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Operator: Hello, and welcome to the FirstEnergy Corp. Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Karen Sagot, Vice President of Investor Relations. Please go ahead, Karen. Karen Sagot: Thank you. Good morning, everyone, and welcome to FirstEnergy's Third Quarter 2025 Earnings Review. Our earnings release, presentation slides, and related financial information are available on our website at firstenergycorp.com/ir. Today's discussion will include the use of non-GAAP financial measures and forward-looking statements, which are subject to risks and uncertainties. Factors discussed in our earnings news release during today's conference call and in our SEC filings could cause our actual results to differ materially from these forward-looking statements. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Please read our cautionary statement and discussion of non-GAAP financial measures on Slides 2 and 3 of the presentation. Our Chair, President and Chief Executive Officer, Brian Tierney, will lead our call today. He will be joined by Jon Taylor, our Senior Vice President and Chief Financial Officer. They will discuss the team's continued strong execution and performance on key financial metrics as well as our bright outlook and positive momentum as we close the year. Topics include raising our full year 2025 guidance midpoint and narrowing the range, increasing our 2025 capital plan, our expectations for incremental investment opportunities, and our progress and time frame on regulatory activities. Now it's my pleasure to turn the call over to Brian. Brian Tierney: Thank you, Karen. Good morning, everyone. Thank you for joining us today and for your interest in FirstEnergy. We are having a great year with strong results across all of our key financial metrics. Yesterday, we reported third quarter GAAP earnings of $0.76 per share compared to $0.73 in the third quarter last year. Core earnings were $0.83 per share for the quarter compared to $0.76 in the third quarter of 2024. For the year-to-date period, our core earnings were $2.02 per share compared to $1.76 in 2024, an increase of 15%. Our results benefited from strong execution of our customer-focused investment plan, Pennsylvania base rates that went into effect in January and strong financial discipline. Through the first 9 months of 2025, we invested $4 billion of capital in our regulated utilities. This is a 30% increase compared to last year. We are pleased to be in a position to put even more resources into system reliability and resiliency for our customers. Today, we are announcing a 10% increase to our 2025 capital investment program to $5.5 billion. With our strong year-to-date results, we are raising our 2025 guidance midpoint and narrowing our range to $2.50 to $2.56 per share. We remain positive about the opportunities ahead. We are reaffirming our core earnings compounded annual growth rate of 6% to 8%. And early next year, we expect to roll out a higher CapEx plan for the 2026 through 2030 planning period. Turning to Slide 6. Load growth from data centers continues to transform our industry. FirstEnergy service territory, expertise, and assets are ideally positioned to support the remarkable demand growth and economic opportunity within and adjacent to our footprint. Within our operational area, data center interest remains high. Our long-term pipeline of demand, which includes interconnection requests from serious and reputable customers has nearly doubled since our fourth quarter earnings call in February. Our contracted customer demand increased by over 30% during the same period. The impact of this demand will be tremendous. Based on data center customers who are contracted or in our pipeline, we expect FirstEnergy's system peak load to increase 15 gigawatts or nearly 50% from 33.5 gigawatts this year to 48.5 gigawatts in 2035. Across PJM, peak load projections are forecasted to increase by nearly 48 gigawatts by 2035 or 30% of the current peak load of 162 gigawatts. FirstEnergy is uniquely situated to support this growing demand through customer-focused investments, specifically in our transmission system. This system is located in the heart of PJM, interconnecting with a broad number of neighboring utilities and encompassing strategic high-voltage corridors that are a vital part of the transmission grid. Turning to Slide 7. Earlier this month, we submitted our integrated resource plan in West Virginia that lays out our recommendations to keep power affordable, accessible, and reliable over the next decade. The IRP indicates a capacity need in West Virginia beginning in 2027. Our preferred plan provides the flexibility to adapt to the rapidly changing energy landscape while delivering reliable and cost-effective energy to West Virginia homes and businesses. Key aspects of the plan include adding 70 megawatts of utility scale solar in 2028, adding 1.2 gigawatts of dispatchable gas combined cycle generation around 2031, keeping our Fort Martin and Harrison coal plants operational through the planning period and using short-term power purchases to bridge the gap until new resources are online. The proposed gas and solar investments are aligned with Governor Morrisey's 50 by 50 initiative, which aims to boost West Virginia's energy capacity to 50 gigawatts by 2050. We are pleased to pursue generation projects in a state with strong executive, legislative, and regulatory support. To provide the best outcomes for West Virginians, we plan to issue a build-to-own transfer RFP for up to the full 1.2 gigawatts of natural gas resources. We are also evaluating building a portion or the entirety of this generation on our own. In the first quarter of 2026, we plan to file with the Public Service Commission seeking approval of the new gas generation. The proposed assets represent a 35% increase to our current regulated generation portfolio. This is an exciting opportunity for FirstEnergy, and we are pleased to support customer needs and economic growth in West Virginia. Turning to Slide 8. As I mentioned earlier, our transmission system will require significant incremental investments to ensure reliable electric service. At our stand-alone transmission and integrated segments, we need to ensure our critical infrastructure is resilient and reliable, especially as demand is projected to increase in the region. This includes investments to replace aging infrastructure, improve system performance, and increase operational flexibility. We are also participating in regional network upgrades, which are the investments awarded through PJM's RTEP open window process. This includes required system upgrades and improvements to address reliability, security, and load demands of the bulk electric system. Over the last few years, we have been awarded $4 billion of capital investments through the PJM open window process. We recently submitted proposals of capital investments through the 2025 open window to support increasing demand in Ohio, Pennsylvania, and Virginia. These proposed investments include several new and upgraded substations and high-voltage lines needed to support the increasing customer demand. The PJM Board is expected to award transmission projects in this open window by the first quarter of 2026. Any projects awarded to FirstEnergy in this open window will be included in our new 5-year plan. We now expect transmission investments included in the 2026 to 2030 capital plan to increase by 30% versus our current 5-year plan. This includes increases from reliability enhancements and regulatory required investments to improve the overall health and performance of our most critical assets on the system and to address growing demand and changes in generation in the region. Our company-wide transmission assets are a terrific growth engine. Our investments are expected to result in a compound transmission rate base growth of up to 18% per year through 2030. This means total transmission rate base would more than double through the planning period. On the generation side, we have a significant incremental investment opportunity associated with adding the 1.2 gigawatts of natural gas generation in West Virginia by 2031. This project at an initial estimate of $2.5 billion will be included in our long-term plan after we receive regulatory approval. Moving to Slide 9. We're in a strong position to make all of these investments that benefit our customers while keeping affordability a top priority. Today, our bills are on average 2.5% of our customers' share of wallet and on average, are 19% below our in-state peers. Even with an increasing investment plan, we will be below our in-state peers for the foreseeable future. However, we recognize that affordability is top of mind for our customers and that, on average, electric bills have increased 11% for our customers in our four deregulated states over the last year. As we drill into this, the generation component of the bill is driving 85% of this increase. This type of increase is not sustainable and needs to be addressed with new dispatchable generation. In that regard, we are advocating on behalf of our customers and working with state leadership in our deregulated states on how they can take the lead to drive meaningful change and attract new generation. It's a different story in West Virginia, our one traditionally integrated state. Total customer bills remain flat from 2024 to 2025, and the state is taking proactive steps through its IRP process and 50 by 50 program to maintain and expand its generating capacity. We are also working to protect current customers as demand increases from data center developers. This includes utilizing volumetric commitments and customer credit support as needed. Our approach leverages the balance sheet of the data center developers to protect existing customers. Turning to Slide 10. We are on track to have a successful year and look forward to a strong finish. Our updated earnings guidance of $2.50 to $2.56 per share is in the upper half of our original range. We are reaffirming our 6% to 8% core earnings CAGR through 2029. We are on pace to execute our 2025 to 2029 capital investment plan. And looking ahead, we see significant increase in our next 5-year investment plan. Most of this growth will come from high-quality transmission investments backed by forward-looking rates with constructive ROEs. We're also excited about new opportunities to invest in generation in a state that is supportive of these efforts. Our value proposition remains strong, encompassing robust growth, consistent financial discipline, and attractive risk profile and a 10% to 12% total shareholder return opportunity with upside potential. We are on course, and we are committed to achieving our goals and realizing our bright future as a premier electric company. Now I'll turn the call over to Jon. Jon? K. Taylor: Thanks, Brian, and good morning, everyone. We had another strong quarter and continue to make excellent progress this year. We delivered on each of our key financial metrics, including core earnings, capital investments, base O&M and cash from operations. You can review more details about our results, including reconciliations for core earnings and business segment drivers in the strategic and financial highlights presentation posted to our IR website yesterday afternoon. We delivered third quarter core earnings of $0.83 per share, a 9% increase versus 2024. This improvement was largely a result of new distribution base rates in Pennsylvania that went into effect earlier this year and total transmission rate base growth of 11%, including 9% for our ownership in stand-alone transmission rate base and 16% in transmission rate base within our integrated business. Additionally, as a result of our strong performance this year, especially with our controllable operating expenses, we were able to move a modest amount of maintenance work into the third quarter from future years, which gives us flexibility within our plan. Through the first 9 months of the year, core earnings improved to $2.02 per share, a 15% increase from the first 9 months of 2024. Again, our strong year-to-date results largely reflect the execution of our regulated strategies, stronger customer demand, and transmission rate base growth. I want to take just a second to highlight the financial performance and growth in each of our regulated businesses. In our distribution business, the $0.20 improvement in year-to-date earnings is a result of the $225 million annual rate adjustment in Pennsylvania that supports the capital investments and operating expenses we are deploying back into that business as well as higher customer demand and lower operating expenses as we execute on continuous improvement initiatives. In our Integrated segment, earnings improved $0.05 per share or 7% for the year-to-date period, resulting primarily from formula rate investments in the transmission system in New Jersey, West Virginia, and Maryland and higher customer demand, partially offset by higher depreciation. And finally, in our stand-alone transmission business, earnings increased approximately 7%, resulting from our strong capital investment program, delivering owned rate base growth of 9%, which was partially offset by the impact of new debt at FET Holding Company and the full year dilution impact of the FET minority interest sale. As you can see, our performance year-to-date at our regulated businesses is a testament to the execution on our regulated strategies, the constructive rate designs we have in each of our businesses, our strong customer-focused investment programs and a focus on financial discipline. Through the first 9 months of 2025, sales were 1% higher than last year and essentially flat on a weather-adjusted basis. For our industrial class, based on ramp-up schedules of some