what you saw in the market really over the course of the quarter, just given I think it does imply a bit of a slowdown from the July levels that you talked about last call. Susan Koehn: Sure. Yes, I'm happy to answer. So as you're aware, we've got 2 levers that we can pull when it comes to maximizing cash flow for the portfolio. And what we did is we -- those levers are obviously occupancy and rate. And what you saw was we pushed rates in both July and August. And then we saw occupancy slightly drop in September, which made sense because the kids have gone back to school and you have less people looking for an apartment. So you've got some seasonality blended in, which is completely normal. We're still in that 94% to 96% occupancy, which I've said before is our sweet spot. Tom Callaghan: Got it. That's helpful. And that was actually going be my next question there just in terms of kind of those -- that push versus pull on occupancy and rate. How are you thinking about that into Q4 and 2026? Thomas Cirbus: Yes. I mean, I'll jump in, and we're thinking through all the budgeting things real time here, Tom. And so let me say, it's one of those things where the data providers, we could sit here and quote it to you are all over the map. And I don't know that, that's a productive exercise. We have our best data providers of our in-house team working through it real time. So not -- we don't have a great forward-look answer there. What I'd tell you is at our Analyst Day here in December, we're looking to give you more color there. So let me punt to then. Tom Callaghan: Okay. That sounds good. I look forward to that. Maybe one last one for me is just on capital allocation. Dan, you did mention in the press release, you're now fully redeployed in terms of the 2025 disposition capital. So I guess just in that vein, how should investors think about your approach to really capital allocation over the next 12 months? And part and parcel of that is just balance sheet leverage. Are you comfortable with where that is right now? Or do you have kind of a target in mind? Daniel Oberste: Yes, Tom, we like the players we got on the field in our portfolio right now. We bought the 5 assets that we've talked about in our prepared remarks, and you're seeing the performance and the lease-up expectations in some cases, in Austin, exceeding our lease-up velocity expectations. And in others, pretty much leasing up as we underwrote and expected. I think the team should focus right now on the occupancy potential from here on out and its potential to generate revenue. That's priority #1. And our investors are in luck because that's something we've been doing going on 70 years. So we feel pretty confident that we'll be able to obtain the revenue generated from those lease-ups. When we think about additional acquisitions, step one is we always underwrite our properties on their return on fair market value, and we rank them from 1 to 26%. If we see a rotation opportunity, I think you've seen us take advantage of those opportunities in the past. Number two, if we see there's an opportunity to deploy capital through leverage, equity or other creative means to drive a higher return for our investors. I think you've seen us work in creative and predictable patterns in the past to deliver those returns. But back to our current portfolio, we like the team we have on the field. We like the 5 new players that we put on our team this year. Operationally, I think we do what we're equipped to do, which is be a manager, and I think that's how we can maximize returns. We don't have any near-term plans to use credit to acquire nor do we have near-term plans to rotate, I would say, through the end of the year. As the year approaches or if anything changes in our portfolio, we certainly take advantage of rotation acquisition opportunities as well as other opportunities fueled by one or all means of capital. Operator: Kyle Stanley from Desjardins has the next question. Kyle Stanley: Just going back to the leasing spread front. It was encouraging to see the improvement on the new leasing side in Austin. Could you just speak to maybe what's driving that improvement in Austin? Is it the mix of leases? Is it may be less competition in the market today? Just love your thoughts on that. Susan Koehn: Sure, Kyle. So exactly, Austin, for the first time in a while, we saw the total percentage of properties offering concessions drop slightly. That -- and so that certainly would account for the fact that we were able to push rates a little more in Austin than we have in the past. Dallas-Fort Worth and Houston were the exact opposite. We saw concessions actually tick up slightly in Dallas and in Houston as far as properties go that are offering these. Kyle Stanley: Okay. Perfect. Next, so I think Tom mentioned the kind of look forward and maybe updating us at the Investor Day. Can we expect annual guidance for '26 provided at that point or at least getting back to providing annual guidance for the year ahead? Thomas Cirbus: Yes, Kyle, I think we have every intention of bringing back annual guidance in the future. I think we'll give some forward looks in December, TBD on to what extent, but we're moving in that direction for sure. Kyle Stanley: Okay. Perfect. And then just the last one for me. Dan, you've mentioned the lease-up opportunity of your recently acquired assets and that being a key focus today. On average, where would the in-place occupancy at those 5 newly acquired assets or the 5 new assets in the portfolio, where would that be today? And how quickly do you expect stabilization to occur over the next several months or quarters? Daniel Oberste: Yes. So I'll take a first stab on it and then invite Susie to add some more color and details. Typically, when we underwrite -- well, first of all, where are they ending today? The occupancy on each of those 5 assets is going to be higher today than it was at September 30 when we reported those numbers. We see the upside opportunity in occupancy from here on out, we can value that at about $4.5 million of revenue in 2026. Now what margin that revenue falls on, it's naturally going to be higher. I mean it makes sense that the top end of your stack is at a significantly higher margin than the first lease you get. Whether it's 65%, 75%, 80% margin is what we're working through right now incrementally as you can understand the challenges of rotating and then providing guidance on lease-ups. Some -- well, all of them are exceeding our expectations on occupancy and leasing velocity. Did that answer the first part of your question? Kyle Stanley: It did. I guess the one just clarification. The $4.5 million of revenue, that's incremental to what's already being generated today upon lease-up, correct? Daniel Oberste: Yes, that's incremental to what we're probably depicting for September numbers. I mean we see that as the occupancy. I'm not going to say low-hanging fruit because it's difficult to lease apartments. That's a specialized task. But to our people, they consider that low-hanging fruit because that's what they do every day. Occupancy is something that comes when, as Susie mentioned earlier, you have the product. Susie, are there any other details that you'd like to add on to that? Susan Koehn: Yes. Just -- yes, as you pointed out, so they were 90% occupied at the end of the quarter. But as Dan pointed out, that doesn't mean that, that was 90% the entire time. So we do have a lot of room to pick up there. I'd like to point out, though, that we would expect 3 of these assets to be stabilized from an occupancy standpoint by the end of the year, and the other 2 would be in the first half of next year. But we get 2 bites at the apple. Here's the thing that's important to remember, occupancy is number one, but then we still have to or get to burn off concessions, which will also raise rental revenue. Operator: Up next, we'll hear from Sairam Srinivas, Cormark Securities. Sairam Srinivas: Just looking at the acquisition market, and you guys have obviously been active in that. Are you seeing additional participants now actually come into these assets versus what you would probably see 6 to 8 months before? Thomas Cirbus: So I think the acquisition market is relatively healthy. I think the same participants are happening as were happening 6 to 8 months ago. I think it's a confluence of all the typical parties. I don't think that there's been a material change in the type of buyer over the course of the last 6 months, but I welcome Dan's thoughts as well. Daniel Oberste: No, I think Tom summarized it very well. I mean the acquisition market continues to present opportunities. And as we see the movement of the interest rate curve from a historically flat curve over the last year or 18 months or 5 years, depending on if you're counting, to some volatility on a look forward in the interest rate curve, the volatility creates opportunities to finance a risk against a desired return. We think there's an improved outlook next year, the following year and the following year, all the way into '28 for just the fundamentals of the cash flow, the ability of properties to deliver cash flow in our business. We don't think -- and I know our investors can share our opinion. We don't think the markets are accurately underwriting the revenue potential and the upside in net operating income that the sector is probably going to drive, and we empathize with that. Our partners in the market that are private that are attempting to sell their projects right now. For the most part, people that are selling have a difficulty and they have a little bit higher leverage, well, significantly higher leverage than us and other public REIT participants have. And that higher leverage and that higher interest burden certainly creates challenges in that private developer earning the cash flow that they had underwritten. Now above leverage, I think the operations, if I was -- I think many of our operating partners, when you remove interest rate and when you remove cap rate from their underwriting in '21 are experiencing pro forma net operating incomes in line with what they expected their developments to achieve. I think the difficulty that our private sellers are seeing right now is the cap rate placed on that cash flow stream, that net operating income that they underwrote. It's not that the cap rates have risen beyond -- I think our NAV is a great depiction of the market cap rate for the market. It's that the expectations in '21 and '22 for those private developers who raised private capital were not a 5.1% or a 5.2% exit cap. They probably align more closely to a sub-4 cap. And so when you build a property and it operates and the trains come in on time and the revenue and occupancy and the net operating income matches your pro forma, but your reversion cap for your investment went from a 3.9% cap to perhaps a 5% cap, that's a significant deterioration in your sales proceeds. As we discussed in prior quarters, those developers face challenges, and they've decided to, in some cases, sell their properties. Some of our good partners have sold properties to us that we are totally excited about from a purchase price standpoint and from an operational standpoint. Other potential sellers and developers have decided to refinance that risk and wait for better days, which I'm in their camp on because we just bought 5 properties, and we're looking at the same fundamental economics in our markets that those developers are. They might just be willing to take a substantial amount of risk with their private capital investment dollars that maybe in the public markets, we're not comfortable with from a leverage standpoint. Sairam Srinivas: That makes sense, Dan. And maybe we've spoken about that cliff of supply earlier and how essentially once that runs out, it actually just plummets all the way down. When you look at the market right now and what you're seeing post quarter, how much time do you think it actually takes for all that supply to eventually get absorbed and for you to actually come to that precipice where you could probably see rents start jumping again? Daniel Oberste: Yes, sure. So if the supply that has occurred in the past is met with the same relative absorption that we've seen this year so far, not very long, Sai. And I want to reiterate that the first 9 months of 2024 was the best first 3 quarters for apartment absorption in history outside of a little blip in the post-COVID era. So if we see that same pace of absorption, then you can count the supply problem being a problem, you could count that on your watch. I. think that -- and I think most people think that with population growth muting a little bit driven by perhaps a lack of international immigration nationally, that absorption may taper down a little bit in the future, though it will still well outpace in our markets and many others, the demand and absorption is going to top supply in these markets for the foreseeable future. So I think you can probably continue to see a pace of absorption in line relative with deliveries that you've seen in the first 9 months. As you see deliveries drop by 50% next year and 40% the year after that, you may also see absorption drop just a tad next year and just a tad the year after that from a gross standpoint. But from a net standpoint, that's an extremely healthy indicator as absorption is set to outpace supply for the foreseeable future. Sairam Srinivas: That makes sense, Dan. And my last question is, when you look at October last year versus what you've seen in the past month, how would you characterize the leasing trends at? And do you -- like is there a sustained improvement that you're seeing? Susan Koehn: I think October looks pretty similar right now to what Q3 looks like. Operator: Himanshu Gupta from Scotiabank has the next question. Himanshu Gupta: So if I look at occupancy, a bit softer in Q3, and I know you did mention some seasonality. And when I look at rental spreads, I think they were a bit better. So just wondering, is there like a shift in focus maybe a bit more on rents than defending occupancy in the near term? Susan Koehn: Yes. Like I was saying earlier, we did start pushing rents in July and August intentionally, right? And then we started to see occupancy slightly drop off in September, which is normal with seasonality, but also probably has to do with the fact that we were more aggressive on rates. We have these 2 levers that we use to balance our cash flow, which we believe the team is really good at doing. And as long as we're staying in between what we call our sweet spot, 94% to 96% occupancy, we think we're doing the right thing. Himanshu Gupta: Got it. And then Houston, and I think Dallas as well, you mentioned concessions have picked up a bit. Can you elaborate? I mean, is that a function of like job growth being slower than expected or some still lingering impact from supply? Susan Koehn: So with Dallas, that's mostly -- it's the North Dallas market, and that's a supply issue right now. But there are still a lot of people moving into these North Dallas markets as well. So we know it's going to be absorbed. The question as everybody is asking is just when is that over. But that certainly has to do with the slight uptick in the number of properties offering concessions there. Himanshu Gupta: Okay. Okay. Fair enough. And maybe my last question would be, I mean, Houston is your largest market, biggest market. Are you comfortable keeping this as your highest exposure market in the medium term? And I know Houston has less supply pressures for now, but can Houston outperform rent growth compared to the other markets in the near term or in the medium term, rather? Daniel Oberste: Yes, certainly, Sai. Houston this year and next year, we're very comfortable with our market concentration in Houston. And then our viewpoint that we've made in the past on future rotations as evidenced in our future acquisitions as evidenced in Q3 is that we plan to backfill and grow probably in Dallas to be in shape to take advantage of some mid-market economics and in the latter half of '26 moving into '27, '28. So the answer -- the short answer is absolutely 100% yes, incredibly comfortable with Houston right now for this setup. And then again, as you've heard us say before, we get right in the path of growth and thus rent increases relative to other markets and occupancy and potential residents, and we'll always keep our investors' money in that path. Operator: Your next question comes from Jonathan Kelcher, TD Cowen. Jonathan Kelcher: Just going back to the 5 new assets. I just want to -- like stabilized occupancy, is that that's 94% to 96%, correct? Thomas Cirbus: Correct. Jonathan Kelcher: Okay. And then what -- in order to get there, what are you currently offering on concessions that will hopefully start to burn off next year as you hit the occupancy? Susan Koehn: Sure. Yes. So I'm happy to say that in October, we're not offering concessions anymore on the Aura 35Fifty development in Austin. In Dallas, it's still 10 weeks free. Jonathan Kelcher: Okay. That is helpful. And then just lastly, the decrease in same property taxes this quarter, was there any -- were there any onetime property tax rebates in there? Or was it just lower assessed values that drove that? Daniel Oberste: It's a combination of both, Jonathan. We saw some opportunities to settle some tax rebate appeals in the quarter, and we accelerated some of those settlements. And I think you've seen us do that in the past. We try to smooth out those settlements for earnings, but we don't let that tail wag the dog. If we see an opportunity to settle sooner than later, we certainly take advantage of that. I'd put that in the tune of a couple of hundred thousand dollars or $0.0025, $0.005 for the quarter. We talked about that in the past. So it comes and goes, but it's generally not incredibly disruptive to the performance kind of on an FFO basis. Operator: [Operator Instructions] We'll go next to Jimmy Shan, RBC Capital Markets. Khing Shan: So just a follow-up on the revenue contributions from the 5 new assets acquired. The $4.5 million of incremental revenue, so is that relative to the Q3 run rate revenue? Or is that relative to their 2024 contributions when they were acquired? Daniel Oberste: Yes, I see it as relative to the Q3 revenue. We tried -- we thought that there would be some questions about the acquisition impact on a run rate. And we do empathize with the choppiness of the return that we generated in the third quarter. And so we really wanted to communicate our -- the revenue upside from Q3. So that's about $4.5 million. And then I'll finish that with, I'd rather take a choppy $15 million than a smooth $10 million, Jimmy. Khing Shan: Sure, sure. And the concessions. Can you quantify those as well on those 5 assets? I guess, as they burn off, would that be in addition to the $4.5 million? Thomas Cirbus: Yes. The $4.5 million just assumes that we put people in vacant units today. So there's a bunch of upside, which we're not ready to quantify sitting here today in addition to the $4.5 million for all the ancillary things that Susie's team does really well, including but not limited to, the burn-off of concessions that is the second bite at the apple in whatever, 8 to 16 months or whatever the numbers are. Khing Shan: So if I heard correctly, in Dallas, you're offering about 2.5 months free rent. So we could ballpark it from that standpoint. Daniel Oberste: Yes, I think that's fair, Jimmy. Khing Shan: Yes. Okay. And then the leasing spreads, the softer leasing environment, I don't think you're the only one seeing that. So can you -- yes, there's some seasonality, some rate push. But what do you think that is attributable to this softer leasing environment? Daniel Oberste: We think it's entirely attributable to macroeconomic volatility, which is why we didn't acquire until, I'll say, after the end of April when you think about when we started closing on these assets. So I think the tepid response by the customer right now, driven by volatility in the macroeconomic environment, whether it's tariffs, whether it's Federal Reserve banking policy, has a whole lot to do with politics and global politics and United States politics. I think we've all seen that. We were cautious when we decided to acquire assets coming out of the AvalonBay transaction. We're very cautious with our investors' monies. We underwrote in a very cautious manner. So I think that might be what's driving the overall macro environment, but it doesn't necessarily surprise us from our underwritten -- our returns against our expectations. Khing Shan: Okay. And sorry, last question. Tom, you mentioned all these swaps. And so what is -- how should we model the interest expense going forward? Thomas Cirbus: Yes. So similar to what Dan was saying earlier, I'll emphasize that it's a little bit challenging to do because the third quarter numbers do have some relative uncomparability there in the sense of -- don't forget that we have 2 really -- our '25 acquisition class are all in some form of stabilization that are carrying the full expense load and thereby being a little bit of a drag on earnings. Now that said, as it relates to the swap book more generally, we've continued to monitor that. And we just saw us this quarter increase our -- the tenor on one of the cancellation options out another year and to the REIT holders benefit by a lower rate. Khing Shan: So if I read that, this quarter looks about right for the next quarter or 2? Daniel Oberste: Yes. I think that's fair, Jimmy. But with that said, our REIT has historically taken the view of about 80% hedged to fixed rates and 20% exposure to the short end of the curve. That's been what we've discussed with our investors since our IPO. Now as you know, in the month of -- in March of '22 and that quarter right after that second quarter of '22, we began increasing our fixed debt to 100% of hedging. Now our investors have enjoyed the cash flow benefit of this decision for the last 3 years. Now we kind of see the opportunity in the interest climate moderating, and that affords us the opportunity to accretively decrease our hedging exposure back to what we think is fair, which is about 80% from its current position at 99%. Now this is -- this may create a little bit of complexity in the forecasting of interest expense in Q4 and Q1, but we think any disruption is to the benefit of our investors. And we believe that the decision is going to -- what to do with $102 million of call options in January and February will impact Q4 in the positive, if possible, and Q1 and Q2 in the positive. But I think I would model a little bit more short-term exposure to our hedges. And I see -- we see the opportunity to do so. And by short term, I mean 0 to 2 years, not 30 days. Operator: And everyone, at this time, there are no further questions. I'll hand the call back to Dan Oberste for any additional or closing remarks. Daniel Oberste: Thank you for listening, everyone, and we hope you enjoyed the call. If you have any additional questions, management is available at your convenience to discuss. We look forward to seeing some of you at our Investor and Analyst Presentation Day in early December during NAREIT in Dallas. Otherwise, have a good rest of the month. Thank you very much. Operator: Once again, everyone, this does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Host Hotels & Resorts Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Jaime Marcus, Senior Vice President of Investor Relations. Please go ahead. Jaime Marcus: Thank you, and good morning, everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities laws. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, adjusted EBITDAre and comparable hotel level results. You can find this information, together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release, in our 8-K filed with the SEC and in the supplemental financial information on our website at hosthotels.com. With me on today's call are Jim Risoleo, President and Chief Executive Officer; and Sourav Ghosh, Executive Vice President and Chief Financial Officer. With that, I would like to turn the call over to Jim. James Risoleo: Thank you, Jaime, and thanks to everyone for joining us this morning. We continue to outperform our expectations in the third quarter, building on strong operating and financial results in the first half of 2025. In the third quarter, we delivered adjusted EBITDAre of $319 million a decrease of 3.3% over last year, and adjusted FFO per share of $0.35, which is down 2.8% compared to the third quarter of 2024. Year-to-date compared to 2024, adjusted EBITDAre and adjusted FFO per share were up 2.2% and 60 basis points respectively. The operational results discussed today refer to our 76 hotel comparable portfolio in 2025, which excludes the Alila Ventana Big Sur and the Don CeSar. Additionally, we have removed the Washington Marriott and Metro Center, which was sold in the third quarter, and the St. Regis Houston, which was held for sale as of the third quarter and is expected to be sold in the fourth quarter. Comparable hotel total RevPAR improved by 80 basis points compared to the third quarter of 2024, and comparable hotel RevPAR improved by 20 basis points, due to better-than-expected short-term transient demand pickup and higher rates across our portfolio. Comparable hotel EBITDA margin for the quarter declined by 50 basis points year-over-year to 23.9%, driven by expense increases in wages and benefits. Turning to business mix. RevPAR growth in the third quarter exceeded our expectations at our resort properties, driven by short-term leisure transient demand pickup and rate growth despite headwinds from transformational renovations, the Jewish holiday shift and lingering impacts from macroeconomic uncertainty. Transient revenue grew by 2%, driven by double-digit growth at our resorts. We saw particularly strong performance in Maui, San Francisco, New York and Miami. Digging into Maui, the leisure transient demand recovery continued. Maui's 20% RevPAR growth and 19% RevPAR growth were driven by a substantial increase in occupancy and strong out-of-room spending on F&B, golf and spa services. Looking forward, total group revenue pace in Maui is up 13% for 2026, reflecting continued momentum behind the recovery. Turning to business transient. Revenue was down 2% in the third quarter, driven by a continued reduction in government room nights. As expected, group room revenue decreased approximately 5% year-over-year driven primarily by planned renovation disruption, the Jewish holiday calendar shift and reduced short-term group pickup. Our definite group room nights on the books increased to $4 million for 2025. In full year 2025 total group revenue pace is up 1.2% to the same time last year. Ancillary spending by guests remains strong, as evidenced by our 80 basis point total RevPAR growth in the third quarter. F&B revenue was flat as increases in outlet revenue were offset by decreases in banquet and catering revenue from lower group business volume. We also saw particularly strong growth in other revenue which was up 7%, including growth in golf and spa. Turning to the Don CeSar. We completed the final phase of reconstruction in the third quarter, reopening 2 restaurant outlets and the lower-level kitchen. During the reconstruction, we rebuilt infrastructure to increase resilience, including elevating critical equipment and systems and incorporating flood barriers. We are continuing to see better-than-expected near-term transient pickup, higher F&B capture and increased group bookings, which allowed us to raise our full year EBITDA expectations for the resort to $6 million from $3 million. We collected $5 million of business interruption proceeds for Hurricane Helene and Milton in the third quarter, which we discussed on our second quarter call, bringing the total business interruption proceeds collected to $24 million this year. While we expect to collect additional business interruption proceeds, the timing and amounts of additional payments are subject to ongoing discussions with our insurance carriers. Turning to capital allocation. In August, we sold the Washington Marriott Metro Center for $177 million, or 12.7x trailing 12-month EBITDA. As part of the transaction, we provided $114 million of seller financing at a 6.5% interest rate in order to facilitate a 1031 exchange for the buyer in a timely manner. Since 2018, we have disposed of approximately $5.2 billion of hotels at a blended 17.1x EBITDA multiple, including estimated foregone capital expenditures of $1 billion, which compares favorably to our $4.9 billion of acquisitions over the same period at a blended 13.6x EBITDA multiple. Turning to portfolio reinvestment. As of the third quarter, the Hyatt Transformational Capital program is approximately 65% complete, and is tracking on time and under budget. Renovations at the Hyatt Regency Capitol Hill are complete, and subsequent to quarter end, we substantially completed the Hyatt Regency Austin. Renovation of the public and meeting spaces at the Grand Hyatt Washington, D.C. has resumed now that the Hyatt Regency Capitol Hill is complete. Renovations are also well underway at the Hyatt Reston and the Manchester Grand Hyatt San Diego. The final property and the Hyatt Transformational Capital program which we expect to complete in early 2027. Building on the success of our prior transformational capital programs, we are excited to announce that we have reached a second agreement with Marriott to complete transformational renovations at 4 properties in our portfolio. The properties include the Ritz-Carlton, Marina del Rey, the Ritz-Carlton Naples resort at Tiburón, the Westin Kierland and the New Orleans Marriott, which is already underway. We believe these reinvestments will position the hotels to outperform competitors in their respective markets while enhancing long-term performance. Marriott has agreed to provide $22 million in operating profit guarantees to cover the anticipated disruption associated with our investment, which is expected to be between $300 million and $350 million over the next 4 years. We are targeting stabilized annual cash-on-cash returns in the mid-teens through a combination of RevPAR index share gains and enhanced owner priority returns. Similar to the first Marriott transformational capital program, we are targeting average RevPAR index share gains of 3 to 5 points. We also continue to make progress on value-enhancing development projects, including the new ballroom at the Don CeSar, and the Phoenician Canyon Suites Villas, both of which are expected to complete in the fourth quarter of 2025. We also completed the meeting space expansion project at the New York Marriott Marquis and made additional progress on the condo development at the Four Seasons Resort Orlando at Walt Disney World Resort. Construction on the mid-rise condominium building at the Four Seasons, Orlando is substantially complete, and we are on track to begin closing on sales this quarter. We now have deposits and purchase agreements for 23 of the 40 units, including 8 of the 9 villas. In 2025, our capital expenditure guidance range is $605 million to $640 million, which includes between $75 million and $80 million for property damage reconstruction, the majority of which we expect to be covered by insurance. Our CapEx guidance also reflects approximately $280 million to $295 million of investment for redevelopment, repositioning and ROI projects. We expect to benefit from approximately $24 million of operating profit guarantees related to the Hyatt Transformational Capital program in 2025, which will offset the majority of the EBITDA disruption at those properties. We also expect to receive $2 million in operating profit guarantees related to the second Marriott Transformational Capital program this year. In addition to our capital expenditure investment, we expect to spend $80 million to $85 million on the condo development at the Four Seasons Resort Orlando at Walt Disney World Resort in 2025. Looking back at prior transformational renovations and adjusting for the sale of Marriott Metro Center, we completed investments in 23 properties between 2018 and 2023, which are continuing to provide meaningful tailwinds for our portfolio. Of the 20 hotels that have stabilized post-renovation operations to date, the average RevPAR index share gain is over 8.5 points, which is well in excess of our targeted gain of 3 to 5 points. In short, the continued reinvestments we make in our properties yield strong returns and drive continued value creation for shareholders. In August, we released our 2025 corporate responsibility report, which details our CR program, our key impact initiatives and industry-leading accomplishments. The report also provides an update on our performance and progress toward our 2030 CR goals, which are aligned with our long-term vision to create lasting value and drive positive outcomes for all stakeholders. The CR report can be found on the Corporate Responsibility section of our website at hosthotels.com. Turning to our outlook for the full year. We once again outperformed our expectations in the third quarter. As a result of our strong performance year-to-date and improved expectations for the fourth quarter, we are increasing our comparable hotel RevPAR and total RevPAR guidance estimates to approximately 3% and 3.4%, respectively. We are also increasing our adjusted EBITDAre guidance to $1.730 billion, representing a $25 million, or 1.5%, improvement. Sourav will discuss the assumptions behind these updated estimates in more detail. It is worth noting that since we laid out our initial full year 2025 guidance in February, we have increased our RevPAR expectations by 150 basis points and our adjusted EBITDA expectations by $110 million. Wrapping up our third quarter commentary. We are pleased with our operating and financial outperformance this year, which we believe is a direct result of the capital allocation decisions we have made over the last 8 years. The bifurcation of the consumer is likely to lead to continued outperformance for upper upscale and luxury hotels, and we believe Host will be a beneficiary given our higher-end properties, our size and scale, our diversified business and geographic mix and our continued reinvestment in our portfolio. With our strong investment-grade balance sheet and access to many capital allocation levers, we will continue to use our competitive advantages to create value for our shareholders and position Host to outperform over the long term. With that, I will now turn the call over to Sourav. Sourav Ghosh: Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our third quarter operations, our updated 2025 guidance and our balance sheet. Starting with total revenue trends, comparable hotel total RevPAR growth continued to outpace RevPAR growth in the third quarter as both group and transient guests maintained elevated levels of out-of-room spend. Comparable hotel food and beverage revenue was flat in the quarter as growth in outlets offset declines in banquet and catering. Outlet revenue grew 6%, driven by resorts, particularly Maui, Phoenix and Orlando as well as the newly renovated View at the New York Marriott Marquis and Aviv at the 1 Hotel South Beach. Overall, outlet revenue per occupied room was up in the high single digits across our portfolio. Banquet revenue was down 4% as decreases in group room night volume outpaced increases in banquet and catering contribution per group room night. Additional headwinds to growth included a tough comparison from record banquet revenue in 2024 and planned renovation disruption this year. However, growth in banquet and catering contribution per group room night was up in the mid-single digits, driven by our hotels in Orlando, New York, Naples, Nashville, Chicago and Houston. Other revenue grew 7% in the third quarter as golf and spa revenues continued to grow. In fact, spa revenue was up double digits, driven by strength across the portfolio and continued tailwinds from recent spa renovations at our Westin Kierland and Ritz-Carlton, Amelia Island, a further indication that affluent consumers are continuing to prioritize spending on premium experiences. Shifting to business mix. Overall transient revenue was up approximately 2% compared to the third quarter of 2024, driven by higher rates and the continued growth of transient room nights at our resorts, led by Maui. During the third quarter, our resorts saw 3% transient rate growth year-over-year alongside 10% transient room night growth driven by Maui, the recently repositioned Singer Island Resort, the 1 Hotel South Beach and both of our Four Seasons resorts. Excluding Maui, transient revenue at our resorts was up 8%, indicating broad-based strength in luxury leisure travel. Looking at recent holidays, resort revenue for the 4th of July and Labor Day weekend grew 8% and 13%, respectively. Maui drove results in both cases with other resorts up in the mid-single digits. Looking forward, transient revenue pace for the total portfolio is up 5% for Thanksgiving week compared to the same time last year, and the festive period is up 9%, driven by strength across the portfolio. Business transient revenue was down 2% to the third quarter of 2024 as a decline in government room nights outpaced government and special corporate rate increases. For context, government room nights were down 20% in the third quarter, which is in line with decreases we saw in the second quarter. Turning to group. As expected, revenue was down approximately 5% year-over-year, driven by planned renovation disruption, the Jewish holiday calendar shift and a reduced short-term group pickup. We estimate that approximately 70% of the group revenue decline was attributable to planned renovation disruption. Despite these headwinds, our properties achieved group rate growth of 3%. Additionally, we remain encouraged by the ongoing recovery in San Francisco, where group room revenue was up 14% in the quarter, driven by association group room night growth. For full year 2025, we have 4 million definite group room nights on the books, representing a 5% increase since the second quarter. As Jim mentioned, total group revenue pace is up 1.2% over the same time last year. Total group revenue pace is strong in the fourth quarter, driven by rate and banquet strength at our resorts. Looking ahead, our 2026 total group revenue pace is approximately 5% ahead of the same time last year, driven by rate, room nights and banquet contribution. In fact, 2026 citywide group room night pace in key markets, including New Orleans, Washington, D.C. and San Francisco is up meaningfully compared to the same time last year. Shifting gears to margins. Comparable hotel EBITDA margin of 23.9% was 50 basis points below the third quarter of 2024, driven primarily by elevated rate growth. We continue to expect negative year-over-year margin comparisons for the fourth quarter, again, primarily driven by elevated wages and benefits growth. Turning to our outlook for 2025. As Jim mentioned, we are increasing our comparable hotel RevPAR and total RevPAR guidance estimates as a result of our outperformance year-to-date and improved expectations for the fourth quarter. We now expect comparable hotel RevPAR growth of approximately 3% and comparable hotel total RevPAR growth of 3.4% compared to 2024. We expect low single-digit RevPAR growth in the fourth quarter, an improvement over our prior guidance, partially driven by strong estimated RevPAR growth of 5.5% in October. Our guidance assumes a continued recovery in Maui, no improvement in the international demand imbalance and steady demand trends in the fourth quarter. Our guidance also takes into account the limited impact we saw from the government shutdown in October, primarily in Washington, D.C. and San Diego. If the government shutdown continues through the end of the year, full year RevPAR growth could be negatively impacted. We expect a comparable hotel EBITDA margin of approximately 28.8%, a 20 basis point improvement over our prior guidance midpoint, which is 50 basis points below 2024. Our 2025 full year adjusted EBITDAre guidance is $1.730 billion. This represents a $25 million or 1.5% improvement over our prior guidance midpoint, driven by outperformance in the third quarter and improved expectations for the fourth quarter. As a reminder, this includes $24 million of business interruption proceeds that were received for Hurricanes Haleen and Milton in 2025. Our 2025 full year adjusted EBITDAre guidance also includes $16 million of estimated EBITDA from the Four Seasons condo development, which we expect to recognize concurrent with condo sale closings in the fourth quarter. The expected 2025 EBITDA contribution from the condo development has declined by $5 million as 8 of the 23 contracts signed thus far have been for the villas, which are expected to close in 2026. It is important to note that we have not changed our overall EBITDA expectations for the project as sales prices and project costs remain on target. Lastly, our adjusted EBITDAre guidance includes an estimated $6 million contribution from the Don CeSar, an improvement of $3 million since last quarter and an estimated $14 million contribution from Alila Ventana Big Sur, an improvement of $1 million since last quarter. As a reminder, both properties are excluded from our comparable hotel set in 2025. Turning to our strong balance sheet and liquidity position. Our weighted average maturity is 5.2 years at a weighted average interest rate of 4.9%. We currently have $2.2 billion in total available liquidity, which includes $205 million of FF&E reserves and $1.5 billion available under the revolver portion of the credit facility. Our quarter end leverage ratio was 2.8x. And since our last call, Moody's upgraded the company's issuer rating from Baa3 to Baa2 with a stable outlook. Our strong balance sheet is an important competitive advantage, facilitating many of the capital allocation decisions that are contributing to our outperformance in the current environment. In October, we paid a quarterly cash dividend of $0.20 per share. As always, future dividends are subject to approval by the company's Board of Directors. We will continue to be strategic in managing our balance sheet and liquidity position over the near term. Wrapping up, we believe our investment-grade balance sheet as well as our size, scale and diversification uniquely position Host to outperform in the current environment while capitalizing on opportunities for growth in the future. With that, we would be happy to take your questions. To ensure we have time to address as many questions as possible, please limit yourself to one question. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of David Katz with Jefferies. David Katz: Look, a couple of things, and this is, I hope, the broad question, Jim and team, that you like to answer. But the asset sale during the quarter, the investments in what you've done and sort of the outperformance that we're seeing in the portfolio, it does suggest some differentiation of yourselves versus the group overall. Part one of the question is, can we take this to expect that there might be some more asset trading in the market based on what you're seeing? And second, how are you thinking broadly about valuation and other ways that you can capture a little differentiated value for hosts in the public market? I know there's a lot in there, but I'll take what you got. James Risoleo: I'll start, David, and then Sourav, feel free to jump in along the way. I'll answer your first question regarding the asset sales that we have completed year-to-date and the setup in the market generally for transactions. So on many occasions, both in meetings and on earnings calls, I've said that we will be opportunistic with our capital allocation when it comes to dispositions and acquisitions. And the 2 deals that we've already announced and provided metrics on this year, I think, are really strong indications of our ability to execute to sell the Washington Marriott Metro Center at 12.7x trailing 12 months EBITDA, a 6.5% cap rate, urban hotel is, I think, a solid read-through in many ways with respect to what sort of value is locked in this company. I mean that's not one of our best assets. And we're trading at 9.4x plus EBITDA, plus or minus, and we're able to execute on that deal at 12.7x. Come on, guys, where's the multiple? Let's go. And the same with the disposition of the Westin Kierland as well as when we're in a position to talk about it, I think you'll be pleased with the metrics on the St. Regis in Houston as well. We're not in a position to talk about that today. So we continue to test the market. We don't have to sell anything. I'll make that perfectly clear. We're sitting here with over $2 billion of liquidity today and a leverage ratio of 2.8x, a true differentiator, not only among lodging REITs, the only investment-grade balance sheet, but among REITs in general. It is truly a fortress balance sheet. And that leads to what we've been able to accomplish with the portfolio. We are -- we have a differentiated portfolio. I mean the performance is proof that the capital allocation decisions that we made since 2018 have paid off in a material way. We have raised guidance, both RevPAR and EBITDA every quarter this year. We went from 1.5% RevPAR guide in the February call and $1.620 billion of EBITDA guide to the bottom line. Today, we raised that to 3% RevPAR guide top line, and we raised our EBITDA guide by $110 million. So the investments we made in our assets from 2019 to 2023, we've invested over $2 billion in ROI projects throughout the portfolio. Marriott transformational capital program, 16 hotels. We completed another 8 properties that were outside of the MTCP program. As Sourav mentioned, and we both mentioned in our comments, we anticipated 3 to 5 points in yield index gains. Well, for the 23 properties that are left, I mean, Metro Center was one of them. We've achieved 8.5 points in yield index gains. That is meaningfully above mid-digit -- mid-teens cash-on-cash returns. So if you look at the composition of our portfolio, our top 40 assets contribute 80% of our EBITDA. And you can do the math. I mean we did 24 assets already transformational. We're doing 6 with Hyatt. We're doing another 4 with Marriott. We're well on the way, and we will continue to deploy capital in our assets because it's our clearest line of sight to see improvements in bottom line performance. And that, coupled with, I would say, what we acquired, but as importantly, what we sold is really leading to the outperformance today. And we're just really excited with how things are evolving here and what we're seeing in 2026, the setup going forward. So the transaction market itself is, I would say, still tepid. There is not a lot of flow. Going back to Metro Center, I'll end with how I began. I mean the fact that we have relationships and that people seek us when they need an asset to effectuate a like-kind exchange, and we have the balance sheet that allows us to provide seller financing to give that buyer the added assurance that there's not going to be a hiccup and they're going to miss a window differentiator,100%. Operator: Our next question will come from the line of Michael Bellisario with Baird. Michael Bellisario: Jim, my question is on CapEx. It kind of seems broadly that renovation returns have been coming down, but you've been bucking that trend. So I guess 2 parts. I guess, one, how are you picking the hotels and markets to invest in? And two, is it fair to assume that maybe you didn't buy back stock in the quarter because you see better returns on these transformational CapEx projects? James Risoleo: Sure, Mike. Yes, we obviously screen all of our assets to determine what assets we should be putting capital in and the level of CapEx that should be invested in any particular property. So as an example, the 4 new assets in the Marriott transformational capital program were decided upon after we, as a team, our design and construction group, our asset management group, our enterprise analytics group really looked at what sort of lift we believe that we could get through transformational renovations. And I do want to emphasize the word transformational because it's one thing to just do a rooms redo. That could be deemed to be somewhat defensive. You have to do it. But if we see an opportunity to completely reposition a property, including a new arrival experience, a new lobby, new F&B platform and at Kierland, we redid the spa and now we're doing the rest of the hotel. That is how our decision is made to allocate capital. And obviously, we work very collaboratively with our operators. We work collaboratively with Hyatt on the 6 assets that we selected and the scope of the renovation, and we work collaboratively with Marriott as well. So we're delighted that not only given our size and scale, but our relationships and our ability to perform has allowed us to, again, distinguish ourselves through the MTCP program, HTCP program and now MTCP2, where the operators support our capital investment. And I think that's really important to stay focused on. They support it through providing operating profit guarantees for anticipated disruption and enhanced owner priority returns. which gives us an opportunity to really kind of anchor the underwriting for the capital that we're putting into these assets. So we'll continue to do this going forward. It's the clearest line of sight we have to strong cash-on-cash returns in this environment. And yes, you're absolutely right. We didn't buy back stock in the quarter. We bought back $200 million of stock this year. But capital allocation in our mind is a decision of where are we going to drive the greatest long-term value for our shareholders. And we believe investing in our assets, at least at this point in time with our stock price not disrupted is where we will drive the better returns. We bought back $200 million worth of stock, and there is a methodology to determine what the IRR is on those stock buybacks, it's what you can reissue the stock price at down the road over a period of time. Well, the multiple hasn't moved anything. So we're still where we were, and it's very difficult to see a clear line of sight to underwrite a strong IRR on a stock buyback when we have a clear line of sight to investing in our assets. Operator: Our next question will come from the line of Cooper Clark with Wells Fargo. Cooper Clark: Maui continues to have strong momentum and appreciate the early color on occupancy and out-of-room spend. Could you provide any early thoughts and color about how we should be thinking about the pace of a recovery into '26 from an earnings perspective within the context of the $110 million guide implied in '25 guidance and then the strong '26 group pace? Sourav Ghosh: Sure. So Maui continues to recover really well. Our total group revenue pace for 2026 is a positive 13% versus same time last year. Just to put this into perspective in terms of group room nights, we already have 67,000 group room nights on the books for 2026. And last year, at the same time, we had 55,000 on the books. Compare that to back in 2019, at the same time, we had 73,000 group room nights on the books. So in other words, we're effectively 92% of the way already there relative to 2019 at a pretty attractive rate. So we feel pretty confident that Maui is going to continue to recover. In terms of exactly how much incremental EBITDA we expect in addition to the $110 million of EBITDA that we are forecasting for this year. Obviously, we are still very preliminary reviews of the budgets. We don't have an exact number, but we are very hopeful that it's going to be positive. And it's going to be -- right now, I'll just say it's a wide range between the $110 million and the $160 million that we talked about. So hopefully, we will make incremental progress next year, but things are looking really, really good as it relates to group pace for 2026. Operator: Our next question will come from the line of Chris Darling with Green Street. Chris Darling: Jim, you alluded to feeling good about Host setup for 2026. I'm hoping you could elaborate just in an anecdotal fashion. And specifically, I'm thinking about some of the lower-hanging items across your portfolio, whether it be Maui, the Don, Turtle Bay, maybe there's others that you'd call out. So any way you could speak to that and perhaps quantify to some extent as well? James Risoleo: Sure. Happy to, Chris. We have in a number of our key markets, we are seeing really strong total group revenue pace for 2026. Sourav touched on Maui as one example. San Francisco is another one. I mean San Francisco is recovering really well. It's recovering nicely. 