of our data center customers, we expect to see more meaningful increases in industrial load beginning in Q4 and into next year. As Brian mentioned, through September, we deployed $4 billion of customer-focused investments, which is a 30% increase as compared to the same period of 2024. The majority of this increase was associated with transmission capital, both at our stand-alone transmission and integrated businesses, which in total was $1.9 billion of CapEx through the first 9 months of the year, representing a 35% increase as compared to 2024. For 2025, we are increasing our planned investments from $5 billion to $5.5 billion. Over half of the increase is in transmission CapEx with the remaining on the distribution system, largely reflecting reliability and storm restoration investments. The team continues to do a nice job ensuring that our capital investments are targeted at improving reliability and the customer experience. Additionally, even though our CapEx programs have increased significantly over the past few years, we have strong confidence in our ability to deliver, if not exceed these plans, given our capital planning process, which is based on known and specific projects with resiliency built into the portfolio and our broad and deep relationships with our vendors and suppliers. For O&M, we continue to track better than planned and largely in line with last year despite executing additional maintenance work this year that will enhance reliability and give us flexibility as we finish this year and look to 2026. Our financial performance resulted in a consolidated return on equity of 10.1% on a trailing 12-month basis, which is slightly above our targeted ROE of 9.5% to 10% and represents a 70 basis point improvement from our 2024 consolidated return of 9.4%. Through September 30, to support our capital investments of $4 billion, cash from operations was $2.6 billion, which is better than our internal plan and an increase of more than $700 million as compared to 2024. And we successfully completed our 2025 financing plan with eight subsidiary debt transactions totaling nearly $3.5 billion at an average coupon of 4.8%, including a $450 million transaction at FirstEnergy Transmission and a $1.35 billion financing at JCP&L in the third quarter. Including the successful $2.5 billion FE Corp. convertible debt offering in June, our 2025 capital markets program encompassed close to $6 billion of debt financing, all significantly oversubscribed at a weighted average rate of 4.4%, demonstrating the attractive credit profile of our utilities and business mix. And finally, to close out my updates, we do expect an order in the Ohio base rate case in November. As soon as practical after that, we plan to file a multiyear rate plan to ensure timely recovery of the important investments needed in the state. We are very pleased with our progress as we close out 2025. As I mentioned earlier, we are ahead of plan on all of our key financial metrics and look to carry this momentum in the final months of this year and as we begin 2026. In closing, the team is extremely focused on the value proposition that we offer to shareholders. We are focused on delivering enhanced customer experience through strong customer-focused investments, which in turn will allow us to provide solid risk-adjusted returns to our investors. The future is bright for FirstEnergy, whether it be industry-leading transmission investment opportunities significant reliability investments in the distribution system or the build-out of regulated generation in a supportive state like West Virginia, we have a strong business plan and the right team to execute. We are committed to continuing our positive momentum and delivering value for our shareholders. Thank you for your time. Now let's open the call to Q&A. Operator: [Operator Instructions] And our first question comes from the line of Nick Campanella with Barclays. Nicholas Campanella: I was just wondering on the West Virginia generation, you kind of talked about build and transfer versus self-build. Can you maybe kind of talk about how you've recovered the capital in either scenario and how we should kind of think about the impact to earnings '28 through 2031. And I guess if you're just kind of thinking about a build and transfer for 2031, is there really no earnings attribution until then? Or could there be milestone payments? Maybe you can kind of expand on that. Brian Tierney: Yes. So the build-own transfer, I think, is fairly straightforward. On the we build it side, we, of course, would file for CWIP during construction. And so we'd expect at least the recovery of that, if not the earnings component during the pendency of construction. But the real significant earnings component for that will come after the assets online. Nicholas Campanella: Yes. Okay. And then just maybe how you're thinking about rate case strategy for '26, mostly asking on Maryland, West Virginia, New Jersey, where the ROEs are trending a little lower than authorized? K. Taylor: Nick, it's Jon. Yes. So I think as we look to '26 and beyond, if you look back to the cadence that we went through, when we first started filing cases a few years ago, we started with Maryland, New Jersey, West Virginia. We'll start to look at that kind of cadence as we move into 2026. Obviously, it's going to be important for our utilities to earn close to their allowed returns. And so as they're deploying capital, we need to make sure that we get timely recovery through increases in base rates. Operator: The next question comes from the line of David Arcaro with Morgan Stanley. David Arcaro: I was wondering just any thoughts you could give on as you're talking about these increased CapEx opportunities from both transmission and potentially on West Virginia generation. How does that impact the earnings growth outlook and the range that you've got as you consider out closer to the end of the decade? Brian Tierney: Yes. David, we think of it as firming up the ability for us to be in that 6% to 8% earnings per share range over the planning period. People don't traditionally think of utilities as growth investments. But as we look at the opportunity to invest in our system, increasing CapEx over the period, it gives us real confidence that we'll solidly be in that 6% to 8% earnings per share growth range. David Arcaro: Okay. Got it. And then I guess looking at the data center pipeline, I was wondering if you could refresh us on just the activity seems to continue to be very strong. And as you see more gigawatts maybe come in and firm up, I guess, is there a way to give any rule of thumb for how much increased transmission CapEx you could see going forward, like on a per gigawatt basis? I think you've given that rule of thumb in the past, but the CapEx that you're adding to the plan here seems to be quite a bit stronger. So just wondering your current thoughts on as more and more data center activity continues to come to your service territory, what that could mean going forward? K. Taylor: Yes. David, it's Jon. So in total, right now, as we look at what's contracted and just our transmission CapEx program in total, I think you could say there's probably easily $1 billion of CapEx associated with transmission interconnection requests, whether that be direct connection projects or network upgrades to support large loads. So that's what we see now based on the contracted and active large load customers that we have. But I think that will vary as we move into the future. And we've seen a wide range of capital deployment based on interconnection request depending on the location and the size. Operator: The next question comes from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just a quick follow-up on the transmission CapEx point. Just as you continue to raise sort of the upside opportunity there now at 30% this quarter. I guess, can you talk a little bit about kind of what's giving you the confidence to do that? And ultimately, if we should be thinking about that as a floor looking into the 4Q update or if there's potential for further upside there? Brian Tierney: Yes. I think the upside that we mentioned that 30% for the next 5-year plan is what we feel comfortable with at this point. And again, we're going to come out with that full CapEx plan early in '26, but I think that's what we would guide to be the number right now. As we think about that and where we're spending the transmission CapEx, about 60% of it is associated with reliability enhancements, upgrade health of system, replacing aging reliability type investments. And the 40% of it is what we call regulatory required. That's transmission interconnection requests and things like the PJM open windows. So we have some pretty good insight into where we're spending those dollars and what the increase will look like for the next 5-year plan. So I'd expect it to be very, very close to that number. Carly Davenport: Great. Okay. That's really helpful. And then maybe just on the data center pipeline. I appreciate all the updates on that front. I guess just as we think about that contracted bucket, are you able to share how much of what is contracted is under an ESA versus another type of contractual agreement? Brian Tierney: Yes. So that's a great question. Thank you, Carly. The ESA is usually the last thing that happens before power starts flowing. So that happens very late in the process traditionally. But making sure that they're contracted to either build the facilities that are needed to happen, that we put in place the credit support that they're going to need to make sure that they show up and take what we're spending. Those type of things happen earlier in the process. So we feel really confident once we have put them in that contracted category that they're going to show up even if we don't yet have an ESA signed. Operator: The next question comes from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: You touched on in your comments, I guess, the bill increases and the impact generation has had on that. And I was just wondering if you could expand a bit more there, I guess, on the appetite to build new generation elsewhere across PJM, if there is the proper underpinnings to it? And how do conversations look on that? And anything new to report there? Brian Tierney: Yes. So nothing new to report there, Jeremy. I mean, the place where we have a clear window, a supportive governor commission and legislature is in West Virginia. And so that's how we're able to move forward so quickly with those plans. The idea that we'd be building in any of the other states on a long-term basis would really just be speculative at this point. Jeremy Tonet: Got it. Understood. And turning to Ohio. I was just wondering if you could expand any more there on the backdrop and talking about filing as soon as practical there, what that could look like? Brian Tierney: Yes. So we expect the order on the base rate case during the fourth quarter. And we need to get that to see what the treatment of various aspects are in that base rate case. But given that we've been making investments in the state and want to continue making investments in that state since that test year, which ended in May of '24, we're going to have to go in right away given that we don't have trackers and riders in the state anymore. And so given the forward-looking nature of the multiyear rate plan, we think that's the perfect avenue to do it. And as soon as we know what our situation is coming out of that base rate case, we'll know what we need to file for, and we'll be going in right away. Operator: The next question comes from the line of Ryan Levine with Citi. Ryan Levine: Regarding the 30% CapEx upside in the prepared comments, what regions in PJM are you seeing the majority of the investment opportunity? And is there any cost inflation associated with the labor or equipment that is a component of that 30%? Brian Tierney: Yes. I'd say most of that 30% is really associated with incremental work rather than inflationary proceeds -- impacts. And it's across the system in terms of where we're investing. It's in all five of our states, and I'd say fairly evenly distributed in those five as well. So -- it's broad-based. It's that reliability type investment. It's the regulatory required. It's the new customer hookups. It's the open windows. It's really broad-based, but it's incremental work that's driving that 30% increase. Ryan Levine: Okay. And then in terms of the load forecast embedded in your planning, do you have a lot of confidence in the visibility of those forecasts in light of some of the FERC and other PUC recent commentary on that front? Brian Tierney: We do, Ryan. So as we're looking at the planning period, the next 5-year period. A lot of that is associated with what is contracted, not necessarily in the pipeline. So we have pretty good visibility into what the load forecast is going to be in that time frame. When you get out a little bit farther is when you're starting to look at the significant increases that we talked about with data center load and up to the 15 gigawatts. As we're looking at those load increases, we're looking at things, various criteria, like does the developer own and control the land? Do they have building permits? Do they have development plans? Do they publicly announced what the project is going to be, who the customer is, all those things. We look at those factors to get a comfort level in is the customer actually going to show up and does it make sense to put them in the pipeline? And it's that level of confidence that we have in that 15 gigawatts that we're talking about in the next 10 years. Operator: The next question comes from the line of Ross Fowler with Bank of America. Ross Fowler: Just maybe circling back to West Virginia. This is going to be a self-build. I think that's what you said on the