2026 total group revenue pace for San Fran is up over 20% for our portfolio. And group rate is pacing up 10%. Group room nights are pacing up 3%. So we feel really good about that. And the 26 citywide group room night pace is up 7% to last year and following 54% increase in 2025. So San Fran has, I think, turned the corner. It really has. The mayor and the President of the San Francisco Travel are really out there taking the lead for positive change for the city. Violent crime is down 22% in the city and property crime is down 25%. So we're optimistic about San Francisco. And we also have Super Bowl in San Francisco as well next year. And the other -- the broad positive for our portfolio, and I'll give you some color on a couple of other major markets. But we have 10 markets where we're going to see benefits from the World Cup as well. And that's going to provide a big positive for us. As an example, I think in New York, World Cup should be very positive for the market, hosting a total of 8 games, including the final. So it's going to bring additional tourism to New York City as well. Washington, D.C. is another bright star for us next year. Total group revenue pace is up 13%. So we feel good about that. Nashville, total group revenue pace is up 26%. So there are a lot of really positive things out there on the group side of the business. And we're about 36% group. So it's meaningful to us, absolutely. Our total group revenue pace for the year at this point is up 5%, mid-single digits. We'll be watching that very closely to see how it evolves over the next couple of months. But with all that said, we do believe that the assets that we have, the fact that we have strong geographic diversification, we have no one market that delivers more than 8% of our EBITDA, and that's been very thoughtful as we've assembled this portfolio and as we run the business and the quality of the assets we have and the -- where customers are staying today and where they're spending money, the fact that the affluent customer continues to prioritize premium experiences, and we see it not only quarter-by-quarter or year-over-year, we see it weekly. We track our properties weekly to see what is happening with RevPAR. And we're not seeing any slowdown, Chris. I'll tell you that. We just continue to see the affluent customer spend money. So that's what gives us confidence that we're set up well for 2026. Operator: Our next question will come from the line of Aryeh Klein with BMO Capital Markets. Aryeh Klein: On the group side, near-term group bookings sounds like they've been maybe a touch softer. Hoping you can provide a little bit more color on that and maybe how broad-based that might be across the business verticals? And any change in cancellation or attrition or lead volumes more broadly from a forward booking standpoint? Sourav Ghosh: Aryeh, there hasn't really been any sort of meaningful cancellation besides maybe a little bit what we have seen in D.C. tied with government business. But in general, I would say there is not a significant drop in terms of group pace by any means. For Q4, we are set up really well. Our fourth quarter group pace is actually up over 7%. It's almost 8%. So still have a very strong group quarter. The third quarter, we always knew going in that it would be a soft group quarter given the shift in Jewish holidays. And you saw that with the outperformance of October at 5.5%, you kind of have to look at sort of September, October together to see the Jewish holiday shift impact. But that's really why group was down in the third quarter. And some of the softness is really related more to government and government adjacent businesses. Otherwise, overall, even though group volume was down, as you saw in Q3, which was expected, our banquet and catering revenue per group room night was actually up. So which shows that the groups are still willing to spend when they do show up at the properties. So we don't see any specific cracks in terms of driving group volume as we look at our group pace numbers into Q4 and into the future. Operator: Our next question comes from the line of Chris Woronka with Deutsche Bank. Chris Woronka: Congratulations on a very good year-to-date. Just wanted to ask on the -- you guys have, I think, over time, seen more success on some of the out-of-room spend growth, especially on the -- I think on the group side. Can you maybe talk a little bit about what's driving that and how much visibility you have into that and what it's comprised of, whether it's just more higher menu prices or more ancillary spend on things like retail and spot and just your level of comfort that, that can continue? Sourav Ghosh: There definitely is just increased spend. And whether that's spa, whether that's golf, obviously, resort destination fee is a component of it as well. As we get into next year, you'll obviously get into tougher comps, just given how much we have moved, particularly on the ancillary revenue and banquet and catering group room night. So if you're looking at next year, we had almost 1 point of delta between RevPAR and total RevPAR for this year, that is probably going to shrink for next year just given the tougher comps. But we -- just given the consumer that we are seeing, they continue to spend more. And the other thing is us also reinventing and repositioning our outlets, which has really benefited this year with the view at the Marriott Marquis and Aviv at the 1 Hotel South Beach, obviously, that's driven meaningful growth. So we're continuing to look at outlet opportunities where we could really drive incremental returns and incremental EBITDA from repositioning these outlets. So while there are other opportunities, I think next year, certainly, you will run into just tougher year-over-year comps just given a ton of the initiatives that came to fruition for 2025. Operator: Our next question will come from the line of Robin Farley with UBS. Robin Farley: I just wanted to get a little more insight into the group booking pace for next year. When you mentioned it's up 5% for 2026, and that's room nights and rate and I think forward banquet revenues. Just wondering if you could give us a little color on the nights increase versus rate increase just since it feels like overall group, not just for host, but across the industry. Just wondering if we're seeing real room night demand recovery there or if it's still sort of mostly rate driven, which has kind of been the case this year. Sourav Ghosh: Robin, so as of where we stand right now, it is more room night driven. It's effectively almost all room night driven. Rate is a very slight improvement year-over-year. And I'm talking about the pace, so the 5% that Jim referred to. We had effectively the same amount of group room nights on the books. It's slightly above relative to last year in terms of percentage of what we are expecting for next year. But we would expect the group room nights to be more just given the current pacing. But right now, as we stand on the 5%, just over 3% is group room nights. Robin Farley: Okay. Great. Super helpful. And maybe just as a quick follow-up. I know you talked about your priorities and seeing your own multiple be so low. When you do think about potential asset acquisitions that host or kind of what could interest you, is there anything -- can you characterize if you feel like there's a market or a type of -- just anything that you feel like would enhance your portfolio, just to give us a sense of where your interest might lie? James Risoleo: I would tell you, Robin, that asset acquisitions today are a very low priority for us. It just -- we don't think today in this environment with what we're seeing in the marketplace that we can generate the types of returns through acquisitions that we can generate through other capital allocation decisions. So that includes continuing to invest in our assets, continue to pay a sustainable dividend to our shareholder, which we have done consistently since we exited COVID. And we'll be thoughtful about dispositions in this environment. I think if we saw a path forward to really doing an accretive acquisition. Of course, we would consider it. But we evaluate everything that's out there in the marketplace, and we're just not seeing anything that we underwrite at this point in time. Operator: Our next question will come from the line of Smedes Rose with Citi. Bennett Rose: I was just hoping maybe you could talk a little bit maybe more Sourav, about kind of any updated thoughts you have on kind of wages and benefits increases in 2026? And besides New York, are there any major markets where labor contracts are coming due or have to be renegotiated? Sourav Ghosh: Yes. So for 2025, we are still expecting wage rate growth, which would be a message earlier on in the year at about 6%. Just given that a lot of the contracts were front-end loaded, our expectation is that for next year, the wage rate growth is going to be lower. How much lower? I don't know yet. We are still, as I said, going through budgets. We'll have a better indication, and we'll provide that information on our next call next year. In terms of contracts that are coming up, New York is really the only one that is coming up for next year, mid next year. Obviously, we are not party to those negotiations with the union. It is our operators that negotiate with the union, and we will see where that ends up. It's too early to say at this point in time. Operator: Our next question comes from the line of Duane Pfennigwerth with Evercore ISI. Duane Pfennigwerth: This feels like the first clean fall in a while on the Gulf Coast without any major storms. I understand there are several puts and takes with operational impacts versus BI. But can you maybe frame the tailwinds to growth potential in 2026 from no storms on the Gulf Coast? James Risoleo: Well, Duane, we have, I think, 24 days left till the end of the -- official end of the hurricane season. So let's keep our fingers crossed that when we talk in February that this will hold true to form and we won't see anything happen on the Gulf Coast this year. The tailwinds for us will be really the Don CeSar is performing extremely well. It's beating our expectations. We raised our assumption for performance this year from $3 million in Q2 to $6 million this year, and we're excited with how the Dawn is set up for 2026. The Ritz Naples continues to really perform quite well. And a lot of you have seen that property. A lot of you have seen [ Tiburon ] as well, which we're going to be under -- [ Tiburon ] is going to be undergoing a completely transformational renovation. So that will -- and we will receive the operating profit guarantees for the anticipated disruption, but that will likely have an impact on RevPAR for the Gulf Coast, but it's fully anticipated and it's fully baked in. And I think that the Gulf Coast of Florida generally, when storms come, it affects everything in Florida. So we're excited with how the 1 Hotel South Beach is performing, with how the Ritz-Carlton, Amelia Island is performing. Singer, the Singer Resort is still ramping after a complete repositioning there as well. And it's all being driven by the type of customer that is continuing to prioritize experiences, premium experiences because these properties are all really high-end assets. And so let's get through November, and we'll see how the assets perform into 2026. We did talk a bit about Festive being up. And a lot of those assets are part of Festive, I think it was at 9% for this year. Festive pace is up 9%, which is very positive. So again, I think that this helps us set up the company very well into 2026. Sourav Ghosh: And Duane, I'll just add there, right? When you think about all the benefit we'll see from HTCP next year, we will still obviously be under renovation at the Grand Hyatt Manchester, but every other HTCP project effectively be done, we should see lift from that. As Jim mentioned earlier, Super Bowls in San Francisco, we should see a lift from that. We have 10 cities where World Cup is going to be played depending on what teams play in which cities we should see lift from that. So we feel really good about our setup for next year to be able to drive incremental top line. So not just organic in the markets, but all the capital investments that we have made in those specific markets. Operator: Our final question will come from the line of Jay [indiscernible] with Cantor Fitzgerald. Unknown Analyst: Just circling back to the EBITDA guidance raised by $25 million. Was that more of a portfolio-wide story or certain key markets to call out like Maui? And then with the strong October up 5.5% on RevPAR, how is November, December shaping up? If you can give any commentary on that? Sourav Ghosh: Sure thing. I'll provide the bridge on the guidance. So it's just clear in terms of the $1,705 million to how we got to the $1.730 billion. When you take the $1.705 billion, you're going to add $26 million in terms of just comparable operations given that it's -- we have added a ton of room nights, there have been incremental variable costs associated with that. So that guide for Maui at $110 million has effectively remained the same for the balance of the year. So that's $26 million overall comparable operations lift. Another $3 million, as Jim mentioned, we have taken Don CeSar from $3 million to $6 million, so $3 million incremental for Don. Interest income of $6 million. And then those are all the adds. The deducts are $5 million from the dispos. That's about $4 million for Metro Center and $1 million for St. Regis and then about $5 million that we talked about for the Four Seasons condos. So that will get you to the $1,705 million. As it relates to November and December, right, at this point, we provided October numbers. So obviously, the implied Q4 is around 1.5%. So when you look at the blended November, December, it's effectively slightly negative. Now that is fully expected. And I will say that in our increased guide for fourth quarter, it's not all October. 2/3 is October, 1/3 is November, December. So we actually took up our guide for November, December as well. The reason it's slightly negative, it's twofold. One is just last year, we had Christmas week overlap with Hanukkah. So you didn't have Hanukkah in a separate week, which obviously impacts travel. This year, it's a tougher comp. Hanukkah does not overlap with Christmas week. Secondly, last year, right after elections, we had, you may recall, short-term group pickup. And we did quite a bit of group business towards the end of November, beginning of December. So that helped 2024. So it's really tougher comps. But overall, at this point in time, assuming government shutdown gets resolved and we don't have any issues with travel and airports, we are well positioned to be able to achieve our forecast. Operator: And that will conclude our question-and-answer session. I'll turn the call back over to Jim for any closing comments. James Risoleo: Well, everyone, thank you again for joining us today. We really appreciate the time that you spend with us, and we appreciate the opportunity to discuss our quarterly results with you and look forward to see many of you at upcoming conferences. I want to wish everyone a very wonderful Thanksgiving with your family and friends. Take care. Operator: This concludes our call today. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the HOCHTIEF 9 Months 2025 Results Conference Call. I'm Serge, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mike Pinkney. Please go ahead. Mike Pinkney: Thanks very much, operator. Good afternoon, everyone, and thank you for joining this HOCHTIEF 9 Months 2025 Results Call. I'm Mike Pinkney, Head of Capital Markets Strategy. I'm here with our CEO, Juan Santamaria; and our CFO, Christa Andresky; as well as our Head of IR, Tobias Loskamp; and other colleagues from our senior management team. We're looking forward to taking your questions. But to start with, our CEO is going to run us through the details of another strong set of HOCHTIEF numbers, our guidance increase and provide you with an update on the group's strategy. Juan, all yours. Juan Cases: Thank you, Mike, and thank you, everyone, and welcome to everyone joining us for this results call. HOCHTIEF has achieved an outstanding performance during the first 9 months of 2025. The successful implementation of our growth strategy is reflected in the group's strong and sustainable financial performance. We are delivering significant sales growth, rising margins and a positive evolution of the group's derisked operational profile as the proportion of advanced tech projects continues to increase. Due to our expectations of a Q4 acceleration, we are raising HOCHTIEF's operational net profit guidance for 2025 to EUR 750 million to EUR 780 million versus the EUR 680 million to EUR 730 million previously. The new range implies a year-on-year increase of 20% to 25% compared with EUR 625 million in 2024 and versus the previous indication of an increase of up to 17% year-on-year. The higher net profit expectation for the group are driven mainly by the outperformance of Turner, where we now anticipate an operational PBT of EUR 850 million to EUR 900 million in 2025 compared with the previous guidance of EUR 660 million to EUR 750 million. In addition to achieving a strong financial performance during the first 9 months of the year, we have made further important advances on the strategic front. We are increasingly harnessing our geographic footprint and engineering know-how on a group-wide basis to access additional growth and value creation opportunities. Before providing you with an update on the strategic front, let me give you an overview of the key numbers. Group sales during the first 9 months of the year increased by 24% FX adjusted to EUR 28.1 billion, driven in particular by the group's focus on its strategic growth markets. HOCHTIEF's operational net profit rose by 19% to EUR 537 million or plus 26% FX adjusted, above the top end of the 2025 guidance range we provided at the start of the year. Nominal net profit stood at EUR 656 million. Operating cash flow last 12 months of EUR 2.1 billion shows a strong performance, up EUR 400 million year-on-year pre-factoring, driven by a sustained high level of cash conversion and supported by firm revenue growth and margin expansion. The first 9 months of the year incorporate the characteristic impact of seasonality during the first quarter, but show a $163 million increase in net operating cash flow year-on-year adjusted for factoring. Adjusting for capital allocation effects, net cash would show a strong EUR 1 billion plus year-on-year increase. The movement in the group's net debt position since December 2024 has been driven by strategic investment decisions and their consolidation effects as well as seasonal factors. The new orders level of EUR 36.6 billion represents a significant rise of 19% year-on-year, adjusted for FX effects with all operating segments reporting increases. New work includes important project wins in our strategic growth markets such as advanced technology, critical metals, energy and sustainable infrastructure. On a last 12 months basis, new orders represented 1.2x work done, giving you a sense of the continued growth trajectory. At the end of September 2025, the group's order book stood at EUR 70 billion, up by 12% year-on-year, FX adjusted. Now let's take a brief look at our performance at the segment level. Turner delivered an outstanding performance during the first 9 months of 2025. Sales increased by 38% year-on-year to EUR 18.8 billion, driven by very strong growth in data centers as well as high revenues in health care and education. The acquisition of Dornan Engineering, a rapidly growing advanced tech mechanical and electrical business included in the consolidated figures since January '25, further enhanced growth. Turner delivered very strong operational PBT, reaching EUR 629 million, an increase of 60%, supported by a further increase in the operational PBT margin to 3.4%, up 50 basis points year-on-year and driven by Turner's successful advanced tech-focused strategy. Turner's new orders in the period of EUR 23.4 billion showed a very significant increase of 21% year-on-year with particularly strong growth in data center contracts as well as increases in areas such as biopharma, aviation and commercial. As a consequence, the period-end order backlog of EUR 34.3 billion was 20% higher in local currency terms compared to September '24. Due to Turner's strong growth momentum, we now expect an operational PBT of EUR 850 million to EUR 900 million '25 compared with the previous guidance of EUR 660 million to EUR 750 million. The new profit range represents a year-on-year increase of between 49% and 58% compared with 2024. Moving on to CIMIC. CIMIC delivered a steady performance in the 9 months period. On a comparable basis, sales were stable year-on-year with operational PBT of EUR 351 million, up 3% or 10% FX adjusted. CIMIC's solid order backlog of EUR 23 billion was up by 3% FX adjusted with growth across several segments, including data centers, defense and sustainable mobility with a 4% increase of new orders in Aussie dollars. We expect CIMIC to achieve an operational profit before tax for '25 in the range of approximately EUR 480 million to EUR 510 million. Let's take a look at our engineering and construction activities, which continued their positive momentum during the first 9 months of the year. Sales of EUR 1.2 billion increased by 13% year-on-year, and operational PBT grew by 14% to EUR 61 million, both on a comparable basis. In the January to September '25 period, Engineering and Construction secured new orders of EUR 3.9 billion, 21% higher year-on-year, and this strong development supported a further increase in the order backlog, which showed a solid rise of 10% to EUR 12.2 billion. For '25, we continue to expect an operational profit before tax of EUR 85 million to EUR 95 million from the business. Next, we have Abertis, which achieved a solid operational performance in the first 9 months of '25. Average daily traffic at the Toll Road company increased by 2% year-on-year with revenues and EBITDA on a comparable basis, up 6% and 7%, respectively, reflecting a solid underlying business performance. The operational net profit pre PPA amounted to EUR 543 million, with the year-on-year variation, including adverse tax effects in France. The profit contribution from our 20% stake in Abertis after PPA amounted to EUR 48 million. Let me now give you an update on HOCHTIEF's strategic development. As a global leader in end-to-end advanced tech infrastructure projects, HOCHTIEF is in a unique position to benefit from multiyear demand for infrastructure investments driven by the megatrends of digitalization, demographics, defense, deglobalization and demand for energy. HOCHTIEF's strategy is focused on capitalizing on the very attractive opportunities in its strategic growth markets as well as increasing its share in the value chain by investing equity, applying its O&M capabilities and enhancing its engineering value proposition to drive margins and at risk financial profile. Furthermore, the group is combining its global footprint with its local presence and technological know-how to maximize its delivery capability. By leveraging shared digital platforms, procurement networks and design engineering capabilities across Turner, CIMIC and HOCHTIEF Europe, the group is delivering global scale with local excellence. Turning to our strategic growth markets. HOCHTIEF has taken important strides to further strengthen and expand its leading presence. We command a strong competitive position in the digital infrastructure and advanced tech sector. After the exponential surge we've seen over the last 2 years, growth in the global data center market remains very strong driven by soaring demand for cloud services and artificial intelligence. Data centers and compute CapEx in '25 is expected to reach USD 600 billion, double the 2023 level. Industry observers suggest annualized global AI infrastructure spend could reach USD 3 trillion to USD 4 trillion by the end of the decade. North America remains the largest data center CapEx market in the world, and we expect it to continue expanding at a 15% to 20% annual rate over the next several years. Turner's strong position with the leading hyperscalers give us outstanding visibility with major contracts identified for '26 and '27, driving revenue growth through at least '28. Europe is entering a period of acceleration. We're seeing opportunities that will convert into new orders in '26, fueling revenue growth in the following years. Asia Pacific is poised to be the fastest-growing region. We're seeing a sharp rise in investment driven by the rapid adoption of AI-powered technologies and the continued expansion of digital infrastructure across Southern and Southeast Asia. Across all regions, the story is the same. Demand remains high. Schedules are tightening and clients are turning to us because we can deliver more complex projects rapidly and at scale. HOCHTIEF has the capacity to address the strong sector demand growth through our global scale and ability to mobilize resources. This is complemented by our global sourcing capability through Source Blue and the use of modularization to deliver construction products more quickly, safely and with enhanced quality. The group has been awarded several new large-scale data center projects in the period, more than doubling the value of new orders secured in the first 9 months of '25, underscoring the group's leading presence in these strategically critical markets. In July, for example, the artificial intelligence hyperscaler CoreWeave announced its intent to commit more than $6 billion to create a new state-of-the-art data center in Pennsylvania, purpose-built to power the most cutting-edge AI use cases. The initial 100-megawatt data center with potential to expand to 300 megawatts will be delivered by a Turner JV. Earlier this week, OpenAI, Oracle and Vantage as part of the USD 500 billion Stargate program announced a USD 15 billion data center CapEx in Wisconsin, where Turner is one of the selected construction managers. And in Asia Pacific, we have been awarded projects in Malaysia and Singapore, adding to Leighton's Asia expanding portfolio of data center developments in the region where it is also working on or has completed work in Hong Kong, Indonesia, Thailand, the Philippines and India. The group is also advancing in the semiconductors area as a strong demand for AI and increasing digitalization drive investment levels with double-digit growth expectations going forward. Together with the reshoring trend, this is producing a rapid increase in semiconductor-related opportunities. As part of the strategy to expand the group's presence in the entire AI ecosystem, HOCHTIEF aims to establish a pan-European network of sustainable edge data centers. In September, we announced the integration near Essen of the first YEXIO branded edge data center developed, owned and operated by HOCHTIEF, a major milestone for the group's data center strategy. The previously created joint venture Yorizon will operate HOCHTIEF's edge data center network with innovative cloud computing solutions that support digital sovereign net. Another 4 edge data centers are currently being developed in Germany with several further sites identified. Furthermore, HOCHTIEF is looking to expand the business into other European countries, including Austria, Switzerland and the U.K. Energy-related infrastructure is another strategic growth market for HOCHTIEF with substantially rising demand driven by the global energy and supply security needs. HOCHTIEF is strategically focused on building the infrastructure that underpins a low-carbon future from electricity generation and storage to transmission and advanced technology. The company is embarked in projects as a high-voltage transmission upgrades, regional electricity fortification and the delivery of firming assets that strengthen the grid. In October, HOCHTIEF secured a major nuclear and civil works framework contract worth up to EUR 685 million as part of the infrastructure delivery partnership at the U.K. Sellafield site. The alliance style contract lasting up to 15 years involved design engineering and delivery of civil infrastructure works in support of nuclear operations and decommissioning in collaboration with Sellafield and its partners. This strategic long-term partnership reinforces HOCHTIEF's unbroken legacy in the nuclear sector since the 1950s as a trusted partner in engineering and construction for some of the world's most critical nuclear programs. HOCHTIEF has several decades of experience designing and building nuclear power plants and facilities across the world for renowned global energy companies like RWE. We deliver end-to-end services across nuclear market, and we are well positioned to support the deployment of best-in-class small modular reactor technologies. As these technologies evolve and emerge, we're leveraging our global project and engineering capabilities for new build, SMRs, storage and dismantling in an industry, which could see over $500 billion in investments in Europe by 2050. If we turn to renewables, we represent an ever more important energy source. Battery energy storage systems are becoming a crucial element to balance electricity networks. Global BESS capacity is expected to rise by 67% in '25 to 617 gigawatt hours and to tenfold by 2035. In Australia, for example, CIMIC subsidiary UGL was again selected by Neoen, a world-leading producer of exclusively renewable energy and Tesla, a global leader in battery storage and sustainable energy solutions to construct another battery project of 164 megawatts near Perth. The battery is Neoen's first 6-hour long-duration storage asset and will be equipped to support the region's energy reliability and a greater penetration of renewables into the energy mix. Investment in transmission and distribution networks is set to grow strongly in coming years as renewable power supplies an increasing proportion of electricity generation. Overall energy demand is being boosted by the exponential growth in data centers, electric vehicle usage and other megatrends. The group is strongly positioned in Australia, where CIMIC JV is delivering the 148-kilometer HumeLink West project, which will form the backbone of the power transmission network from South Australia through to Northern Queensland. In the U.K., the HOCHTIEF JV is currently completing a 32-kilometer power supply tunnel for the energy supply of London as well as a power supply project in Wales, and we are also very well placed in other markets such as Germany, which is seeing substantially higher grid investment. Global demand for critical minerals and mineral resources is set to increase significantly as a consequence of the exponential growth of clean energy technologies, digital infrastructure and defense investments. HOCHTIEF has developed a unique position in critical minerals globally, primarily through Sedgman, integrated minerals processing solutions and Thiess global mining services, and is growing its geographical footprint and scale. During the period, Sedgman, which has over 100 critical minerals engineering projects globally started work on an innovative critical minerals processing project in Queensland for vanadium and other rare earth metals as well as a 5-year gold project contract extension in Western Australia. Last month, Leighton Asia secured a 3-year extension to an asset integrity contract in Indonesia for critical production assets to extract nickel, a key component in battery technologies and high-performance alloys. Furthermore, we're also carrying out a process design and project implementation for a copper zinc plant in Western Australia, a 3-year nickel and copper's full-service mining project in Ontario and a 4-year contract to deliver on the ground services at a copper mine in Queensland. HOCHTIEF through Sedgman is also expanding its European footprint in critical minerals. We've been working in Germany with Vulcan Energy on the EPCM validation of what will be the Europe's largest lithium extraction plant. The company's integrated lithium renewable energy project will allow it to deliver a local source of sustainable lithium for the European EV battery industry enough for an initial 500,000 electric vehicles per annum. The awarding of European Union strategic project status under the Critical Raw Materials Act highlights its transformative potential for Europe's clean energy future and lithium independence. And Sedgman has also won a contract to provide a feasibility study and front-end engineering design work for a major lithium project in France, and we're also currently working on or have worked on a number of other lithium projects and studies this year in Portugal, Brazil, Australia and Canada. Global lithium demand growth is expected to fivefold by the end of the decade, pushing the market into deficit by the 2030s, and our natural resources company, Thiess has been awarded a contract extension for mining and asset management works at a magnetite mine in Western Australia. The project is a key part of Australia's iron ore export profile, introducing magnetite, a premium product line with lower inherent emissions and which supports our ongoing strategy to diversify our commodities portfolio. Investment in defense infrastructure is expected to substantially increase globally. HOCHTIEF sees this sector as strategically attractive due to the synergies with the group's leading position in civil works, its engineering capabilities and its sector presence in Europe, the U.S. and Australia. Furthermore, and supported by our key security credentials, the visibility afforded by multiyear public investment plans supports the group's long-term strategy of sustainable value creation. We delivered projects for ministries of defense, police agencies and border authorities across our geographical footprint. At the end of the third quarter, the group had a defense order book of around AED 2 billion. In September, for example, civil company CPB contractors began building works for a Royal Australian Air Force base in Queensland and defense infrastructure upgrades in South Australia. These contracts continue the long-standing partnership between the groups and the Australian Department of Defense and support the objectives of the country's defense strategic review. Australia plans AUD 765 billion in defense spending over the next decade, increasing by AUD 70 billion in the upcoming years. In the U.S., the FlatironDragados joint venture is leading the construction of the dry dock at Pearl Harbor, this project is part of the U.S. Navy's Shipyard Infrastructure Optimization Program, which is modernizing government owned and operated public shipyards. Furthermore, Turner's offered Air Force base flood recovery program in Nebraska is progressing strongly. In Europe, major multiyear defense investment plans, including in Germany, present substantial opportunities in defense-related capital works and potentially via the PPP model. In October, for example, the German Defense Minister announced plans to quickly construct 270 new barracks for the Armed Force starting in '27 based on a modular construction concept in order to accommodate a significantly growing active force in reserve. HOCHTIEF's more mature core infrastructure business remains a solid foundation underpinning the group's growth strategy. Turner was again named ENR's top U.S. general contractor, holding leading position across 13 segments, including health care, aviation and data centers. During the quarter, Turner began work on the 46-story 343 Madison Avenue Tower in New York and was selected alongside AECOM Hunt to deliver the USD 2.4 billion Cleveland Browns Stadium. Other major projects for the group include the Metropolitan Museum of Art expansion and aviation upgrades at L.A. and Memphis airports, underscoring our continued leadership in high complexity sustainable projects. The group has been a global leader in transport infrastructure and sustainable mobility for several decades. The outlook for the sector is very positive due to several infrastructure stimulus packages in key geographies. In Germany for instance, in Germany, the EUR 500 billion infrastructure fund approved by the Bundestag Parliament this year will see its first full year deployment in '26 when federal investments are budgeted to rise to a record level of EUR 127 billion, steep increase compared to the around EUR 75 billion level in '24. Furthermore, the current coalition has provided visibility for this record investment level to be sustainable over the coming years. HOCHTIEF is well positioned to benefit due to the scalability of its business model and its core expertise in bridges, tunnels and rail as illustrated by the EUR 170 million rail infrastructure contract win to modernize a section for Deutsche Bank as part of the integrated plan to upgrade the country's rail network. The HOCHTIEF joint venture was also recently awarded a major contract for the construction of the second main line of the S-Bahn rail network in Munich. Overall, during the last 3 years, our order book for German projects has almost doubled to EUR 5.2 billion, and we expect it to continue to rise. Let me turn now briefly to capital allocation, where shareholder remuneration continues to be a key priority for HOCHTIEF. We regularly assess strategic M&A opportunities with our capital deployment focused on growth markets such as digital infrastructure, energy transition assets and concessions. HOCHTIEF's solid balance sheet, strong cash flow generation and increasing revenue profile supports the group's strategic expansion in these high-return areas. Earlier this year, HOCHTIEF closed approximately EUR 400 million for the acquisition of Dornan, marking a major milestone, which will enable the group to accelerate Turner's European expansion strategy. The start of the year also saw the completion of the FlatironDragados transaction, creating the second largest civil engineering and construction play in North America with an unparalleled track record in delivery of large infrastructure projects. HOCHTIEF holds a 38.2% equity consolidated stake in the new business. In October, a EUR 400 million capital injection was approved for Abertis with HOCHTIEF subscribing its EUR 80 million contribution to support the growth of the international toll road operator. In addition to M&A, we also continue to develop and invest equity in greenfield infrastructure projects in strategic growth areas where we see significant value creation opportunities. In Australia, for example, we're further leveraging the group's capability and leadership position in data centers after the acquisition last year of a site to develop a facility with a 200-megawatt capacity. CIMIC also is investing in and developing renewable assets, transmission lines, grid enabling infrastructure and battery energy storage systems. In Europe, we're investing in a network of edge data centers, as I mentioned earlier, and we continue investing in other core infrastructure via PPPs. Another increasingly important pillar of the group's strategy is the adoption of AI at scale across the group, which is allowing us to enhance the value we offer for our clients whilst also improving productivity and safety. Focus on optimizing our core tech platforms and systems as well as supporting our talent management, AI and digital systems are transforming how we work. For example, autonomous drones and AI-powered image analysis now enhance site safety and planning. Digital tracking platforms streamline workflows and provide real-time transparency into progress and resources. And custom GPTs are simplifying daily operations, while our production control system standardizes delivery and reduces operational risk. The group's focus on environmental, social and governance priorities remain on track. On this front, it is notable that HOCHTIEF was awarded prime status for its ESG performance and achievements by ISS, the International ESG Consultant and rating agency. So let me wrap up. The HOCHTIEF numbers published today show an outstanding performance with a 19% increase in operational net profit to EUR 538 million backed by strong cash conversion. New orders have strongly increased, up 19% FX adjusted to over EUR 36 billion with a period-end order book of EUR 70 billion, which is 12% higher year-on-year and with over 85% of this backlog lower risk in nature. HOCHTIEF's growth trajectory is a consequence of our strategy to first reinforce and expand our presence in key growth markets such as digital and advanced energy, defense and critical minerals, which will provide long-term cash flow visibility for the group; two, harness our geographic footprint and engineering know-how group-wide; and third, further leverage our competitive strength. We will continue to deliver on our strategy underpinned by our solid balance sheet and derisked order book. And as indicated earlier, we're raising HOCHTIEF's operational net profit guidance for '25 to EUR 750 million to EUR 780 million, implying a year-on-year increase of 20% to 25% versus the previous indication of an increase of up to 17% year-on-year. Thanks, everyone, for listening and happy now to take questions. Mike Pinkney: We're ready for questions, operator. Operator: [Operator Instructions] And we have the first question coming from Luis Prieto from Kepler Cheuvreux. Luis Prieto: I had 3 questions. The first one is you have raised the guidance for Q4 for the full year on an accelerated rate of growth for Turner in Q4 that I would assume should continue next year and potentially much longer. Could you help us quantify Turner's actual earnings potential in the medium, long term? You talked about all the opportunities, and that's extremely useful. But can you quantify over the longer term? And in this context, what do you think is the right multiple to use for the valuation of Turner? The second question is that I would expect you to cover this in next week's Investor Day, but let me squeeze in this cheeky question now. How should Turner benefit from ACS' data center development activities? Should I assume that everything will be built by Turner for ACS? And the final question and even cheekier than the previous one. Would it make any sense now that things are going pretty well and the momentum has accelerated, would it make any sense to list Turner in the U.S. market as an independent company? Juan Cases: Thank you so much, Luis. So let me start with the first one. So yes, we have increased guidance. Turner is overperforming. Certainly, they are increasing margins. They increased -- they achieved 3.4% in the first 9 months period. We expect Q4 to get to around 3.7%. So basically, the 3.5% margin average that we announced for '26, it's happening in '25, and we expect further growth in '26. So again, we expect further growth in '26 and '27. I mean, as much as we have visibility, we see growth in both revenues and margins. And also, and I link to your second question, they will get the benefit on top of this of the ACS data center platform. So in general, that is very positive. Turner is helping significantly the development in data centers of the rest of the company, FlatironDragados, HOCHTIEF and CIMIC. So Turner is contributing to that, not just through knowledge, supply chain, but also client relationships. So that also is going to help. Now giving a guidance of how much is hard right now, and probably I shouldn't. Are we talking about double digits, for sure, right? Now how much? I don't dare to provide a guidance. I prefer to follow the right milestones at the right time to be providing guidance. But certainly, we're optimistic about Turner performance, and that will