call, if I caught it correctly. So as you file for CWIP and you go through that, how are you thinking about the supply chain connected to that 1.2 gigawatts? Do you have a turbine in the queue? Do you have a queue position? And kind of what are you seeing for pricing there? Because I know the turbine prices have increased over time. Brian Tierney: Yes. So that's all factored into what we've forecasted in the IRP, assuming it's going to be about $2.5 billion. And we haven't made a determination yet as to whether or not it's going to be build-own-transfer or self-build. We're going out with an RFP for the build-own transfer, and we'll see what that brings in. But we're also seeing things come in a little bit. So we're not seeing that 4- to 5-year that people have been talking about. We're seeing more of the 3- to 4-year lead time on major equipment. But the pricing remains pretty strong on that. We've not secured a space yet, but we think that we'll be able to do that given the regulatory framework that we have for getting approvals and getting the facility up and running in the 2031 time frame. Ross Fowler: And then -- and Jon, as you kind of talked about rate case cadence, you talked about sort of New Jersey. I mean, obviously, Ohio is coming very soon as soon as practicable, but New Jersey might be next in that cadence as you wind through it. How are you thinking about sort of the affordability pressures in that state? Obviously, it's been an issue in the governor's race. Is it well understood from your perspective in that state that most of that is coming from the generation portion of the bill or kind of contextualize that for us a little bit? Brian Tierney: We think that's well understood that generation is really what's driving so much of that increase. At the end of the day, as a political issue, though, that doesn't much matter. People see their bills going up and are concerned about that. And we're trying to do everything we can in our power to keep those bills as low as possible for the portions that we control. And so we're being very thoughtful about how we're spending our O&M. We're advocating on behalf of our customers to stop the madness that is these PJM capacity auctions right now, which are paying for new generation that's just not showing up, and we don't think it's appropriate that our customers bear that kind of burden. So we're doing everything we can to try and mitigate the impact of the higher generation costs, but we think it's well understood that that's where the increases in those rates are coming from. Operator: The next question comes from the line of Steven Fleishman with Wolfe Research. Steven Fleishman: Just a quick follow-up on the transmission upside, the 18% rate base growth. When we're going to get these open window outcomes and such over the next few months or start seeing them, should we assume those are embedded in there already? Or would those be upside to that? Or how should we think about as we see these announcements? Brian Tierney: Steve, we put a very modest amount in there, but it's our practice to not put things in the plan until we have the approvals that are needed from PJM. But in this case, we put a very modest amount in there. K. Taylor: Yes. And I would say, as I mentioned in my prepared remarks, the portfolio is what we call resilient. So we have hundreds and hundreds of projects that we can fill in as needed, all needed for reliability purposes. So depending on how things shake out with the open window, which, quite frankly, we feel really good about the solutions that we submitted in the open window process, our track record, where the congestion constraints are, and we feel really good about our prospects there. But to the extent that anything varies from our plan, we have a resilient portfolio. Steven Fleishman: Okay. And then just to clarify that answer because there's the plan right now, then there's the upside plan or the next plan we're going to get. So when you made your comments, Brian, is that relative to the next plan or the current plan, I guess. Brian Tierney: That makes sense. The 30% increase that we talked about, there is a very modest amount from the pending PJM open window that's in there. So if we get significant incremental awards from that, we'll be refreshing that plan. Operator: The next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: First, a question on the CapEx update, and this is sort of a high-level question, but you're talking about very meaningful upside to the transmission CapEx. The West Virginia IRP is calling for a lot of spending there, plus you have the Ohio rate case. My question is, when we look at the update coming in a few months, are you expecting to reallocate some spending away from the other segments and businesses? Or do you think the balance sheet and the labor force could handle what might be a pretty sizable increase for the plan overall? I don't know if the whole $28 billion plan is going to go up by 30%, maybe it will. But how do you think about limiting factors for the upcoming increase? Brian Tierney: Yes. We don't see taking from one jurisdiction at this point and giving to another. We see increases across the jurisdictions. But Andrew, we've already factored in the needs of the various jurisdictions, the opportunities in the various jurisdictions. And to be honest with you, they're all different. And that's why we put in place the management structure that we have with the presidents, five presidents overseeing those five properties that we own so that they're very thoughtful about what's going in. Do we need energy efficiency in one jurisdiction that we don't need in another. Just things like that so that our CapEx plan is very, very tightly tailored to each of the jurisdictions that we serve, and that's what goes into how we put our plan together. We're not -- we don't view the plans that we're talking about, the West Virginia and the incremental transmission is taking away from another jurisdiction, but we view that as all expansive across our five jurisdictions. Andrew Weisel: Okay. Great. And then I think on the industrial load, Jon, you made a comment about that accelerating in the fourth quarter and into next year. I think you said that was specific to some data center customers ramping up. Can you speak more broadly? I think I may have asked you this on prior calls as well, but it sounds like generally flattish for the industrial customers. Maybe you can talk about trends in the outlook outside of the specific data center ramping. K. Taylor: Yes. I think we -- yes, we are starting to see a little bit of rebound in fabricated metals and steel manufacturing. So that has been kind of a headwind for us over the past few quarters. We're starting to see that come back a little bit. But I think as we move into the fourth quarter and especially into next year, you'll start to see meaningful increases in industrial load, mainly from data centers. And I'm talking like mid-single digits by the time we get to maybe Q2 to maybe even higher than that, significantly higher than that by the time we get to the fourth quarter of next year. Operator: The next question comes from the line of Sophie Karp with KeyBanc Capital Markets. Sophie Karp: How do you envision a response on the state level from policymakers to these rising consumer energy costs? Brian Tierney: I think people are concerned about it, as are we, and that's why we're engaging with regulators, legislators, and others to both, a, point out what is causing the increase and, b, trying to work with them on mitigating those increases and what are things that we think makes sense for our customers. And so again, we are not advocates of continuing this madness of the PJM capacity auctions that are paying people for new capacity that they're not getting and look for other mechanisms like a 2-tiered structure, one that would pay existing capacity one price and have another structure that would attract incremental capacity and any other ways that we can attract new capacity and have customers actually get what it is they're paying for. But we're concerned about increases in customer bills and again, making sure that customers get what it is they're paying for and with the capacity auctions, that's not happening. Sophie Karp: And do you think there's enough, I guess, momentum behind these efforts now for them to come up in the next legislative sessions? Brian Tierney: Yes. I think there's certainly a lot of attention being paid to it across all of our unregulated jurisdictions. And so yes, I think we'll see people starting to take notice, have plans for mitigation and start enacting those in the near term. Operator: The next question comes from the line of Anthony Crowdell with Mizuho Securities. Anthony Crowdell: I just wanted to -- and I apologize, I just may have not understood it. A response to Carly's question and a response to Steve's question. On Carly's question, and when I think you were talking about CapEx, it seemed that you were more looking at these additional projects are going to strengthen and lengthen the current 6% to 8% plan. And again, I don't want to front-run your fourth quarter call. But then on Steve's question, I think you talked about your current plan is very modest with very little of this additional CapEx in there, leading that there's actually potential for a big change in that growth rate. I wonder if you could help me connect the two dots there. Brian Tierney: Yes. So thank you for the question, Anthony, if there was any confusion around this. This increase in CapEx that we're talking about gives us extreme confidence in the 6% to 8% earnings per share growth range. So we would like to be in the upper end of that, but we're not at a point today where we are going to change that growth rate. But it gives us considerably more confidence to be in the upper part of that range. So in response to Steve's question, the increase that we're talking about is in the 6% to 8% growth. The specific part that I was talking about with Steve was the PJM transmission open window component that's pending. We have a very modest amount for that, that we think that we will be awarded. If it's higher than that, that will be incremental to the plan. But in any event, we don't see us changing the earnings per share growth rate that we've guided to, but the CapEx plan that we talked about and the increase in it gives us confidence to be in that range and targeting the upper end of that range. Does that answer the question? Anthony Crowdell: Yes. So if you're better than your plan in the PJM open window, there's more of a bias towards the upper end of the range of the 6%. Is that fair? Brian Tierney: No, no, no. Let me -- again, I don't want you to put words in my mouth. The existing plan and the increase that we're talking about is in the plan and gives us the confidence to be in the upper end of that range. If we get something more than what we talked about in the open window, we'll factor that into the plan, and we don't expect us to take it out of the plan, but we're already expecting to be confidently in the 6% to 8% range, and we're targeting the upper half of it, regardless of what happens with the PJM open window. Anthony Crowdell: Great. Got it. And then just one housekeeping item. On large load tariffs, are you guys -- I just apologize, I'm not familiar with every state you're operating in. But are you guys applying for large load tariffs? Or are they all in place as this growth is hitting the PJM service territory? Brian Tierney: Yes. So we don't see the need for them the way our tariffs work. We think that we can enter into terms and conditions that make the data center developers responsible for the incremental investment that we're making and protect our existing customers. So we see others doing that, and they may not have the flexibility that we do in our existing tariffs and contract structures. And it's not something that we see the need for today. If that changes going forward, we'll evaluate that and make changes at the time. Operator: This concludes the Q&A session. I'd like to turn the call back over to Brian Tierney for closing remarks. Brian Tierney: Great. Thank you all for joining us today, and thank you for your interest in FirstEnergy. We look forward to seeing many of you at the EEI conference in a few weeks, and we hope you have a safe and enjoyable rest of your week. Take care. Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.
David Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia's Third Quarter 2025 Results Call. I'm David Mulholland, Head of Nokia Investor Relations. And today with me is Justin Hotard, our President and CEO; along with Marco Wiren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F which is available on our Investor Relations website. Within today's presentation, references to growth rates will mostly be on a constant currency and portfolio basis, and other financial items will be based on our comparable reporting. Please note that our Q3 report and the presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results under reconciliation between the 2. In terms of the agenda for today, we will go -- Justin will go through our key messages from the quarter, and then Marco will go through our financial performance. We'll then move to Q&A. With that, let me hand over to Justin. Justin Hotard: Thank you, David. Overall, we delivered a solid performance in the third quarter, in line with our expectations. We grew net sales by 9% with all business groups growing. Order intake was again strong, particularly in optical networks and IP networks driven by AI and cloud customers. Our profitability in the quarter was as expected. Network Infrastructure gross margin improved sequentially, that was impacted slightly by product mix. Cloud and Network Services had a strong gross margin in the quarter. Product mix impacted the gross margin of mobile networks with a lower mix of software revenue. Our operating margin declined year-on-year due to a onetime benefit seen in the prior year from a loss provision reversal. Without which our operating margin would have been flat. The broader demand environment remains healthy as we move into the fourth quarter. We have seen some improvements in CSP expectations along with the strong order intake I mentioned in AI and cloud. In fact, entering the fourth quarter, our backlog coverage is stronger than in recent years. We're also pleased with our progress on the Infinera acquisition. We are ahead of schedule with the integration time line and with synergy expectations. The acquired business contributed strongly through both our net sales growth and order intake growth in Q3. So after a solid Q3 and continued strong order intake, we are well on track to achieve our full year outlook. We expect the fourth quarter with net sales growing sequentially and slightly above our historical seasonality of 22%. We are currently tracking towards the midpoint of our operating profit outlook range. Let me now share a few highlights across the business from the third quarter. For our network infrastructure business, and the key highlight has been our progress in the AI and cloud customer segment. In Q3, this segment accounted for 6% of our group net sales. Breaking it down, it was 14% of our network infrastructure business and more specifically, 29% of optical networks. In Optical, as mentioned, our 800-gig ZR, ZR+ coherent pluggables became available in the quarter and ships to our first hyperscale customer. Our pipeline in this space is growing as customer investments accelerate and data center architectures evolve. Q3 also saw us announce strategic partnerships with both end scale and Super Micro. With Endscale, we are now a preferred partner for advanced networking technologies across our NI portfolio. Super Micro is adopting our SR Linux network operating system for their 800 gig Ethernet switches, providing expanded footprint for our network operating system. Finally, we secured 2 new design wins for our switching platform in the quarter with hyperscalers. The market is growing rapidly. And while I'm pleased with these initial signs of progress in IP networks, clearly, we still have a lot of work ahead of us. In our fixed network business, we launched our new 50 gig PON offering. With our unique solution built on our Chilean chipset, operators can easily evolve from GPON to XGS, 25 gig and 50 gig PON on the same fiber. Ready with encryption for the post-quantum era, Nokia solution also provides enterprises with the bandwidth, security and reliability they require. Customers like Frontier Communications in the United States are already using our unique PON technology to seamlessly introduce 25 gig PON. Now I want to turn to our mobile businesses, starting with Cloud and Network Services. The team has delivered strong network -- net sales growth and operating profit growth as it continues to focus on autonomous cloud native architectures. In voice core, we became the market share leader in the first half of 2025 and as reported by Dell'Oro. Approximately 70% of 5G stand-alone core network deployments outside China use a portion of Nokia's 5G core stack. And network penetration is still less than 30% for 5G stand-alone core. In Mobile Networks, we continue to see the market stabilize. We recently announced a deal with Vodafone 3 that will see us enter their new combined network in the U.K. as a major RAN supplier with approximately 7,000 sites. We are focused on improving the returns in the business over time. delivering for our customers and differentiating through innovation. In Nokia Technologies, we secured several new agreements in the quarter. The team continues to be disciplined on productivity and operating leverage. While we are now entering the heightened investment phase for 6G standardization, we continue to see stability in our annual operating profit. In Q3, we completed a strategic review of our venture fund investments. We have decided to scale down our passive venture fund investments. Over time, we will substantially reduce the capital deployed in these areas. As a result, our venture fund investments are now reported within financial income and expenses. Going forward, we will consider targeted direct minority investments in companies that help us to accelerate our strategy. An example is the investment we made in Endscale alongside the strategic partnership that I referred to earlier. Because of this change, we are making a technical change to our operating profit guidance. increasing it by EUR 0.1 billion, which is related to the negative impact the venture funds had on our operating profit in the first half. However, operationally, our guidance is unchanged. After a solid Q3 and with recent order trends, we are well on track to achieve our full year outlook for operating profit. As I mentioned before, we expect fourth quarter net sales to grow sequentially at slightly above our historical seasonality of 22%. And we are tracking towards the midpoint of our operating profit range of EUR 1.7 billion to EUR 2.2 billion. At our Capital Markets Day in New York on November 19, we will share our strategy to unlock the full potential of our portfolio and the steps we are taking to focus the company to deliver ongoing growth and operating leverage. The AI super cycle is accelerating demand for providers of advanced and trusted connectivity. Nokia is uniquely positioned to be a leader in this market. With that, let me hand it over to Marco to discuss our financial performance. Marco Wiren: Thanks, Justin, and hello from my side as well. In quarter 3, we saw net sales increased by 9%, and we are pleased to see growth across all our business groups. Gross margin for the group declined 150 basis points year-on-year, and this was largely as we have expected. And this is because of the product mix within both network infrastructure and mobile networks. Operating margin was 9%, 220 basis points below the prior year, although this was mainly due to a onetime impact from the reversal of loss allowance for trade receivables in the prior year. Without this, the operating profit -- operating margin would have been flat year-on-year. And we generated EUR 429 million of free cash flow and ended the quarter with $3 billion of net cash. I would like to update you on our cost savings program, which we introduced in 2023. We expect to get about EUR 450 million savings in 2025. And going forward, we will focus on delivering operational leverage through continuous productivity improvement, IT simplification, digital instrumentation and organizational efficiency rather than using large restructuring programs. Ultimately, this means a cultural shift towards consistent cost discipline and efficiency to help us deliver our strategic calls. Turning to business group now, starting with net infrastructure, which had another strong quarter with 11% growth. Optical Networks was the standout performer with 19% sales growth and continue to see strong order trends with book-to-bill well above 1. IP Networks also saw a strong growth in orders in the quarter as we start to see and increased traction with AI and cloud, as Justin mentioned. IP Networks sales grew 4% and fixed networks grew 8% in the quarter. Gross margin was impacted by product mix and declined 190 basis points, although it did increase from the level we had in quarter 2. Operating margin declined because of lower gross margin along with the increased investments in R&D and the acquisition of Infinera. In the quarter, we see -- did see a small positive contribution to operating profit from Infinera as we start to see some initial benefit from synergies, along with the growth in the business. Cloud and Network Services sales grew by 13% in the quarter as we continue to see strong demand for our cloud-based core platforms. Gross margin increased 380 basis points as we improved cost of delivery, along with the operating leverage benefit of higher sales. Operating margin also increased by 250 basis points with some of the gross margin strength partially offset by higher R&D expenses. And mobile networks net sales increased by 4% year-on-year, driven by growth in Vietnam and Middle East and Africa. In quarter 2, we said we expect Quarter 3 gross margin to be lower than normal, reflecting a lower software contribution, and this was indeed the case. During year we saw a 370 basis point decline. With respect to operating margin, although operating expenses declined, the reversal of loss allowance in the prior year meant that operating margin declined. Without this, the operating margin would have only slightly declined despite this being a quarter with a low software contribution in the mix. Turning now to Nokia Technologies. Net sales grew by 14% in the quarter, and we signed several new deals in quarter 3. And our annual net sales run rate remains at approximately EUR 1.4 billion. Operating expenses in quarter 3 saw some timing benefits and therefore, will increase slightly in quarter 4. We continue to expect EUR 1.1 billion operating profit for the full year in Nokia Technologies. Now let's look at the net sales by region. In North America, we saw strong growth in network infrastructure and cloud and network services, while mobile networks declined slightly. In APAC, India sales grew in network infrastructure, driven by strong demand for fixed wireless, while mobile network sales returned to some modest growth. Outside of the benefit we saw from Nokia Technologies, Europe was stable in quarter 3. Now turning to our cash performance. We ended the quarter with a net cash position of EUR 3 billion. Free cash flow was positive EUR 49 million, consistent with our profit generation and well-managed working capital. We continue to target 50% to 80% free cash flow conversion from comparable operating profit for the full year. David Mulholland: Thank you, Justin and Marco. Before we turn to the Q&A session, you should really received an invitation to register for our Capital Markets Day, which as Justin mentioned, will be held in New York on the 19th of November. We hope as many of you as possible will be able to join us at the event. As usual, for the Q&A session, as a courtesy to whether is in the queue, can you please limit yourself to 1 question and a brief follow-up. Kelly, could you please give the instructions? Operator: [Operator Instructions] Yes. Let's go. I'll now hand back to David Mulholland. David Mulholland: We will take our first question today from Artem Beletski from SEB. Artem Beletski: So my question would be relating to IP Networks and switching business on that front. So how do you see the progress on that front in general. And you have also said to target 3 quarters ago, when it comes to year 2028. So are you well tracking on it? David Mulholland: One second, could you start your question again, please? We just got tech difficulty on our side. Artem Beletski: Yes, no worries. Can you hear me now? David Mulholland: Yes, we can hear you. Artem Beletski: Okay. Great. So I would like to ask a question relating to IP Networks and your initiatives what comes to data center and switching business. So you mentioned that you have some new design wins during the quarter. So how you're tracking against your target for 2028? And also, should we anticipate some contribution to revenues looking at upcoming quarters? Justin Hotard: Yes. So Artem, I think as I've said in a couple of forms, but maybe just to share here, I think when we talk about EUR 100 million incremental investment, the reality for me is that's a small portion of our overall capital. And so I don't think you'll see us focus on that metric going forward. What I will say about the business is, I was pleased with the wins I'm pleased on the book-to-bill in IP networks overall. The reality, as we all know, is that we're still a fairly small player in this space, well behind some of the market leaders. So we're at the start of a journey. But the announcements we've made, I think are positive. The metrics are positive. It's much more work to be done longer term. David Mulholland: Did you have a quick follow-up, Artem? Artem Beletski: Yes, absolutely. So maybe more general questions. So looking at your growth opportunities when it comes to AI and cloud. So it was sales in the quarter, so increased compared to Q2. But in general, looking at the next couple of years, where do you see the biggest growth opportunities looking at different customer segments. So as it's like hyperscalers, enterprise or super insight where you see the biggest opportunity for you? Justin Hotard: Yes. I think, first of all, the biggest opportunity is clearly it's clearly is in the hyperscalers and the neo cloud. So that's driving most of the demand. Obviously, the partnership with Endscale is a good example of our focus in this area. We've made other announcements in the past. And we also believe that sovereign clouds will present a significant opportunity for us over time. As we've talked about before, we're optimistic about the work that's being done in the EU as well as in other regions. So we think that these are all important growth segments for us. But clearly, the demand today is largely coming from the hyperscalers on some of the larger neo clouds. David Mulholland: We'll take our next question from Simon Leopold from Raymond James. Simon Leopold: Appreciate it. So nice to hear about the progress in the hyperscalers. I want to dig a little bit more deeply here in that more recently, we've heard about an application refer to a scale across for optics, which I think of as basically data center interconnect on steroids. Could you talk a little bit about what this means for Nokia in particular and how you see that as an opportunity. Justin Hotard: Yes, sure, Simon. And I think it's something that's been around obviously scale up or what's been talked about at scale across has been in networks for in data centers for a long time in certain parts of the market. So this isn't a new technology. But what is happening is as we push bandwidth demands, which obviously the AI data centers are driving it's creating new demand for innovation in that space. And I think this is where the assets we have, I think, are well positioned. It's not a place where I can tell you we can point to it and say, we've got material revenue today. It's still early days. But I do think if you look at our assets here, particularly what we're doing in Indian phosphide with the fab, the ability to build optical components down on the indium phosphide silicon and innovate and packaging in these areas. We think we've got technology that can be relevant here. But obviously, as bandwidth demands continue in networks, both scale across and scale out, which is what we typically call -- what we typically see in top-of-rack networking and IP switching, both of those create tremendous opportunity for us. And the way I would dimensionalize the opportunity in optical is we'll share more of this at CMD is that every time you get to the next unit, if you go from the long-haul networks to the metro networks to the data center or inside the data center, then inside the rack, each 1 of those has incremental opportunity at a volume level. Of course, there's a performance and cost delta you have to hit as well because what we build for long-haul networks is obviously going to be significantly more expensive than what you'd have to build to fit inside of a server inside of a rack. So there's a part of this that will require us to continue to innovate in this space. And you'll hear more about it in our discussions. David Mulholland: Did you have a follow-up, Simon? Simon Leopold: Sure. Yes, I presume we'll talk about the long-term strategy, of course, at the Capital Markets Day. But I'm wondering if you could provide us a few thoughts on how Nokia's plan is regarding 6G mobility investments. Have you started investing? Is that in the R&D today? Is it something that starts in 26 or is it something further out in time? I'm just really focused on modeling for the moment because I expect we'll hear some more at the Capital Markets Day next month. Justin Hotard: Yes. So on technology standardization, which is obviously very important relevant for tech, that work has already started and the investment is ongoing. And as I touched on in my comments, we're going to go through a bit of an investment. You go through a bit of an investment cycle in that space. So that ramp is happening, and we obviously reiterated confidence in the on the ongoing profit outlook for Nokia Technologies as a part of that. So I think that gives you some indication from a modeling standpoint. For MN, we are -- we've talked about this publicly. We're doing work on early on 6G -- I'd say pre-standard 6G radio technology. There's more work here. I think the thing for me in this space is. And Simon, I've talked about this a little bit in comments as well as I think there's a lot of focus on for obvious reasons on the G transition, the 3G, 4G, 5G, 6G. I actually think what's more important for us is what we've done in cloud and network services, which is the pivot to a cloud-native core. And then you look at the results and the performance on share capture and revenue growth. I think that's a good indicator for how we see the -- we're going to start to think about the opportunity in RAN, which is as we go into AI and in yes, there's going to be a new generation of radios in terms of hopefully, frequencies with spectrum approvals and, of course, 6 capabilities in terms of spectral efficiency. But there's a lot more to do in terms of radio capabilities and features. And we've got -- this is why we announced things like the AI ran Alliance. Previously, it's where we see opportunity with our work in Cloud RAN, for example. And I think that's where we'll continue to invest. What will impact for you is that these are things that we need to focus on and invest and innovate and of course, continue to work closely with customers. So we'll unpack that for you at CMD as well as how we're approaching that. But I wouldn't assume that we haven't -- it's a binary thing where we haven't started. It's a part of ongoing investment. David Mulholland: We'll take our next question from Alex Duval from Goldman Sachs. Alexander Duval: Yes. Thank you so much for the question. Firstly, just dovetailing off the last question, I'm very much looking forward to hearing more about the long-term tech strategy on wireless. Just in the short term, you talked about a measure of stabilization there. I wondered if you could give a bit more color as to the extent to which that's driven by the RAN market in your most important geographies versus progress you've made on your product? And then secondly, it was interesting to hear in your prepared remarks about how you will focus on cost control by ongoing steps like digitalization rather than large restructuring programs, wondered if at this point you could talk a bit more about what motivates that shift and the benefits this brings? Justin Hotard: Let me start with the second part, Marco, do you want to talk about that [indiscernible]? Marco Wiren: Yes, absolutely. And what comes to cost savings just like I mentioned in my introduction as well. So thinking is that operational leverage is extremely important for us and continues improvement is something that we want to get in our genes that every entity basically continuously in ways, how can we continuously improve and do things more efficiently and of course, here comes quite naturally in the new technologies, utilizing AI and other digitalization opportunities that you can find, and that's why IT simplification is extremely important in this and securing that we can actually get the benefit out of those different installations of AI that we have and continuously work on the process simplification and find ways how we can make the processes more efficient continuously. And it's not a one-off action. It's something that you have to do continuously. Justin Hotard: Yes. And then in terms of the market outlook, first of all, I think you're pretty clear from what we've been saying that if you think about the AI and cloud market growing rapidly, the CSP market broadly has been quite stable. So as we think about that, when I look at our results, I think stabilizing in MN in terms of our performance being predictable. There's always puts and takes. There's going to be ups and downs in the quarter and varies based on a given customer's volume in 1 quarter. So we'll see a little bit of that. But when you look at the longer-term trends, I think we're feeling better about a stabilizing environment. And then on Cloud and Network Services, as I touched on, we believe that we believe we're growing above market rates at this point. David Mulholland: Thanks, Alex. We'll take our next question from Sami Sarkamies from Danske Bank. Sami Sarkamies: Could you please elaborate on the factors that drove the positive surprise in the third quarter as you had anticipated similar sales and margins as in Q2. And when we think about Q4, you also mentioned a strong order book, but do you have still uncertainties related to timing of deliveries as you chose not to narrow the guidance range down? Marco Wiren: Yes. Thank you, Sami. And what comes to them, if you look at gross margin development and in different businesses, you can see that we had a very good development in Cloud and Network Services. And here, as you understand, this business has been frequently so that you get a big part of the profits in quarter 4. Now this year, we have been working actively to try to actually balance that distribution of profits more equal between the different quarters. But at the same time, you see also that we have increased our gross margins, and there's a few reasons for this. One is, of course, that we've seen a good traction on 5G stand-alone core implementations where we have been very successful in gaining market share. And then, of course, we've been working quite a long time in the CNS as well to clean up the portfolio. And this, of course, giving result as well. And the third point I would say as Wally is that also in our core business CNS has been working heavily to take cost out and make things more efficiently and by that, improving the margin levels. David Mulholland: Do you have a follow-up, Sami? Sami Sarkamies: Maybe a detail question on the 6% exposure to AAN Cloud in the third quarter. I think you mentioned 5% hyperscaler exposure after Q2. These are different metrics, right? Justin Hotard: These are comparable, Sami. So think of the 5% 6% as Q3. David Mulholland: We'll take our next question from Richard Kramer from Arete. Richard Kramer: Justin, when we look at your competitors into the various NI divisions, many of them are point solutions in 1 or another of the field of routing optics are fixed. In the current hyperscaler [indiscernible] are these areas being kept separate? Or do you think that the end-to-end promise we heard about so much from both of the prior CEOs at Nokia is finally being realized at least within NI? Justin Hotard: Well, I think a couple of things on this, Richard. So first of all, for me, clearly, fixed access is its own business and the technology and innovation there is coming out of a few markets. I mean, the largest 1 for us, obviously, is in the U.S., but there's other markets where we're seeing technology and innovation opportunities and so I think that's almost its own trend. And I shared -- obviously, I shared the discussion around the 50 gig PON but this capability that we have to allow you to add new technologies in line in your terminals, we think is a true differentiator. We hear that from customers. The customers using it, believe it gives them value because they can -- they don't have to invest in a complete infrastructure upgrade to overhaul. The key message there is we're competing on the technologies merits itself. And I think if you look at IP switching and certainly in optical networking, I would say the same. We've got a win on the technical merit themselves. I mean we've got very capable customers across our portfolio, AI and cloud as well as piece that want to buy best-of-breed technologies and enable their solutions and execute on their strategies and deliver value to their customers. And our focus has to be on doing the things that add value to them. and where I think there's leverage and synergy for us is being able to see what's happening across these markets and bring greater scale and innovation to them. But I think that for me, the term is an end to end. It's -- you've always got to have best-of-breed products, breast of breed technology, and then you've got to be able to leverage the ecosystem so that you're obviously, you're better together, but it's not something that we do that assume we could have a deficiency in 1 area. That's certainly not how we think about it. Marco Wiren: And just in just sense that, of course, the compatibility is very important. So that's a benefit that we can get compared to competition, which only go with 1 product. And when we come with several products and they are best of breed and customers want to buy those, that those actually work well together. David Mulholland: Did you have a follow-up, Richard? Richard Kramer: Yes. Quick 1, quickly for Marco. We saw a reduction in your forecast restructuring cash outflows from EUR 450 million to EUR 350 million. and an increase of EUR 50 million in gross cost savings. Is this Nokia finally transitioning from what's been a decade-long restructuring to maybe being able to focus more beyond '26 on just growth? Marco Wiren: Yes. I would say that the important thing is that we want to avoid this large-scale restructuring programs going forward and more get this into our DNA as continuous improvement and customer focus and secure that we continuously find ways how we can take out cost in our fixed cost basis and our operations and utilize all the digitalization opportunities that could bring instead of doing this large-scale cost-cutting programs. So that's our focus going forward. David Mulholland: We'll take our next question from Felix Henriksson from Nordea. Felix Henriksson: Good to see Infinera turning positive on operating profit contribution. And I wanted to ask about that, that in light of the progress that you made on integration, do you see the EUR 200 million in run rate operating profit synergies for 2027 as conservative? And are these savings something that you will have to reinvest in the growth in the optical business, kind of what you're doing in the IP side of things? Justin Hotard: Yes, multiple questions in there. So let me sort of answer. First of all, we'll provide a full update at CMD on our view. But I would say, certainly well on track on our commitments as we've talked about on the cost synergies, clearly, with the growth that we're seeing ahead of our expectations on top line synergies. And then I think in terms of investment, what I would say is we'll talk more about that talk more about that in CMD, but we're going to be very disciplined in capital allocation. Obviously, you saw 1 dimension of that with our decision on venture funds this quarter. But this is a place where if we see the opportunity to accelerate or enhance returns, we'll make continued investments. But right now, I think, again, pleased to be on track on the cost synergies and thrilled to be running ahead of expectations on revenue. David Mulholland: We'll take our next question from Rob Sanders from Deutsche Bank. Robert