continue. There's no doubt looking at the market and the visibility we have right now at Turner. Listing Turner in the U.S., so at this stage, we -- I mean, we are not -- I mean, we are considering all options. We don't have a plan, but we are not rejecting any possibility, but not much I can say at this point. Operator: The next question comes from Marcin Wojtal from BofA. Marcin Wojtal: Firstly, regarding your, let's say, strategic update, you mentioned that you're open to strategic M&A and bolt-on M&A. Is there actually something new in that message? Are you more actively looking for opportunities? That would be my first question. Second, can you indicate what percentage of the backlog of that EUR 68 billion, I believe, or EUR 69 billion that is actually in data centers? And do you have data center exposure and anything meaningful as well outside of the U.S. in terms of backlog? And maybe my question number three, in terms of cash flow, Q4 last year was pretty strong, right? But should we expect a repeat? Should we expect a similar performance in terms of cash flow in Q4? Or it was a bit exceptional in Q4 last year? Juan Cases: Thank you, Marcin. So let me start with the M&A. No, it's not a new message. It's not a change in strategy. Let me go again through the same strategy when it comes to capital allocation and M&A for the last 3 years, right? Two types of investments. The first one is everything that is infrastructure. greenfield, especially and brownfield, specifically in Abertis that give us sustainable EBITDA and dividends, right? That's where we put anything that is a PPP, and in North America, that's where we put our data centers or specific industrial opportunities at dock, right? Nothing changes. This is the, call it, development infrastructure, what we've been doing for the last 50 years. The second one is the bolt-on acquisitions, right? When you look at all what we've been doing in the critical minerals space this year, and I provided a lot of examples, right? All of that has been possible because of the acquisition of Prudentia, MinSol, Novopro, PYBAR, Mintrex, all of that. And we've been announcing a lot of different acquisitions, very small in nature, but very, very relevant in terms of knowledge, right? All of that is what allow us to be going through all these projects with lithium, rare earth, vanadium, nickel, gold, copper, mineral sands, and some of these projects are becoming EPCM opportunities. One example that we believe could become an EPCM opportunity is the Vulcan project in Germany, where we've been working 3 years on the engineering and now it could potentially become a big EPCM, right? So that's -- at the end of the day, that's the end game. And when you look at critical minerals, we have more than 100 projects of engineering developed by us as we speak that could potentially turn into EPCMs or not, right? So this is why it's so important the bolt-on acquisitions. Now this is the example in critical minerals, but in data center, Dornan was another example. And potentially, we will need to continue seeing other opportunities. That on the engineering space. On the metal and minerals capabilities that is also needed for some of these balance of plants, you look that we have been also making some progress. I mentioned Mintrex was one example, but you've seen other, so we're not talking about very big opportunities. We're not talking about anything crazy, but it's very, very strategic, and little things can provide big multipliers for us, and if you analyze individually every bolt-on acquisition that we've been doing in the last 3 years, you take a look at them individually, we have multiplied from 2 to 3x EBITDA almost each month, right? So this is key. Now asking about backlog data centers, it's USD 12 billion in the U.S., USD 2 billion out of the U.S., more around CIMIC, mainly a little bit in Europe. But we are going to see -- well, first in the U.S. will continue to grow. I do not dare to say for how much, but significantly. But we expect a lot of growth in Europe and in Asia Pacific, right? So we do not see a limit to the data center strategy as much as visibility we have in front of us. And then when it comes to the cash flow, I mean, we are quite comfortable with the full year 2025. We expect strong delivery in cash conversion and the fourth quarter cash flow providing the characteristic strong seasonal performance. So yes, we are very comfortable in that sense. We're not expecting anything different. Operator: The next question comes from Dario Maglione from BNP. Dario Maglione: Congratulation for the great momentum. First question, actually, you mentioned the order backlog in data centers for 9 months. Could you actually repeat that number and confirm whether it is USD or euros? Second question kind of related to what was the order intake in data centers Turner in Q3? And maybe last question, looking medium term, so '26, '27, still remains quite impressive, the growth in data centers that Turner is achieving. Do you see any shortage in skills and labor or anything, any other bottleneck that we should consider that could be -- that could limit the growth rate in the medium term? Juan Cases: Good question, Dario. Can you repeat the second question? I didn't get it. Dario Maglione: Yes. The order intake for data centers in Turner in Q3. Juan Cases: Okay. So let me start with the first one. I think that you were asking -- I mean, the figures that I gave you before are in euros, the EUR 12 billion and the EUR 2 billion in euros, okay? Then we get into the order intake in Q3. I don't have in front of me. Let me see if we have it. If not, I'll send it to you, right? But I mean, certainly, we are -- I think that it was more than doubling what we had, but we can provide that figure exactly to you. So now any short-term skills or bottleneck? We're not seeing that at the moment. At the end of the day, the key for a lot of what we do is, first, our -- I mean, availability -- I mean, there are a few things that I believe give us an opportunity or gives Turner or gives us globally an opportunity, right? At the end of the day, the potential constraints in any market, it's always availability of skilled labor, the availability of material equipment and the speed to market, right? These are typically the 3 things that could jeopardize the growth of any sector. Why we believe that we are very uniquely positioned to navigate those 3, right? So let's start with the first one, right? Availability of skilled labor. The beauty of our 150 years managing civil works and general building that's exactly our specialty. That doesn't say that it's easy to get people. But certainly, that's one of our biggest advantages, right? A lot of the big projects we're getting, let me give you the example of Louisiana, but also the latest one awarded as part of the target program in Wisconsin or the one in Ohio or some of the big projects we're doing in Australia is because we have the ability to provide lots of people in a very short period of time in remote locations, right? And that's as important as having the engineering knowledge and as important as having a supply chain. So it is very important. The other thing that is key is what we've been doing with Source Blue on the global sourcing expertise, which has a lot of different components. The first one is hundreds of dedicated supply chain experts that are always stabilizing and accelerating the supply chains, but also access to very -- to manufacturing of specific components to make sure that they are -- I mean, that they are delivered on time at any given time and do not rely on international global supply chains. But also, a big part of what is coming is not just supply chain engineering and mobilization is the ability to start modularizing and manufacturing of site a lot of these things. And that's where we are putting a lot of strategy globally, right, not just in the U.S., but we are I mean, I will advance at some stage what we're doing in that sense, but that's also allowing to build more faster and attract more revenues and larger margins, and that's an important part of the strategy. Most of those workshops are being reconverted. It's not new workshops. We have those workshops. They used to be for precast facilities. They used to be for girders. They used to be for rings in tunnels, and now we're going to be using them for advanced technology building manufacturing, whether it's data centers or semiconductor fabs or we're talking about battery fabs, defense barracks. I mean there's a lot of different things that we can apply those, and we are putting a lot of effort into that sense. So overall, I would say that we are in a good position, and I think that I did answer the 3 questions. Operator: The next question comes from Filipe Leite from CaixaBank BPI. Filipe Leite: I have 2 questions, if I may. First one, if you can give us an update on sale process of the Transportation division of UGL in Australia? And when do you expect to have it completed? And second question on CIMIC and because sales and EBITDA drop in this quarter, how do you see CIMIC business evolving in the next quarter and during next year? Juan Cases: Okay. So starting with UGL transaction, that continues evolving, I think, in a good way, nothing we can announce at this stage, but we're comfortable the way it's going. And CIMIC, how do we see that evolving? So let me talk a little bit about CIMIC. So when you look at CIMIC, growth, if you just look at the reported PBT, FX adjusted CIMIC would have grown 20%. If you don't look at the FX comparison, then it's about 12%. If you look at the comparable, which is the one we should look, FX-adjusted growth would have gone from 3% to 10%, right? So this is relevant because it's true that you cannot compare with the growth of Turner or the growth that we're expecting potentially for '26 in Germany, right, that we are doubling work in hand, and that's going to continue to increase. But we are seeing in CIMIC 2 offsetting market trends. The first one is -- and that explains part of this slow growth. One is the transportation infrastructure in Australia that is coming off, and -- number one. But number two, we are not pursuing a lot of the projects because we are focusing on lower risk product opportunities, and you see that in the slower growth when it comes to civil and transport, and you see that in the unwinding of our net working capital in Australia, coming 100% from that, right? The Leighton Asia is performing, increasing growth income of new orders, cash flow, same thing UGL, Sedgman, but CPB is consuming a lot for all the reasons that I explained. On the other side, the big increase that is going to be bringing the region will come from Leighton Asia and will come from UGL, and it's not at peak, right? I mean, Leighton Asia sales have increased 66%. So we're comparing with the same level of Turner. The only thing is that the volume is still low. We are expecting that to grow. And UGL that is working a lot of the energy projects that there has been some delay. But I believe that, that will come back. So overall, I would say that the big next thing in terms of growth could potentially be Germany, but I do think that Australia is next. Now I'm comfortable that this will start happening soon. But again, we are making sure we -- we're making sure that we derisk the balance sheet. Operator: The next -- we have a follow-up question coming from Dario Maglione from BNP. Dario Maglione: Okay. Actually, two, if I may. First one is on margin for the data centers. How do they differ compared to a typical margin on nonresidential construction in the U.S. like very ballpark figure will be helpful to understand the opportunity for margin expansion at Turner. And second question regarding Germany. You mentioned a doubling working end. What do you think -- is this coming -- I mean, do you already see a positive impact from the German infrastructure fund? Or do you think that this will come later on top of the growth in the market? Juan Cases: Thank you. So let's start with data centers. I mean, unfortunately, it's very difficult for us to give specific margins on projects and sectors, basically because it could jeopardize a lot of our day-to-day commercial activities, right? And also it changes a lot. It's not the same -- every sector or even data centers, it depends a lot on the risk profile of the project. It depends on the relationship with the client. Some clients, they give you permanent orders for their expansion to secure their time to market, and there's a relationship. So typically, I mean, there's a trust relationship with lower margins because it fits you with a lot of work. In other cases, there's a unique one-off opportunities, which probably are considered in a different way, and there's as many -- I mean, prices are complex, different complexities, et cetera. Overall what I can say and putting aside data centers, but in general, that a big part of the increase of Turner's margin is being the delivery of high-tech projects. That's a change. That's what has gone from the type of margins that Turner had a few years ago with the ones we have right now, have come from in the extreme 1-point something or even 2-something 3 years ago to where we are right now of finishing the year of 3.7% and growing next year, right? So all of that is the composition. Now if you look at Turner, right now, backlog, 32% -- sorry, 32% of the backlog is data centers with another 4% in biopharma and another 5% in our high tech. So we're still low in the most advanced technology projects, and that's going to continue changing, right? So that percentage will continue growing. Source Blue as a supplier of services that has high margins will continue growing, and all of that is what is driving the overall margin of Turner. And then when it comes to Germany, so the EUR 500 billion infrastructure fund will see the first full year deployment in '26. So the federal investment is budgeted to rise to a record level of EUR 127 billion, and that compares with the EUR 75 billion level in '24. All of that is going to be driven mainly on rail through Deutsche Bahn, on highways through Autobahn and defense, right? So transport infrastructure is a major contributor or will be getting a lot of these investments. And the coalition government has recently reinforced their willingness to accelerate transport infrastructure spending by creating an extra EUR 3 billion funding on top of what it was already -- what I already mentioned, right? So there's a strong pipeline of opportunities, and I do think that, that will start getting reflected in the HOCHTIEF P&L in the coming years, right? Now also in that budget for '26, there's a significant spending by NATO, and that is also, I mean, as I said before, going through defense, but potentially other nondefense projects, but anyway, we'll be looking at that. But Germany, I mean, I believe, I'm optimistic and especially to HOCHTIEF infrastructure, that we will see the effects of all what I just mentioned through its books very, very soon. Operator: Next question comes from Nicolas Mora from Morgan Stanley. Nicolas Mora: Just a couple. So starting with -- maybe with the guidance upgrade. So I think at the midpoint, you're increasing your operating net income by around EUR 60 million, 6-0. But you basically upgraded Turner's guidance by EUR 120 million. So I was just wondering where the delta, the EUR 60 million have gone. It seems there's been quite a lot of rise in overhead costs. Is that down to new projects or especially in the data center space? So that's question number one. Question number two, outside of advanced tech in the U.S. at Turner, how do you see the rest of the, let's say, more plain vanilla market going? I mean, you've booked a few large tower projects, more in sports and leisure. I mean what's doing well? What's struggling? I would be interested to get a little bit more color on the non-tech side of the business. Juan Cases: Thanks, Nicolas. So let me start with Turner guidance versus the overall guidance. So well, I mean, I'm sure you realize, but the Turner guidance is an operational activity guidance from which taxes need to be deducted. But at the end, the difference between -- in addition to what I just said, there's the FX impact from CIMIC Asia Pacific and Australia region, which obviously comes to play. We had an increase in Turner, offset by some FX impact, but we had a deterioration in some of our business from an FX perspective, and there's other consolidation. So there's around EUR 20 million just from CIMIC Flatiron that you have to take into account just from an FX perspective, and then we have provided an overall assessment, right? At the end, guidance are guidance, so we always need to be careful with what we say. Now when we get into the other, what else besides data center? So let me give some figures specifically for the U.S. market. I think you're referring to the U.S. market. If not, let me know. But yes, the data center market in the last 9 months has grown the order book, 111%. So that's like EUR 14.2 billion. New orders have grown 141%. But if you go to biopharma, and yes, we were talking about lower figures, but new orders in biopharma have reached 400% increase and an order backlog of 234%. Now we're talking about much lower figures, but that shows that there is a big increase and it's going to continue ramping up. The other areas where we are seeing growth in the U.S. is the commercial market. So 12% order book increase. The aviation market with 17% in the order book or 28% in new orders. Sports have increased by 25%. So we saw -- sorry, hotels, plus 21% in order book. What are we seeing going down? So the battery market, we continue seeing that absolutely stopped, right? We -- I think that is minus 58%. But this is a timing effect. Eventually, the battery fabs and the battery projects, and I'm talking about battery fabs, will need to come back, right? It's a matter -- there were a lot of investments in EV vehicles. Demand is not there. All of that is driving all of that supply/demand have to adjust before all of that continues. But if you add all the future plans of all the EV vehicle producers, there's significant spend. The question is that they will continue delaying until demand supply stabilizes. Then we get to semiconductor market. There's -- that has stopped significantly or slowed down, but we are waiting. We're waiting on 5 projects. We're waiting on 5 projects for the clients to get financing, and that there's geopolitical discussions around it, and obviously, there's funding allocation. So we are waiting. Manufacturing is more or less stable, more or less. Health care, not the biopharma part, but the hospitals, we're seeing it at least in the first 9 months going down by 18%, first time that we see that going down. So probably that will change. Education, our new orders were minus 4%. I mean, not a big number, but went down minus 4% and Public/Justice market, a little bit down, minus 18% on the order book. And so yes, that's more or less one by one. Operator: The next question comes from Alvaro Lenze from Alantra Equities. Alvaro Lenze Julia: Just one. I was just thinking on -- you mentioned scalability and flexibility, and I think there is some concern from investors that there is right now a big investment cycle, especially in data centers. I know that right now, it seems like those should continue to increase over the coming years. But I just wanted to know how flexible is your workforce to change activity, imagine if in the future, the investment in data centers goes through a downturn, can it be shifted to other sectors? Or is the capabilities you have are very sector specific to data centers? I wanted to know how scalable and flexible are you both on the way up as you are demonstrating now or on the potential way down in the data center space in the future? Juan Cases: So let me -- well, first of all, thank you so much, Alvaro. Let me answer the question in 3 different ways, right? The first one, a very straight answer. We do have flexibility. At the end of the day, the same flexibility that we've shown moving people from certain projects into our projects. So it will work in the other way, right? So a lot of our people right now working in data centers, we are getting from other sectors and other fields. That's one of the reasons, there's multiple reasons why we put together the ACS University. But one of the reasons is has a very well structured plan of training people from different jurisdictions, different companies, different parts of the world from one sector to different sectors. So we have accelerated training programs for people, if you are going to jump into a semiconductor fab or you're going to jump into a big data center or you are going to jump into a battery, into nickel, so we have special programs that will move people around with special visas with a lot of investment. So this was one of the few reasons why we put the university, right? The university is -- it has a lot of different angles, right? Now let's talk about the investment cycle. I'm going to give my personal reflection on the cycle because, yes, we're talking about trillions and from every day, people say, well, it's going to be more trillions or less trillions or 20% more, 20% less, 50% more, 50% less. For us, 10% of infinite, it's infinite, 20% of infinite is infinite, right? I mean they are talking about so many trillions that it doesn't matter for how much you divide that. It's still trillions, especially because the bottleneck is not the demand, it's the supply of projects. You can argue all the different things that are going to contribute to demand, and there's a lot of literature writing about the demand, right? What's going to influence the demand. But there's no -- there's nothing talking about the restriction on the supply. And that's where the bottleneck is. No matter what figure you take from the demand, the problem is the supply, how you are going to build all those projects. And that's where in my opinion, the few engineering construction companies that are positioned in building a lot of the large programs, I mean, that's where we can provide value, and that's where we can provide our input. And that's why -- I mean, I'm not going to repeat myself all the things we're doing to try to be flexible and to try to move things. But certainly, we have a lot to say and to help. So in other words, as much as we have visibility of the next years, I don't see any reduction in the growth, right? And again, no matter what worst-case scenario you get, still trillions. I mean, how you build all of that, I don't know, right? But if that happened for whatever reason, because there was, I don't know, something a black swan somewhere, we would show the same flexibility that we've been addressing up to now. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the company for any closing remarks. Juan Cases: Just wanted to say thank you to everyone again for following us for -- I mean, following our figures, our strategy. I look forward to seeing all of you very soon. And anyway, Mike, do you want to add anything? Mike Pinkney: No. Thanks to everyone. And if you need to follow up on any detailed questions, obviously, just contact us here at the Investor Relations department. Thanks. Juan Cases: Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Claus Zemke: [Interpreted] A very good morning from Cologne, ladies and gentlemen, dear colleagues, this is Claus Zemke, and I'd like to extend a cordial welcome to you on the occasion of our telephone press conference on Q3. We have got Matthias Zachert here, CEO, and the CFO, Oliver Stratmann and they both will give you an update on what has happened over the past quarter, and we'll give you the guidance for the remainder of the year. Thank you very much for joining. Technical remark from my side. We are having this press conference in German, but there will be simultaneous interpretation into English. If and when you want to ask questions, there will be a possibility after Mr. Zachert's talk. How that is going to work will be explained a little bit later. And then, for legal reasons, you must know that there is an Internet stream. Mr. Zachert? Matthias Zachert: Thank you very much. A cordial welcome to all of you listening to this press conference of LANXESS. So let me talk about Slide 3, making a head start on my update. And I'd like to give you a description of the general situation of the economy, the German economy. And I mean, you are all reporting about what is happening in the major industries of Germany, that is, the automobile industry, mechanical engineering, and this quarter, all the industries mentioned that the economic situation is very difficult indeed. And this is, of course, also true for the chemical sector, which requires a lot of energy. Well, the reporting has corroborated exactly that. And this brings me to LANXESS. So we are navigating stormy waters, and EBITDA and also sales are burdened. There is one segment that we have strategically developed, and this much to our pleasure, is rather stable, and that is consumer protection. Going to talk about that a little bit later, but the 2 other sectors, segments, that is the intermediates like the individual units, they go to show what fierce competition we have got and how difficult it is to run the business. And this is also true of Specialty Additives. So we are doing our best to offset the general conditions and navigate these stormy waters by cutting costs. So this is something that is under control, under our control, and we will go about it. And we will need to be more precise about the remainder of the year in a minute. Now, the Slide #4, weak environment, unfortunately, and also changes in the portfolio. And I mean, we divested a business unit, but also the unfavorable currency translations and the weak American dollar have had an imprint on sales and EBITDA. So sales are minus 16% and portfolio and currencies are one side of the story. But on the other hand, we have got price reductions of around 2%, a bit more than 2% and also a volume decline, which is rather painful because that holds up to 6%. Of course, that has a bearing on EBITDA. In the prior year quarter, we had EUR 173 million, which was not exactly brilliant in 2024, but that's still better than this year, and it was also an improvement over 2023. So we are still in a weak environment in 2024. And now figures have come down again. And this goes to show how dramatic the situation is in the energy-intensive sectors. Now, let us talk about our individual segments. And I have mentioned before, consumer protection. What we can see here is a rather stable operating income. The level of the prior year, and the margin is quite high, just under 16%. And this is the segment which we have developed and strengthened, also on account of acquisitions. So we have entered businesses that show rather stable performance, even if competition is a bit more intensive in comparison to previous years. Now let me talk about Specialty Additives, Slide 6. This suffers from the weak demand in the industry, particularly in the building and construction industry is still very sluggish, particularly in China, but also here in Germany. And suffers from the declines. This is something we have not seen ever before, particularly if you have a look at the last 10 to 20 years. And I mean, of course, there is an awful lot of catching up to do, but somehow it doesn't happen. There is still a crisis in the building and construction sector. And then the weak dollar is also having a negative impact on sales and EBITDA. As we all know, we are very busy in America as well, and we deliver from America to China, particularly when it comes to our fire protection materials, flame retardants, and well, the relationship between America and China is not exactly helpful in this context. Advanced Intermediates. In this segment, we see a lot of competition from Asia, particularly China, and weak demand. And the Advanced Intermediates business is the core activity of our activities here in North RineWustralia. So our sites in Leverkusen Endingen, and these business units, the Advanced Industrial Intermediates and also inorganic pigments are being produced there. And they suffer not only because they are confronted with strong Chinese competition. Well, the Chinese actually deliver at prices that are below our production costs. And I mean, we really have to discuss antidumping here. These activities not only face fierce competition, but also suffer from high energy costs, a lot of bureaucracy, and general conditions. I mean, we keep trumping that off the rooftop, saying they are conditions that are breaking the neck of our sets, even if our facilities are top-notch when it comes to their activities, their abilities to produce, and they can produce on a world scale. We are hard hit here over the prior year. We must say that there is a further decline. Slide #8, cash management. We are doing a good job here in the third quarter, stable environment. When it comes to the group's capital structure, net financial debt is stable, which has to do with good cash management, which we a couple of quarters. Now, Slide 9, geopolitical situation. I mean, tensions are still very, very high, which makes a contribution to the uncertainties in the world and in the individual regions. We still proceed on the assumption that the automobile industry will stay weak, as well as building and construction, and also the agricultural sector, even if there are different developments among the different actors. Looking at LANXESS, we are continuing with our cost and efficiency program. These are topics that we can control, and we are doing our level best to improve the framework conditions. And whenever possible, we try to draw attention to the fact that it is high time to bring the economy back on course and improve the framework conditions for the German economy. We talk to politicians and decision-makers, and these framework conditions have to be reestablished or else it's going to be so difficult, both in Germany as well as in Europe, to keep up strong industries that are definitely suffering under the present framework conditions. Our guidance of EUR 520 million to CHF 580 million, as published in the summer, will end up at the lower end of our forecast range. And in the second half of 2025, the framework conditions as well as demand haven't changed. So that supports this. On Slide 10, we would like to present the programs we are already using. You know our program forward with CHF 150 million. We finished this program swiftly, and we will be fully effective by the end of the year. In the second quarter, I spoke about the optimized production network. And we mentioned the closure of 2 operations and optimization of organization, and we are implementing these plans, and we take it that we will be successful according to our plans. Today, I would like to let you know that we are in the process of preparing further measures to achieve structural improvements of around CHF 100 million over the coming years. We are already discussing matters with our works council members, and we'll do so very soon and discuss, and decide and implement very soon, and this will probably be specified in the first quarter of 2026, so that you will be in the picture as well. You do see that we accept the market environment, and we change whatever we can change and control. And of course, we hope that the framework conditions will change in the future. But in particular, Berlin and Brussels are involved in the framework condition situation, and we hope some progress will be achieved there. The next slide, #11, gives you an overview of what's happening in the European chemical industry. Handelsblatt already mentioned some or many of the closures on the left-hand side in an article published in the summer, and we are repeating this. But in the right-hand column, we would like to share with you what was published recently. So you see, it's not just 10 minutes to 12, it's already gone to 12, and a lot of these changes are already taking place. The industrialization of those areas that need a lot of energy, and this is to be emphasized, those industries that need a lot of energy are taking place. And these are closures of operations that will not be resuscitated. They will not be back. These are closures of industries, especially the German industry is reputed for the high wages paid in this industry. We are among the industries paying the best wages. But should the framework conditions be such that you can no longer be competitive or even incur losses, then you have to draw your consequences, meaning you have to close plants and operations. This leads to lost jobs and a reduction in wealth. Other countries are fighting for their industry, knowing fully well that this is a driver of wealth and will attract other services, which will be beneficial for any country's wealth. So a lot of regions are fighting for their industries. And let me call a spade a spade. What is being closed here is in areas where the chemistry is needed and will be produced, most of which will be produced in China, where they're using coal for their production, which means, for the climate balance, this is no good news at all. There is not so much technological cleaning taking place. We know purification of water and air, tar, and catalytic purification. This is part of our standard. We are world market leaders there, but these capacities will be migrating to other countries, and they produce the same chemistry and generate wealth for their countries, but that is not beneficial to the global climate. So this is a detrimental effect on our global climate. This is worth thinking about again. You should know that the chemical industry right now is facing one of the most severe crises I've seen over the past 30 years, and we need to return to good competitive circumstances and framework conditions so that this high-level technology, especially the chemical industry, as the third largest industry in Germany, will be able to survive here in Germany. So the signals and the feedback we send out to the political decision-makers, as you see it on Slide 12, is that it's high time to act. We must return to competitive energy prices. We welcome the present discussion or initiative. Hopefully, there will be decisions taken soon on the industrial electricity prices and the compensation of electricity prices that have to be taken into consideration for the chemical industry. We clearly and unambiguously communicate to the European Commission and the European Parliament what is our position with respect to European emissions trading systems, and this needs to be reformed. And you quite frequently cover this topic in your articles. We also face the decision-makers, especially in Brussels, and say that they should not burden the European industry with additional regulations and restrictions, but rather to finally start to defend their own industry, to protect their own industry, as many other states are doing. And I also think we have to have a faster antidumping process. At the moment, it takes around 12 to 18 months rather than just a quarter. And things can be analyzed and decided within a quarter, if you ask me. Ladies and gentlemen, let me now look at the last slide in our deck. The economic situation has just been described, but there is also some light at the end of the tunnel or on the horizon. In the second and third quarters, we've seen the maximum uncertainty in the world because of this erratic tariff policy. And at the moment, this has a full effect in the second and the third quarter. I take it that this tariff uncertainty will be here to stay, but at a lower level. There are some stipulations and regulations in some places; there is no longer total escalation. So the level of uncertainty should exist in the next year, but not as much as we've experienced this year. We also think that the stimulus program for the defense of infrastructure in Germany will also have its bearing on the industry in 2026. So order books will see more orders accepted. That will have some consequences on different products, flame retardants, screed, coatings, and pigments. We've got different portfolios, and we don't take it that this will change overnight. It's November now. We don't see the effects right now, and we take it that there will be a gradual increase. The new government has only been in office since May. And it is on the various levels, like the Federation, the federal states, and the municipalities, that this is going to be implemented, and then it should bear fruit. I can say that the EU is already working on antidumping processes. We have been successful in 2 such procedures in a way that we were supported in that respect, and this is an adpinic acid sector, and also the phosphorus-based claim retardants. And of course, we are looking for further investigations simply because here in Europe, we see that we are actually being glutted by products that are produced by China, products that they cannot sell in the U.S. any longer. Now they are pushing that into the European markets for a song. And market consolidation is what is happening just now. And as I've said previously, there are company shutdowns, site shutdowns, and also our competitors are reducing their capacities or closing them for good. That, of course, will strengthen our position in the market. And from a technological point of view, and also from a size point of view, our facilities are well established. And if we were to survive this competition, then of course, we will emerge stronger from the crisis once it's overcome. This is what I wanted to share with you, ladies and gentlemen, concerning the third quarter and the market environment. So together with my Board members, I have discussed the situation at great depth. And I must say I'm really very pleased that we are all rolling up our sleeves, taking rapid decisions, and responding in a pragmatic fashion. This is what is required in order to get through a time of crisis. We accept that we have a crisis on our hands. We are doing something about it, and we all pull together in order to handle 2026. But before that, of course, we need to conclude 2025. And when we are going to have our financial year press conference at the beginning of next year, covering the entire year of 2025, you will hear what we have been doing. Claus Zemke: [Operator Instructions] Now Jonas Jansen. Mr. Jansen, you can ask your question. Jonas Jansen: Thank you very much for your statements. I've got a question concerning your cost-cutting program, even though you say you can only be more detailed at the beginning of the next year. But what are your ideas? And you said as of 2027, the situation ought to become better. So, is that on the basis of the cost-cutting efforts planned for 2026? And what does that mean? Does that mean that more facilities need to be closed? Or will you try to cut costs further? And I mean, you already have an ongoing program and EUR 350 million, and now you want to double that figure. So where on earth do you intend to get that from? Matthias Zachert: Well, Mr. Jansen, the EUR 100 million well, actually, we will be more detailed at the beginning of next year, but it is not true that this is only to have an impact on 2027. Part of it will already have an impact in the course of 2026. And how are we going to do that, please? Can I ask you to accept that we can only share more details if and when we have discussed the matter also with our works council, and when we can be more specific about the implementation. But it is quite clear that in the course of 2026, this will come the group's way and will bear more fruit in 2027. So when it comes to individual sites or facilities, I have said before that when it comes to production, we have already carried out our analysis and the implementations thereof, and we communicated that in the summer. So I'm really fighting for these sites. I cannot make any promises, but this is what we are fighting for to keep these sites, and sitting here today, we think that we will be able to keep all our facilities here in Germany. But that, of course, means that when it comes to our general cost basis, COGS, we need to save more money. And that, of course, is geared towards whatever does not make a contribution to the actual production. And then, of course, you have to discuss possibilities of simplifications, streamlining processes, and how to become even more efficient and effective. And we have to make sure that no facility produces any loss any longer. Since competition is so fierce and tough, we can only do what is under control, and this is keeping costs at bay. But as I've said before, we will communicate more details thereof in the first quarter of 2026. Claus Zemke: Next question, Patricia Weiss from Reuters. Patricia Weiss: I hope you can hear me all right. Well, the demand situation. And you said that this is going to stay weak until the middle of 2026, or even not longer. So will that reduce your earnings further in 2026? And then the second quarter, also, when it comes to your program to cut costs. And you said you want to keep the existing sites up and running. So, where do you want to get these savings from? I mean, are you considering further job cuts? And then also when you're talking about the general conditions, I mean, it seems that you are a victim of the general conditions. But what else can you do? What can you do when it comes to your strategic setup? And how can you become more resilient as an industry or a company in that sector? Matthias Zachert: Well, Ms., let me take these questions one after the other. Job cuts are not exactly excluded. I mean, we are trying to keep as many jobs as possible, but we cannot exclude that some will go away. I mean, we will go for the approach of natural attrition. We are talking about demographic change, and that makes it possible to reduce the workforce without actually dismissing employees. And your second question, I mean, there is still quite a chunk of COGS, general costs. And 2 years ago, I said that we, for example, are spending too much on our IT. We are significantly above a target value that we must achieve, which is attributable to the fact that over the past 3 years, we introduced a new ERP system. So that was double a burden, if I can call it that. But this is now something that we have concluded. In the first quarter of 2026, this will be concluded for good, and there should be a major part from this sector that will then help with saving costs. That was our target and still is our target. When it comes to the strategy of LANXESS, I mean, the individual segments, if you have a look at what we have done up to now, we have certainly established a consumer protection element. This is a very strong pillar in our group now, and very many of the businesses that we have separated from were polymer activities, and the polymer industry is being shut down here in Europe. This is really in the crossfire together with other sectors of the chemical industry when it comes to Europe. So it was a good idea to get rid of these polymer activities. But then the remaining sector of the chemical industry is still subject to a lot of difficulties. But over the past 6 months or so, we said, yes, we want to orient ourselves in a way that we become future-proof with a strong global position. So this is the market orientation we are affecting, but this cannot be done overnight. And this has nothing to do with the cost, but with the business model and the go-to-market approach, which, of course, we are strengthening in parallel and reorganizing our company accordingly. I hope this answers your questions. Claus Zemke: Next question to Annette Becker from Börsen-Zeitung. We can't hear you yet. Now we can hear you. Annette Becker: Another question on the consolidation of the market as of 2027, as you expected. Do you think that it will be exclusively due to competitors dropping out of the market? Or will there be some options for acquisitions as you see it? And is the European chemical industry in a position at all, given the market conditions, to acquire new businesses, because what we've been seeing for 1.5 years is costs up, costs down, and so on. And where on earth would you want to have the money from to acquire new businesses? Matthias Zachert: Well, looking at the past 30 years, there were different waves of consolidation in our industry, and they always took place after a severe crisis. Thereafter, acquisitions were an option. But quite often, there were also mergers that took place, creating a critical mass together with another company or more companies at the plant, at the business, at the value, adding chain level. So the industry always came up with innovative approaches. These need not always be decisions to acquire new businesses. There were also other approaches in the past, and we will see what the industry will be doing in the next 1 or 2 years to come. I believe that everybody will see that it's not only your own structures that you have to influence and change, but you have to think outside the box. And that has always been an element used by the industry, so I'm firmly convinced that the chemical industry will remain an innovative industry and will find new ways of strengthening its own position for the future. T Claus Zemke: Next question from Bert Frondhoff from Handelsblatt. He is still muted. Can you unmute yourself, Mr. Frondhoff? It doesn't seem to work. So we will return to you. Annettebekker seems to have another question. I was probably too fast. Annettekka, back to you again. Annette Becker: Talking about mergers, another question. The prime example for mergers is to be seen one of the partners will have to have the upper hand. And when you sold your primary businesses, you showed that there was 1 of the 2 companies that remained in control. And I think you are talking about mergers to create critical masses, but that's unrealistic. A lot of companies are failing when this happens. Matthias Zachert: Well, Ms. Becker, I can't confirm that there are successful joint ventures and less successful joint ventures. And over the past 30 years, when looking at the different value chains, there were good examples. Also, we did have a good joint venture of PBT with DuPont, where both of us had 50%. This joint venture was extremely successful, and there are other examples as well. So I would like to say that talking about mergers, if we were to imagine a special type of joint venture, we should talk about it once it's communicated for value chains. All I said was that acquisitions alone are not the panacea to consolidate the business; there are different tunes that you can play on the keyboard, right down to a joint venture. And should that be announced, then we ought to talk about it. I hope that answers your question, Ms. Becker. Bert-Friedrich Frondhoff: Sorry about the glitch beforehand. I have 2 topics. The first topic is that the first emissions trading in Europe was commented on yesterday by the ministers in Europe about free allocation. How do you see it? And what are the numbers? What would happen if this were not implemented and with respect to free allocation and further allocation, and short-term measures? And the second question is linked to this. Are you in favor of abolishing ITS as it is at the moment? Or do you want to see it changed? And if so, how should the change be affected? Matthias Zachert: First question. I can only briefly comment on this. I have not seen an evaluation on the individual elements discussed by the federal ministers at the European level or the different ministers at the European level, whether it's free allocation, yes, or no. And will the door be opened or rather closed, and how to consider this? So let's turn to the second question right away, which was of a more general nature. On the system or the trading concept with CO2 certificates. There are very clear comments on this. Our industry has a consensus. And here, I would like to share with you what I'm reading and what my colleagues are saying. This system, according to our opinion, needs to be revamped, reformed at least, if not abolished. There are different levels of clarity in the comments, but everybody says that the present design of the system would substantially make or worsen the framework conditions substantially and let me be very, very blunt. Our industry over the past years has made substantial progress with respect to achieving the climate targets. If you look at our company, we were really supported and praised, especially by the SBTi initiative. We are Climate Truck Paris 1.5. We earned many awards, although we are not so affected by the ETS costs because we have a much progressive portfolio. But looking at the industry, I have to clearly say one thing. The European industry has the highest standards, and we have all sorts of requirements when it comes to water purification or water treatment, recycling, and air purification. I mean, they are all very, very strong, and we are being certified and need to earn these certificates. So we've got very high ecological standards, and we've got wonderful facilities that meet the requirements at a top-notch level. But over the past couple of years, these facilities have been hit hard by increasing energy prices. And over the last 3 to 4 years, particularly because of Timmansi, former commissioner, who is not exactly friendly towards the industry sectors, quite the opposite is true, I must say. So all the industries, including the chemical sector, were hit hard by excessive requirements and red tape, and whether it is EUR 50 billion, EUR 80 billion, or whatever, I mean that is the cost that is being mentioned because we all had to spend a lot of money in order to meet the requirements. So it is bureaucracy. It is high energy costs, and we had quite high labor costs, and other industries thought that it was really quite enviable that we could pay such good wages and salaries. But then, on top of it, we cannot invest very much in America or sell a lot there. And there is other stuff developing. And on top, the fierce competition of China now in 2026, on the basis of the decisions that were taken by the commission in 2022 and 2023 under the auspices of Commissioner Timmansi, that the ETS allocations ought to be curtailed when it comes to free allocation. Now there is an additional burden, and this is where our industry is saying. I mean, that was decided 2 or 3 years ago, and this is no longer in line with our current realities. What is happening here is a significant additional burden and triggers their respective shutdown events. And the general conditions are no longer the right ones here. So we are producing chemical products, which we are producing under very good conditions, and all that goes to China. And China will care less about clean production. So they use coal and they will not reduce their emissions, and then they put that into their tankers and transport the stuff to Europe, which is fueled by heavy diesel fuel. So we get the products from an environment that is not as conscious about climate protection as we are. And we are, and I mean, it comes back to Gemlif, saying that this is suicidal when it comes to climate protection and when it comes to the protection of our industries. I mean, this is really a very clear and very tough statement. But at the end of the day, I can see the reality thereof. And unless we get our act together now and protect our industry that produces products in an environmentally friendly way. And then we will lose out, and the whole world will lose out because we will then get the products from areas in the world that couldn't care less, or at least are not as conscientious as we are. So we will abolish ourselves unless we reform, unless the lawmakers can agree on a proper compromise, which, at the end of the day, will protect both the climate and our wealth. Under the current conditions, this will not be possible. So, Mr. Frondhoff, I hope that I've been clear enough. Claus Zemke: Mr.Frondhoff says he's got another question, but of course, he doesn't want to hog the scene. So, is there anybody else? Well, why don't you go on, Mr.Frondhofff? Quite all right with us. Bert-Friedrich Frondhoff: Currency translations, foreign exchange effects. Can you quantify that? What does it mean for you? Is this attributable to the weak dollar? Or is it also the renminbi development? And what kind of further developments are you expecting? And maybe you can also talk about the business situation in the individual regions. Matthias Zachert: Well, Oliver, why don't you take over? Oliver Stratmann: Well, Mr. Frondhoff, you kicked it off very well. I mean, the most important currency is the dollar. Well, this dollar is the basis for our business in America and in Asia. So this is about 3% simply on account of the weakening of the dollar. And we expect this to stay? And if I have a look at the banking sector, this is a consensus that you cannot really talk about a short-term recovery when it comes to the most important foreign currency. Claus Zemke: Thank you. Now we have a question from the English space, Andrew Noel. Andrew Noel: If it's possible to get an answer, that would be great. The first one is, I guess, LANXESS was at the CPHI, and you've got some feedback from there. I want to ask, has CDMO finished in Europe? Has the market already shifted to India and Asia? Because when the Syngentas of this world look at ASM, it's in administration. I'm just wondering how much confidence they have in the future of Europe's CDMO. And what is the plan for the longer-term plan for Saltigo, if that's the case? The second question is just a clarification. We've been speaking about mergers and consolidation this morning. And I heard you sort of say different tunes that you can play on the keyboard and so on. Can I ask, do you feel more open to strategic mergers and the other kind of options, LANXESS as a company? Do you feel more open to these situations than previously due to the downturn in the market? Matthias Zachert: Well, I will continue in Germany, and I just hope that you can understand the translation well. First, CDMO. For everybody to understand what that means. This is a custom manufacturing business, and this is all bundled in the Saltigo unit. And the conference that you mentioned is a conference that is happening here in Europe on a regular basis, where everybody comes together. And now your question is quite clear. We want to keep CDMO here in Europe. And this is a business activity, which is very important for the chemical sector. But then, of course, you really have to have first-class facilities and first-class technology to offer. I think the very early synthesis stages that are not yet on a high technological level that they will be in the hands of Indian and Chinese producers. But when it comes to the more complicated synthesis, and there are more steps in the entire chain, that they are going to remain here in Europe. But of course, you need to have a competitive position here. You have to know the technology, you have to know about innovation, and you have to be cost-effective. And you see that in the automobile industry. They have got a strong position in the premium segment, and they have to have that in order to have a good cost structure in order to be competitive in the international comparison. This is also true for the European and German CDMO business areas. You mentioned ASM, and that's not on our list for closures. I think in October, there was a communication that the Austrian CDMO company, ASM, filed for bankruptcy. They were by far not as widely established as Saltigo, and they used to be owned by a private equity company for 10 years before that. So they were not as well-equipped when they had to face the storm. And therefore, they were hit hard. This is changing the market in a way that Saltigo should benefit more than have a detrimental effect. So CDMO will remain important in Europe, technologically speaking, for the respective customers and clients. Cost-wise, of course, you have to keep pace so that in the international environment, you can survive the competition. And this is the motto also for Saltigo going forward. Our technology is of high value, high [indiscernible] value. But of course, we have to face the cost of the international competition as well. I hope that answers the first question. Second question, more with respect to mergers and acquisitions. Looking at the past 10 years, LANXESS has always been a company, which on the M&A side, was rather progressive in inverted commerce or took a pragmatic approach, never a dogmatic approach. And we will have a look at what will be beneficial for both LANXESS and our stakeholders. And then we will see what kind of strategic steps we may take in the future. I hope that suffices as an answer for the second question. Claus Zemke: Thank you, Mr. Zachert. I have no additional questions, or nobody wants to take the floor, but let me look around. No show of hands. Thank you for attending our press conference. And lots of success and enjoy the rest of the day, and greetings from Cologne, and goodbye.
Operator: Good day, and thank you for standing by. Welcome to APA Corporation's Third Quarter Financial and Operational Results 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, [ Stephane Aka ], Managing Director of Investor Relations. Please go ahead. Unknown Executive: Good morning, and thank you for joining us on APA Corporation's Third Quarter 2025 Financial and Operational Results Conference Call. We will begin the call with an overview by CEO, John Christmann. Ben Rodgers, CFO, will then provide further color on our results and outlook. Steve Riney, President; and Tracey Henderson, Executive Vice President of Exploration, are also on the call and available to answer questions. We will start with prepared remarks and allocate the remainder of time to Q&A. In conjunction with yesterday's press release, I hope you've had the opportunity to review our financial and operational supplement, which can be found on our Investor Relations website at investor.apacorp.com. Please note that we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website. Consistent with previous reporting practices, adjusted production numbers cited in today's call are adjusted to exclude noncontrolling interest in Egypt and Egypt tax barrels. I'd like to remind everyone that today's discussion will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss on today's call. A full disclaimer is located with the supplemental information on our website. And with that, I will turn the call over to John. John Christmann: Good morning, and thank you for joining us. On today's call, I will review our third quarter results, outline our continued progress across key strategic initiatives and discuss our outlook for the fourth quarter and our preliminary plans for 2026. This year's macro environment has remained challenging, characterized by heightened volatility and uncertainty in commodity prices, largely driven by shifting trade policies and geopolitical tensions. While these external factors have created headwinds for the industry, they also underscore the progress that we've made at APA over the past 2 years. At the core of these efforts is a strong focus on lowering our controllable spend, which is delivering meaningful and sustainable improvements in our cost structure. Additionally, through disciplined capital allocation, a reshaped and more resilient portfolio and a sharper operational focus, we've built a stronger, more adaptable organization, one that can perform through cycles and respond quickly to changing market conditions. Our strategy is working, and the benefits are increasingly evident across both our operations and financial performance. With a stronger foundation in place, APA is well positioned to navigate any oil price environment for 2026. Turning to the third quarter. Results were once again very strong across the board. We have exceeded our production guidance in each of our operating areas, while capital investment and operating costs were below guidance. In the Permian, continued strong operational execution resulted in oil production above guidance, while capital investment and operating costs were in line with expectations. Moving to Egypt. In addition to the significant acreage award we previously discussed, we also received substantial payments during the third quarter, nearly eliminating our past due receivables. This progress reflects the strength of our partnership with the Egyptian government. Operationally, once again, gross BOEs grew sequentially in Egypt, underpinned by the ongoing success of our gas program. This reflects both strong well performance and continued optimization of infrastructure. On the oil side, our waterflood and recompletions programs are moderating our base decline and flattening our near-term gross oil production. In the North Sea, our continued focus on operating efficiency and cost management drove higher production and lower costs compared to our guidance. We remain focused on optimizing our late-life operations and are preparing to decommission our assets in a safe, efficient and environmentally responsible manner. Finally, in Suriname, progress at GranMorgu continues at pace and first oil remains on track for mid-2028. Moving to our outlook for the fourth quarter. In the Permian, following another strong quarter of operational execution, we are raising our guidance for oil production while maintaining our outlook for capital spend. On the gas side, with the recent dislocation in Waha pricing, we are adjusting our guidance to reflect temporary curtailments in the field. Although this slightly reduces our BOE volumes, the impact to free cash flow will be minimal. In Egypt, we are slightly increasing our fourth quarter production estimates in line with the ongoing momentum from our gas program. We are also drilling several high-potential exploration wells, including on our newly acquired acreage. The Western Desert presents a vast and highly prospective opportunity set. And although we are early in our gas exploration program, success here could be impactful for our portfolio. Turning now to our cost reduction initiatives. Our commitment to reducing every aspect of our controllable spend has been evident all year, and I want to recognize the diligence of our teams and the strong alignment among leaders across the organization. Through their collective efforts, we've made significant changes to our operations and driven meaningful improvements in both capital and operational efficiency. We are now on track to realize $300 million in savings this year and are also positioned to reach our run rate savings target of $350 million by the end of 2025, 2 full years ahead of the original goal of year-end 2027. Looking ahead, we see significant opportunity to build on this momentum, driving additional efficiency gains and further simplifying how we work. Through these efforts, we aim to deliver an additional $50 million to $100 million in combined run rate savings across G&A, capital and LOE by the end of next year. Moving to our preliminary plans for 2026. With the recent volatility in oil prices, we are evaluating multiple capital allocation scenarios with a focus on free cash flow generation. While we have significantly improved our cost structure and reduced breakevens across our asset base in the last 18 months, we believe a flexible approach to capital investment is warranted in the current price environment. In the Permian, at our current pace of 5 rigs, we expect to deliver consistent year-over-year oil production of approximately 120,000 barrels per day, with capital investment of around $1.3 billion. However, if oil prices move lower, we have the operational flexibility to moderate activity to reduce capital further with minimal expected impact on 2026 oil volumes. In Egypt, we plan to maintain consistent activity levels and capital spend with a similar allocation between oil and gas drilling as this year. This would allow us to grow gas volumes on a gross basis year-over-year, gross oil production will remain on a modest decline. We will continue to monitor commodity prices over the coming months, and we'll provide formal guidance for 2026 in February. In closing, our third quarter results underscored the strong operational performance and consistent execution across all operating areas. Through the rigorous focus of our teams, we are driving significant cost savings ahead of schedule and increasing our targets for the future. As we head into 2026, we will remain disciplined in our capital allocation and continue prioritizing free cash flow generation. With that, I will turn it over to Ben. Ben Rodgers: Thank you, John. For the third quarter, under generally accepted accounting principles, APA reported consolidated net income of $205 million or $0.57 per diluted common share. As usual, these results include items that are outside of core earnings, the most significant of which was $148 million unrealized loss on derivatives. Excluding this and other smaller items, adjusted net income for the third quarter was $332 million or $0.93 per share. LOE came in below guidance, largely due to ongoing cost savings, primarily in the North Sea. G&A was in line with guidance despite a larger-than-expected impact from mark-to-market adjustments related to stock compensation. On an underlying basis, G&A was approximately $15 million below guidance. We continue to progress multiple initiatives across all categories of G&A and expect this momentum to carry into 2026. Current income tax expense was lower than anticipated, primarily due to a change in our projected 2025 corporate alternative minimum tax. New guidelines issued by the U.S. Treasury late in the quarter clarified the treatment of net operating losses and depreciation deductions under the minimum tax framework. As a result, we now expect to owe little to no U.S. taxes in 2025 and 2026. Overall, this was an excellent quarter during which APA generated $339 million of free cash flow and returned $154 million to investors through dividends and share buybacks. During the quarter, net debt was reduced by approximately $430 million through a combination of free cash flow generation and payments from Egypt. This balance sheet progress has enabled us to realize net financing cost savings, excluding gains on the extinguishment of debt of $75 million so far in 2025 when compared to the same period in 2024. We ended the quarter with $475 million in cash, providing financial flexibility as we enter 2026. This gives us the ability to opportunistically repurchase debt, address upcoming maturities and thoughtfully manage the timing and execution of our decommissioning and asset retirement obligations. Turning now to our cost reduction initiatives. John already covered our progress to date and outlined the targets we've set for 2026. So I'll focus on the key movements in our 2025 guidance for controllable spend items relative to the $300 million of savings we expect to achieve this year. While these savings are reflected in our guidance for LOE and G&A, there are a few offsetting effects within capital. Since issuing our initial 2025 capital guidance in February, our teams have identified and implemented an additional $210 million in cost reduction opportunities, primarily in the Permian. Over the same time frame, our capital budget has been reduced by $150 million. This results in a $60 million difference between the change in our full year capital guidance and the change in capital cost savings since the beginning of the year. The largest portion of this variance is attributable to capital investments and LOE reduction initiatives. As highlighted last quarter, we identified several high-impact projects aimed at sustainably lowering future Permian operating costs, such as building saltwater disposal systems, consolidating field compression and other facility optimization projects. Capital is being directed toward these efforts, which are expected to generate strong returns with short payback periods and position us for structural operating cost improvements in 2026 and beyond. Another component of this difference is activity related, which primarily relates to the completion of 2 DUCs at Alpine High this quarter. Shifting to our oil and gas trading portfolio, which has been a meaningful and relatively steady contributor to free cash flow generation this year. Based on current strip pricing, we expect $630 million in pretax income from our trading activities for 2025. To enhance cash flow certainty heading into next year, we have added to our 2026 hedge positions. Currently, about 1/3 of next year's gas transport position is hedged, locking in roughly $140 million of cash flow. Turning to our asset retirement and decommissioning obligations. Our goal is to reduce these liabilities through a prudent approach that balances operational efficiency with financial discipline. As an example, during the third quarter, we identified a well at one of the fields in the Gulf of America that required decommissioning. Rather than mobilizing a vessel for a single well and returning later to complete the remaining work, we chose to decommission the entire field of 5 wells in a single campaign. This enabled us to capture meaningful operational efficiencies and reduce the total cost that would have been incurred over time. We have identified similar opportunities to execute during the fourth quarter, which led us to increase our full year 2025 ARO and decommissioning spend guidance by $20 million. Going forward, we will continue to pursue similar initiatives, proactively managing these liabilities in a way that is both operationally efficient and financially sound. For 2026, we expect our combined ARO and decommissioning spend to increase, reflecting a decline in spending in the Gulf of America, offset by higher planned activity in the North Sea. As a reminder, APA receives a 40% tax benefit on all decommissioning spend incurred in the North Sea. Therefore, on an after-tax basis, our total spend will increase year-over-year by roughly $55 million. In closing, as we enter 2026, our priorities remain centered on disciplined capital allocation, further cost reductions and continuing to strengthen the balance sheet. Our development capital, inclusive of approximately $250 million for Suriname development is expected to be 10% lower than 2025, reflecting improved capital efficiency across our portfolio. This preliminary plan positions APA to sustain Permian oil production, deliver continued gas growth in Egypt and advance the world-class opportunity we're developing in Suriname Block 58. Together with our ongoing focus on reducing controllable spend, these actions further strengthen our foundation for durable free cash flow generation and long-term value creation. With that, I will turn the call back to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: So the capital guide is, I think, puts you below street for next year. But I'm curious, John, if you could offer a little bit of color on the flexibility you suggested. I mean we'll see if oil -- where oil ends up, but what's the nature of the flexibility you have? Because I think a few years ago, when oil prices collapsed, you allowed your Permian production to decline. It sounds like that's not the case this time. So is that a DUC manipulation? Is it drilling but not completing? Or can you walk us through where the flexibility is against what looks like a kind of sub-$2.2 billion CapEx number now for next year? John Christmann: Yes. Great question, Doug. I'll just start out with just in general, our mindset going into '26 is focused on capital discipline. So -- and as you point out, we've got flexibility if oil prices move lower. Today, we envision a plan that's going to maintain Permian oil at about 120,000 while we're growing our BOEs in Egypt, driven by gas and still funding our Suriname and other exploration as well as our decom and our ARO. Development CapEx is down 10%. It's mainly in Egypt with CapEx -- or mainly in the U.S. Permian with CapEx in Egypt being flat. So I think the other factor is we're going to continue to focus on the cost savings. Clearly, if things soften, as we've mentioned, there is room. We could always decide to drop more rigs in Permian or Egypt if need be. But I think we're in a good place with a pretty good range and a pretty good cushion right now on oil price. So -- but there is flexibility. Douglas George Blyth Leggate: Okay. I appreciate that. My follow-up is actually on Egypt. I mean, obviously, you continue -- it's almost like a beat and raise on your gas guidance. But there is some -- I guess there's been some discussions from certainly questions we've been getting about the legacy accelerated cost recovery from when you re-signed the contract. And what happens to -- how big a delta that could be on cash flow in 2026 as those legacy costs roll over? So I don't know if there's any way, Ben, to -- I know it's complicated. There are a lot of moving parts, but is there any way to kind of summarize what the potential delta could be on that in the context of your rising gas production? Ben Rodgers: Sure. So when we modernized the contract about 4 years ago, we negotiated a recovery of a backlog of costs, and that was around $900 million. So per quarter, we've had the benefit of about $45 million. When that rolls off after the first quarter of next year, that $45 million, let me break it down, is the total number. We don't lose all of that, though, because of the way the PSC works. We only lose about 70% of it with the other 30% being picked up on the profit oil side. So that $45 million is actually on a 3/3 basis closer to about $30 million. So net to our 2/3 interest, the cash flow impact on a quarterly basis is about $20 million. So for next year, again, since we still have it through the first quarter, so for 3 quarters next year, it's roughly $60 million in Egypt. But we think with -- there's a number of different factors that we're working on to offset that, whether it's continued capital efficiencies in Egypt because we have seen those this year. A lot of the discussion this year has been on the Permian, but Egypt has made great strides on the capital front. So there's potential for that to continue next year on the cost side for both capital and LOE. We've got expected continued success and performance on the gas side. And then other oil projects, too. We shouldn't look past what we've been able to do in the second half of this year on the oil program and the potential for some of that to carry next year. So a number of different factors, Doug, I think, are going to offset that $60 million -- had the potential to offset that $60 million free cash flow impact in Egypt. John Christmann: Yes. And the only thing I'd add, Doug, if you step back and think about it, removing that backlog now is a good thing financially. We've got our past dues down, lowest they've been. It really underscores the investment environment we have in Egypt, just how good things are because we've been able to capture basically the PDRs and the backlog now and shows the success in the modernization process. Douglas George Blyth Leggate: And the balance sheet has seen the benefit of that, guys. Operator: Your next question comes from the line of John Freeman with Raymond James. John Freeman: I was just following up on Doug's question on 2026 capital. I appreciate all the color you all are providing on the call. It seems like the other kind of lever you all got depending on commodity prices on the budget would be the exploration capital. And unless I missed it, I didn't hear any sort of commentary on that. Just how we should think about that relative to the $65 million you're spending this year? John Christmann: Yes, John, I think going in, just by nature of the way the program is setting up, '26 is going to be a pretty light year exploration-wise for us. We could get into building some ice roads in Alaska late next winter as you prep for what would be really more in '27 as well as timing of the Suriname potential exploration wells that could pop into late next year. But in general, '26 is likely going to be a fairly light year exploration-wise for us. John Freeman: Got it. And then my other question, obviously, you all continue to increase the realized and projected savings and also an accelerated time line. And when I just look at how much progress you all made from the update with 2Q results, I'm just looking for any more that you all could sort of give specifics on just to see that big of an improvement, both on the realized savings as well as the sort of run rate targets for that much to happen since 2Q. Just any specifics you all can point to, to drive that? John Christmann: Yes. I'll just say if you step back from where we were in February and you look at the progress, 2 places, right? G&A, we've been able to do more than we thought. Obviously, that's something we directly control. But the other place has been the capital side, and that's been driven mainly by Permian. So to think where we are, we started out in February, thinking we'd realized in calendar year '25, $60 million. And to now know we're at $300 million. And obviously, we set out a 3-year target of the $350 million by the end of '27 to get there by the end of '25. Very, very proud of the entire organization because we've just been razor-focused on what do we do on the cost side, and you're seeing that show up. But I'll let Ben provide a little bit of color. We've added by year-end '26 now another $50 million to $100 million to that. But I'll let Ben jump in and give some more color. Ben Rodgers: Sure. So John, when you think about the -- what we've done this year, as you can see, huge strides made on the capital front, followed by G&A. That's in both what we're capturing this year as well as in that $350 million run rate. Most of that is in capital and in G&A with some expected in the run rate on LOE. For that incremental $50 million to $100 million, it -- actually, the bulk of that is going to come from G&A and LOE. I think capital is going to contribute some. But because capital contributed to so much in 2025, as you look to that $50 million to $100 million incremental by the end of next year, a lot of that's going to come on G&A initiatives as well as on the LOE front. Operator: Your next question comes from the line of Scott Hanold with RBC Capital Markets. Scott Hanold: I'm interested in Egypt gas. Obviously, it's going well for you all. And I think you're running, if I'm not mistaken, around 8 rigs on the gas side. And just -- with respect to the new terms that you have on the gas pricing, is there any unconstrained level on gas growth? And could you give us some sense of where you think gas production could go here over the next, say, year or 2? John Christmann: Yes, Scott, I mean, if you step back and look where we are, we're actually running 12 rigs in Egypt and 3 of them right now are on gas, so -- instead of 8. So just 1/4 of the program. But if you look at where we are and you go back, I mean, we signed this contract a year ago. And so to look at the progress and just see where we are, we've exceeded all of our internal expectations, and it's been really the success of the program, the delivery of the wells. And most importantly, the ability to get things tied in and not back out some lower pressure gas. So the team has done a phenomenal job. We're going to continue on this trend well into next year. Longer term, it's going to be dictated by the success of the exploration program, and that's something we really -- we've been exploring for oil in the Western Desert for 3 decades. We've now been exploring for gas for really 1 year and kind of just getting started on the exploration side. So a lot of that's going to hinge on our exploration program. But we've got good momentum. We're going to grow year-over-year on gas. And we do have processing capacity that we might need to pipe into depending on where we have success. But we're really just getting started, and we're excited long term about the gas potential. Scott Hanold: Yes. But specifically, I think your agreement on the pricing is basically everything over above a predetermined PDP. And I'm just kind of curious, is there any upper limit to that? Or is it all premium priced over and above that going forward? John Christmann: Everything that we bring on new gas gets new gas price. And so I mean, even if we were just to hold gas flat, our gas price is going to grow as that the old PDP decline curve kicks in. So we're sitting in a good place price-wise. And quite frankly, we're excited about the inventory, but we just need to drill some exploration wells. Scott Hanold: Got it. And then if I could turn to a question on the Permian. I think you all are working on a potential inventory update assessment, hopefully, by early next year. Can you give us a sense of like what are you thinking as well about some of the deeper potential? There's been a number of like Barnett and Woodford being targeted by some of your peers in the Midland. Is there a good amount of overlap with that with you all? John Christmann: Yes. I mean if you step back, I mean, we were drilling Barnett and Woodford wells back as early as 2016, 2017, right? So I mean, we've got a good view on that. There is overlap into our positions. The plan at this point, as we've said, when we've done an updated characterization and Steve can add some color on all the nuances as we -- it becomes a very iterative process. But I mean, we are planning to come back to the market first quarter of '26 with an update. But today, we strongly believe in terms of core development opportunity and development inventory, consistent with what we're drilling today and into the next several years, we can do that well into the early 2030s. Ben Rodgers: Yes. With the significant capital efficiency gains that we've been able to capture this year in the Permian. That's obviously having an iterative effect, as John would say, on the quantum of inventory, and it's really requiring us to go back and -- we came into the year kind of rethinking a bit about our spacing and frac size philosophy. And with the efficiency gains that just causes us to rethink all of that all over again. And so we're coming through every bit of our inventory. So it's not just a case of looking at what's in addition to what we already know. We're also going back and relooking and reexamining everything that we had in inventory to begin with and also all of the Callon acreage as well and other acreage that we've acquired over the years. So every single undrilled landing zone and even new potential landing zones are being reviewed pretty extensively because of the significant efficiency gains. The lower you can drill and complete a well cost-wise, the more resource you can access. And that's a really important aspect of the quantum of inventory. So there's a huge amount of work going on around that. Operator: Your next question comes from the line of Michael Scialla with Stephens. Michael Scialla: John, it sounds like you're fairly cautious on the oil macro like a lot of your peers. I want to get your thoughts on the dynamics there. And you mentioned you're hedging more gas. I just want to get your updated thoughts on potentially hedging oil. John Christmann: Yes. I just think, Mike, going in with all the progress we've made on the cost structure and clearly, we've got a WTI price that's been sitting around $60, it's prudent to be cautious. And so we're going into '26 with a disciplined mindset. And like always, we've set ourselves up with the improvements in the controllable spend and the cost structure and the balance sheet, we're in a really, really good place. And the last thing you want to be trying to do is accelerate inventory into an oil market like we sit in today. So in terms of the hedging, not really hedging gas, Ben can jump in at some of the transport and locking in some of those gains there, but I'll let Ben make a few comments on the gas transport hedges. Ben Rodgers: Sure. Yes. So we -- just like we did this year, looking to lock in cash flow associated with the Waha to Houston Ship Channel and Waha to NYMEX, Henry Hub differential, carried that through into next year. As you know, there's a contango curve on the NYMEX side, but still a pretty wide differential between both Ship Channel and Henry Hub and Waha. And so locking that in gives us surety of cash. We've only got 1/3 of it hedged right now. So should that continue to widen, we would make it on the unhedged volumes. But just getting that certainty of a certain amount of cash flow is -- we thought was prudent. We did it this year. And when you compare that to hedging on the oil side and either a flat to backwardated market, just felt like more prudent to capture cash flow for the corporation on the transport side versus on the crude side when we've got a lot more optionality in our portfolio to manage versus locking in any type of oil hedges. But should the opportunity come up on the oil side, we could do that just more opportunistic on the gas side. Michael Scialla: Makes sense. Appreciate that detail. I think you said last quarter, you breakeven now in the Delaware is kind of in the low 50s. Is that where you would kind of pull the trigger and pull back on Permian activity? What would that look like? Would you just build DUCs through that? Or would you actually drop rigs? John Christmann: I think a lot of it -- we've got a lot of flexibility, Mike. It will just depend on where we found ourselves, right? I mean if you look at Delaware breakevens, yes, low 50s, Midland is in the mid- to low 30s. So a lot of that would just hinge on where we found ourselves and what we thought made the most sense. But the key message there is lots of flexibility in terms of with the program. Michael Scialla: So you could actually potentially -- is there room for you to move rigs if prices did go there that you would move them over to the Midland and kind of pause on the... John Christmann: Move or drop if needed to be, right? Yes, move or drop. Operator: Your next question comes from the line of Charles Meade with Johnson Rice. Charles Meade: I want to go back to Egypt, if I may. The 2 million acres that you guys picked up most recently, I think I heard you say in your prepared comments, you're actually drilling some exploratory wells on that new position. But could you add to the picture about what's available on these 2 million acres? And I'm thinking how much of it do you have seismic over? How much of their other more simple things like how much do you have road access to midstream, that sort of thing. And all with an aim of when that's going to start to be able to work into your capital budget and delivering for you guys? John Christmann: No, it's a great question. I mean if you look back in the -- we've shown that 2 million acres sits kind of across a lot of the desert and it fits in nicely with our existing footprint. So we do have access to it. It can be tied into infrastructure for the most part. I would say there is both oil and gas prospectivity, and we're kind of already getting after that. So we're very excited about it. I think there's some low-hanging fruit on that acreage that we're getting after. A lot of it is just going to hinge on, Charles, what we find and where it is and then what do we need to do to tie it in. Some of it we might need to build some jumper lines or things to our facilities, but not all of it. A lot of it is pretty short arms reach away from our existing operations. So it fits nicely. I'd say it's highly prospective, and we're getting after it and look forward to updating in the future. Anything you want to add, Steve? Stephen Riney: Yes. I think we've actually published a map of that, of the old acreage with the new acreage on the same map with the infrastructure overlaying that. And I think if you -- I think that might have been in the second quarter supplement even. So if you take a look at that, you'll see that 2 things. Number one is that the acreage is actually -- it's not like one big chunk of acreage. It's spread out all over the place. And there's some acreage in there that I would say -- I would kind of classify that as just a simple step-out type of stuff relative to what we're doing on the acreage right next door. And then the -- and it ranges all the way to some chunks of acreage that is even new play concepts that we're looking at. And so the exploration that's going to go through all of that acreage is going to span the full span of this full range of types of exploration from kind of lower risk step out to kind of new concept play opening. The other thing is that you'll see that there's not much of a gap anywhere in that acreage from nearby infrastructure or nearby activity, except for very few places, there's current Apache activity going on near all of that acreage. Charles Meade: Got it. And then for the follow-up, still on Egypt gas. On Slide 3, you guys have a bullet point saying that with the new pricing arrangement that gas development is at parity with mid-cycle Brent. I wonder if you could just elaborate a little bit more on what the assumptions are there? I mean what mid-cycle Brent, what your assumption there is and also what the -- what parity means, whether that's IRR or what else goes into that statement? Stephen Riney: Yes. So what we have is an arrangement. We sell all of our -- the gas that we produced to Egypt, and we have a fixed price on this new tranche of gas. We have a fixed price on the old tranche of gas. We have a fixed higher price on the new tranches of gas. And the way that, that will work is that you end up getting a mix of different of price as you go forward as the PDP declines on the old price of gas and new volumes come on, you get a rising price as you go through time. Sorry, the mid-cycle -- so with that price, sorry, on the new volumes, with that new price, gas is effectively equivalent to a $75 to $80 Brent price on oil drilling in Permian -- I mean in Egypt. So you've got -- we can drill for gas that's equivalent at a fixed price that's equivalent to $75 to $80 Brent oil on acreage that would be right next door or nearby where we could drill oil wells. John Christmann: We included infrastructure. Stephen Riney: Yes. We included the potential for new infrastructure requirements in that analysis. Operator: Your next question comes from the line of David Deckelbaum with TD Cowen. David Deckelbaum: John or Ben, curious when you talk about the program for '26 and holding 120,000 barrels a day flat with 5 rigs. Are you still -- are you assuming any incremental benefits on D&C costs and ask that in the context of you guys have made some significant headway. Is there any reason why you can't have a D&C target sort of that rivals the best peers in the Delaware for next year? John Christmann: And I think we're making great progress. And if you look, part of the carry-through into '26 is the savings that we think are real in the progress we're making. So as Ben said, we're going to add another $50 million to $100 million of savings in '26. Some of that's going to be on capital. But I'll let Steve jump in a little bit in terms of the progress we're making on the capital side and where we think we sit. Stephen Riney: Yes. I would say, and I think we said this on the second quarter earnings call. In the Midland Basin, we feel like in many ways, we're getting to be pretty close to best-in-class on the drilling and completion side. In the Delaware Basin, we're probably around peer average. And so there's still room to go there. So just in terms of reconciling the 5 rigs holding volumes flat relative to 2025, 120,000 barrels of oil a day. There are some things that are benefiting us being able to go to 5 rigs. We're not saying that we've said in the past that 6 rigs will hold Permian relatively flat around 120,000. We're not saying that's 5 now. We still believe that's probably closer to 6 at this point in time. But there are some things that are benefiting us in 2026, where we've made some good strides recently around base uptime, base volume uptime kind of reducing the underlying decline rate a bit, which will help as we roll into 2026. There are some facilities where we're facility constrained now. So we brought on wells. The wells are actually constrained a bit in their producibility and that will resolve itself as we go into 2026. That helps a bit. There is a small reduction in DUC count. It's about 5. So we'll exit '26 right now based on current planning with about 5 less DUCs, fewer DUCs than we enter '26 with, not a significant amount, but just being transparent, there is a slight reduction in DUC count. And with all of that, our development capital in the Permian this year on a like-for-like basis, eliminating stuff that we've sold is about $1.45 billion. Next year, that will be $1.3 billion. The $1.45 billion actually includes about $200 million of savings that we've talked about that we actually captured in the current year in 2025. And so there's another $150 million of savings as we roll through 2026. That does -- it benefits from kind of the run rate of what we've done so far. It does have some additional savings planned in there as we go forward. Much of that would probably come in the Delaware Basin versus the Midland Basin, but we still believe there's room to run in the Midland Basin as well. And that does include running 5 rigs instead of -- and we're down to 5 rigs today, but we had been running 6 earlier. So that includes all of that. David Deckelbaum: I appreciate all the additional color, Steve. My follow-up is just on the North Sea. I think you guys highlighted the tax benefits, in particular, in '26. I guess as you -- are you accelerating the ARO activity in the North Sea? And what are the, I guess, results or consequences as you see on the production side of that asset over the next couple of years? Ben Rodgers: Yes. So on the production side, just like we mentioned earlier this year with little to no investment in the asset, which was expected after all the different changes through the government there, we'll expect production to continue to decline from '25 into '26. I think we'd said 15% to 20%. And so that's probably a reasonable assumption from a production standpoint. But on the tax side, a lot of that's price dependent depending on if there's taxable income in the U.K., but there will be tax savings because of the increase in the ARO spend that we have next year, again, because the government pays 40% of that ARO. And so we've talked about that before in terms of the increasing profile when we announced COP last year. And so that will increase next year. But again, the cash flow impact of all ARO and decom spend year-over-year after-tax cash flow impact is only $55 million. So very manageable when you look at the total corporate profile from everything else that we have going on there. So all in all, there's -- the taxable net income from the U.K. is price dependent, but there's going to be savings from ARO spend. Stephen Riney: Yes. And we are -- just to be really clear, we are not accelerating activity in 2026. We've had this plan for quite some time. It's primarily a well abandonment program at Beryl Bravo and initiating a subsea well abandonment program as well that will run for several years. So not an acceleration of any activity. Operator: Your next question comes from the line of Betty Jiang with Barclays. Wei Jiang: I want to ask about non-D&C CapEx. Ben, you talked about repurposing some of the CapEx savings this year into infrastructure investment and LOE reduction initiatives. Are there other opportunities along that line? And how should we be thinking about the benefit of these investments? Ben Rodgers: Sure. So for this year, I mentioned in my prepared remarks, the $60 million difference between captured savings and our capital guidance. Roughly 1/3 of that was investment in these LOE projects that we started this year. We do expect that to continue into next year as we identified different opportunities. And again, most of it's around facilities and compression and other items that I've mentioned before. And we will continue to invest capital into those projects that will have ongoing LOE savings. So it's not a big capital number when you think of -- Steve mentioned the $1.45 billion for Permian this year and the $1.3 billion next year. If you're talking $20 million on that $1.3 billion base, it's not a big piece, but it does help us on LOE. I will say that the teams are working across all different aspects