Sanders: I just had a question on mobile networks. This some speculation that the EU will apply pressure on some member countries to accelerate their swap out of Chinese vendors. So I'm just interested in that. And how you think about that given your recent public statements. And then, of course, I just want to talk a bit about OpEx, how you're thinking about OpEx into next year, given you clearly wanted to invest more in these growth areas. Justin Hotard: Yes. So Rob, thanks for that. First of all, I mean, obviously, we're -- we would love to see regulations in the that create the market opportunity you're talking about. And I think it's important from a high-risk vendor standpoint, it's also important from a -- just from a sovereignty perspective in terms of having the largest providers of networks in the West being European. I think that's important. We're optimistic that we would be able to obviously grow and that capture some portion of that market if it was available. Number two, in terms of the OpEx question was really just around operating leverage. I think our -- my push is really specific on this is I want to see us drive operating leverage, something Marco touched on in his comments, but the reason for that is because I want to be able to maximize returns in terms of capturing value from the business we have and then deploy capital in areas where we think we can win, things like incremental R&D if there's demand in the market, things like increasing factory capacity and optics to the extent that we see opportunities there. And it's important, we talk a lot about the fabrication facilities. These are far smaller than you think of a fabrication facility in silicon. And actually, the investment sizes are much smaller. And again, we'll impact more of that for you at CMD. But those are the kinds of things I want to be able to deploy capital into, obviously, incremental sales coverage where we're seeing growth in AI. But I would think of all of this as is driving enhanced returns, not something that's going to -- not going to dilute our performance, and that's key. David Mulholland: We'll take our next question from Andrew Gardiner from Citi. Andrew Gardiner: Thank you, David. I just had 1 on gross profitability, please, both I suppose on the positive side and what you've seen in CNS and then perhaps on the more negative side with mobile networks. We're seeing quite a lot of volatility quarter-to-quarter. CNS clearly driven nicely in 3Q by the mix towards 5G core. Is that mix sustainable? And so high 40s gross margin for CNS is what we should be anticipating? Yes, perhaps with some quarterly fluctuation, but perhaps not to the extent that we've been seeing, right? Can you sustain gross margins around that level? And then similarly, on the other side with mobile, 41% in the prior quarter, down to 35% in the current quarter. Yes, I understand again, software mix has changed, but quite dramatic moves. What do you think is sort of a more normalized level, given the revenue run rate that you're at in mobile? What's a more normalized level of gross margin for MN at this point? Marco Wiren: Yes. Thank you. If I start with the mobile network side, there is variability, and that's why we usually see that mobile networks would be better to look on an annual basis of 4 quarters because you have always some product mix fluctuations. The level of software has a big impact on gross margin and that you see also between quarter 2 and quarter 3, while we see this fluctuation between those quarters where you have more software in quarter 2 and less in quarter 3. And I would say that if you look on a longer-term or annual basis, then you can see the levels of mobile networks, gross margins and get an understanding of where it is and how we are tracking compared to previous year. And then when it comes to I mentioned already a few points there that are what about the reasons for the improved gross margins. And we definitely believe that it is sustainable. And this has been a multiyear journey to get the improvements here in up the portfolio, focus on cost out on the different products that we have. But also we see the market support here. It took for a while before the 5G stand-alone core started to get traction actually from our customer side on CSP side. Now we've seen in the past 18 months that it actually have been quite positive, and we have momentum there. And thanks to our cloud-based solution that we have, we have actually gained market share and been able to improve our market position. David Mulholland: We'll take our next question from Daniel Djurberg from Handelsbanken. Daniel Djurberg: Congrats to strong numbers. I actually would like to continue on that question, I heard the same, more or less. On the mobile networks, the software upgrades on stand-alone seems not to be in tandem, at least with the CNS on the 5D core. So should we expect to have a little bit of an upgrade in the baseband software radio unit software or ahead of us on back stand-alone core now being let down. Marco Wiren: Usually -- I can start and Justin, if you have anything you can add as well. What usually happens is in the new generation is that you first install the hardware basement and radios, and when you see that the demand increases on the customer side, then you actually implement the core as well when you see that actually you need those features that the new generation can offer. And this is exactly the same example here in 5G. In the beginning, the 4G core was still functional quite well and on the early 5G installations. And now when there's more opportunities to slice and done the network, you need actually a 5G stand-alone core to be able to capture those opportunities and offer those services to our customer base. Justin Hotard: I would just add a couple of things. I think we're -- we want to make sure we're clear on the Q2 to Q3 margin impact in is timing because of how we release software in this portfolio, which is we release an upgrade, we then recognize the revenue of those upgrades as they get deployed into customers and they largely customers take their release. And so that's the timing dimension between Q2 and Q3, but also realize that the MN baseband software, which is the majority of the software revenue we have in mobile networks today, is still largely in a legacy, what I would call more legacy appliance model. Cloud and Network Services or our core networks have moved to a cloud model. And that means you have much -- we have more subscription-based pricing. We have more ratable deployment. That means customers will be paying on a recurring revenue basis for an ongoing support and service. So whether it's a subscription-based models there. It's a very different. It's a different business model and that dynamic. Obviously, we think that's the long-term direction of travel in mobile, but that's not where the market is today. Today, our CloudRamp business is fairly small. David Mulholland: Did you have a quick follow-up, Daniel? Daniel Djurberg: Yes, please. Yes, just a question on -- a little bit on your work already in Q2, you commented to unify corporate functions, simplify work, et cetera, and more change culture, but to unlock the operating leverage. And then you've seen quite a large changes, especially when your CTO office. And my question is on the Nokia Bell Labs organization. Should we expect this to be more focusing on AI data center than on the mobile networks and radio access networks ahead given the departure of [indiscernible]? Justin Hotard: Yes. Look, I think for me, a couple of things. First of all, I talked about functional excellence, which was the purpose around the corporate functions. And I think having a leader that is the Chief Technology and AI officer that's focused on technology key areas of our platforms, AI, security, cloud, all of those elements that we're touching on or talking around on this call today is very important. And having someone who's excellent in that but also understands fixed -- our fixed network infrastructure business and mobile infrastructure. And if you look at Palabi's background, she has a career where she's done both across Juniper HPE and then also at Intel. And then the other thing was focused around corporate development, and that was not just out of the strategy organization, but also bringing together some of the corporate development folks we had within the business groups and also within the finance organization. So for me, this is all about around functional excellence and aligning accountability and having cleaner and simple functions. And then obviously, we also moved the digital office or the IT organization into finance, which really ties back to the focus that Mark touched on in his comments around driving ongoing improvement, ongoing productivity and enabling that through digitization, through AI, through simplification around processes. And obviously, IT is an important part of how you both simplify and standardize and realize those benefits. And so we felt like that was a natural alignment. So I think that's the way I would think about it. I think it's important. We have 2 compelling assets in both our network infrastructure business and our mobile portfolios. And we had a CTO that can look across all of that and also make sure that we're thinking about the right long-term investments in Nokia Bell Labs, whether it's from a research or from a near-term innovation standpoint. David Mulholland: We'll take our next question from Emil Immonen from DNB Carnegie. Emil Immonen: Hi, can you hear me? David Mulholland: Yes, we can hear you now. Emil Immonen: So I wanted to maybe ask a little bit on the demand in Europe in general. So on the revenue decline on some parts in NI and also mobile networks in Europe. Do you see that this is more, let's say, structural or would you say that this is temporary in the way that Europe is just not investing right now. How do you see this developing going forward? Justin Hotard: I think in terms of CSPs, I think that I would say telcos, it's stabilizing demand, and we think that's a good thing. Obviously, we talked about the potential of upside in Europe over time if there's regulation that addresses high-risk vendor status. But I think overall, that feels pretty good. And then Look, we're excited about the potential of AI and data center business in Europe. We're certainly excited about the opportunity we -- the partnership we have with Endscale and the opportunity for other companies to invest in Europe. And so we like the trends of what we're seeing. But the reality is the majority of the investment today is happening in the U.S. And so as you look at our revenues and you look at our profile, the demand is coming from the U.S., and I think that's important. So that's how I would net it out. David Mulholland: Did you have a quick follow-up, Emil? Emil Immonen: Yes. Maybe quickly touching on the private wireless side. The customer numbers grow nicely, but you haven't really discussed it at all in terms of revenue or anything. Could you say how is that part of the business going. Marco Wiren: Yes. Just like you said, we've seen a nice increase in number of customers. But remember, we are still in a very early phase of this journey. And even if growth rates are pretty good, but it will take some time before this will be a meaningful business. So it's worth focusing more about that. Justin Hotard: Yes. And I would just add, I think if you look at where we are today, I think Marco has summarized it well. I would tell you that where I see our biggest opportunity is in focused vertical markets vertical market use cases. And so there's some examples in railways, for example, and utilities is the other, right? So if you look at those, those are the places where we've got opportunity. But again, this goes back to that message of focus. David Mulholland: Our next question from Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: Coming back to mobile networks. Your business is going back to moderate organic growth in the third quarter, but to remain close to breakeven rather those days. How do you plan to return to more decent margins in the coming years, maybe not double digit, but maybe high single digit, is it more cost cutting? Is it more to support your revenue with more growth opportunity? And the second question is also linked to mobile. We have heard some comment that the Chinese government could be looking to push the network vendors in Europe outside the Chinese market? Is this something that you already see in your order intake in China? Or is this not something that you see already in your business? Justin Hotard: Yes. Absolutely. I mean, I addressed this a little bit in my comments. I mean, I think on mobile networks, we're absolutely -- 1 of my priorities right now is on improving the returns. And I think we do that in a couple of ways. Continued tight focus and tight engagement with customers. It ties a little bit to the second question you asked, which I'll address in a minute, but tight focused engagement with customers, particularly those customers that want to co-innovate and collaborate with us. because I think differentiation for us longer term comes through innovation and technology leadership. That was historically where the market was. I would say that obviously, if you go back 5 years, the business -- the company's business was in dire straits because we weren't in that case. We've now stabilized the portfolio. But as an industry, and I think certainly as a player in this industry, we need to continue to innovate. So that's as much of a preview as I'll give you to CBD, but I'd encourage you to attend. But I think absolutely, that's the line of where we're headed. And then in terms of China, this is 1 of the places where we were largely not exposed. The revenue in China has come down massively over the