within LOE, not just trying to find ways to lower it through capital investment, but through really all different areas that make up our operating expenses there in the field. And that's not also just in the Permian. Clearly, we've done it this year in the North Sea and in Egypt as well. So there's not going to outline a per barrel metric for that for the savings, but do expect savings, and they'll be staggered throughout '26 and into '27 as well. Stephen Riney: Yes. If I could just add a bit to that. Obviously, on LOE for 2025, we didn't capture the savings that we had hoped to capture this year at the corporate level. But there's some real success underneath that, that I think is worth mentioning. Most of the struggle has actually been in the Permian, and that's where most of the investment that Ben is talking about around consolidating compression and rationalizing that and around produced water disposal wells and things like that. That's going to be targeting LOE primarily, not entirely, but primarily in the Permian Basin. And those are investments that we're going to be beginning this year. There will be more in next year, and you'll see the benefit of those probably showing up in the second half of next year. But I did want to highlight, in particular, the North Sea, significant progress in reducing offshore operating costs this year, and that's kind of hidden in what's going on in LOE and some very good progress in Egypt as well without any meaningful amount of capital spend. Wei Jiang: Got it. No, that's really helpful color. My follow-up is on -- back on the ARO. Is -- so the net $50 million delta would imply roughly the headline ARO is up close to $100 million. It does seem a bit higher than where we were thinking for 2026. So can you just speak to how we're tracking on ARO spend just over the next several years? Should we be holding at that level in North Sea beyond 2026? Ben Rodgers: Yes. So for -- we'll probably wait, Betty, for a multiyear outlook and do that at some point next year, most likely in the first quarter if we do a portfolio update. We've talked about the ramp of the ARO, particularly in the North Sea. And so -- and we also talked about this year that the Gulf of America was going to be higher than prior years and also higher than what we expect moving forward. So the moving pieces for next year is that you see Gulf of America come down pretty significantly back to the kind of $100 million, $120 million range, which is typical for the legacy assets that -- the non-op assets that we own as well as the old Fieldwood assets. So that normalizes, and I would expect that to stay pretty steady even after '26. And then for the shape of the North Sea, it really -- I'll just go back to what Steve said originally when we outlined that. Starting in '25, it was pretty de minimis. It was about $30 million this year. But that grows about $600 million of our after-tax ARO is between now and 2030. And then the other $600 million is between 2031 and ramps down to 2038. So we'll provide more details potentially about what '27 and '28 are, but that increase next year, you're right. So about -- in the high 100s this year. So it would be kind of in the mid- to high 200s next year, but it just shouldn't go without saying that the after-tax impact to us is only $55 million. Stephen Riney: Yes. I just -- and Ben commented on some -- an outline of the shape of ARO spend in the North Sea that I talked about on an earlier earnings call. That outlined that shape of spend starting in 2026 and going into the 2030s, that shape has not changed. It's still basically the same. It grows to 2030 peaks around there and then starts declining. Mostly well abandonment in the first half of that and facility platform and subsea infrastructure in the back half, mostly. Wei Jiang: Got it. Just -- and just to confirm, that $55 million already includes the normalization of the lower Gulf of Goa decommissioning spend? Stephen Riney: That's correct. Operator: Your next question comes from the line of Paul Cheng with Scotiabank. Paul Cheng: Ben, you said the cash tax -- U.S. cash tax will be 0 for this year and next year. Do you have any rough idea then how that look like in 2027 to 2030? Ben Rodgers: Yes. Right now, Paul, our focus has been for this year and next year. We've made significant progress on the tax front and have seen some significant savings. I think with -- when you get past 2026 because a lot of the changes this year and next year that we saw we outlined this quarter were specific to the corporate alternative minimum tax guidelines that came out and less so with the OBBB impact that we outlined in August. As we get into '27 and '28, there's still some guidelines that we'll need for the interpretation of the OBBB. But again, the intention of that was that we get the full benefit of IDCs and bonus depreciation. And so it should take U.S. taxes pretty close to 0. There's still some work that we're going into that with our tax team, but that's the full intention of the legislation and where we think it could lead past '26. So we think that there's continued benefits, but what we've outlined are the benefits for just this year and next year. Paul Cheng: Okay. Great. And maybe this is for John. For Alaska, you're saying that next year is going to be pretty minimum spending. So how should we look at the program and you have the Sockeye discovery and you guys seems like you have very big -- maybe pretty optimistic on that. So what's the game plan that how should we look at over the next 2 or 3 years? And when that we will see maybe a little bit more data out or the -- more news about what the development may look like if that's one. John Christmann: Yes. No, it's a good question. And what we said, Paul, was we're in the process right now literally of reprocessing multiple surveys to come back with what is the next steps in terms of appraisal at Sockeye and exploration. So right now, we're doing technical work. The teams are working away, and we're reprocessing the seismic. We've got 2 really nice discoveries, and we're kind of stitching together a lot of the seismic surveys so we can come back with the next steps. So we'll come back at some point. But right now, we just said actually next year, there won't be any winter drilling this year. Obviously, we'd be getting ready for that now, but it will likely be next winter, which is why late next year, we're likely to be building some ice roads as we bring a rig back. But we'll update you once we've kind of worked through what are the next steps in terms of appraisal and exploration, but we are excited about Alaska. Operator: Your next question comes from the line of Leo Mariani with ROTH. Leo Mariani: Just on the exploration front, it sounds like not a lot of capital next year. Can you give us kind of an update on Uruguay? And then also just curious on the decision to bring some DUCs on in Alpine High and what seems like a bit of a challenged to Waha market here of late. John Christmann: Yes. So just 2 things, Leo. Number one, in Uruguay, we actually have a data room open. We've been showing that externally. There's been a lot of industry interest in our Uruguay program. And so we'll have an update at some point, but don't have anything to announce today on that. And then the 2 completions, the 2 DUCs we completed at Alpine were purely acreage retention. There were wells we drilled. We needed to go ahead and complete those. We've actually got a better Waha price now. So the economics look really good. But it's about preserving optionality and holding acreage in the future. Ben Rodgers: Yes. Just as you look at the timing, Leo, real quick, the timing of when we bring those DUCs on, you get that flush production December, January, February, Waha is well above $2. And so the timing feels right to bring them on. But again, the main reason for doing that to what John said is to retain some acreage there. So it just seemed -- you get the flush production, the economics line up and you get to retain the acreage for optionality. Leo Mariani: Okay. And just on the capital for '26, I just wanted to kind of square everything in the circle here. So it sounds like development CapEx down 10% year-over-year, exploration CapEx down a little bit. ARO spend, you talked about up kind of $55 million after tax. Is there anything else like infrastructure or anything like that, that might kind of be a final moving part? And just any kind of thoughts on changes for that next year? Ben Rodgers: That really captures the big items. So -- because any infrastructure spend would be captured in the development capital. So that really captures all of it. The only other piece is the marketing book right now is kind of in the low to mid-400s as we look at next year at strip. So another very solid year from our marketing book. Again, that's both transport as well as LNG. But other than that, I think we've captured most of the big items. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to John Christmann for closing remarks. John Christmann: Thank you. Our strong results year-to-date have been underpinned by remarkable performance across our entire business. This underscores confidence in our plan and creates positive momentum going into 2026. The capture of meaningful cost savings has improved our free cash flow profile, enhanced our investment opportunities and added inventory to our portfolio. Our efforts to rigorously improve our cost structure will continue, and we are now targeting an additional $50 million to $100 million in run rate savings by the end of 2026. We continue to benefit from our diversified portfolio with a step change in capital efficiency in the Permian, strong momentum with Egypt gas and the GranMorgu project in Suriname progressing on schedule. Lastly, we remain very optimistic on the impact our exploration portfolio can have on our future. With that, I will turn the call back over to the operator, and thank you very much for joining us today. Operator: Yes. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good morning. Welcome to Mineros Financial and Operating Results for the Third Quarter of 2025. My name is Juan Camilo and I am the Investor Relations -- Original language will be Spanish. However, if you wish to listen to English, please follow these steps. First, the box that says English. Then to avoid listening to both languages at the same time, identify the box that says media players and click on mute. [Foreign Language] Please remember that this call may include forward-looking information. Actual results may vary due to inherent risks in mining. Several financial metrics -- are Section 10 our MD&A available David Londono, CEO; David Splett, CFO -- and enter finance CEO; Santiago Cardona is a President Colombia. And so Gavilanes, is [Foreign Language] Unknown Executive: Gold production stands at 163,000 ounces for the first 9 months of the year. This represents a 2.5% increase compared with the 159,000 ounces reported for the same period in 2024. We had a record net income, which reached 50 million for the third quarter and accumulated net income year-to-date of $136 million. We generated positive free cash flow of $62 million in the third quarter and a total of $106 million in net free cash flow for the first 9 of 2025. We concluded to the share buyback program that was approved earlier this year by the shareholders' general assembly and subsequently by the Board of Directors. The company repurchased a total of 3.9 million shares at a price of COP 12,000. This operation finished in -- on September 12. Finally, we acquired 80% of La Pepa project from Pan American Silver Corporation. This transaction of $40 million grants us 100% ownership of this gold exploration asset in Chile, providing us full control over its future development plan. As we will detail next, our excellent operating performance directly translates into strong financial results. These achievements reflect our discipline in operational efficiency, the strength of our assets and our ability to consistently and safely generate value. We maintain a very optimistic outlook for the company and remain committed to sustaining this trajectory of growth and success. I will now hand the call over to David, who will discuss the financial performance for the quarter. David Splett: Thank you, David. Good morning. Let us begin with the income statement for the quarter. As a reminder, all figures are expressed in millions of dollars. In the third quarter of 2025, the company achieved significant revenue growth of 39%, reaching a record figure of $196 million. The main driver of this result was a 40% increase in the average realized gold price. Consistent gold production in Colombia and Nicaragua, coupled with our strict cost discipline were fundamental to these results. Our gross profit saw an increase of 49%, reaching a record figure of $82 million and net income stood at $54 million, representing 90% growth. This implies a significant advance versus the $29 million reported in the third quarter of 2024. In terms of liquidity, net free cash flow was approximately $63 million. This result is calculated after covering the payment of $7.5 million in dividends, $7 million in sustaining capital expenditures and $0.4 million in interest payments. The cost of sales increased by 33%, primarily because the higher gold prices are reflected in the greater cost of purchasing ore from artisanal cooperatives in addition to an increase in depreciation and amortization. On this slide, we present a summary of our financial results through the end of September 30, 2025. The company's revenue grew by 39%, totaling $538 million. This sudden increase was primarily driven by a 40% increase in the average realized gold price, coupled with 2.5% growth in gold ounces sold. We achieved significant profitability expansion. The gross profit and adjusted EBITDA registered increases of 70% and 59%, respectively, reaching $221 million and $244 million. Net income experienced 114% growth during the first 9 months of the year, increasing from $63.4 million in the same period of 2024 to a record figure of $136 million at the close of September 2025. The cost of sales increased by 23% during the first 9 months of the year. This is primarily attributed to the higher cost of purchasing material from artisanal miners cooperatives due to the increased gold price in addition to higher taxes and royalties. Let us now look at the adjusted EBITDA. This key indicator reached a record figure of $90.3 million at the end of the quarter, representing an increase of 44% compared to the $62.9 million registered in the Q3 from 2024. This expansion is directly attributable to a strong revenue growth, primarily driven by the favorable increase in gold prices. Finally, let's review the cash position. Net cash flows from operating activities generated $204 million from the sale of gold, silver and electricity. This was after payments to suppliers totaling $103 million, employee salaries and benefits payments for $15 million and tax payments amounting $11 million. Cash flow utilized in investing activities was allocated to purchases of property, plant and equipment totaling $16 million and strategic investments in intangible assets and exploration projects of $45 million. Regarding the cash used in financing activities, the main components were dividend payments of $7 million and the amortization of financial obligations totaling $9 million. Our current credit and loans balance stood at $17.6 million, while the cash and cash equivalents balance was $102.2 million, a highly significant figure despite the capital expenditures incurred during the quarter, including the La Pepa acquisition. With this review, I will now turn the floor over to David and this finalizes our operational indicators, who will present the operational indicators. David Londono: Thank you so much, David. Let us now discuss our operating indicators. This chart summarizes our operating performance over the last 5 quarters. As you can observe, the total production for the third quarter remained stable and consistent compared to previous periods. This is a direct reflection of our strong discipline and operational execution across all our assets. As clearly visible on the green line, the average realized gold price per ounce in the third quarter of 2025 reached $3,464, which represents a significant 40% increase compared to the same period last year. We emphasize that our margins continue to show a positive trend. And here, we can see graphically how the gap between our average realized selling price and our costs continues to widen, indicating continuous margin improvement. On the cost front, we registered an increase of 38% in cash cost and 34% in AISC, which stood in $1,704 and $1,982 per ounce, respectively. This increase is primarily explained by the rise in the cost of sales, largely associated with the purchase of ore from artisanal mining in Nicaragua, as David mentioned that before. I will now turn the floor over to Santiago Cardona, our Vice President of Colombia, who will present the results and details of our Alluvial operation. Following that, we will continue with in Inivaldo Diaz, who recently assumed the Vice Presidency of Nicaragua and who will offer us a comprehensive overview of Hemco operation. Santiago Cardona Munera: Thank you, David. In Colombia, we achieved a production of 23,000 ounces during the third quarter, which represents a 16% increase compared to the same period in 2024. This growth was primarily driven by lower dilution and the optimization of overburden removal and the hydraulic level control of the pit. The AISC per ounce of gold sold increased by 13%, reaching $1,573 per ounce. This is primarily due to the increase in gold prices, which directly impact the cost of operating contracts in our formalization contracts, more taxes and royalties related to this price. Also the increase associated with the year-over-year change. Additionally, during the quarter, we saw the commissioning of the Aurora plant contributing to our growth strategy and technological renewal aimed at optimizing recovery in our operations. Finally, our occupational health and safety indicators continue to report very low values, highlighting our safety performance. This is the result of our robust and effective prevention culture and demonstrate that safety is a core value and a pillar of our operational excellence. With this, I conclude the presentation of our operations in Colombia, and I will now turn the floor over to Inivaldo Diaz, Vice President of Nicaragua. Inivaldo Diaz: Thank you, Santiago. In Nicaragua, Q3 production remained stable, registering 32,000 ounces. This figure is 5.4% below the production from the third quarter of 2024. This variation is primarily due to a 9.5% decrease in tonnes milled, though it was partially offset by a 4.6% increase in the process grades. Of the 32,000 ounces produced, 83% originated from the artisanal production. Consequently, 58% of the total cost for the third quarter is directly associated with this artisanal output. The AISC recorded a 52% increase. 80% of the increase of the AISC is due to higher purchases from artisanal mining, 26% above compared to the same quarter from last year, which is explained by the prioritization given to artisanal mining over the industrial mining. The feed blend shifted from a 55% artisanal, 45% industrial mix in the Q3 of 2024 to a 20% artisanal, 30% industrial mix in the Q3 of 2025. Adding to the higher purchasing volume is the price effect, which is 40% higher in Q3 2025 versus the same period in 2024, leading to a greater volume of purchases in 26% and 40% higher price. Finally, in July, the decision was made to begin stockpiling high-grade ore purchased from artisanal mining for a special processing at the Vesmisa plant. This required upgrades, including replacement of the corn crusher, major repairs to the agitation tanks and other circuit adjustments. The plant was shut down for nearly 1 month, affecting quarterly operational costs and production. By September, we began achieving the anticipated results. The ore inventory generated at the stockpiling pads amounted to 5,604 ounces, of which 4,527 ounces are from the artisanal mining and 1,077 ounces are from industrial mining. The benefit of this initiative to batch process the high-grade material is the increase of metallurgical recovery by enhancing the residence time and reducing the gold content in the leach tails. With this, I conclude the results for Nicaragua, and I turn the floor back to David. David Londono: Thank you very much, Inivaldo. Let us now discuss our opportunities and outlook. I want to start by highlighting the solid progress in near-mine exploration, which is crucial for the future sustainability of our operations. During the third quarter of 2025, we completed a total of 9,806 meters of diamond drilling. This brings our year-to-date cumulative total to 29,252 meters, maintaining an excellent pace of exploration. Moving to the Porvenir project, we continue working to advance on the following key stages. We are proceeding with the update of the pre-feasibility study with -- that will be finished by the end of the fourth quarter. Operating and capital costs within the project's financial model are currently being updated. In parallel, we are in the process of reaching an agreement with the community and authorities to define an environmental compensation plan. This is a fundamental step for the submission of the environmental management plan for the process plant. The greenfield exploration campaign focused on new discoveries began drilling in July 2025. And currently, we have 3 drill rigs operating on site. We have completed 6,688 drilled meters during the year. Finally, regarding the La Pepa project, as we mentioned earlier, we have completed the acquisition of 100% of the project. We are currently focusing our team's efforts on advancing the exploration plans, which we expect to commence next year. 2025 has represented a key period of strategic consolidation for Mineros, characterized by a substantial transformation and the establishment of unprecedented financial milestones. These achievements reaffirm the robustness of our strategy and our unwavering commitment to generating sustainable value for our stakeholders. From a financial perspective, management has demonstrated operational excellence. Productive discipline has ensured a stable and safe operation, driving the achievement of record revenue at the corporate level. This operational efficiency has directly translated into a significant increase in profitability materialized as a record EBITDA, record net income and an outstanding generation of free cash flow. We have maintained a stable dividend program, and we have observed the market validating our execution, which has resulted in a very positive share performance during the year. On the corporate front, we have worked to secure the foundation for future growth. We have successfully completed the redefinition of the corporate strategy, providing a clear framework for the next phase of growth. We executed the share buyback program, thereby returning additional capital to shareholders and significant operational progress has been achieved, highlighted by the commissioning of our Aurora plant. Our geographic expansion strategy is consolidating with the total acquisition of the La Pepa project, integrating a new high potential jurisdiction into our operations. Finally, we continue to invest in our exploration pipeline with important advancements in greenfield exploration and in the development of the Porvenir project, ensuring long-term sustainability of our operations. This concludes our presentation. We would like now to open the floor for questions. Operator: [Operator Instructions] First one comes from Luca Skarbahal. And he asks, why is it possible to have a debt in the company if the most attractive part of the company is a very healthy balance. David Londono: So the opportunity of financing was open, and we decided to try the market for that. We have to have enough cash flow when an opportunity comes. And that opportunity is now. Unfortunately, when we were going to get the market or go to the market, the conditions were not favorable. We obviously have a plan to grow as a company, and we have this journey to grow at 300,000 ounces per year and even more in the next 3 years related to the investment with Porvenir and Alluvial as well, and Hemco as well. And we are going to invest $200 million or $300 million related to this plan for growth organically -- for growing organically. And also, we want to maintain maximum liquidity if there is a chance to buy an asset or to buy a mine or something that is attractive, but we still need to identify that opportunity. Operator: Next question comes from Mr. Simon Londonio. Unknown Analyst: Congratulations for the results. Would you consider the possibility of starting a new buyback program? David Londono: Thank you so much for your question. That's a decision made by the assembly. We are open for this decision from the assembly. And also, there's another perspective from the previous point. We want to grow this company in the gold production. And it is feasible that this growth has more value for the shareholders even more than the dividend. So our preference is to maintain the dividend in about $30 million per year and maximize the growth plan of production. Operator: We have 2 more questions from Mr. Justin Chan. Justin Chan: Could you please inform us the schedule for the final decision about Porvenir. If the pre-feasibility study is presented in the next year, will you have a definite study before approving the pre-project or the feasibility project is enough so the assembly approves that project. David Londono: Thank you, Justin. I would like to start first by saying that we are finishing the pre-feasibility study. We will finish that in December at the end of the fourth quarter. And this will give us the possibility to perform a feasibility study that is going to be quite fast because this pre-feasibility study is the second time it is performed. It has more details. It is almost a feasibility study. We only have to work on a detailed engineering so we can make that decision. I think that those -- that's going -- we're going to make the decision at the -- in the middle of next year. We are applying all. Operator: The next question from Mr. Justin Chan. They ask about this talk of capital. The working capital and the fiscal capital have a significant impact in the fourth quarter. Do you prevent that there is any temporary factor that will affect the cash flow? Or will it be maintained based on the AISC. David Londono: I'm going to respond. We do not do not experience important changes in our balance sheet or in our cash flow answer. There is something that we need to deep dive in this part. The taxes of the company are paid during the whole year as down payments or advanced payments. And when we have this payment related to taxes after liquidations. Operator: Next question from Mr. Lucas Carbajal. With the commissioning of the Aurora plant, how much are you expecting to increase the production? David Londono: I'm going to start responding to this question, and then Santiago will respond, the Colombian VP. I think the commissioning of the Aurora plant is a total success, and it will improve production and the performance in Colombia. So it depends on our mining plans and the management that we will have, but this plant will cover 5,000 cubic meters -- additional cubic meters per day. A production that we are adjusting as a project and that we expect to have this year between 1,000 and 1,500 additional ounces. And next year, we will explain you the plan for the mining process next year. We will inform that. Operator: Next question from Ben Pirie. Ben Pirie: Congratulations for this great quarter. I am highly excited for Q4 as the gold price has risen even further. Can you guide any sort of budget for the La Pepa in 2026 for the exploration program? David Londono: Thank you so much. First in Spanish, I'm going to speak. So La Pepa, we have planned to start the exploration. In this moment, we are working to get the staff that is going to work in La Pepa and we would start exploration next year when all the consultants and all the people are in the site. I think we're going to spend -- we will have an additional budget of $5 million. Operator: Next question from Mr. Juan Soto. Unknown Analyst: What is the forecast of production that you have for 2026. David Londono: Thank you so much, Juan, for that question. In this moment, we are finalizing the budget, and we are internally reviewing how this is going to be. But I think we will see a slight increase in production in both operations. It could be 2% or 3%. Operator: This is from Alejandro Correa. What's the forecast of the company with the gold prices in 2026. What is the contribution in monetary resources are you expecting from Project La Pepa in Chile? And when would you start the exploration phase. David Londono: So the forecast, we don't work with the forecast of the gold prices. We control the costs, but not the price. We assume that for the next year's production, the price should be -- we have this forecast of -- with 15 different banks and the forecast related to 2026, it's in the range of $4,000 per ounce but we are going to use this last forecast from 2025 that could be ready by December. We are going to use that forecast. And in terms of the second part of the question about the La Pepa project in Chile, what is it that we expect. We expect to start exploration and all the studies next year. I think exploitation that will be planned for between 5 and 7 years, while we do all the exploration, we have to do the pre-feasibility study, the feasibility study and that will take a long time and obviously, acquiring or getting all the permits that we need. So we are just starting to do this work. Operator: Next question from Alfonso Maris. Unknown Analyst: What happened with the silver production. David Londono: In terms of silver, that is due to the adjustments that we had in the Vesmisa plant, that was the adaptation to process the high-grade minerals or ore. We processed less tonnes because we are working under dispatch processing modality because hybrids increased substantially during this quarter. So this led us to process less tonnes and focus in the recovery of gold, and we run the test of recovery and the amount of silver has also decreased. Operator: Next question from Mr. Exon. Unknown Analyst: We know that you are in pursue for inorganic opportunities across different geographies. I would be grateful if you could give us more color on which countries or jurisdiction you favor over others. David Londono: Thank you for this question. We will always see opportunities in different geographies. Obviously, we prefer to be in the same time zone. But if we see opportunities that are smart opportunities for us, we will study them. Operator: Next question from Mr. Maria. Unknown Analyst: Congratulations for the results. The valuation that the shareholders have received is quite high. What's the reason of the reduction of production and how is Guillermina doing? Inivaldo Diaz: The answer is the same that I've replied before. This thing about the Guillermina plant that we are using for processing the high-grade ore and that reduced the production tonnes. And in terms -- in relation to Guillermina, we continue with the exploration plan. We are doing the drilling, and we are expecting to receive the results, but it's promising. We expect that, that brings more resources to the operation. Operator: Next question. This is from Simon Londonio. Unknown Analyst: Could you please update the guidance in relation to the ounces production and CapEx, considering the -- and CapEx, considering the new projects. David Londono: Thank you for that question. The guidance does not change in this moment. And for 2026, we see the guidance in the Q1 in January, and we will have this guidance for production, exploration and CapEx. Operator: We see this from Pablo Castro. Unknown Analyst: We see an increment in the brownfield exploration. Is this a change in the strategy under the new administration? Do you see any potential in the current mines for this increment in the exploitation. David Londono: Yes, indeed. Thank you for that. We have to increase the brownfield exploration. And the reason for this is that we want to replace the year's production in both jurisdictions. For us, this is very important to have this certainty about the budget that we are making. So this is a change in the strategy, increase those expenses in exploration because in the end, this gives a lot of profitability. We have always said that Nicaragua has a very good perspective. It's an area with a good perspective, and we expect to have very good results with increase in the exploration. And in Colombia, this has been very consistent and the fact of increasing the exploration. So we are sure about what we are going to produce in the next 5 years. Operator: We have another question. Why the underground production of gold has really been -- has decreased in 44% and what's -- what are the future plans for the underground sector. David Londono: In Hemco, our bottleneck is the capacity for processing. We currently see an increase in the contribution of the artisanal miners that because of their activity, it had -- their grade doubles what we obtain in the industrial mines in our mines. So seeing the plan and the sequences adapted, and we give preference to the ore from the artisanal mining above or on top of our own mining. So we are increasing the processing capacity in our plants. That's part of our growth plan in our capacities. Operator: We have a question from Christian Marasco. Unknown Analyst: Congratulations. Could you please detail your investment plan for the funds that come from a possible bond emission. How is the return on investment in the new mines. Unknown Executive: So we have this growth to 300,000 ounces in relation to the investments in Porvenir, Hemco that should -- we could create a lot of value for our shareholders with this organic growth and to maintain this liquidity in case there is an available... Operator: This question is from Juan Soto. What's the forecast for CapEx and for which type of investments would you destine these funds. David Londono: The answer has just been given by David. But just to repeat that a little bit, it's $170 million or $200 million that we want to invest in the construction of Porvenir and about $45 million that we have for the expansion of the bottleneck in Hemco and the possibility to have more production or improvements in the performance in -- with the acquisition of this plant. Operator: Next question that comes from Santiago Mason. Unknown Analyst: Could you please give us a guidance of the dividend for 2026? David Londono: This is something that is defined in the assembly in March. So we cannot give you a guideline of how much it would be. Well, thank you so much. With this, we close the Q&A session for this call for the results of the third quarter 2025. Thank you so much for your participation, and I will see you in the next quarter's call. Thank you very much. Operator: With this, we finish the today's conference. Thank you so much for your participation. You may disconnect from the call now.
Operator: Good day, and welcome to the Angel Oak Mortgage REIT 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 Mr. KC Kelleher. Please go ahead. KC Kelleher: Good morning, and thank you for joining us today for Angel Oak Mortgage REIT's Third Quarter 2025 Earnings Conference Call. This morning, we filed our press release detailing these results, which is available in the Investors section on our website at www.angeloakreit.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, we will be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings. This morning's conference call is hosted by Angel Oak Mortgage REIT's Chief Executive Officer, Sreeni Prabhu; and Chief Financial Officer, Brandon Filson. Management will make some prepared comments, after which we will open up the call to your questions. Additionally, we recommend reviewing our earnings supplement posted on our website, www.angeloakreit.com. Now I will turn the call over to Sreeni. Sreeniwas Prabhu: Thank you, KC, and thank you all for joining us today. Our third quarter performance reflected another period of disciplined execution and strategic progress for AOMR. We continue to execute both operationally and strategically in a constructive market environment. We capitalized on a couple of strategic opportunities to reallocate capital into high-yielding assets, improve our loan financing funding costs and diversify our lender base. And as always, our team continued to focus on deploying capital into high-quality income-accretive opportunities, supporting both portfolio growth and underlying earnings quality while maintaining vigilance on credit. Our results this quarter were in line with our expectations. This was highlighted by our 13% growth in net interest income compared to third quarter of 2024 and a 2% increase compared to second quarter of the year. GAAP book value per share increased by over 2% compared to the second quarter, driven by increases in valuations across our portfolio. Cash flow dividend coverage increased and is expected to continue its growth trend as demonstrated over the last 2 years. This is driven by earnings from assets purchased during and post quarter end as well as the resecuritization of some pre-IPO deals, which will rotate capital into high-yield uses. Credit continues to perform well, both in aggregate and relative to our peers, and our earnings generation engine continues to strengthen. As I mentioned, we executed on several key initiatives during the quarter. First, we successfully called and retired 2 legacy vintage deals, which is something we have been opportunistically monitoring for the last several quarters. Retiring these deals allowed us to release and reinvest capital into new attractive opportunities and further optimize the yield on our investment portfolio. Second, we added new warehouse credit facility and extended another facility at attractive funding rates, which combined with decreases in SOFR are expected to improve margins while also diversifying our lender base. These actions, along with our continued focus on efficient capital recycling and securitization, emphasize the reliability and the repeatability of our strategy. We are encouraged by the strength and stability in the securitization market as well as the constructive environment for portfolio growth. Securitization spreads continue to tighten and the market continues to function efficiently with new and traditional participants active in the marketplace. The market backdrop has become more positive as the year has progressed and the interest rate trajectory and the efficient securitization execution have supported valuation and earnings growth for AOMR. While the competition in the space has increased, we see this as an indication of solid demand in an area where we have demonstrated expertise. Further, our differentiated platform and dynamic approach to capital deployment and portfolio management positions us to capitalize on opportunities. As we look ahead, we remain committed to continued execution of our strategies, delivering strong results for shareholders and building on our solid historical track record. With that, I'll turn it over to Brandon, who will walk us through our third quarter financial performance in greater detail. Brandon Filson: Thank you, Sreeni. Third quarter operating results were in line with our expectations with 13% net interest income growth versus the third quarter of 2024, an expansion versus the second quarter of this year, demonstrating a positive return on May's senior unsecured debt issuance within 1 quarter. Year-to-date, net interest income increased 11% compared to 2024. Operating expenses, excluding securitization costs and stock compensation expense were 13% lower than in the third quarter of 2024 and 5% lower than the second quarter of 2025. Year-to-date, operating expenses, excluding securitization costs and stock compensation were 19% lower than in 2024 as we continue to push hard on cost rationalization and key expense saving initiatives. Valuations were a tailwind during the third quarter as we observed increases in valuations across the portfolio. As of today, we expect that our book value has grown moderately compared to the end of the third quarter alongside the recent rate rally. For the third quarter of 2025, we had GAAP net income of $11.4 million or $0.46 per diluted common share. Distributable earnings for the second quarter were $529,000. The primary driver of the difference between GAAP net income and distributable earnings were the impacts of $4.3 million of unrealized gains on our residential loan portfolios and $5 million of unrealized gains on hedge contracts. Interest income for the third quarter was $36.7 million and net interest income was $10.2 million, marking a 34% improvement in interest income and a 13% improvement in net interest income compared to the third quarter of 2024. Compared sequentially to the second quarter of 2025, interest income increased by 4% and net interest income increased by 2%. For the first 9 months of the year, interest income was $104.6 million and net interest income was $30.2 million, which translates to increases of 33% and 12%, respectively, compared to the first 9 months of 2024. As we previously noted, we expect our net interest income to continue its growth trend with earnings generated from accretive loans purchased throughout the year and our securitization activity in Q4. Our $238 million of loan purchases in the quarter carried a weighted average coupon of 7.74% with a weighted average combined loan-to-value ratio of 69.4% and a weighted average FICO score of 759. Our total residential whole loan portfolio had a weighted average coupon of 7.98% as of the end of the quarter. The non-QM portion of our whole loan portfolio carried a weighted average coupon of 7.37% and HELOCs carried 11.03% weighted average coupon. As of today, our current weighted average coupon is approximately 8.7%, reflecting the 2025-10 securitization, which closed in October. As of the end of the quarter, our loans in the securitization trust portfolio carried a weighted average coupon rate of 5.8% with a weighted average funding cost of approximately 4.2%. As Sreeni mentioned, the securitization market remains active, and we intend to continue leveraging this strength through our disciplined methodical securitization strategy. As mentioned earlier, we called and retired our retained bonds from AOMT 2019-2 and AOMT 2019-4 securitizations in the third quarter. These deals have become delevered over time, and the [ call ] released $19 million of capital to be reinvested into higher-yielding new loan purchases and other earnings accretive uses. Additionally, in October, we executed the AOMT 2025-10 securitization. This securitization was a $274 million deal that enabled us to pay down $237 million of warehouse financing and released $22 million of cash for redeployment. The execution of this deal was strong with the senior bonds issued at a spread of 125 basis points over treasuries. Operating expenses for the third quarter were $3.2 million. Excluding noncash stock compensation expenses and securitization costs, third quarter operating expenses were $2.8 million. This represents a 13% decrease compared to the same metric in the third quarter of 2024. For the first 9 months of the year, operating expenses were $11.3 million. Excluding noncash stock compensation expenses and securitization costs, operating expenses for the first 9 months of the year were $8.5 million, representing a decrease of 19% compared to the first 9 months of 2024. Going forward, we expect to maintain similar operating expense levels and will continue to be as efficient as possible with our expense structure. Looking at our balance sheet. As of the end of the quarter, we had $51.6 million of cash and our recourse debt-to-equity ratio was 1.9x. As of today's date and factoring in the October securitization, we estimate our recourse debt-to-equity ratio to be approximately 1x. GAAP book value per share increased 2.2% to $10.60 per share as of September 30, 2025, from $10.37 as of June 30, 2025. Economic book value, which fair values all nonrecourse securitization obligations was $12.72 per share as of September 30, 2025, down 1.9% from $12.97 per share as of June 30, 2025. The increase in GAAP book value was driven primarily by the aforementioned valuation increases across our portfolio and valuations of the sold bonds from our 2021-4 and 2021-7 securitizations are included as a liability in our economic book value calculation and the markup of these bonds drove the directional difference between GAAP and economic book value. We ended the quarter with unsecuritized residential whole loans at fair value of $425.8 million financed with $342.6 million of warehouse debt, $1.9 billion of residential mortgage loans and securitization trust and $256.2 million of RMBS, including $21.2 million of investments in commingled securitization entities, which are included in other assets on our balance sheet. We finished the quarter with an undrawn loan financing capacity of approximately $707.4 million. Now looking at credit. We ended the quarter with a total portfolio weighted average percentage of loans 90-plus days delinquent at 2.2%, inclusive of our residential loan, securitized loan and RMBS portfolios, which represents a decrease of 15 basis points from the second quarter of 2025. The AOMT securitization shelf continues to demonstrate outperformance relative to other non-QM shelves in terms of delinquency. We expect that throughout the credit cycle, this outperformance will lead to fewer defaults and lower credit losses than comparable non-QM securitization platforms. This expectation is borne out of our intentional effort to move up in credit for our loan originations and purchases over the past couple of years, which continues to provide us with the confidence that we will deliver consistently amid periods of potential volatility. Additionally, we expect our portfolio-wide low LTV, diligent underwriting standards and inherent credit selection to mitigate losses throughout a cycle if credit becomes an issue. 