last few years. So I -- the reality is it's a fraction of our revenue today, and our market share is fractional in mobile networks in China. It's not a core market for us. So the communications from the government, obviously, we follow those closely. We respect and support their decisions. And the reality for us is we're going to focus on markets where we believe there's significant opportunity and customers where we believe we can collaborate and innovate. And I think there's more opportunity ahead for us. David Mulholland: We'll take our last question from Didier Scemama from Bank of America. Didier Scemama: Thanks, David, a question for Justin really. You've been in the job now for a few months. I just wondered if you could share your thoughts about the direction of the business strategically, especially when it comes to the mobile networks the core activities and also IPR, which are vastly different, I guess, from your day-to-day activities, which presumably are focused on getting those AI and cloud contracts. So that was my first question, and I've got a quick follow-up. Justin Hotard: Sure. So Didier, look, I think probably nothing I haven't shared in my comments. I think we have 2 businesses: network infrastructure, and mobile businesses in the portfolio. I mean, obviously, if you look at the comps, there's 4 major providers of mobile infrastructure. They all have 3 things. They have core networks, they have the radio networks, which was what we call MN and they have IP licensing, which is what we call tech. So I think we've got a pretty clear -- it's pretty clear you need the full portfolio. If you look at the players that have not had the full portfolio they've all struggled to innovate or sustain a foothold. And so I think that's for me, number one. In terms of the difference, look, as I've said before, I think connectivity is going to be an area where performance, reliable and trusted providers are going to be very valuable. And the reality is we have a portfolio that plays across all of those core elements of connectivity. What we're seeing today with AI, and I think the thing that, candidly, we weren't capturing a historical Nokia prior to the Infinera acquisition as much as we could have, was the fact that in our optical and IP businesses, the market -- the technology investment or the technology leadership has shifted to cloud and now AI and cloud. So now we're starting to capture some of that. Like I said, I'm pleased with the progress there. And I think that same -- I think you're going to see those same trends happen and roll into mobile over time. Because ultimately, if you think about some of the compelling uses of AI, autonomous vehicles, robotics, smart glasses, virtual reality, augmented reality. They all need mobile connectivity and I think that will be favorable. But I don't know if the answer I think -- I don't think the answer is going to be doing the same thing we've always done. I think we have to continue to innovate. And that's why I like what we've done in cloud and network services with setting up an autonomous cloud native core stack, and I think there's more opportunity for us ahead in mobile networks. Again, it's going to require the things I talked about: focus, collaboration and co-innovation with customers and an emphasis on best-of-breed technology and strong partnerships. David Mulholland: Did you have a quick follow-up, Didier? Didier Scemama: Yes, completely unrelated on the Nokia Technology side. So I mean, Nokia sold their phone business to Microsoft, what 10 years ago or so. So I just wondered how is the innovation pipeline in the IPR business for the nonstandard essential patents? Is there a risk of a cliff at some point as you're not in the phone business? Or are you confident that you can continue to monetize the SCP and non-SEPs at least at the current level? Justin Hotard: Yes, absolutely. I mean I think this is a good question. So just back to the comment I just made. Again, every player of scale in mobile infrastructure has to -- has a strong IP business, what we call tech with the changes, I didn't touch on this in my earlier comments, but with the changes we made in the CTO office, we've also now really tightly aligned the Standards team into tech. But we see -- one, we see very good , stable revenue in the business. We are -- we've said already, we're starting to invest in 16 gene monetization. That's important for us. And we see other -- we also see other emerging revenue streams in other segments. So I think the business is very healthy. The team is doing an excellent job. They're also doing, I think, probably the best job of any of the businesses right now. And in pushing on operating leverage so that they can continue to deliver the performance they need to. And you'll hear a little more about that in CMD. So that's the last plug I'll make for CMD. But we'll talk about some of that as well there. David Mulholland: Thanks, Justin, Marco, for the comments. Ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may, therefore, differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Thank you for joining us. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Alexander Bergendorf: Good morning, everyone. This is Alexander Bergendorf, Head of Investor Relations at Axfood, and welcome to the Axfood Third Quarter 2025 Telephone Conference. So with me today, I have Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our website, you will find the presentation materials for today's call, and we encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. And a recording of this call will be made available after the end on our website. So with that, I will now hand over the words to Simone. So please go to Page #2. Simone Margulies: Thank you, Alex, and good morning, everyone. Axfood summarizes another strong quarter with high customer traffic, volume growth and increased market share. With increased loyalty and growth in our store chains as well as improved efficiency and solid cost control, earnings increased in all operating segments. In addition, we continue to invest in strategically important areas to become even more efficient and further improve our competitiveness. In recent year, our logistics structure has been developed to enable continued profitable growth. And during the quarter, we announced plans to establish a new highly automated logistics center in Kungsbacka in Southern Sweden. In sustainability, we presented the Food 2030 report, our proposal for a more sustainable food strategy for Sweden. We also continued to phase out fossil fuels in all our transports, had our new solar park in full operations and launched innovative new products focused on sustainability and health. Following that introduction, let us now turn to Page 3 and the agenda for today's presentation. I will start with a brief market overview, and then I will give you a review of our third quarter performance and some of our strategic priorities. Following that, Anders will take you through the financials. And lastly, the outlook for the full year and a brief summary to conclude for me before we open up for questions. Turning to Page 4, but let's go straight to Page 5 and take a look at the quarterly development. As in previous quarters, market conditions in Swedish food retail during the third quarter continued to be characterized by intense competition and high price awareness among consumers. Overall market growth amounted to 5.4% and Statistics Sweden reported that the annualized rate for food price inflation was 4.4%. This was somewhat lower than in the second quarter this year. However, in absolute terms, compared to the second quarter, the price development was relatively stable. Axfood is successfully navigating a changing end market dynamic by leveraging the strength of our business model of strong and distinctive concepts working in collaboration. Thanks to affordable and attractive offerings, more and more consumers are choosing to shop with us. Having maintained our momentum, we delivered a strong performance in the quarter. Growth in our retail sales amounted to almost 20%. Excluding City Gross, which was acquired in November last year, growth amounted to just over 6%. As such, our growth again was above the market rate, both including and excluding City Gross. Volume growth from increased loyalty, customer traffic and new store establishment was the main driver behind this development. In e-commerce, we grew 11%, which compared to the market growth of 8%. Excluding City Gross and the discontinued business Middagsfrid, sales were up 6%. Turning to Page 6. Consolidated net sales for Axfood grew almost 7% in the quarter, driven by continued strong momentum in Willys, Hemköp and Snabbgross. We also saw a positive trend for City Gross. In all, City Gross net sales amounted to just over SEK 2 billion. However, on a group net sales basis, the contribution from City Gross was SEK 345 million due to internal eliminations in Dagab. Please go to the next page, #7. Group operating profit increased to just over SEK 1 billion, and the operating margin was stable at 4.8%. Operating profit included items affecting comparability of minus SEK 39 million related to City Gross. Adjusted operating profit, which excludes these items, also increased to SEK 1.1 billion, and adjusted operating margin was higher at 4.9%. In all, the absolute growth in group operating profit was driven by Willys and Dagab. However, Hemköp and Snabbgross also reported increased profits year-on-year with strong growth in percentage terms. So the earnings performance was once again very well balanced this quarter across our operating segments. City Gross had a negative impact on the group's profit development, however, to a less extent than in the previous quarters. Let's now go deeper into the development in each operating segment, starting with Willys on Page 8. Willys continued to outperform the market in the third quarter with a growth of 6%. Growth primarily came from higher volumes as a result of an increased number of customer visits and new store establishments. A higher average ticket value also had a positive impact on the sales development. Willys is Sweden's most recommended food retail chain and has a unique position on the market. The rate of increase of new members in the Willys Plus loyalty program continued to be on a high level. And in addition, loyalty among existing members remained strong. Earnings grew and amounted to SEK 587 million, which corresponds to a stable operating margin of 4.9%. The increase in operating profit was primarily driven by the increased sales volumes, a stable gross margin development and good cost control. Leveraging its position as Sweden's leading discount grocery chain as well as its liking among households, Willys is continuing to develop its offering. Among many initiatives, stores are continuously being upgraded to a new Willys 5.0 store concept. Willys 5.0 entails a significant improvement to the customer experience through a substantial upgrade of store layout and design. The assortment is key, and here, the focus is really on enhancing the offering of fresh products. Willys 5.0 is a scalable concept, which gives flexibility and opportunities to establish more stores. Because establishing new stores, this is exactly what Willys wants to do as the store chain is currently accelerating its expansion pace to reach even more consumers. In October, Willys reached a significant milestone when it opened store number 250 in RosengÃ¥ard in Malmö. Over the past 10 years, Willys had expanded store base with more than 50 stores on a net basis. And now the aim is to open at least 10 new stores each year in the coming years. Moving on to Hemköp and Page 10. Hemköp's retail sales growth of 6% in the quarter exceeded that of the market and like-for-like growth was also strong at almost 5%. Hemköp demonstrated volume growth driven by customer traffic, a higher average ticket value also impacted the sales development positively. Total net sales for Hemköp increased 7%. Operating profit was higher at SEK 103 million and operating margin was 5.1%. The increase in operating profit was mainly driven by the increased sales, a stable gross margin and good cost control. Turning to Page 11. I just talked about Willys modernizing its store base, and Hemköp is also modernizing stores at a rapid rate in order to enhance the customer meeting. In addition, its offering is continuously being developed with a focus on price value, fresh products and meal solutions. Hemköp's performance in the third quarter was strong, representing a continuation of its momentum for some time now. This development is despite them operating in traditional grocery, which is a segment that while being the largest on the market, has seen its share of the market decline in recent years. It's important to take this into account when analyzing Hemköp. And it is quite clear when you look at the customer data such as development in penetration, in loyalty and purchases, that Hemköp is clearly outperforming their main peers. We are now on Page 12. We acquired City Gross nearly a year ago to create new growth opportunities for our group. The organization is working according to a clear plan and has a comprehensive development agenda in place to reverse the chain's weak performance in recent years. This year is a transitional year, and we are today reiterating that we expect to reach profitability at some point in the second half of 2026. While total growth for City Gross in the third quarter was impacted by store closures, like-for-like growth amounted to slightly more than 3%. City Gross reported on an operating loss on an adjusted basis of minus SEK 4 million. The loss was less negative than in previous quarters with positive effects from like-for-like growth. In addition, structural measures and efforts to