3-month prepayment speeds for our RMBS and securitized loan portfolios were 9.4% to end the quarter, reflecting a marginal decrease compared to the second quarter of 2025. As a reminder, we model our returns on historical average prepayment speed of 20% to 30%. We continue to expect that mortgage rates would need to fall meaningfully in order to drive a significant uptick in refinances and prepayment speeds in our portfolio. Finally, the company declared a $0.32 per share common dividend, which will be paid on November 26, 2025 to common shareholders of record as of November 18, 2025. For additional color on our financial results, please review the earnings supplement available on our website. I will now turn it back to Sreeni for closing remarks. Sreeniwas Prabhu: Thank you, Brandon. I would like to thank the entire Angel Oak team for their hard work towards building what we believe is the best non-QM loan origination, purchase and securitization platform. We look forward to continuing to build long-term value for our shareholders in the coming quarters and years. With that, we'll open up the call to your questions. Operator? Operator: [Operator Instructions] First question comes from Matthew Erdner with JonesTrading. Matthew Erdner: I'd like to touch on kind of the calling of the old securitizations there. One, get your thoughts going forward? And two, how much incrementally were you guys able to pick up on the margin there in terms of cost of funds kind of coming in as a result of calling the securitizations? And then expectation going forward as to what other calls would do to that cost of funds. Brandon Filson: Yes. Thanks, Matt. Yes, 19-2,19-4, those were our very first securitizations that we did even before this vehicle was a public REIT. They're very delevered, the point, I mean, the factors were down to very, very low levels where effectively our retained interest was earning, the weighted average coupon of the deals are in some cases even a bit less. So 6%, 7% kind of retained yields on those bond positions. The $19 million in cash would be then immediately reinvested into whole loans that would at least lever -- earn that unlevered yield today with leverage 12% to 14%. And then once we securitize a 15% to 20% kind of return. So you can think of 8% of our capital over the next couple of quarters going from earning a 6% to a 14% at a base case level. As we look at other deals, I mean, we do have 19-6 securitization and 2020-3 securitization out there that we're evaluating what to do with them as they delever. It all depends on what the execution price and where we are in terms of the cycle, but I'd expect us to be looking hard at that over the next year. Matthew Erdner: Yes. Got it. That's helpful there. And then you guys mentioned competition earlier on the call. I'd like to touch on this given the amount of people that have entered the space are starting to come in. How are you guys able to go out there and kind of source the loans that you find attractive, opportunistic and whatnot and kind of beat out that competition, so to speak? Brandon Filson: Yes. I think we -- with our affiliation with Angel Oak Mortgage Solutions and the Angel Oak platform in general, we've had a very consistent non-QM program over the past many years. Our rate sheets are similar. We're always buying. We're a surety of closing deals. So when we go out, we think we are able to pull in good demand versus maybe the new guys entering the space that may not be there tomorrow, that may change their mind and they're just coming in and out based on a trade item. Again, we said many times, this is a business for us, not a trade. So we have great relationships, again, with our affiliated originators and other third-party originators where they will show us the loans that we want with the rates we want and the prices we want because they know that we'll be able to execute and close those loans. Operator: The next question comes from Doug Harter with UBS. Douglas Harter: Hoping you could touch on your outlook for growth in the investment portfolio, I guess, given a combination of the resecuritization opportunities plus maybe adding some more leverage to the balance sheet. Brandon Filson: Yes. No, I think we have -- we did our senior unsecured notes offering, second one this last summer. That -- those proceeds have effectively been deployed, maybe not fully. I mean it takes several cycles of securitization to get 100% deployed in terms of capital. We released the securitization from the 19-2, 19-4 deals. You'll also see in the filings and whatnot that we also took back at interest in a vehicle that holds some of the nonperforming loans from those deals. It would be about $7 million that -- those proceeds should also be coming in today, literally. Then 25-10 released over $20 million in capital. So we have kind of a very good runway for growth in terms of what we're looking at in terms of purchasing volume. We like to be consistent in the space. We've been buying $200 million to $300 million a quarter really over the past year of loans. We're also looking at -- we have about $75 million worth of HELOCs in our portfolio. We're looking at doing a securitization in that regard here in the coming quarter that should release additional capital and continuing to grow. So we -- and then as you mentioned, we're going to be looking at the 19-2 and then the 2020-3 securitizations to resecuritize and call if and when that time and opportunity comes up. 19-6, sorry, if I said 19-2. Douglas Harter: Great. I appreciate that. And then I know in the prepared remarks, you did walk through some of the difference between GAAP and economic book value in the quarter. But if you could just kind of give a little more detail on just how we might think about the drivers of change as we go forward on those metrics? Brandon Filson: Yes. So the genesis of economic book value was the 21-4 and 21-6 (sic) [ 21-7 ] securitizations that we did immediately post IPO. Those were the deals that were in the Goldilocks phase of the market when interest rates were 0 and the securitization market was incredibly accretive. So they had one of them, 21-4, the coupon on the senior bond was just over 1%. So literally very little funding cost. We made the election at that time, if you recall, to hold those liabilities for those sold bonds at amortized cost, meaning that as obviously, rates sold off over the next couple of years, they stayed at par when in reality, the fair value of those bonds or the fair value of the liability would have been significantly below par. As we're in this cycle now where real rates are starting to decline, securitization market getting better, things are getting tighter. There's a lot of demand for these products. And again, real rates are declining. Those bonds are starting to mark back up, which doesn't happen under GAAP book value. And that's why you see the divergence or the decrease in economic book value quarter versus the increase in GAAP book value because from a GAAP book value perspective, if you think about those 2 securitizations, we effectively have an unhedged asset with several hundred million dollars in loans in it. And then from an economic book value, then we effectively then hedge that back down as that liability is starting to increase in value. And that liability value is based on the value of those sold bonds. Operator: [Operator Instructions] The next question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Just one for me. Regarding the size of securitizations, just looking back to prior quarters, it seems like in 2024, securitizations were slightly above $300 million. So far in '25, they've kind of hovered around $280 million. I was just kind of wondering if we could see future securitizations kind of get back to that $300 million level or if you guys are comfortable with kind of the size you're doing now? Brandon Filson: Yes. We've made the conscious decision to be hitting the securitization market very programmatically and consistently, right, and not waiting in this rate environment to get to a $300 million, $400 million level. That was something we did use to do. And now we found it better, especially with all the supply coming on the market to be a very consistent issuer. That's why this year, we're already up to 10, 11 real non-QM securitizations. We've done the resecuritization. And then earlier in the year, we had our first HELOC securitization. I say we here as AOMT or Angel Oak itself. So we're consistently in the market, and we find that has helped tighten up our spreads and keep our risk low on our balance sheets as we move to term out that funding cost. Timothy D'Agostino: Okay. Great. And just a quick follow-up. Could we see you investing more in HELOCs going forward? Or are you going to continue to just like majority focus on non-QM? Brandon Filson: We're majority focused on non-QM, and we consider our HELOCs non-QM adjacent. A lot of times, they look a lot and they feel a lot like a non-QM loan from what we're doing. They're just -- especially in today's environment, they're very attractive in terms of their yield profile. Like you can see from some of the disclosures, the weighted average coupon on those are just north of 11% currently versus new originated non-QM loans, 7.25% to 7.5%. The funding cost is similar between the two, so you can get a lot of extra margin on those. I would imagine that over the coming quarters, we'll keep it kind of where we are today, which is, call it, $75 million to $150 million worth of HELOCs in the portfolio, and then we'll securitize them off. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brandon Filson for any closing remarks. Brandon Filson: All right. Thank you, everyone, for your time and interest in Angel Oak Mortgage REIT. We look forward to connecting with you again for year-end. In the meantime, if you have any questions, feel free to reach out to us, and have a great day. Operator: Thank you. The conference has now concluded. You may now disconnect your lines. Thank you.
Operator: Welcome to SelectQuote's First Quarter Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Matt Gunter, SelectQuote Investor Relations. Mr. Gunter, you may begin the conference. Matthew Gunter: Thank you, and good morning, everyone. Welcome to SelectQuote's fiscal first quarter earnings call. Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion. After today's call, a replay will also be available on our website. Joining me from the company, I have our Chief Executive Officer, Tim Danker; and Chief Financial Officer, Ryan Clement. Following Tim and Ryan's comments today, we will have a question-and-answer session. As referenced on Slide 2, during this call, we will be discussing some non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and the non-GAAP financial measures are available in our earnings release and investor presentation on our website. And finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon management's current expectations and beliefs concerning future events impacting the company, and therefore, involve a number of uncertainties and risks, including, but not limited to, those described in our earnings release, annual report on Form 10-K for the period ended June 30, 2025, and subsequent filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. And with that, I'd like to turn the call over to our Chief Executive Officer, Tim Danker. Tim? Timothy Danker: Thank you, Matt, and thanks to our investors and analysts joining us this morning. Picking up from the momentum of a strong fiscal 2025, SelectQuote executed well over the first quarter and is well positioned for a successful fiscal 2026. Beginning with the headline results. We generated consolidated revenue of $329 million, which represents 13% growth over the same period a year ago, driven by strong growth in Healthcare Services. As you saw in our press release, the year-over-year senior revenue compare was unique this period given the changes to beneficiary eligibility requirements during the special election period. Specifically, our senior revenues were $59 million compared to $93 million a year ago. The decline was driven by lower policy production, which was expected given the new SEP parameters we foreshadowed on last quarter's call. Additionally, as also forecasted last quarter, the segment recognized negative EBITDA of $21 million in the first quarter, driven by the combination of lower policy production as well as increased year-over-year investment and new agent hiring in advance of AEP. I'll speak more to our readiness for AEP in a moment, but the high-level takeaway is that our Senior business performed as expected in what was a unique year-over-year compare for SEP. In our Healthcare Services business, our new Kansas facility is ramping as planned, delivering efficiency gains in line with expectations. However, first quarter Healthcare Services EBITDA was impacted by a change in drug reimbursement rates with a SelectRx PBM partner. This is a headwind for our 1Q and 2Q Healthcare Services EBITDA margin. Without providing detail on the contract, it is important to call out from the perspective of the PBM the change in reimbursement rate relates to volume shipped over calendar year 2025, not just fiscal 1Q or 2Q. The change does not impact our prior period results, but instead disproportionately impacts the first half of this fiscal year by approximately $20 million. The majority of that impact will be recognized in our fiscal second quarter. As a result, we now expect second quarter adjusted EBITDA for Healthcare Services to be approximately breakeven. We are actively negotiating a longer-term reimbursement agreement with this carrier that creates better visibility for both parties. We have communicated our need for stability in our financials. The timing of this impact following our initial 2026 outlook is a clear example of that need. We're confident we'll reach a mutually beneficial agreement as this PBM partner recognizes the compelling clinical value provided by SelectRx, which I'll speak to later in my remarks. Regardless of the ongoing negotiation with this PBM, rates per our current contract revert to more normalized levels on January 1, 2026, which underpins our updated fiscal '26 view. While we no longer anticipate reaching our $50 million target for fiscal '26, our confidence and visibility in the long-term economics of Healthcare Services are unchanged. Despite the 2Q impact, we plan to exit the fiscal year at an annualized EBITDA run rate in the $40 million to $50 million range and continue to see SelectRx and Healthcare Services as a meaningful driver of profit and cash flow for SelectQuote. Speaking now at the consolidated level, quarterly EBITDA of negative $32 million was below our guided $25 million to $30 million loss range communicated on the last call due to the SelectRx margin dynamics I just spoke about. Senior EBITDA was within expectations for the quarter and our views on the upcoming AEP season are unchanged. If we turn to Slide 4, I'll detail those views for AEP. Beginning at the top of the page, let me start with our view of the overall industry. As you recall from last year, shifts in planned benefits and structures from carriers drove an elevated amount of policyholder volatility. Looking ahead to this year's selling season, we see a similar backdrop where carriers continue to prioritize Medicare Advantage margins over aggregate policy growth. The importance of a well-fit policy has never been more important to both the carrier and the policyholder. SelectQuote's data-enabled agent-led model is specifically built for that purpose, which we believe is a lasting competitive advantage and one that is especially acute in this environment. Coincidentally, we expect the ongoing strategic shift by carriers to drive another elevated year of policy terminations. As we noted last year, these industry trends drive an increased need for the solutions SelectQuote provides, both for the carrier and certainly for the policyholder. Additionally, we see certain pockets of growth within health plans this season, including HMOs, SNPs and in specific underserved geographies, which our model is uniquely well positioned to help. If we move to the bottom of the slide, let me give our outlook for how SelectQuote is positioned to perform in this Medicare Advantage season. Looking back, the 2025 AEP season exceeded expectations. Our high-touch data-driven model proved its value in a dynamic market, where policyholder questions and confusions were elevated. In that environment, our agile agent-led approach delivered outsized growth per agent and near record margins in the Senior segment. For the 2026 AEP and OEP seasons, we're optimistic that performance will be strong. We entered the season with excellent retention of tenured agents who are about twice as productive as new hires, and had another successful preseason of hiring and training. This positions the platform well for continued growth and improved operating leverage. Moving to our focus on retention. We know carrier plan changes can drive confusion, and we have made a strategic priority to proactively work with policyholders to ensure they understand their plans. This is a differentiated approach that is highly appreciated by policyholders. In the upcoming year, we expect tangible benefits to our results from both keeping policyholders in plans that remain a good fit or helping them find a new plan that best fits their ongoing needs. In fact, we believe there's an opportunity to improve policyholder recapture rates from the 2025 season. We believe our agile sales function and focus on retention positions SelectQuote to once again deliver in what is to be sure another dynamic and disruptive AEP season. On Slide 5, let's add some context on SelectRx and the way our customers and carrier partners benefit. As we've talked about since the inception of the business, there are substantial problems and inefficiencies in how prescription drugs are paid for, distributed and ultimately taken by Americans. SelectQuote, as an efficient healthcare information hub, has significant insight and ability to eliminate inefficiency and improve the experience for all participants in the prescription drug value chain. At the highest level, SelectRx improves lives for Americans, introduces efficiency and cost savings into the system and leads to better health outcomes. Here, we provide a few examples, beginning on the left with improved MA retention. Given medication is a core piece of most treatment regimens, the fit of prescription drugs within a medical coverage plan has a synergistic benefit. We have seen this evidence with SelectRx members, who tend to have lower rapid disenrollment rates and higher retention on the Medicare Advantage plans they select. Next is improved medication adherence in the middle column. Our approach recognizes a fundamental reality of patient care, medications change. Unlike the traditional 90-day bottle-filled approach prevalent elsewhere, we utilize adherence-friendly 30-day packaging with a high-touch service model. This monthly cycle is critical because on average, roughly 10% of our SelectRx members experience a material change to their prescription regimen each month, whether it's adding a new medication, discontinuing an old one or adjusting the dosage. When a patient's therapy changes, a 90-day supply creates a dangerous gap and an unnecessary drug waste. Our 30-day approach more quickly ensures that patients are taking the correct current medications, which is vital. This reduces the risk of patients taking incorrect doses or discontinued medications and lowers the risk of adverse drug reactions. It is well known that taking medication in accordance with the doctor's orders is critical. As we know, especially with American seniors, drug adherence is a tricky and persistent problem, which can lead to worse health outcomes, particularly among the polychronic population we serve, nearly 70% of whom have limited pharmacy access. Nationwide studies suggest that poor medication adherence contributes to around 25% of all hospitalizations, which translates to hundreds of billions of dollars in healthcare costs in the United States each year. Around 40% of our Healthcare Select members have reported either forgetting to take their medications or failing to pick up prescriptions from a pharmacy. We designed SelectRx with this specific problem in mind and have seen clear success in adherence rates. We attribute the success to the convenience and clarity that SelectRx custom drug delivery provides patients. When we enroll patients in SelectRx, we see a meaningful improvement in their active medication adherence over the next 2 years. With our new concierge like program, we call Adherence for All, we are further accelerating and enhancing medication adherence improvement with beneficiaries in the programs improving by roughly 10% within the first year. Finally, the right-hand column is the most rewarding statistic, improvement in health outcomes, which benefits everyone within the ecosystem. By improving adherence, SelectRx members see a reduction in hospital days of around 20%. This directly translates to a better quality of life for the patient, but additionally provides a meaningful cost reduction for the overtaxed healthcare system and similarly for healthcare insurance payers. We provide this color not just because we're proud of the business, but it is important for investors to understand that these numbers matter to our insurance carrier partners. They, like us, see SelectRx and our healthcare services platform as a core value driver for long-term American healthcare improvement. With that, let me turn the call over to our CFO to detail our results. Ryan? Ryan Clement: Thanks, Tim. Beginning on Slide 6, the business executed well in the fiscal first quarter, advancing our strategic priorities across Senior, Healthcare Services and Life, even as we navigated the near-term reimbursement challenge within SelectRx. Consolidated revenue grew 13% to $329 million, driven primarily by our SelectRx and Life Insurance business, which helped offset the unique comparison in Senior related to SEP. The fundamentals of our Senior business are unchanged, where we wrote 32% fewer policies in this year's fiscal first quarter compared to last year. Similarly, first quarter EBITDA is not directly comparable to the prior year due to the new SEP environment and our normal upfront investment to prepare for the upcoming AEP and OEP seasons. If we shift to Slide 7, our Senior financial results again show the impact from SEP. The results were in line with our expectations, and again, are a function of lower policy production because of new eligibility rules and the normal course of investment we make before the AEP and OEP season. I will reiterate that this level of volume was as expected. The impact can be seen primarily in our segment revenue, which declined 37% to $59 million due to the 32% fewer policies. Our Senior EBITDA loss of $21 million was in line with our expectations given the production and investment dynamics I just spoke about. LTVs have remained relatively stable despite increased policyholder volatility in the past year, coming in at an average of 883 for the last 12 months. We are now operating at a revenue to client acquisition cost of 6.4x, which continues to exhibit the synergy of our marketing spend against very attractive and durable cash flow streams for SelectQuote. If we flip to Slide 8, I'll review the dynamics underlying our Healthcare Services results. Members held steady compared to last quarter, in line with expectations, given the first fiscal quarter is typically a slower one for onboarding SelectRx members. We feel well positioned to capitalize on the AEP and OEP enrollment seasons. That being said, we continue to focus on driving profit and cash flow over aggregate member growth. As Tim highlighted, the primary factor impacting first quarter results was a change in the reimbursement structure with one of our SelectRx PBM partners. As a result, fiscal 2026 will ramp more gradually than we initially anticipated. We expect the rate pressure to crest in our fiscal second quarter before we revert to a more normalized rate structure with this PBM starting in January 1, 2026, which is our fiscal third quarter. Despite this near-term pressure, our medium- and long-term outlook for expanding operating leverage and improving margins in Healthcare Services remains intact. To reiterate Tim's point, this partner understands the clinical value our SelectRx solution brings to patients, and as such, we are in constructive discussions to solidify our longer-term rate structure. We believe this new arrangement will provide enhanced visibility and predictability for our growing SelectRx business. Healthcare Services continues to be a highly attractive driver of profit and cash flow for SelectQuote. The value we deliver to customers through SelectRx, combined with strong attachment rates in our Senior Medicare Advantage business, remains central to our strategy. This approach supports increasing cash flows, which benefits shareholders through improved cost of capital and more self-funded growth. Let's shift to Slide 9 to detail our Life Insurance business. The quarter was a strong one for growth as revenues expanded nearly 20%, driven by balanced growth in term life and final expense policies. The lack of pull-through to our EBITDA, as shown at the right, was also driven indirectly by the changes to this year's SEP. As part of our preparations for the season, we shifted agents to our Life business given our expectation for less MA volume during the SEP period. The results for our Life business was a near-term increase in expenses related to production in the quarter. We expect this trend to reverse as the season progresses and agents are reallocated and new agents specifically become more tenured in life. As a whole, the Life business continues to provide another steady stream of profit and efficient cash flow, similar to our Healthcare Services business. In closing, we are pleased with the results from each of our divisions and SelectQuote's overall position for the year ahead. The Senior business is well prepared for AEP, supported by strong agent retention and a successful preseason. Healthcare Services continues on its strong growth trajectory, and our Life division is driving consistent, reliable cash flow. At this time, we are not changing our fiscal 2026 financial outlook of $1.65 billion to $1.75 billion in revenue and the $120 million to $150 million in adjusted EBITDA. While the Healthcare Services adjustment is a headwind, we plan to update our outlook following our fiscal second quarter as we will have additional detail on the AEP period for our Senior business. That said, we remain confident today that we will be operating cash flow positive during fiscal year 2026. With that, I'll turn the call over to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from Ben Hendrix of RBC Capital Markets. Michael Murray: It's Michael Murray on for Ben. On SelectRx, you seem to believe the reimbursement headwind is going to be contained in 2025. What gives you comfort that rates will improve next year? And is there a potential that you'll see a similar reimbursement headwind at the end of next year? Timothy Danker: I appreciate your attendance here. Just to provide a little bit more context on what we mentioned in our prepared remarks. We did have one PBM that made some adjustments to the drug reimbursement rates. Despite this change, the PBM remains profitable. We have a very strong relationship with them. We're in the midst of updating our agreement. As we shared with the market today, they see what we see, an immense amount of clinical value that our SRx solution provides patients. And as such, we're in constructive discussions with them to solidify a longer-term agreement and rate structure. So we are absorbing a short-term impact in Q1, Q2, but the long-term economics remain very attractive. They don't change our perspective on growth or margin profile. As we work towards this new agreement, we will provide enhanced visibility and predictability into the growing business. Michael Murray: Okay. I appreciate that. Just shifting gears a little bit. I appreciate the commentary that SelectRx is improving MA member retention. Could this have a potential positive impact on LTV? And how much data would you need to see before building that into the LTV calculation? Ryan Clement: Yes. I mean we do -- yes, so we do see an improvement in the overall persistency when someone is a member of SelectRx and has a Medicare Advantage plan. So we do see that. We don't actually build that into the lifetime values themselves. So we're not booking that increase, but it's absolutely something we're observing. Timothy Danker: Yes. And really quick to follow that up, just as a reminder, it's not a huge attachment rate, right? It's a very specific cohort of customers. So not a massive overall impact, but a positive. Operator: Question comes from Pat McCann from NOBLE Capital Markets. Patrick McCann: First, I was wondering, with regards to what you mentioned about helping policyholders understand their plans better to focus more on retention, could you talk a little bit more about what that looks like in practice? Timothy Danker: Yes, I'd be happy to -- I'd be happy to start, and maybe I'll ask Bill Grant, our Chief Operating Officer, to expand on it. But obviously, last season was a very disruptive AEP, OEP season. We are really proud of our team's efforts and the service we provided beneficiaries. I mean, just for perspective, this year, nationwide, about 2 million MA beneficiaries are going to be impacted by plan terms -- or planned exits and another several million that are having pullbacks in benefits. So helping beneficiaries, protecting our back book of business is a priority. We've taken several actions, several learnings from last year and feel like we've got a jump start on it. But Bill, maybe you can provide some additional detail on our approach. William Grant: Yes, happy to. So I think that our approach evolves every year. We learn a lot in terms of how we use AI, our center, all the different -- all the data we have in terms of how we approach our book. And then we marry that, right, with how the plans are changing, right, because it's an ever-evolving environment. But we believe that we have a really good strategy to continue to offer our value proposition to consumers as we move along, and that we're targeting or talking to the right folks that need our help. And you can really see that play out in kind of our year-over-year -- in terms of the number of folks that we're recapturing, what it looks like in terms of how that strategy plays out. But we're really using every tool in our arsenal. But I think the biggest thing that we have going for us by far is our long data history along with marrying that with our different AI strategies that allow us to be as cost effective as we can on who we treat, when we treat them, all of those things. Patrick McCann: Excellent. And my next question was regarding the recent research you published on the social determinants of health. And I was wondering if -- how that is informing your strategy in terms of potential new offerings in the Healthcare Services segment, how you are leveraging that data going forward? Timothy Danker: Yes, I'll actually start it, and then I'm going to have [Audio Gap] on what we do to solve those problems. I'd say first and foremost, right, we just want to understand our customer base better and better. That's really informed the products that we've picked from the healthcare side of the house. That's how we found SelectRx, was folks need for a better solution than they were currently on to save them time and money and then ultimately help them adhere better. I think, though, there's also products within the actual SDOH space that we're looking at that would help folks afford their daily needs better and to really look at the actual membership side of the house. So Bill, do you want to speak to the membership side and ultimately kind of what we're trying to do to solve SDOH issues on top of just traditional healthcare issues? Because we kind of break those things apart. William Grant: Yes, sure. So as you know, we have over 2.5 million Healthcare Select members. Healthcare Select membership involves a fairly robust health risk assessment, where we determine through that health risk assessment social determinants of health and what services may be applicable and help with our overall charter with that group, right, which is improving their overall health lives, all those things. So we have a variety of products within that now. It's ever expanding. Again, we use a combination of kind of AI, Next Best Action, our consumer data –- or MarTech tools, right, to be able to talk to those customers. We've now helped over 50,000, taking our services through FindHelp or SDOH. We have a number of products there and we're expanding quickly. But we feel really good about our value proposition of our membership, and that just helps our overall engagement with Healthcare Select. Operator: Question comes from George Sutton from Craig-Hallum Capital Group. Unknown Analyst: This is Logan on for George. I wanted to start with just kind of a high-level one on AEP. You touched on it a little bit kind of talking about the similarities to last year, but I was hoping you could characterize a little bit more kind of anything you're seeing in the market different relative to last year. Timothy Danker: Logan, I'll start and ask Bob Grant, our President, to elaborate as well. Early in the AEP season, but we're pleased with performance thus far. As we've shared before, it is certainly a dynamic AEP season, given some of the profit actions taken by the carriers to get their margins in line. We're seeing that play out. We are seeing a very high level of consumer engagement as MA beneficiaries are out evaluating options. We would share that we think both our new agents as well as our tenured agents are performing very well within expectations. And as Bill shared, we've been spending a lot of time also working on our back book of customers to ensure that they understand all of their options. But thus far, the AEP environment is what we expected. It's still very early, but we feel very prepared in the early days, a lot more innings to play out. Bob, do you want to talk about some of the things you're seeing kind of more broadly in the market? William Grant: Yes. I think we're just seeing another year of kind of pullback from certain carriers, to Tim's point, and push forward from others, which does cause some switching. I think the difference this year, though, is that every carrier pulled back to a certain degree, as you guys have kind of heard them talk about, to really focus on profitability, which does create a lot of calls and education, which we feel really, really good about kind of helping people understand how to use their plan, a lot of the Healthcare Services benefits and things that we're doing. So I'd say it's just a little bit of a unique environment relative to other years, but probably more similar to last year than any year we had seen prior. And we do like some of the simplification of benefits. I think HMOs typically are a really good plan for a customer, easier to understand, easier to cost contain. And then ultimately, sometimes while ancillary benefits can be good, they can be a little bit confusing. So pulling back on those 2 simplifies offerings and I think really helps the payers. So we feel really, really good about where AEP is going and where the plans are, especially from a multiyear view. I do think payers are really, really focused on making sure that's profitable into the long run. Unknown Analyst: Got it. That's helpful. And then maybe switching over to SelectRx. Obviously, you guys have shown the ability to grow that business. You more recently talked about kind of focusing on the profitability. Can you just talk about how you plan to manage the growth or manage the funnel kind of through the busier quarters here where you probably have more opportunities to grow? But it sounds like you're kind of looking for the right members. If you can just talk about that, that would be helpful. Timothy Danker: Maybe you can talk about the -- our member growth, and I'll highlight one other item. Go ahead, Bob. William Grant: Yes, sure. So as far as member growth, we've been very -- I think we've been very measured on that. As we talked about before, we're very focused on profitability and members that need the service the most mixed with PBMs and payers that appreciate the service the most. I know that sounds funny, but just like in value-based care or any other thing, we have a closer partnership with some payers than we do others. And we are very focused on how we expand the clinical aspect of that business. We announced earlier our Adherence for All program. We have quite a few participants that are very curious in that program because it speeds up. Tim alluded to how fast we improve adherence. That speeds it up by multiple months and is a very powerful program from SRx perspective and other things. So we are very focused on that. I do think the market is still massive for us, right? It is a very big need. And I think the more and more we have quality conversations with payers and PBMs, the better and better kind of results we get even with the short-term headwind that we've seen. Ultimately, as Tim alluded to, that's still a great relationship. And we've had a lot of really good discussions about how we can get to a really stable yet powerful contract that really focuses on the clinical aspect of that. Go ahead, Tim. Timothy Danker: Yes. I think it's a great point, Bob. And I would say, again, none of this changes our underlying conviction and the massive opportunity ahead of us. We think this is a very powerful model, certainly for the patients. We shared a lot around the clinical value. It's important to that patient. It's important to the payer. Obviously, we're working through a very short-term reimbursement issue. We have our arms around it. We don't anticipate anything of this magnitude happening again. We're confident in our ability to continue to work with all of our PBM partners given the massive value that we see here. And we're confident in our ability. We feel like we have very strong line of sight into the business and a strong level of conviction around the go forward of this business. Operator: This concludes our Q&A session. I will now turn the conference back over to Tim Danker, CEO, for closing remarks. Timothy Danker: Thank you. We want to thank everybody for joining us today. We're really proud of the start to fiscal '26, the strong execution despite navigating the dynamic SEP environment this past quarter. The entire organization is very well positioned for another successful AEP and OEP season, and we plan to leverage our competitive advantages as a health care ecosystem across the entirety of our business. It's early days, but we're very encouraged by AEP results thus far, and we look forward to sharing more about the season and our strategy on our next earnings call. I want to thank you again. Have a great day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and welcome to the Netlist Third Quarter 2025 Earnings Conference Call and Webcast, [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Smargiassi, Investor Relations. Please go ahead. Michael Smargiassi: Thank you, Dave, and good day, everyone. Welcome to the Netlist Third Quarter 2025 Conference Call. Leading today's call will be Chuck Hong, Chief Executive Officer of Netlist; and Gail Sasaki, Chief Financial Officer. As a reminder, you can access the earnings release and a replay of today's call on the Investors section of the Netlist website at netlist.com. Before we start the call, I would note that today's presentation of Netlist results and the answers to questions may include forward-looking statements, which are based on current expectations. The actual results could differ materially from those projected in the forward-looking statements because of the number of risks and uncertainties that are expressed in the call, annual and current SEC filings and the cautionary statements contained in today's press release. Netlist assumes no obligation to update forward-looking statements. I will now turn the call over to Chuck. Chuck Hong: Thank you, Mike, and hello, everyone. Since our last call, we continue to make further progress on product and IP initiatives. We filed a new legal action, again, Samsung at the ITC and further strengthened our cash position. The memory market has entered a period of shortage. And we believe that this will continue for the foreseeable future, all the way through 2027, when additional capacity is brought online. AI-related demand is consuming the majority of DRAM and NAND capacity, leaving very little availability for the rest of the market. Pricing has increased significantly for most product categories in the last several months, and it is forecasted to continue on this upward trend. Netlist is well positioned to capitalize on these market trends through innovative IP and custom memory solutions such as the Lightning DDR5 DIMM for overclocked and low-latency memory module for servers. Lightning in particular -- Lightning provides faster memory performance, which is particularly important in markets such as quantitative trading, where the reduction of even a microsecond and executing a trade can bring about a significant improvement in the performance of the customers' systems. At the moment, a global OEM as well as half dozen system integrators continue with their qualification of our Lightning products. We expect some of these qualifications to be completed by the end of the year and provide meaningful contribution to revenues next year. On the R&D side, we continue to work on the CXL-based solutions such as the CXL NVDIMM as well as low-power MRDIMM. Netlist invented the NVDIMM over a decade ago, and we continue to innovate in this segment with data backup solutions that will leverage the versatility of the CXL channel. The LP-MRDIMM will be a critical technology in the years ahead as the current generation of MRDIMM has shown to consume excessive power. And power, we know is a critical variable in AI computing. MRDIMM is likely to replace the RDIMM in the next generation of servers, but only if the power consumption of these memory modules can be lower. Thus, the LP-MRDIMM is being pursued by the broader industry -- broader memory industry, but Netlist is the only company that is designing a solution with significant power savings as well as lower latency without sacrificing error correction or chip kill. On the IP front, in the past 2 years, Netlist has obtained 2 jury verdicts awarding combined total damages of $421 million for willful infringement of its patents by Samsung. Samsung has also lost 3 district court cases against Netlist and their bid to somehow revive a terminated license. Despite this, Samsung continues its unauthorized use of Netlist's intellectual property. At the end of September, Netlist expanded, it's -- at the end of September, Netlist expanded the defense of its IP by initiating legal proceedings before the U.S. International Trade Commission, or the ITC. Netlist is seeking exclusion and cease and desist order against Samsung, Google and Supermicro, which would direct U.S. customs and border protection to stop Samsung memory products that infringe on Netlist IP from entering the U.S. The ITC does not order monetary damages. The IP at issue in the ITC action include Netlist Patents 366, 731, 608, 523, 035 and 087. Each patent read on one or more of the following products: DDR5 memory modules, such as DDR5, RDIMM, UDIMM, SODIMM and MRDIMM and HBM or high-bandwidth memory. The ITC is an independent agency of the executive branch that investigates and makes the termination against unfair acts of import trade that violate U.S. IP rights. The process of bringing legal action before the ITC differs from core proceedings and is much quicker in duration, typically around a year to receive an initial determination. The ITC will review Netlist's complaint to decide if it should institute an investigation. This review process occurs within 30 days of filing and our filing was September 30. If the ITC decides to institute an investigation, it assigns an administrative law judge to the case. Within 45 days of institution, the judge sets a target date for an evidentiary hearing or a trial and the issuing of a final decision. The evidentiary hearing or trial is administered by the administrative law judge or the ALJ. There is no jury. This hearing typically takes place a year after institution and is followed by an initial determination issued by the ALJ. The ITC's commissioners may review the initial determination at the party's request or of their own volition. If review, the commission may affirm, modify, reverse or remain all or part of the initial determination and will issue a final determination. In order to find the violation of Section 337 of the Tariff Act, the ITC investigation must determine that there is infringement of a valid U.S. patent that relates to an imported product and that the patent is being used in an existing domestic industry. A party may appeal final determination to the U.S. Court of Appeals for the Federal Circuit. However, regardless of any appellate process, once the ITC makes its determination and this determination is ratified by the U.S. trade representative within 60 days, the import ban of the infringing product goes into effect immediately. The ITC ceased operation during the federal government shutdown, which will impact the timing of the ITC process just outlined. Netlist filed its complaint on September 30 and the federal government shutdown started the next day. Netlist has previously litigated 2 prior cases at the IT seat. Let's now move on to the federal court actions, which include 3 separate jury verdicts that awarded Netlist combined damages of $866 million for the willful infringement of its patents by Samsung and Micron. In addition, we now have 4 separate actions filed this year in the U.S. District Court for the Eastern District of Texas against Samsung and Micron and their distributor, Avnet. In these cases, Netlist is asserting new patents covering next-generation HBM and DDR5 memory technologies. In the Eastern District of Texas, one case against Samsung, Netlist secured an order finalizing $303 million of damages award in July 2024. Samsung filed an appeal, and we estimate that the appeal hearing will take place sometime mid next year. In the Eastern District of Texas case 2 against Samsung, where Netlist was awarded $118 million in damages, post-trial briefing has been completed. We expect the court to rule on these post-trial motions in the coming months. In the $445 million damages award against Micron, this case has concluded in the district court, Micron filed an appeal with the Federal Circuit, and we are currently in the briefing process. In the breach of contract case against Samsung, again, which Samsung has lost 3 separate times, Samsung has filed a notice of appeal before the U.S. Court of Appeals for the Ninth Circuit. We expect this process to approximately 16 to 18 months. Regarding IPRs, oral arguments before the U.S. Court of Appeals for the Federal Circuit has been set for several patents, the 314, 506 and the 608 patent in early December 2025. We expect the Federal Circuit to issue its decision on these appeals, and these are important appeals in later in December this year or early this year. In closing, Netlist remains active in advocating for the rights of patent owners. Over the past several weeks, I've had the opportunity to meet with government officials in Washington, D.C. and was encouraged by these discussions. We welcome the constructive reforms brought on by new leadership at the patent office that could bring a more balanced approach to the IPR process. We also urge Congress to take action on several patent reform bills that are currently under review. We believe these bills, if enacted, will bring much more clarity to the issues of patent eligibility, patent enforcement and provide American innovators a predictable framework on which to create new groundbreaking technologies and provide assurances that their innovations will be protected from unauthorized use. Now I'll turn the call over to Gail for the financial review. Gail Sasaki: Okay. Thanks, Chuck. For the quarter ended September 27, 2025, revenue was $42.2 million reflecting solid demand from both our OEM and resale customers and in line with our expectations. While we do not formally guide given booking and shipping for the fourth quarter of 2025 to date and subject to the visibility we have today, we currently expect fourth quarter revenue to be slightly higher than the third quarter of 2025. Operating expense for the third quarter 2025 declined 17% compared to the prior year's quarter and declined 38% on a 9-month basis. Net loss improved by -- net loss for the third quarter 2025 declined 25% compared to the prior year's quarter and declined by 45% for the 9-month period. We ended the third quarter with cash and cash equivalents and restricted cash of $20.8 million compared to the $29 million at the end of second quarter with minimal debt. After the end of the third quarter, we raised $10 million through a registered direct offering. With a $10 million working capital line of credit from our bank and approximately $74 million available on the equity line of credit, we continue to maintain significant financial flexibility and liquidity. And as always, we manage the operational cash cycle very carefully. Inventory churn improved by 17 days over last year and the overall cash cycle improved by 2 days over last year's Q3 and by 16 days over last quarter. Operator, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from Suji Desilva with ROTH MKM. Sujeeva De Silva: So the products that you're talking about, Chuck, and seeing opportunity in AI infrastructure into calendar '26, can you talk about which products, which AI infrastructure server platforms they may target? And what could be the magnitude of contribution potentially in '26, maybe ranges there? Chuck Hong: We've made -- Suji, we've made good progress with the Lightning line of products. These are the fastest server memory. Most of them go into high-frequency trading, quantitative trading the Chicago area, New York area and the commodity markets and in the stock exchanges. So they are being qualified at one of the top 2 server OEMs in the world, along with probably half a dozen other major system integrators. We believe -- we're making good progress. We have clearly a product that has industry-leading low latency and speed. And we expect those to -- we're seeing revenues already. We've seen some revenues probably in the 4%, 5% of our overall revenues in the last few quarters came from this line of product. We believe once these are qualified as some of the bigger players, bigger server manufacturers, we will certainly get into next year to double-digit percentage of the overall revenues with these lighting line of products. Sujeeva De Silva: Okay. All right. And then I'm just curious of the ITC process and the government shutdown. Are really -- are all the processes that you talked about pause at this point? Are some proceeding in the traditional branch? Or any color there would be helpful. Chuck Hong: So the ITC was part of the government shutdown, and we filed September 30 against Samsung and to stop them as well as Google and Supermicro, which are major customers of Samsung. And what we're -- just to give you kind of context of what we're trying to accomplish, it is a significant dollar value of memory products coming into the U.S. As we've indicated, we've gone through 5 federal court trials over the last 3 years with Samsung, against Samsung. We won them all, and yet they continue to -- they continue to engage and infringement and selling of infringement. We are committed to shutting them down in the U.S. That's what we're committed to seeing this process through all the way to the end. These guys are beyond the pale in terms of the -- just unapologetic and just -- they just go about ignoring IP rights of U.S. patent holders. So -- we believe that since District Court, they award dollars, but they do not provide since eBay, there is no injunctive relief at the -- from District Court rulings. So ITC is injunctive relief. There is no dollar damages. So the only way to stop people who are completely ignoring U.S. laws and patent laws is to stop their business. And that's what we aim to do. The government shutdown will impact us -- will not impact us at all. As soon as it reopens, our filing will be put on to the Federal Register. And then the 30-day clock will start to a decision on institution. Once the case is instituted, it goes forward, investigating patent infringement as well as patent validity. And the third prong, which is industry, whether these patents are being practiced in the U.S. in terms of U.S. domestic industry and products that are built and shipped into the U.S. -- in the U.S. Those will be investigated and there'll be a decision. We've been to the ITC twice before. We understand the process. We understand the impact that it can create to bring some of the infringing parties to their consensus. So that is what we're committed to seeing that process all the way through to the end. Sujeeva De Silva: Okay. I appreciate that color. And then Gail, maybe you could talk about the litigation expense trend you're expecting from here. I know the ITC expenses are second half '25 and they fall off or they remain? Any color there would be helpful. Gail Sasaki: Sure. Well, we are on track to have reduced our legal fee expense by 50% over last year. ITC expenses will occur in 2026 towards kind of increasing over time towards the end of the year when the trial will actually occur. So we continue to believe that there will be a reduced amount of legal expenses compared to 2024, but probably about the same in 2026 as has been for 2025. Chuck Hong: Suji still on? Sujeeva De Silva: Yes. I'm here. Chuck Hong: Yes. I just -- I kind of ended on perhaps a negative note regarding Samsung. I just want to highlight that there are good actors and bad actors. We have Hynix, which is a licensee. They respect U.S. IP laws. They've licensed from us. They are the #1 supplier of HBM products to NVIDIA in the AI space. And they have also committed -- announced a plan to invest $4 billion in building of the HBM in the U.S and Lafayette, Indiana in a joint venture with Purdue. Now that contrasts completely with a bad actor, who is way behind in the HBM technology. They are a very small player as a supplier into the U.S. for HBM. They have not taken a license in the last 5 years. And they have announced no plans to build HBMs in the U.S. So that, I think, is the contract that we're looking at. It's not everybody is flouting the laws and getting a free ride. There are good actors that abide by the IP laws of the U.S., and there are others. And it provides a huge contrast and we're trying to correct that, create parity amongst the different implementers. They all have to respect the rights of IP holders in the U.S. Sujeeva De Silva: Appreciate you pointing out the model that works through the U.S. there. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Backblaze Third Quarter 2025 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Mimi Kong, Investor Relations. Mimi, please go ahead. Mimi Kong: Thank you. Good morning, and welcome to Backblaze's Third Quarter 2025 Earnings Call. On the call with me today are Gleb Budman, Co-Founder, CEO and Chairperson of the Board; and Marc Suidan, Chief Financial Officer. Today, Backblaze will discuss the financial results that were distributed earlier. Statements on this call include forward-looking statements about our future financial results, the impact of our go-to-market transformation, sales and marketing initiatives, cost-saving initiatives, results from new features, our ability to compete effectively and manage our growth, our strategy to acquire new customers, retain and expand our business with existing customers and the impact of previous price changes. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including those described in our risk factors that are included in our quarterly report on Form 10-Q and our other financial filings. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them, except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for our GAAP results. Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC. You can also find a slide presentation related to our comments in the webcast, which will also be posted to our Investor Relations page after the call. Please also see our press release or presentation for definitions of additional metrics such as NRR, gross customer retention rates and adjusted free cash flows. And finally, we will be in New York to participate in the Craig-Hallum Alpha Select Conference on November 18 and the Needham Tech Week one-on-one event on November 20. Thank you for joining us. And I would now like to turn the call over to Gleb. Gleb Budman: Thank you, Mimi, and welcome, everyone, to the call. We delivered strong results this quarter. In Q3, revenue and adjusted EBITDA margin both came in above the high end of guidance, and we continue to be on track to be adjusted free cash flow positive in Q4. Overall company revenue grew 14% year-over-year and B2 Cloud Storage delivered strong results, growing 28%. Now I'd like to take a step back and share how we see the AI industry evolving because AI is becoming central to both our customers and our opportunity ahead. AI is built on models, compute and data. While just a couple of years ago, models were the domain of only a few large providers. Today, they are widely available with literally millions of open source options. So models are no longer a bottleneck for AI innovation. The next component of AI is compute. The GPUs that make up compute have become increasingly available, but access at scale remains challenging, and the market has also become quite fragmented with approximately 200 Neo clouds, such as CoreWeave and Nebius offering GPU capacity for it. That brings us to data, the key differentiator for AI success and where Backblaze helps companies win. Data sizes are exploding as AI expands beyond text to images, audio and video, driving massive storage and performance needs. The teams leading in AI aren't just the ones with the most data. They're also the ones who can aggregate, clean and organize it for today's workloads, move it to whichever Neo cloud they choose, all while preparing it for tomorrow's architectures. Backblaze has already built one of the largest, fastest and most cost-effective storage clouds on the planet, offering throughput of up to 1 terabit per second and priced at about 1/5 that of traditional cloud offerings. Add to that, our free egress and universal data migration that allow customers to easily move their data from other cloud providers where they may feel locked in and then freely send their data to one of the 200 Neo clouds or anywhere else they needed to go. Then layer on our team actively supporting customer success, and it becomes clear why hundreds of AI companies are choosing Backblaze. Highlighting this, Backblaze recently received industry recognition in both cloud security and technology innovation, including an award for B2 Overdrive. These honors reflect the strength of our technology and the pace of our innovation. Now let me share a few customer examples that bring this to life. This past quarter, we signed a new 6-figure deal with an AI start-up focused on large-scale vision language models. The team was small but scaling rapidly and racing to finish key projects. They couldn't predict how their data volumes might grow and needed a high-performance and cost-effective solution that could scale with them. They started self-serve and later engaged our sales team to access even higher performance. B2 Overdrive gave them the performance they needed, and our team made it easy, freeing them up to focus on their critical projects. Another AI customer in the surveillance space expanded their commitment by almost 10x to a 7-figure TCV deal. We won this customer away from a hyperscaler whose platform limited how they could automate their workflow. Our platform offers a valuable multi-cloud upload that streamlined their workflows. They expanded their commitment with us because we offered a predictable and cost-effective way to scale easily. Finally, we had another 6-figure win is powered by Backblaze's white label deal with an app developer in the media space. This was another competitive win from a hyperscaler. The customer was growing fast and needed storage that could support millions of users. After being hit with a surprise roughly $100,000 charge for moving data with the hyperscaler, they came to Backblaze for predictable pricing and scale. Backblaze is now their storage platform, and they will join our 100,000 customers who collectively serve hundreds of millions of end users to our platform. Across all these examples, the reasons customers choose Backblaze are consistent, performance that rivals the biggest clouds, predictable and fair pricing, and people who make it easy to get things done. Whether it's a start-up training models, immediate team moving petabytes, or an enterprise scaling to millions of users, the story is the same, faster, simpler, more affordable, and supported by a team that actually helps. Now I'll share how we see our growth opportunity. In Q3, we grew B2 28%. And for Q4, we now expect B2 to grow in the range of 25% to 28% year-over-year. We're proud of our growth. But this is below the 30% target we set for ourselves at the beginning of the year. To help reach our growth goals, we're launching Phase 2 of our go-to-market transformation, focused on accelerating the velocity of both our self-serve and direct sales motions. For self-serve, we're proud of the consistent growth engine we've built. Now we're going to scale it by making it more frictionless for data-heavy AI use cases and by kicking off robust developer relations. These steps are aimed to deepen our connection with the developer community and make it even easier to adopt our platform. For direct sales, we're building on the progress we've made over the past year. We're adding talent and upgrading our core systems in order to better target customers and improve sales efficiency. To accelerate this, we're also partnering with advisers and a consulting team who has helped both Snowflake and Databricks in their go-to-market execution. We're reinforcing our sales and marketing engine and remain confident in our ability to deliver consistent, durable growth over time. With that, I'll turn it over to Mark to take us through the financials. Marc? Marc Suidan: Thank you, Gleb, and good morning, everyone. We delivered a strong third quarter with results coming in above the high end of our guidance for both revenue and adjusted EBITDA. We have solidified our balance sheet, improved our path to be free cash flow positive, and accelerated revenue growth. We're focused on getting B2 to a Rule of 40, and we are on track to roughly triple our score this year. Now, let me walk you through the details of the quarter. Starting with revenue. Total revenue exceeded expectations. It came in at $37.2 million compared to the high end of guidance, which was $37.1 million. This represents a 14% year-over-year overall growth. B2 grew 28% year-over-year compared to the organic growth of 19% in the same period last year. This represents an acceleration of about 900 basis points this quarter. This improvement was driven by the first phase of our go-to-market transformation. As mentioned last quarter, usage from one of our larger AI customers has been variable as the customers' data storage needs have fluctuated for their business. Overall, industry-wide demand for data storage is expected to grow rapidly, and our platform is well-positioned to support those expanding needs. We're also seeing diversification within B2 across our core use cases, which are live application hub storage, backup, media, and AI-related workloads. In Computer Backup, revenue was flat year-over-year, reflecting the final roll-off of the price increase implemented in 2023. Turning to net revenue retention. Overall, the trailing 4-quarter company NRR for Q3 was 106% compared to 109% in the second quarter. Going forward, we believe it's clear to show in-quarter NRR versus the previously reported trailing 4-quarter average. As an example for Q3, in-quarter NRR for B2 improved to 116% from 109% in Q2, and this was driven by a large AI customer we discussed last quarter. You can see that dynamic on Slide 11 of the earnings presentation. Moving on to gross margin. It was 62%, up from 55% a year ago, reflecting operating leverage and the benefit from our recent useful life study. Adjusted gross margin was 79% compared to 78% last year. Overall, margin performance remained stable. Data center costs are generally rising. However, they are being offset by scale in labor, greater code efficiency, and lower amortized R&D as a percentage of revenue. Operating expenses were 71% of revenue, an improvement from 92% a year ago. This reflects the structural changes that we made last year through our restructuring and zero-based budgeting process. R&D spending held steady in dollars, but declined as a percentage of revenue from 33% a year ago to 30% this quarter. When you combine the R&D expense and capitalized R&D, the improvement is even more pronounced at 35% of revenue, down from 43% a year ago. Sales and marketing came in at 24% of revenue, down from 36% a year ago. We're focused on improving efficiency in our go-to-market model, including reallocating funds to strengthen our top-of-funnel programs and investing in operational go-to-market talent, all while maintaining the same cost discipline you've seen from us over the past year. G&A was 17% of revenue, down from 23% last year. We continue to drive efficiencies across our corporate functions and general and administrative spend. Operating results. GAAP net loss was $3.8 million, a 70% improvement from a loss of $12.8 million in the prior year. On a non-GAAP basis, net income was $1.9 million compared to a loss of $4.1 million last year. Adjusted EBITDA margin reached 23%, almost double the 12% from a year ago and a quarter ahead of our outlook. That performance reflects continued financial discipline and the operating leverage we've built into the model. In Q3, adjusted free cash flow was negative $3.5 million, improving by roughly $0.5 million year-over-year. As we discussed last quarter, we used $2.5 million of our line of credit to fund capital expenditures outside of the U.S., so we can cut our international borrowing rate in half. Balance sheet. We ended the quarter with $50 million in cash and marketable securities, largely unchanged from last quarter. We believe the balance sheet remains strong and provides flexibility to support continued growth and investment. As we announced last quarter, we initiated a modest share repurchase program. In Q3, we repurchased $1.2 million of shares as part of our ongoing work to manage equity dilution. Guidance. For the fourth quarter, we expect revenue in the range of $37.3 million to $37.9 million. We're slightly widening this range to account for the variability we see in certain large customers. B2 growth in Q4 is expected to be between 25% and 28%. We continue to focus on driving operating leverage and remain on track to be adjusted free cash flow positive in Q4. To close, our financial transformation is progressing well. We're reducing equity dilution through our repurchase program, on track to achieve positive adjusted free cash flow in Q4 and continuing to build operating leverage towards GAAP profitability. While we haven't yet reached our 30% B2 growth goal, we expect the next phase of our go-to-market transformation to drive stronger growth. Together, these efforts are building a stronger, more efficient company, one that's on path towards operating at a Rule of 40 profile. Just looking at B2, we started the year with a Rule of 40 score of 9 and are on track to roughly tripling that in Q4 of this year. Operator, please open it up for questions. Operator: [Operator instructions]. Your first question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Jeff Van Rhee: Just a couple here. In terms of the sales evolution in Phase 2, talk to me about how you were envisioning the sales sort of evolution. I think you commented last quarter that most reps are more than halfway through the ramp. Are the existing reps ramping the way you had expected? Or was there something you experienced in the sales process that led to you sort of implementing the second phase? Gleb Budman: Jeff, this is Gleb. Thank you for the question. So what I would say is that in the first phase, one of the things we talked about was that our goal was to move upmarket. And so you could see that we've definitely moved upmarket with the multiple 6- and 7-figure deals that we've consistently announced over the year. The Phase 2 for us is about driving the velocity -- of the execution velocity. So it's a slightly different focus. We want to continue to move upmarket and support those larger deals, but we're spending more time focusing on moving things through the funnel more explicitly and more actively. In terms of the reps themselves, most of the reps were hired at the beginning of the year or earlier. So they are largely through their ramps as part of their onboarding. Jeff Van Rhee: Okay. And on the -- just revisit, if you would, on the B2. You had the 30% goal for Q4, and I heard a little bit of commentary there, but just expand on that a bit more. What's explicitly -- what specifically was it that you thought was going to play out that didn't play out? And when do we get to that 30% plus? Gleb Budman: So on our -- from our last earnings call, basically, 2 things happened. One is we had a large customer that we talked about in the prior call that in Q2, the outperformance was in part driven by the variability of a large AI customer. And as we look towards Q4, the variability in part is driven by this same large customer trimming more than we expected. The other thing that drove that is just the larger deals as we move upmarket, a number of them have taken longer to execute. And so the combination of those 2 things have changed our expectations for Q3 somewhat. That's why we're doing Phase 2 of the GTM transformation. We love that we've been able to move upmarket. It's proven that the platform supports these larger customers, it supports these larger use cases. And we also want to have more core predictability in the business. So it's interesting because before we used to have lots and lots of small deals and having lots and lots of small deals provided really great predictability, and we were able to go public on lots of $300 and $2,000 type deals. The challenge with those was it was harder to significantly outperform, significantly rapidly accelerate growth. The bigger deals in moving up market allow us to do that, but we want to focus on increasing that core base of smaller deals to drive that consistency also. Jeff Van Rhee: One last quick one, if I could, on the data variability, Gleb, you mentioned several times on the call. Just talk about how that variability is maybe different than what you had expected from these customers, obviously, as you're getting AI workloads, some new experiences here as to how people are going to use you both in that moment as well as over time. Just a bit more about the variability on the data usage would be helpful. Gleb Budman: Yes. The AI use cases are obviously all evolving very rapidly, and we're trying to support the customers where they are. So the different use cases that we see across AI are things that we are supporting and learning along with the customers. This particular customer that we talked about, as their business goes up and down in terms of the needs for their data, that we support them with that. So the way that we work with customers is many of our customers are pay-as-you go. They enter a credit card and they just sign up and go. Some of our customers, we sign contractual commitments with. And for a number of the contractual commitments, they'll often sign a contractual commitment and then have the ability to scale up above that. And with some of these larger AI customers, they'll sign a contractual commit and then they'll ramp up even faster than that because their business is growing faster than they expected and then sometimes they need to do some pullback. So that's what we're seeing with some of these. The nice thing, obviously, is we have 100,000 customers on B2, we're distributed across a variety of use cases. So it's not it's not all variable AI customers. We still have a lot of core predictability in our business. But we do want to lean in with the AI use cases because we do see that, that is transformative for the industry and where we see a lot of opportunity ahead. Operator: Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets, LLC. Eric Martinuzzi: Yes. I'd like to touch on - I know you haven't given a guide for 2026, but I just wanted to learn your expectations for the 2 sides of the business going forward. Obviously, we've got good growth, but not the 30% you want in B2. And then we were flat here in Q3 on the CBU as we got through the last of the price increases. But to put it in broad strokes, we're looking at a year in 2025, where combined, we're at about 14% growth. I know I'm looking for that 14% growth to persist into 2026. But what are you thinking about for longer-term growth rate for B2 and CBU? Marc Suidan: Yes. Eric, this is Mark. So 2025, right, for B2 is on track to be in that mid-20s year-over-year growth rate. 2026, we don't want to give guidance yet, but we feel pretty comfortable it's going to be in that range given what we're seeing now as well as that second phase of that go-to-market transformation. And those larger deals Glen spoke about, if those come in, I mean, it could bring that number higher when they come in, in those specific quarters. On the computer backup, just like we said last time, it would be low to single, mid-single digits, the contraction of that business. We're obviously taking action to try to stabilize that. We probably need more time to come back and report a different outlook there. But for now, those are the right assumptions for B2 and computer backup. Eric Martinuzzi: Okay. And then the restructuring that you announced this morning as well, just curious to know where are we - you talked about some facilities, but it also talked about severance. Where are we cutting back on the headcount that we had versus the end of September? Marc Suidan: Yes. Listen, that is how we're funding that next phase of our go-to-market transformation. Gleb talked about needing that mid-market, high-velocity deal volume to improve. It's done really well over the past year, but we think it should be way better than where it is. And that's the key formula to get to that 30%. So a lot of that restructuring cost is to transform our go-to-market practices. It's to bring on new talent on board. We have started that. So it's a lot more around getting talent that's a lot more operational in their go-to-market skills, know how to use the technology, the data science behind it. So I would say that it's more of a reinvestment versus a cost-cutting exercise. Operator: Your next question comes from the line of Ittai Kidron with Oppenheimer. Unknown Analyst: This is [ Nolan Genvine ] on for Ittai. First, I just want to sort of double-click on these 7-figure customers. You're clearly showing traction in selling to enterprises now, and you've added yet another 7-figure customer this quarter. How many 7-figure ARR customers do you have now? And then how has their expansion dynamics evolved in recent quarters versus sort of the smaller cohort? And then I have a follow-up. Gleb Budman: No, thanks for joining us, and thanks for the question. One clarification I would say is we have these 7-figure deals. The interesting thing is they're not all enterprises. They're heavy users of data. right? And so one of the things that we've seen is that customers are generating large volumes of data and needing high performance for those data sets. The AI-powered video surveillance customer that I mentioned, they're not an enterprise company, but they're a 7-figure deal. So, and that actually, I think, bodes well for us for the future because these smaller mid-market companies that have high data needs are generally faster moving than the traditional enterprises, and there's more of them out there. So that's one thing I would just say in terms of outlook and opportunity for us. In terms of the number of them, we've generally announced 1 or 2 per quarter over the last year. So it's not a large number of these 7-figure deals, but it's considering that in our first roughly 15 years of the company, we signed 1. And in the last year, we've highlighted at least one a quarter, I think is a great proof point to say that when we said we were moving upmarket, we moved up market. Marc Suidan: Yes. And what I'll add, Nolan, is last quarter, we shared the number of customers with $50,000-plus ARR. It was up in Q2, 30% year-over-year. In Q3, it was up 41%. So we're maintaining good momentum on that front as well. Unknown Analyst: Got it. That's very helpful. And then I know you're not giving '26 guidance. But how should we think about the potential catalysts heading into the next fiscal year, things like overdrive ramping, this sort of Phase 2 of the go-to-market transformation? Could you just maybe put a finer point on what you think could maybe drive upside or downside, just to the sort of current growth rate? Gleb Budman: Yes, it's a good question. So the go-to-market transformation Phase 2 is certainly something that we're leaning into heavily, right? We're putting a lot of focus on them in terms of talent system upgrades, leveraging advisers, and the consulting team. We believe that there's a lot of opportunity in driving the ability and execution for us to get to market, faster with the products that we have. In terms of B2 Overdrive, we announced that product line fairly recently. We've already closed multiple 6-figure deals on there, which is, I think, a great sign that it has product-market fit. It's we believe it's the highest throughput per dollar offering on the market, and that's a great fit for customers that really need that performance. One of the other things that we've seen on Overdrive, which has been interesting, is that we've seen customers come to us because of Overdrive. They heard about Overdrive, they heard about the performance availability, and they came to us for that. And then when they showed up, they realized that our B2 standard offering is actually quite a high-performance offering, and it was sufficient for them. So I think it's changed some of the perception around what we offer. And so even customers that aren't signing up for Overdrive are often coming to us with these higher performance needs, which is a great direction for us as we become a more strategic partner for them. Overdrive provides up to 1 terabit per second of throughput. So it's a blistering fast offering for them. So I do think that the GTM transformation is the thing that we look at as key to the overdrive offering. The other thing that I would just mention is I don't want to undersell the Phase 1 transformation that we did, right? The Phase 1 transformation was all about moving upmarket, and that is continuing to be an important catalyst for us, including for 2026. Mark mentioned that the big deals are something that can accelerate us even further, and that's something that we're excited about. The last thing I'll just mention is that the GTM Phase 1 transformation, I mean, it doubled pipelines, it doubled bookings, doubled channel. So it did help quite a bit. And so we're excited for Phase 2 of that. Operator: Your next question comes from the line of Simon Leopold with Raymond James. Simon Leopold: I wanted to ask about this Phase 2 initiative, in that I don't imagine there are free lunches and have to assume that there's some investment involved. I know earlier, you talked about sort of reallocating. But if we think about it, your sales and marketing have been running between roughly 21% and 23% of revenue. What are you budgeting for next year? How should we think about either a dollar basis or a percent of revenue basis, but some metrics to try to get an understanding of what investment you're making for this Phase 2 initiative? Marc Suidan: Simon, it's Mark. The percentage of revenue for sales and marketing should stay stable as a percentage of revenue. The funding is going twofold. The restructuring allows us to fund the one-time cost that's not in that percentage of revenue. That allows us to drive the transformation work, which is really to rejigger all our go-to-market systems to make them work better together, cleanse the underlying data, and drive that data science capability I was talking about. The talent refresh we're doing is within existing OpEx budget, right? As one of you highlighted earlier, yes, there are severance costs that are one-time charges that fit into the restructuring. But on a recurring basis, when we finish this as a percentage of revenue, it should be pretty stable. Simon Leopold: Great. And then in terms of the outlook for B2, slight downtick, nothing to be embarrassed about, high 20% growth. But what changed in your mind versus your expectations when you set the goal? What's different? Marc Suidan: Well, we set the goal all the way back when we launched our first phase of that transformation, which was exactly a year ago. That was a while back. That is our aim. Frankly, it remains our aim. And our Phase 1, as Gleb said, doubled our pipelines, doubled our bookings, doubled our channel business. What we noticed candidly is our inbound motion is really strong, right? Like we addressed a lot of our technical marketing content, or blogging. We started doing more events and webinars, and all that really improved our inbound. I mean, our inbounds are up substantially. The inbound pipeline is up 100% year-over-year. Our outbound motion is newer to the company. So that muscle is newer. That's the muscle we're working on fixing now in this next phase of this transformation. And it's unfortunately, one of these things, like until you get into it, you don't know how much you don't know. And we're realizing it's a muscle that needs to be a lot stronger to make it successful, and we're hard-charging at it now. Our aim is that, when we do our Q4 earnings release in February to give a lot more details around what makes up that Phase 2 go-to-market transformation. When should you expect a change in the outcome from it, an improvement, and how that would address the year-over-year B2 revenue growth? Operator: Your next question comes from the line of Zach Cummins with B. Riley Securities. Zach Cummins: Gleb or Mark, either one. I was wondering if you could give a little more context around some of the larger deals in the pipeline. It sounds like maybe those were pushing a little to the right when it came to the B2 side of the business. So any additional context around just the pipeline that you're seeing with some of these larger deals and maybe the reason that some of them pushed to the right? Marc Suidan: Yes. Thanks, Zach, for the question. So one thing I'll say is when I looked at some of the deals and dug into it with Jason on the sales side, frankly, there wasn't any pattern in them. They were kind of random reasons. signer got sick, a different project internally came up that has to take priority, et cetera. So there wasn't any kind of clear pattern for why, but it just spoke to us about that in the small deals, a lot of times what happens is it's one person who is the person that's interested, the decider, the buyer, the purchaser, the user, and they go in, they make a decision and they go. In these larger deals, it's just more complex where you have a buying committee, you have the various different oftentimes security compliance reviews. There are sometimes different departments that need to be involved for how it's going to get used, how the migration is going to happen, et cetera. So it's just one where as we're moving upmarket, we're closing these bigger deals, and that's fantastic. And at the same time, we want to be realistic about that some of them take longer than I think we were seeing because we also have seen some large deals close very quickly. The BT Overdrive deal at the beginning, the first one that we announced last quarter closed incredibly quickly. Some of the customers that I talked about in my prepared remarks, when I was looking at them, the 6-figure deals that from start to finish were three months. And that's quite quick for a 6-figure deal from the first conversation to fully onboarded. But we're also realizing that not all deals move that quickly. Zach Cummins: Understood. And in terms of the Phase 2 of the transformation, I'm sure we'll get much more detail in your Q4 earnings call. But can you give us a sense of some of the things you're looking to improve within the self-serve motion? Is this largely targeted towards some of these faster-moving higher data usage customers and reducing the friction there? Or anything you can provide there would be helpful. Marc Suidan: Yes. It's interesting because we built the company basically on the self-serve motion, right? When we went public, almost the entire business was driven by self-serve. We had a very, very nascent sales motion at the time. And so the great thing was that we built a blog that a few million people a year would read that drove a lot of inbound interest into the company. We had people will be able to sign up, enter their e-mail just enter a password and go and then try it and then get a credit card and sign up. And as we moved upmarket, we had said concretely at the beginning of the year that our focus was going to be on that upmarket move, and we were not going to be doing a lot to change the self-serve motion. But at the same time, our team was focused on that the whole SEO world was changing, right, with the way that companies and individuals were searching was changing and moving to AI use cases where people would look on ChatGPT or Anthropic or whatever to find information. And so, they actually leaned in on making sure all the content was updated and positioned well to be read by these applications. And one of the things we saw was that our self-serve accounts account creation was -- is actually up 56%. And if you -- as you look to a lot of the companies out there for whom they're self-serve or driven by inbound type content, a lot of them were down quite a bit because they hadn't adjusted to the new AI chat type of search algorithms. So the team leaned in and supported that quite well. Going forward in this Phase 2, one of the things that we're doing is really focusing on how these new AI native start-ups and developers build themselves and ensuring that we're well integrated through the whole life cycle of those workflows and making sure that it's really easy for them to learn about and then adopt the platform. So it's a lot of work in terms of making sure that the content, the guys, but also the flows and the integrations are all there to support those data-heavy use cases. One thing I'll mention is one of the customers I gave on the call, they came in as self-serve. They started just by themselves. And then as they wanted even higher performance, even larger deals, they requested to reach out to the sales team, and they had a conversation with us and then they bought B2 Overdrive. And that's a motion that we love to see. Operator: Your next question comes from the line of Mike Cikos with Needham. Jeff Hopson: This is Jeff Hopson on for Mike Cikos. I just wanted to see if there is any more info on how the power -- the Powered by white label solution is going. Obviously, NeoClouds is coming more popular trend, and it seems like that could be a good place for that or any sort of partnership to offer their customers more flexibility. So maybe just any info on that opportunity. Gleb Budman: Thanks, Jeff. Good to have you on. So we're actually pretty excited by the Powered by. As you saw in my prepared remarks, one of our largest deals this quarter was a Powered-by deal. We also have seen some of our channel partners actually adopting Powered by where instead of trying to resell and integrate at the customer level, they actually build it into their own offering and offer it directly. And then, same like you said with the NeoHubs, we have various discussions that are in progress around that front. It's certainly an exciting opportunity. There's about 200 of them out there. So they all have GPUs, and they all have storage needs. So we engage with them today in a variety of ways where we service our customers using the NeoCloud by providing this open platform, free egress, high throughput, but also are in conversations with some of them to help them with their storage needs directly. Jeff Hopson: And maybe hardware storage has been on the top of investors' minds recently as AI video generation comes into the forefront. And I know you guys called out some AI video wins with customers. Just curious if you're seeing an actual uptick in AI video companies just in the past 6 to 9 months, as those models have kind of have become more popular. Gleb Budman: I'm sorry, can you repeat the very first part of the question? Did you say hardware storage? Jeff Hopson: Yes. We've seen in the market hardware storage has become.. Gleb Budman: So initially, AI was all about text, right? It was generative AI for text. Then it became generative AI for images, then audio, and now video. Obviously, each of those is in order of magnitude bigger in terms of the data sizes. So, video is a very data-heavy cloud format. So we absolutely are seeing customers signing up for that. I was looking, we had one of the interesting AI, Gen AI, video companies was a recent customer this quarter. There was another large one in the prior quarter. And we have hundreds and hundreds of AI companies. So obviously, I don't know all of them, but just as they come up, I see ones that catch my attention. So it's something where they create models for the video that requires a lot of data on the front end, then it requires the data to generally get sent to one of the Neo cloud providers for the model creation. And then the inferencing itself, where they're generating the video, that video needs to go somewhere. And so we're supporting customers on the various fronts. One thing I'll tell you is that AI in general is a space that we're seeing significant adoption. Today, about 1/4 of all of our new business is coming from AI companies. Over time, it's going to become harder to say what is an AI company and what is just a company using AI. But today, about 1/4 of that new business is actually coming from companies that are specifically in the AI space. So it's an area that we're excited to lean into. Operator: Your next question comes from the line of Rustam Kanga with Citizens. Rustam Kanga: Great to see the outperformance and new high watermark on the net income and adjusted EBITDA there. Mark, given your prepared remarks, it sounds like there's going to be a lot more honing in on the operational go-to-market skills in Phase 2. And given the success from Phase 1 moving upmarket, getting these larger deals, perhaps you have some better picture on the talent most equipped for what you're looking for in Phase 2. Is that reps with a prior focus on cloud computing and storage or more well versed for lack of a better term, the language of AI? Ultimately, any insights you can share on what kind of reps have been the most successful on the direct sales front and that you might be looking to replicate in Phase I? Gleb Budman: This is actually Gleb. I'll start, and then Mark can join in if he wants to add as well. So first of all, what I'll say is in terms of talent, a lot of the talent is actually on the systems and operational side of it. So we're looking for a top-tier Rev ops person, the consulting firm that we're working with, we're doing a large project around both the systems transformation as well as the sales enablement and execution side. So Mark mentioned that we have a success with inbound. At the same time, what we see is there's a lot of stuff that comes at the very top of the funnel. And then there's a lot of opportunity to be more efficient and effective in having it go through the funnel. And then on the outbound side of it, one of the things that we realized is that we can do better with targeting the right types of customers who are ideal customer profiles, both in terms of identifying them and also in terms of how we reach out to them. So a lot of the work in the transformation isn't even specifically about the different reps. It's about the infrastructure of people and systems around the reps to help them. Marc Suidan: This is Mark. Our reps have done well. Our win rate is 30% from opportunity to close, which is a very healthy win rate. So we just want to be flowing more opportunities through that team. And then as that opportunity flows through that team, you start expanding capacity and optimizing capacity within. So as Gleb said, there's a lot more around making things available to every stage of the process in a way where people are following up at the right time. They got the right content, the right messaging, the multimodal approach to the customer, when you place advertising versus e-mail versus text message. So there's just an incredibly scientific way of doing that these days. And I mean, the people helping us are people who help companies like Snowflakes and Databricks. So they bring the best-in-class on that process. And we want to adopt it and drive a lot more volume through there. Operator: That concludes our question-and-answer session. I will now turn the call back over to Gleb Budman for closing remarks. Gleb Budman: Thank you, everyone, for joining us. With the double beat this quarter and how well we're positioned to help companies with AI workloads, we're enthusiastic about our opportunity ahead. I want to thank our employees, our customers, our partners, our investors for being on this journey with us as we build this core storage backbone of the Internet. For our investors, we look forward to seeing you at the Needham Conference and at the Craig-Hallum conferences this month and chatting with all of you next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Q3 2025 Cummins Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Arens, Executive Director of Investor Relations. Thank you, sir. You may begin. Nicholas Arens: Thank you, Maria. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the third quarter of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors and section of the most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Nick. Good morning, everyone. I'll start with a summary of our third quarter accomplishments and financial results. Then I will discuss our sales and end market trends by region. Finally, I'll provide an update on how we are navigating the evolving trade and policy landscapes, along with our market outlook for the remainder of the year. Mark will then take you through more details of our third quarter financial performance. Before getting into the details of our results, I want to take a moment to highlight a few major accomplishments from the third quarter. In September, we announced a collaboration with Komatsu to develop hybrid powertrains for surface haulage heavy mining equipment. This joint development effort will leverage the breadth and scale of Komatsu's and Cummins' global capabilities to enable the acceleration of optimized hybrid solutions for mining. Retrofit hybrid solutions hold the potential to help mining customers accelerate their decarbonization journey today while lowering the cost of operations of their installed fleet assets. We are excited about this opportunity to bridge current operational needs with future low-carbon goals to support our customers' sustainability efforts. Additionally, our latest 15-liter engine delivered standout results during this quarter's Run on Less –- Messy Middle event hosted by the North America Council for Freight Efficiency. Three of the 13 participating fleets ran the new X15N natural gas engine through some of the most demanding duty cycles of the demonstration, showcasing its ability to deliver true heavy-duty performance while unlocking the cost and emissions benefits of natural gas. At the same event, our X15 diesel led in fuel economy and operational efficiency, reinforcing its position as a benchmark for dependable high-performance power. These results highlight the growing adoption of Cummins' technologies and the tangible value customers are experiencing from our advanced powertrain solutions, all produced here in the U.S. Now I will comment on the overall company performance for the third quarter of 2025 and cover some of our key markets. Sales for the third quarter were $8.3 billion, a decrease of 2% compared to the third quarter of 2024. Lower sales were primarily driven by weaker North America heavy and medium-duty truck demand with unit volumes declining 40% from a year ago, which was largely offset by continued strength in our global power generation markets, higher light-duty truck volumes and favorable pricing. EBITDA was $1.2 billion or 14.3% compared to $1.4 billion or 16.4% a year ago. Third quarter 2025 results included $240 million of noncash charges related to our electrolyzer business within the Accelera segment, reflecting lower demand expectations due to reduced U.S. government incentives and slower market development internationally. Excluding those charges, EBITDA was $1.4 billion or 17.2% of sales, an increase of 80 basis points from a year ago as the benefits of higher power generation and light-duty truck volume, pricing, operational efficiencies and lower compensation expenses more than offset declines in North American truck volumes and the unfavorable impact from tariffs. We did increase the proportion of tariff costs recovered through pricing and other mitigation actions in the third quarter compared to the second quarter. However, the magnitude of total tariff costs increased from Q2 as expected and the net impact to Cummins was negative year-over-year. Our third quarter revenues in North America decreased 4% compared to 2024. Industry production of heavy-duty trucks in the third quarter was 46,000 units, down 34% from 2024 levels. While our heavy-duty unit sales were 16,000, down 38% from a year ago. Industry production of medium-duty trucks was 20,000 units in the third quarter of 2025, a decrease of 51%, while our unit sales were 17,000, down 55% from 2024. We shipped 40,000 engines to Stellantis for use in their Ram pickups in the third quarter of 2025, up 44% from 2024 levels, driven by a ramp-up of model year '25 product, which was launched earlier this year. Revenues for North America power generation equipment increased 27%, driven by continued strength in data center demand. Our international revenues increased by 2% in the third quarter of 2025 compared to a year ago. Third quarter revenues in China, including joint ventures, were $1.7 billion, up 16% from a very weak quarter last year as stronger unit demand was partially offset by unfavorable product mix and weaker part sales. Industry demand for medium- and heavy-duty trucks in China was 311,000 units, an increase of 50% from last year. Our sales and units, including joint ventures, were 41,000, an increase of 35%. The increase in the China market size was primarily due to higher-than-expected domestic demand driven by NS4 scrapping incentives. Industry demand for excavators in China in the third quarter was 54,000 units, an increase of 22% from 2024 levels. Our units sold, including joint ventures, were 9,000, an increase of 18%. The increase in the China market size is primarily driven by domestic rural development and small infrastructure projects as well as strong export demand. Sales of power generation equipment in China increased 26% in the third quarter due to accelerating data center demand. Third quarter revenues in India, including joint venture, were $713 million, an increase of 3% from a year ago as stronger demand across markets was partially offset by depreciation of the rupee against the dollar. Industry truck production increased 6% from 2024, while our shipments increased 8%, driven primarily by domestic demand recovery as well as a pre-buy in advance of the potential goods and service tax rate changes. Power Generation revenues increased 41% in the third quarter, driven by strong data center demand. To summarize, we achieved strong results led by record performance in our Power Systems and Distribution segments, which were offset by sharp declines in the North America heavy- and medium-duty truck demand, which negatively impacted our Engine and Components businesses. We expect the near-term weakness in North America on-highway truck markets to persist at least through the end of this year. Across all North America on-highway applications, we anticipate unit shipments declining approximately 15% from third quarter levels with most of the reduction expected in light- and heavy-duty trucks. This reflects some normalization in light-duty trucks after a strong Q3 ramp-up in the new model production along with fewer production days in the quarter and continued weakness in heavy-duty trucks. While we believe Q4 on-highway Engine production could mark the bottom of this cycle, the pace of recovery in these markets will depend on broader economic sentiment and the clarity of trade and regulatory policies. While near-term challenges remain in our shorter cycle markets, we continue to see strong demand for power generation equipment beyond this year. The global trade and policy landscapes remain dynamic, presenting ongoing challenges across our industry. As anticipated, tariff costs increased in the third quarter. We are nearing full recovery for those tariffs announced prior to the third quarter and are currently assessing any incremental impacts from the more recent announcements, including the medium- and heavy-duty vehicle Section 232 proclamation. We believe, overall, we are well positioned to support our customers and keep the U.S. economy moving with our long-established strategy of making products in the U.S. for the U.S. market. Rising geopolitical tensions could also pose risks to semiconductor supply and other products that utilize rare earth minerals, potentially impacting our supply chain and broader industry production. So far this year, we have not experienced significant disruptions to our production, and we are actively monitoring this evolving situation and taking steps to mitigate risk where we can. The reduction of government incentives in the U.S. to support the adoption of green hydrogen, along with slower-than-expected market development in some international markets has contributed to significantly lower demand for our electrolyzer products. As a result, we are undergoing a strategic review of our electrolyzer business to assess the best path forward, and there may be further charges as we respond to a very weak demand outlook. 2025 has presented significant challenges for our industry, as I've outlined, requiring us to focus even more on cost containment and risk mitigation than we had anticipated at the start of the year. Our experienced leadership team and dedicated employees have worked tirelessly to navigate these dynamics and also capitalize on the growing demand for power generation equipment and significantly improve company performance cycle over cycle. Looking ahead, we are hopeful that global trade policy will stabilize and that the administration's review of the 2027 EPA regulations will conclude in the coming months. This clarity will be critical for our industry and will support our plan to reinstate guidance for 2026 in February. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. We delivered strong results in what can be best described as a tale of 2 economies, certainly here in the U.S. Key takeaways today are: number one, business trends in the third quarter played out as we communicated at a high level 3 months ago. Demand for our Power Systems and Distribution businesses remains very strong, driven in part by rising demand for backup power for data centers. U.S. truck production, on the other hand, slowed sharply with our shipments in heavy- and medium-duty truck engines down 27% from the second quarter, right in the middle of our uninspiring projection of a decline of between 25% and 30%. Our margins were strong with sales growth in Power Systems and Distribution converted into EBITDA margin expansion and cost containment efforts across the company helped mitigate the impact of declining truck volumes in the U.S. And thirdly, also as we projected, the negative impact of tariffs continued to grow in the third quarter. However, we managed the net hit to our profitability through price recovery and other actions, and the proportion of cost recovery in the third quarter increased sequentially. Fourth, our operating cash flow was strong at $1.3 billion in the quarter. Amongst those highlights, it's worth reinforcing that we're extending our track record of meaningfully improving our performance cycle over cycle. Now let's take a little closer look at our results. Our revenues were $8.3 billion, down 2% from a year ago. Sales in North America decreased 4%, while international revenues increased 2%. EBITDA was $1.2 billion or 14.3% of sales for the quarter compared to $1.4 billion or 16.4% of sales a year ago. Third quarter 2025 results included $240 million of noncash charges related to our electrolyzer business within the Accelera segment. Excluding those charges, EBITDA was $1.4 billion or 17.2% of sales. The higher EBITDA percent, excluding the noncash charges, was driven by higher power generation demand and light-duty truck volumes, pricing, strong operational efficiencies and lower compensation expenses, all of which was partially offset by lower North American truck demand and the unfavorable impact of tariffs. Now I will go into more -- a little bit more detail by line item. Gross margin for the quarter was $2.1 billion or 25.6% of sales compared to $2.2 billion or 25.7% of sales last year. 2025 margins included a $30 million noncash charge for inventory write-downs for our electrolyzer business, which were part of the previously mentioned noncash charges for Accelera. Excluding those charges, gross margin percent was 26%, improved from the prior year as a result of higher power generation demand and light-duty truck volumes, pricing, operational improvements, all offsetting negative truck and tariff impacts. Selling, admin and research expenses were $1.1 billion or 13.6% of sales compared to $1.2 billion or 13.8% of sales and reflected strong cost control across the company. Joint venture income of $104 million increased $5 million from the prior year. This increase was driven by higher China volumes within our Engine and Power Systems segments. That was the primary driver. Other income decreased to a negative $186 million compared to $22 million of income from the prior year, which was primarily a result of the $200 million noncash goodwill impairment to the electrolyzer segment. Interest expense was $83 million, flat with the prior year. The all-in effective tax rate in the third quarter was 32.7%, which included $36 million or $0.26 per diluted share of increased tax expense related to the One Big Beautiful Bill Act as a result of reduced foreign income deduction and research and development credits. We do anticipate cash benefits from our elections under this recent U.S. tax legislation, but the current period income statement impact was negative. All-in net earnings for the quarter were $536 million or $3.86 per diluted share compared to $809 million or $5.86 per diluted share a year ago. Accelera noncash charges were $240 million or $1.73 per diluted share. Excluding the Accelera charges and the impact of adopting the recent U.S. tax legislation changes, our net earnings were $812 million or $5.85 per diluted share, down just $0.01 on a 40% decline in U.S. truck volumes. Operating cash flow was $1.3 billion compared to $640 million a year ago. We have significantly improved our credit metrics since absorbing the Meritor acquisition and are now in a position of greater flexibility for capital allocation. Now let me comment a little bit more on segment performance and the remainder of 2025. Tariff costs impacted all of our operating segments. In the interest of time, I'm not going to call that out 5 times as I discuss each individual segment performance. For the Engine segment, third quarter revenues were $2.6 billion, a decrease of 11% from a year ago. EBITDA was 10%, a decrease from 14.7% as weaker North American and heavy-duty truck volumes, the costs and additional overhead of investing and deploying new engine platforms ahead of the 2027 emissions regulations, some weaker aftermarket sales were partially offset by higher volumes and pricing related to the launch of updated products in light-duty markets and overall disciplined cost management. Components segment revenue was $2.3 billion, a decrease of 15% from a year ago. EBITDA was 12.5% compared to 12.9% of sales a year ago as weaker on-highway demand in North America was partially offset by operational efficiencies, tight cost management and lower product coverage costs. In the Distribution segment, revenues increased 7% from a year ago to a record $3.2 billion and EBITDA was also a record 15.5% compared to 12.5% of sales a year ago, driven by higher power generation demand and higher aftermarket earnings. In the Power Systems segment, revenues were a record $2 billion, an increase of 18% from a year ago. EBITDA dollars were also a record at $457 million, increasing as a percent of sales from 19.4% to 22.9%, driven by strong volume, particularly in data center applications, positive pricing and effective capacity expansions in a cost-effective way. Accelera revenues increased 10% to a record $121 million as increased e-mobility sales partially offset lower electrolyzer installations. Our EBITDA loss, excluding noncash charges, of $96 million compared to an EBITDA loss of $115 million a year ago, reflecting a lower cost base resulting from the actions that we took in the fourth quarter of 2024. In summary, we delivered strong profitability for the third quarter as a result of improved operational execution, strong demand in power generation markets and pricing that more than offset the sharp declines in North American truck markets and unfavorable impacts from tariffs, although it has to be noted that all of these factors were not uniform across each individual segment. While we saw an increased impact from tariffs in the third quarter, we've worked hard to mitigate the impact and expect to enter the fourth quarter close to a price/cost neutral position for tariffs or for those tariffs that were announced prior to the third quarter. The ongoing addition and adjustment of tariffs continues to present challenges. In summary, our third quarter results underscored Cummins' strong financial position and ability to navigate ongoing uncertainty. Our diversified portfolio and global network leave us well positioned to support our customers and continue to drive improvement in performance cycle over cycle. As we've discussed, we expect demand for Power Systems and Distribution to remain strong through the fourth quarter and going into 2026. At the risk of sounding cautiously optimistic, I hope that demand in North American on-highway markets is close to bottoming in the fourth quarter in what has been a protracted and difficult slowdown. We do anticipate a further 15% decline in our engine shipments to on-highway markets in the fourth quarter compared to the third quarter. We are hopeful of reinstating our guidance in February as we have more -- we hope to have more clarity on trade and regulatory policies that hopefully will provide stability for the North American truck industry and the broader industrial economy. As these markets recover, we are confident in our ability to build on this year's strong performance and continue delivering value to shareholders. Now let me turn it back over to Nick. Nicholas Arens: Thank you, Mark. [Operator Instructions] Operator, we are ready for our first question. Operator: [Operator Instructions] Our first question comes from Jamie Cook with Truist Securities. Jamie Cook: Congratulations on a nice quarter. I guess 2 questions. One, Mark, how you're thinking about Engine margins in the fourth quarter and the ability to cover tariff costs or how to think about margins would be my first question. I guess then just my second question. As we think about Power Systems, obviously, the margins were very strong in the quarter. Just trying to think through how we think about 2026, the ability to ramp production more? How you're thinking about price cost? And I guess, Mark, do we need to raise the margin targets in Power Systems? Mark Smith: High-quality questions to answer. Let's start with the Engine business, and then Jen can comment on Power Systems. Yes, I think there are a number of things that the Engine business is dealing with that provide great complexity, right? We've got product changeover. We're preparing, hopefully, to launch new platforms. We've got some additional extra costs. We saw some slowdown in parts in the third quarter, and we're having to maintain this higher engineering budget until we get through the product launches. Having said all that, they're doing a lot. The leadership team within the Engine business across the company doing a lot to manage their costs. Hopefully, we're getting towards the low point. So I think, yes, I wouldn't expect with what I know right now to see a dramatically different performance from the Engine business, albeit on lower volumes in the fourth quarter. Clearly, volume is a temporary downward pressure given short quarters and inflated ramp-up, which we're excited about on the Ram pickup, which will kind of ease a bit. But overall, I think, well, hopefully, we're moving towards the bottom in terms of the pressures on the Engine business and Components. Jennifer Rumsey: And Jamie, on the power gen, we've -- obviously, we've seen really strong performance from both Power Systems and Distribution business. In Power Systems, in particular, we've been on a couple of year journey to really fix some of the underlying performance of that business, look at rationalizing the products that we're offering, how do we leverage the footprint that we have, get more strategic on how we're pricing in the market. And we did that at the same time that the power generation demand has grown at a really high rate, and we've been able to invest modestly in capacity expansion, about $200 million, bringing in new products kind of exactly the right time. So that really has been firing on all cylinders, if you would, and delivering incremental margins that are touching on 50%. So what I would say is we are committed to continuing to invest for profitable growth in that business. We had record order intake in Q3. So we think that the demand remains strong, in particular for data centers and that we will continue to invest as it makes sense in capacity and products to profitably grow and improve business performance, but I would not expect it to stay at that trajectory of incremental margin improvement as we go into future years. Operator: Our next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Congrats on another strong quarter here. Jen, I was hoping you could just kind of expand on your last comments that you just made about capacity additions. I think at this point, you're well kind of ahead of your expectations at Investor Day on data center sales. And as you mentioned, you already have that doubling of kind of large diesel engines capacity underway. But just in light of kind of the stronger demand, can you maybe walk us through what work or kind of assessments you might be doing on the back end to understand whether there is a need or a desire to kind of do either additional capacity investments in large diesel engines or potentially and maybe more importantly, are you exploring any potential for expanding your lines on the natural gas engine to kind of increase to the larger engine sizes to perhaps pursue some of the kind of prime power opportunities that we're seeing out there for data centers as they look for other prime power kind of speed to power opportunities? So just kind of any comments on the kind of this longer-term backdrop given the strong demand we're seeing? Jennifer Rumsey: Yes. So first, I'd say our focus has really been on this capacity investment that we've talked about. We're reaching the end of that doubling in capacity on large engines, as you noted, and position has heavily been in the backup power for data centers with the products that we have that we're selling into the market today. I'm really pleased with the execution of that team. We've tracked kind of ahead of schedule on that capacity expansion. We're reaching the end as we come to the end of the year. And just to give you a sense, in 2024, for data center power generation, our total revenue for the company was $2.6 billion. About half of that was in Power Systems. About half of that was in DBU because one of the unique things that we have is engine, some of the key components and auxiliaries that we sell to that market plus the channel. So we're getting benefit in both PSU and DBU. For '25, we expect that revenue into the data center market is going to be up 30% to 35%. It's been ramping up Q4 last year. We had a nice bump up, continuing to ramp up this year. And so we'll be kind of at that full run rate on that product expansion for data centers. And then that leads to kind of the second part of your question is really focused now on what's next? Are there additional places where we want to do a capacity expansion of the products that we have because we think that, that demand in that market is going to remain strong? So we're actively looking at that. With the products that we have, engines for peak shaving, should we invest in prime power engines or more natural gas engines? So no decisions there. But certainly, those are things that we're looking at, and we'll continue to share as we make decisions on where we want to go next in the data center. Mark Smith: Yes. And then just on the component technologies, we're also selling to other customers as well, somewhat akin to the components business story. So yes, it's exciting to be talking about investment with visibility and the returns in that business. Angel Castillo Malpica: That's very helpful. And then just for my follow-up, Mark, on the Section 232, could you help us quantify, I guess, how much the headwind is in 3Q and 4Q on kind of a gross basis? And any comments or kind of way to maybe put guardrails around the potential for getting a similar rebate on engines manufactured in the U.S. as we've seen, I think, the U.S. trucks manufacturers get? And what is kind of the financial impact of that as we think about potentially 2026 if getting such a rebate? Mark Smith: Tell you what, I've got exactly the same questions that you've got. And we've got -- we need to know a lot more details than we've currently got to be able to predict that. What I will say is we're in a -- we are a strong manufacturer of engines in our plants here in the U.S. So we're really well positioned to help our customers and navigate through. But honestly, all these modelings, I know it's important in some regards, but the actual details, there's 5 or 6 questions that we need a lot more details to be able to calculate it, let alone communicate it. So what I would say is we're in a strong position given our footprint, and we'll remain a strong partner to our customers through all of this. And you can generally tell from our tone that stability going forward would be really, really helpful. For what is outside of a broad economic recession or what I'd call a hard emissions change, this is the sharpest decline in truck orders that many of you who have been here a long time have witnessed. And it's not all down to tariffs, but they also don't help with that uncertainty. So look forward to more clarity, even more so the stability, but we're in a good position overall. And we're trying to work through all these collaboratively with customers and suppliers. It's been a huge demand on all participants. Operator: Our next question comes from David Raso with Evercore. David Raso: Thinking about a delta between '25 and '26, the actions taken in Accelera sort of set up an interesting dynamic there. What percent of the losses right now are electrolyzers? How should we think about the actions taken sort of the decision around that business? How much that can improve the size of the losses from '25 to '26? Mark Smith: Yes. What I would say is all we've recorded in this quarter, the really noncash impairment charge is mostly goodwill write-down, which is disappointing, but necessarily given the weaker outlook. So I would say what we've done really doesn't so far, David, hasn't -- doesn't do much to change the trajectory. But as Jen pointed out, we obviously have been and continue to look very closely at further actions we can do to reduce the rate of losses. It's less than half of the total of the overall Accelera segment. But yes, watch for updates on that from us. David Raso: Okay. And actions that would help reduce that loss. I mean once you make that decision on the write-down, I would think there's harder decisions playing out behind the scenes on cost. Are those actions that could help '26 or is there a longer time frame when I think of the delta between '25 and '26? Mark Smith: There are different types of actions, but we are conscious if there's a lower demand environment, we're not -- nobody is comfortable sitting at the losses that we're at when the demand environments change. So we're looking at all that, and we'll be transparent when we've concluded that here, but we're working on it right now. Jennifer Rumsey: It's fair to say strategically, we're continuing to look at the Accelera portfolio in light of how markets are moving, slowdown that's happening and what technologies we think are most likely to win. And then investing in the places that we see the opportunity to position ourselves for the medium and long term and looking at how we reduce losses in other areas. At the end of last year, we did that in the fuel cell part of the business, and we're continuing to execute some of those changes. And now we're looking at electrolyzers, as Mark noted. Mark Smith: It's fair to describe the decline in revenue outlook as sharp and dramatic and merits further close review, which is ongoing right now. Operator: Our next question comes from Rob Wertheimer with Melius Research. Robert Wertheimer: Thanks for all the comments on direction. It's very helpful. On nat gas and data centers and prime power, I mean, Cummins obviously has very successful nat gas platforms in different engines. So I wonder if you could give us a mini teach-in on what that entails? Is it a hard engineering challenge to bring it to large engines? Is it you need a lot of operating hours? Maybe what goes into that decision? And then I wonder if you could just talk about any changes. I mean you guys were ahead of the data center boom or capitalizing on that. Anything shifting now? Any change in data center design? Is it all of them use -- back up the ratio? Just maybe what's evolved in the market over the last few months? Jennifer Rumsey: Yes. So as you said, I mean, Cummins has strength in engine, research and development and manufacturing capability. We understand natural gas. So the question is, we have a certain portfolio of natural gas products today and assessing what is -- if there's demand for natural gas for data centers, what's the right product? If we don't have it today -- our development is a multiyear development cycle, typically, but we have the capability to do that if we think that, that is going to be attractive growth opportunities. So that's how I would think about natural gas. In terms of the data center landscape, what you see is high reliability is absolutely critical. So the need to have backup power to ensure that high reliability is not going to go away. They don't run that often. Really, where the challenge is, is more on the prime power and can the grid support it and how do they solve the prime power challenge. And so that's where using a backup genset maybe for peak shaving or additional sources of prime power or what data centers are out exploring. And as I mentioned in my comments earlier, I think we have ability to do some peak shaving with products that we have today. We've started to invest in some stationary energy storage solutions that could be used in data center applications, and we're continuing to evaluate where else we think we're positioned to invest and get attractive returns. Operator: Our next question comes from Kyle Menges with Citigroup. Kyle Menges: I was hoping if you could just talk a little bit more about Accelera and actually just looking at the performance and -- I mean, it seems like you're actually still on track to hit the midpoint, if not a little bit above the full year guide within Accelera on revenues for this year. It sounds like e-mobility had some nice growth in the quarter as well. So it would be helpful just to hear about the growth you're seeing in new mobility versus electrolyzers and then also maybe at a high level, the differences in profitability that you're seeing right now between the e-mobility piece of Accelera and the electrolyzer piece. Mark Smith: Yes. I would say most of the actual sales in e-mobility are bus applications, a lot of it here in the U.S. and that's continuing, and we're in a great position there. There's lots of other explorations and discussions. There's been a big shakeout even in the e-mobility industry given, I would say, lower prospects for accelerated growth, even though we're growing the overall -- everybody's projections for growth has come down, and that's led to a shakeout certainly in a lot of the start-up, some of the less well-capitalized participants. So I think there's still a lot of discussion and future opportunity for Cummins in e-mobility. And I think that's been generally been a good story that as the volumes and we've released new iterations of products that we've moved from, yes, significant losses and negative gross margin to something a lot more stable and sustainable going forward. It's still somewhat muted, right, in the grand scheme of a $35 billion company, but we've seen clear progress there, and we're positive and staying invested there. On electrolyzers, we went back a couple of years, we had pretty ambitious targets for growth and we were tracking that trajectory every quarter. It was -- we were tracking years out where do we need to be, and we were on that curve for significant revenue growth for quite some time. And the reality is, yes, it's dried up faster than anything I have seen in my career for a variety of reasons, especially here in the U.S., but also some of the adoption in international markets. So whilst, yes, we probably guided a little cautiously going into the new year, not knowing exactly what would happen. So we're not way off on the revenue from the guidance that we no longer have, but the one that we originally gave. But yes, it's just internally, it's surprised even us to the downside. And so that's why. It might look to you like we're on track, but electrolyzer is way off. And it's not just for now, but then that leaves the orders as a big gestation period between taking an order, shipping a product, having it installed, recognizing the revenue. And so not only is that shorter orders now, that's leaving like a hole in the projections going forward for the next couple of years. So that's why we're acting now. So it's tough, very tough in ex e-mobility, but we're pleased with the progress, and I don't want that to be lost from the e-mobility team. Kyle Menges: That's helpful, Mark. And then just a follow-up on clarifying some of your comments on the emission margins and maybe just thinking about some of the puts and takes into the fourth quarter on Engine margins as you start to neutralize tariffs even though volumes could still be down sequentially. I mean, I guess the question when you said Engine could be kind of similar to the third quarter, does that mean that you have confidence in doing roughly 10% EBITDA margin again in the fourth quarter? Or are we talking about similar decrementals in which case you could be talking about 8% EBITDA margins for Engine in the fourth quarter based on volume... Mark Smith: I'll just say it out here and this -- you can all -- I don't expect to have 8% margins in the fourth quarter in the Engine business, but some of the factors -- the volume is going down, not we expect it to. I'm unfortunately, confident, but we hope that's a bottoming. We also saw a slowdown in parts. We hope that doesn't continue. And then, yes, all the other things that we're doing on cost, productivity, managing through tariffs can all help mitigate. It's certainly not going to be dramatically better. We're dealing with more headwinds. I've tried to be clear about that. So hopefully, that helps. I would just say, there's always a bit of seasonality, fourth quarter going into the holiday period. Those usually get exaggerated when you're in a weak economic environment. But just now, we're working hard. The Engine business is working hard every day to get this balance right. And what you can see from our financial reports that we disclosed the engineering costs by segment, by quarter. You can see our engineering costs are up year-over-year because we're still in this prelaunch development, not yet final certain regulations. So that's got to continue, but that shouldn't be a step worse in the fourth quarter. So don't expect magic, but don't expect 8% EBITDA with what I know right now. Jennifer Rumsey: I'll just add a couple of points. I mean we've been working to flex down plants and so seeing that action coming through the full Q4 as well as the Engine business has seen more than its share of the net tariff impact that impacted them in Q3, but we get to more full recovery. In Q4, it will reduce. Mark Smith: Yes. I mean there's always some natural variation across some of the businesses. In general, as we've said, we expect Power Systems and Distribution to be strong. It's -- no quarters are ever identical to the prior one, even if it looks similar on the top line. Pressure is still there on Engine business and Components. We still got a tight control on costs and we're figuring out what else we can do on Accelera. That's the headline. And then as I mentioned, we've also done a lot to improve our credit metrics, which gives us flexibility for capital allocation going forward. So as much as troughs are tough, they also give you -- working through them effectively gives you that platform and that confidence to move forward when demand improves. Unfortunately, I wish I could be more bullish and say we're super confident. We feel like we're getting to the closer -- to the bottom of the trough on on-highway. We think the trends on power generation, data centers, which benefit Power Systems and Distribution are going to continue. So hopefully, we get this coming together of strong demand across the company at some point here in the not-too-distant future. It's a little elusive right now on trucks. But we feel, given how long it's been and how far it's been down, that is a question of time in a cyclical business. But it's not imminent that it's going to turn up. Operator: Our next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: Great quarter, and thanks for your time. Are you able to speak to the distribution or services opportunity you see long-term as you're selling these gensets and probably have a very sizable installed base right now? What is the typical expectancy of these? Is there a scenario where we would see the first wave of aftermarket services picking up for those units that you've sold over the last 12 to 24 months? So any way to comment on that or quantify that? Jennifer Rumsey: So Tami, for data centers, the distribution business gets revenue on the front end for a lot of the customers as they do the installation and some of the additional components and product around the engine and the genset in the data center. There's not a lot of aftermarket revenue in data center backup power because they don't run that often. So there's some service and support that we provide to those customers to ensure they stay up. It's not the same if you think about like a mining application or a heavy-duty truck application. That said, our installed base has been growing and those other applications that do drive more aftermarket content. So we believe aftermarket, in general, will be a tailwind for the Distribution business and especially as customers come back, there's a little bit of waiting on service that isn't necessary right now because of business financial conditions, but we think that we'll see some improvement in aftermarket as Mark had noted. Tami Zakaria: Understood. That's very helpful. And if NOx 2027 is not delayed after review, how are you thinking about the cadence of any product launches in 2026 tied to that? Jennifer Rumsey: Yes. Great. Well, we continue to maintain our focus on development of the new products that we're launching for '27 and feel good about how we're positioned with the new platforms and technology that we're bringing to our customers. It's important to understand, we've never had this level of uncertainty around regulation. So that's certainly been challenging and keeping our team focused on the launches ahead, starting to work with our supply base on different scenarios and what that could mean to try to ensure we can offer a product to our customers as we understand that decision. And really, we've been engaging closely with the EPA as they look at opportunities to try to take some cost out of that rule and also just emphasizing the need to get certainty as soon as possible. And I think everybody, all the OEMs in the industry are pushing on that certainty point. So we're prepared to launch, really hoping to give that certainty on direction in the not-too-distant future. And assuming that the '27 regulations largely stay in place as they are today, we'll be ready to launch our products into the market in '27. Operator: Our next question comes from Steven Fisher with UBS. Steven Fisher: Congrats on the power results. Just curious on the international data center opportunities relative to the U.S., how do you see those being different? And is there any difference in the momentum there? And how are the competitive dynamics differ internationally versus on the domestic side? Jennifer Rumsey: If you look at the data center market, I mean, we see strong and growing demand in U.S. and China. Those are the kind of the standouts. There's growth globally. You heard in some of my numbers on how the market is moving. We're seeing investment in data centers and other markets around the world. But the 2 biggest areas are really U.S. and China. And of course, everybody is trying to figure out how to get in and compete in that market. So we're well -- very well positioned today and really trying to focus on continuing to maintain a strong position with our products as others try to figure out how do they take advantage of those market opportunities. Mark Smith: Okay, and then... Steven Fisher: Go ahead, Mark. Mark Smith: I was going to say, obviously, in China, you tend -- in most of our markets, you tend to see more presence of local competition or trying to get in than we do in the U.S. or in other markets. Steven Fisher: That makes sense. And then on the Power Systems margins in general, obviously, still very strong, and you talked about the 50% incrementals before. I guess just noticing as the year has progressed, the segment's margins have kind of flattened out a little bit. I'm just kind of curious what's driving that? Are there other things outside of data centers that are restraining that? I know at the beginning of the year, we talked a lot about the aftermarket components in there. Maybe that was just fluctuating a little bit. Just curious how to think about sort of that flattening that we're seeing over the course of this year. Mark Smith: I would say the general -- so that's the great news. There is some natural variation between aftermarket, all goods segments. So some of that sometimes is at play a little bit. The good news, Steve -- back to somebody asking that should we raise the targets? I really like the way you think. I'm sure Jenny and the team might be dialing in. If not, we'll relay that to them later. But yes, really proud of the work that we've done there. And with rising demand, yes, there's some capacity investment. We're expecting earnings growth. Let's just put it out there. We're expecting earnings growth from here going into next year with what we know right now. Operator: Our next question comes from Noah Kaye with Oppenheimer. Noah Kaye: Jen, I think you framed it well and talked about the level of uncertainty right now as you prepare for next year's product launch vis-a-vis the regulations. But as you kind of get into year-end budgetary planning, is it fair to think of as a baseline that engineering and development spend can be a potential tailwind into next year? Or would you expect it to be a headwind if the base case of unchanged regulations goes forward? Jennifer Rumsey: In the base case of unchanged regulation, I would think of our research spend is pretty flat through next year when we launch the product, and then we'll have the ability to start decreasing that after that. And then I would think about just in terms of demand, that's where our -- as we're planning for next year, that's where the highest error bars are is what's going to happen in on-highway demand. As Mark noted, we think we're reaching the bottom. We think there's some upside. When does that happen given the capacity that's been taken out as we've responded to this big down cycle, how quickly will capacity be added back once demand starts to come up? So I'm thinking about some revenue increase at some point in the year, but R&D is staying pretty flat. Mark Smith: Yes. Accelera probably won't be growing, and there's always the question of what are we investing in the future, whether that's in Engines and Components or in Power Systems or future technologies. But yes, not a dramatic change for the next year. There's just natural inflation because a lot of those costs are people costs. There is some natural inflation that we're always counting against. So it will not be a significant tailwind, let's put it like that. Longer term, yes, but not tomorrow. Jennifer Rumsey: Yes. Noah Kaye: Yes, yes, yes. And on that topic of investing, and I want to tie it back to the discussion around the prime power opportunity. 30% of data center sites could be using prime power in some form 5 years out from now. You've got fuel cell in the portfolio. You've got battery. You've got natural gas and diesel gen. How do you think about tying together some of those elements, including what might sit in Accelera today to go after expanded wallet share if prime power becomes more of a growth opportunity? Jennifer Rumsey: Yes. Well, our strategy really has been to maintain a portfolio of solutions likely across different customers and markets. There's not going to be one answer. I think our strong position in engines as power demand grows and as energy transition pushes out, positions us really well. We're really more focused, frankly, in both power generation and in mobile applications on the battery opportunities where we think there's more opportunity versus fuel cell. We -- as you know, we've slowed down some of the investment and work in the fuel cell side. And there'll be more to say if we have a clear investment that we think is going to be attractive on the prime side. But today, we're really focused on continuing to execute on some of the investments that we've made to expand capacity in standby and being disciplined in how we think about additional investments into that market. Mark Smith: Yes, I think the great thing with what we've done right now, it's relatively modest investments for a lot of growth with quite high predictability of returns. So we're definitely enjoying that in our financial results. Should do more going forward. Operator: Our next question comes from Scott Group with Wolfe Research. Cole Couzens: This is Cole on for Scott. Maybe just to expand on Engine margins, it sounds like the net tariff impact peaked in 3Q as you recover more price and ramp down facilities in 4Q. But as you look ahead to 2026, a 3.75% rebate is not immaterial. How much could this positively impact margins in 1Q or throughout 2026, all else equal? Mark Smith: I just can't -- I simply can't answer that. I wouldn't be thinking about tariffs as margin improvement things. It's been a big cost headwind that we've been trying to recover and work with all that we can to mitigate the cost. I think -- I understand why you're asking it, but we are not framing tariffs as a margin opportunity in any way, shape or form. It's been a big hindrance to our industry. And hopefully, we get stability and relief. Cole Couzens: Okay. Fair enough. Mark Smith: You're right. Going into Q4, we are -- it is true, we're catching up more with the recovery of the tariffs. I'd correct myself, but anything incremental, that's not the way we're thinking about it. We're hoping there's a platform for greater demand for the end user customers. Jennifer Rumsey: Yes, just to reiterate Mark's point, the way to think about it is if we get stability in tariffs and customers start ordering again, that will help our margins because we'll be utilizing our plants more, but by itself as a margin improvement. We're just trying to cover the cost basically. Mark Smith: Yes. And we don't know enough to know all these -- the nuances of any recently announced things, rebates or other things. There's just a lot more detail. Even the emissions regulations, it's great to get the headline. There's a gazillion things that you need to know between that as to how that actually works financially, practically and other things. So we'd love to give you more clarity, we just can't. Cole Couzens: Yes, all makes sense. And maybe just on the competitive dynamic, there's like a lot of moving pieces with certain OEMs now either in a better or worse competitive position due to these new Section 232 tariffs. How do you expect this to impact your share position across the Engine business moving forward? Mark Smith: We are in a strong position to support all of our customers with our U.S. base, and we've got -- the great news is we've got great penetration across multiple brands and OEMs and our -- generally, the trend has been for our customer demand for Cummins products has been rising in heavy- and medium-duty truck over the last few years. So we feel like we're really well positioned, but it's obviously been very complex for all involved and continues to be so. Operator: Our final question comes from Chad Dillard with Bernstein. Charles Albert Dillard: So just given the market demand for standby power, I think you guys talked about record level of orders this past quarter. Does Cummins need to expand capacity beyond what you've already announced? And then I was hoping you could comment on, I guess, the role of standby power as more prime power moves behind the meter. Jennifer Rumsey: Yes. So from a capacity perspective, certainly, we're looking at in addition to evaluating our -- if we do anything on the prime power side, which we've talked a lot about this morning. We are evaluating are there places that we can continue to invest in capacity because we do see such strong demand and whether it's orders we took last quarter, it's the conversations we are having with some of our customers around the world, we think that, that demand is going to continue. And so if there's places that we think we can invest and take capacity up, we will be evaluating that, certainly. And we still think that in the coming years, this demand for prime power is going to continue. While I do think that there tends to be a hype cycle around technology, fundamentally, the need to store more data in the cloud, whether it's AI or other driven is a trend that's going to continue to grow. Charles Albert Dillard: And then second question, just on tariffs. So can you quantify the gross tariff impact in 2025? And then what's the split between IEPA versus 232? And if we do get IEPA rollback, I mean, should we consider this more like a pass-through? Mark Smith: We have not provided the guidance on the gross amounts generally, but the net position has been negative for the company, and we're in the tens of millions of dollars of negative impact each quarter so far. That's what I can tell you. And what happens, I'm just not going to speculate. We just don't know enough for what happens. But we -- as we said, as clear as I possibly can, we've been battling to offset costs on the industry. It's not a margin -- it's a margin dilutor even if we recover it, right? Jennifer Rumsey: There's a lot of moving parts between IEPA and 232 tariffs and uncertainty around that. So really, we want to understand the details on that before we provide any color on what that looks like. The great news is we make our engines and our gensets for the U.S. here in the U.S., and the team has done an outstanding job of navigating a lot of change and challenge and working to recover the cost of those tariffs. So really proud of what they've done given the environment that we've been navigating this year. Mark Smith: All right. Appreciate it, everybody. Thanks for joining us. Nicholas Arens: That concludes our teleconference for today. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.