streamline operations also contributed to the development. On a reported basis, operating profit amounted to minus SEK 43 million, which corresponds to an operating margin of minus 2%. This included items affecting comparability of minus SEK 39 million pertaining to structural measures, including discontinuation costs for the store in Kungens Kurva in Stockholm, organizational changes and sales currents within the nonfood assortment. In August, the new communication concept and the improved more affordable customer offering was further developed. Also, the City Gross store in Borlänge was closed ahead of concept change to Willys. Turning to Page 13. The 3% growth in like-for-like sales for City Gross represent a positive trend. The chart on this slide shows comparable sales on a rolling 12-month basis, each quarter from the third quarter 2022. As you can see in the chart, after a couple of years with declining sales, City Gross is now back to growth, which, of course, is encouraging. That said, we are still in early days on our journey with City Gross and maintain a high activity level to enable the chain to become a competitive player on the market once again. City Gross has excellent potential as a pure-play hypermarket operator, an attractive segment that is continuing to account for a growing share of the market. With a long-term perspective, we are leveraging our knowledge and experience to develop and strengthen the chain for the future. Moving to Slide 14. Our restaurant wholesaler, Snabbgross, delivered growth of 6% in the quarter on both a total and like-for-like basis. Higher volumes through increased customer traffic had a positive impact on sales in addition to a higher average ticket value. Operating profit was higher than in the prior year and amounted to SEK 101 million, corresponding to a higher operating margin of 6.3%. The increase was mainly driven by higher sales, a stable gross margin and good cost control. Next Page #15 and Dagab. Dagab's quarterly net sales increased by 5%, driven by sales to Willys, Hemköp and Snabbgross. Operating profit increased to SEK 341 million, and the operating margin was higher at 1.7%. The performance was primarily due to the sales growth and a lower cost level with increased productivity in logistics. Operating profit was, however, negatively impacted by a lower gross margin. Dagab is continuing its effort to optimize the flow of goods and streamline the group's new logistics structure. The logistics center in BÃ¥lsta, the fruit and vegetable warehouse in Landskrona and the recently expanded and automated highway warehouse in Backa, Gothenburg are all contributing to the group's capacity and efficiency. In addition, and we are now on Page 16, work on establishing a new highly automated logistics center for Southern Sweden has been initiated to ensure increased capacity and efficiency. As previously communicated during the third quarter, letters of intent were signed with our automation partner, Witron and with Kungsbacka Municipality. The logistics center, which will span approximately 90,000 square meters and be environmentally certified, will handle picking and deliveries of goods in all temperature zones to grocery stores. Total capacity is expected to increase at least 20% compared to current volumes in the Southern Sweden. The facility is expected to be put into operation starting in 2030. Turning to Page 17. Now it's time for Anders to take you through the financials. So please go to the next page, Page #18. And Anders, please go ahead. Anders Lexmon: Thank you, Simone. During the first 9 months, net sales for the group increased by 6.6% to approximately SEK 66 billion. Including City Gross, retail sales increased by 19.3% and excluding City Gross, the increase was 6%, which was more than the food retail market in total, where growth amounted to 4.5%. Operating profit, excluding items affecting comparability, increased 5.8% to just over SEK 2.8 billion. The operating margin, excluding items affecting comparability, slightly decreased from 4.3% to 4.2%, where the City Gross acquisition impacted the margin with minus 0.3 percentage points. Next, Page #19. During the third quarter, the cash flow was minus SEK 40 million, which was SEK 380 million higher compared to last year. We saw a strong underlying operating cash flow, both for the third quarter and the 9-month period, mainly due to a less negative contribution from net working capital compared to last year. The negative calendar effect was higher last year. The negative cash flow from investment activities of SEK 421 million in Q3 was somewhat higher compared to last year, but in line with previous quarters. We have a higher pace in our investments in our retail operations and a lower pace in automation investments compared to last year since we now are through with our investment in the fulfillment center in BÃ¥lsta. By the end of the third quarter, Axfood utilized approximately SEK 3.1 billion of the group's credit facilities compared to SEK 2.5 billion by the end of Q2 and SEK 3.2 billion at the end of Q1. The increased utilization compared to Q2 was due to the dividend paid out in September. And then please turn to Page #20. Net debt has increased since the acquisition of City Gross in Q4 last year. In addition to the loans raised for the acquisition, net debt also has increased with the City Gross leasehold debt of approximately SEK 2 billion. As we communicated in the Q2 report, Axfood has successfully refinanced the existing revolving credit facility in the beginning of Q3. The new RCF amounts to SEK 4 billion, where SEK 1 billion have a tenure of 3 years and SEK 3 billion have a tenure of 5 years. And the conditions in the new agreement are in all essentials unchanged compared with the old facility. The equity ratio amounted to 20.4%, which was lower than December 2024, but above the actual year-end target of 20%. The lower equity ratio compared to Q3 last year was also a result of the City Gross acquisition. Total investments, excluding leasehold and acquisitions for the first 9 months amounted to SEK 1.3 billion. Year-to-date, we have established 7 new group-owned stores, the same number as in the prior year. We have, however, increased our store modernization rate compared to last year. And then please turn to Page #21. When we look at the capital efficiency, we have a negative development of our rolling 12-month net working capital as a percentage of sales. As I have mentioned before, the impact of City Gross acquisition is expected to increase this KPI with approximately 0.3 percentage points on a rolling 12 months' basis. Capital employed has increased over the last years, mainly due to both the acquisition of Bergendahls Food and City Gross as well as the investments in BÃ¥lsta. The level of capital employed increased slightly during the first 9 months, mainly as a result of increased leasehold debt and utilization of credit facility. Due to the increase in capital employed, return on capital employed decreased somewhat compared to last year to 16.4%. And thereby, I have come to the end of my presentation, and I hand over to you again, Simone. Simone Margulies: Thank you, Anders. We are now on Page 22, but let's go straight to Page 23. While we maintain our full year outlook for capital expenditures, our store expansion plan is slightly revised. Due to a slight delay, the number of new group-owned stores opened during the year will amount to 9. In addition, the store network is expanded with 3 retailer-owned stores joining the network from competing retail chains. As for items affecting comparability, structural costs in City Gross are now estimated to amount to SEK 150 million. As a reminder, the outlook for next year 2026 will be presented in conjunction with the release of our year-end report. Please now turn to Page 24. So let me summarize. We are summarizing a strong third quarter with higher growth than the market and improved earnings in all operating segments. Just over a month ago, we held a Capital Markets Day at which we discussed how our business model and structure create opportunities. We also laid out our main competitive advantages, and I would like to mention them here again. First, with our brands, both in-store concepts and private labels and a high-quality affordable assortment, we are well positioned to meet consumers' diverse and evolving needs. Second, we have attractive store locations and a significant potential to expand. Third, our integrated value chain provides the right conditions to quickly adapt when customer behaviors or market conditions change, and it also gives us efficiency. Fourth, to us, the key to drive long-term growth and profitability is based on customer traffic, loyalty and volume growth. We have seen a strong development in all these areas over a long period. And with our scale, we can further strengthen our competitiveness. Our performance in the third quarter really shows how we drive growth in all segments on the market, both organically and through expansion and how our integrated value chain gives us efficiency. The strength of our business idea enable us to continue to challenge and grow. We are maintaining a high rate of development, and I am convinced that we are poised to strengthen our market position in the years ahead. That was all for today. Now please turn to Page 25, and I hand over to the operator to open up the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Fredrik Ivarsson from ABG. Fredrik Ivarsson: I have 2 questions. First, if we could dig into the margin profile in Willys a little bit. So I guess Q3 tends to be quite a bit stronger than the other quarters, especially Q1 and Q2, but now it's been almost in line with the previous 2 quarters for 2 consecutive years. And I know you took some price investments last year. But in addition to that, I guess, has the market been -- has it been even more campaign-driven during the summer months? Or do you see anything else that sort of explains why the normal margin uptick that we usually see in Q3 didn't really materialize this year? Simone Margulies: Yes. Thank you for your question. As you said, there are some seasonal effects and also the mix effect also have an impact on the margin on Willys. But I would say, to start with Willys had a stable margin development, even though there's a really high competition in the market. And we have a customer that is pretty much in the same behavior as we've seen in the last year with a strong focus on price and with a high price activity level in the market. So by that, we still have -- we continue to have a stable margin development in Willys, which we are really happy to see. And one thing that is also affecting a little bit on the bottom line for Willys is that we have a high expansion rate in Willys. This year until September, we have opened up 7 new stores for Willys compared to 4 last year. And by that, we see some -- the margin gets some -- it dilutes in the margin because we get higher personnel costs when we open stores. And then it usually evens out after a couple of months. But when we open many stores, we have some more personnel costs -- staff cost for staff during the first -- until you get up in a growth rate in the stores. Fredrik Ivarsson: Okay. That makes sense. And second one on City Gross. You have been talking about your earnings getting back to black figures during the second half of 2026, and now you sort of reiterated that statement. But you were almost there already in Q3 this year, although on an adjusted basis. Has the progression in City Gross been stronger than you expected before? Or was this more or less according to plan, so to say? Simone Margulies: I would say we are working according a comprehensive plan to turn around City Gross, both to create growth since it all starts with a growth in like-for-like sales. So I would say we're pretty much following our agenda for City Gross. There are some seasonal effects also in the hypermarket segments during Q3. So I would say, since we are -- this is a journey, and we see something, it will go up and it will go down. We are here in the long run to create a really strong format in the hypermarket segment. So I would say we are not ahead of our plan. We are following our plan. So we reiterate our guidance for the second half of 2026. However, we are really happy to see these positive signs, primarily on the like-for-like sales, I would say, because that's where it all starts. And then, of course, that we see the result of the initiatives that were made to decrease the cost level. It's -- of course, we're really happy to see that we see these positive signs. But we are according to plan, I would say. Fredrik Ivarsson: Okay. And maybe a short follow-up on the like-for-like growth in City Gross. I recall you did some price value investments. Would you care to give sort of a ballpark figure on the volume growth in the quarter? Simone Margulies: I would say we have a comprehensive agenda regarding the growth, and it's all about developing the offering, both the assortment, but as you said, also to strengthen the price position. It's also about how we do the marketing, the campaigns, it's about operations in store. And I would say that it's a mix of growth and price. But as you said, we are strengthening the price position in City Gross. And by that, the majority is driven by volume. Operator: The next question comes from Gustav Hagéus from SEB. Gustav Sandström: I'll take over from that last statement of yours that you had primarily volume growth in City Gross in the quarter. And if I read correctly, that was the case also for Willys and Hemköp, which is a bit contradictory to the market growth, which appears to have been 4 out of 5 percentage points in the quarter and the market was inflation. And you say that you've primarily driven your growth through volume, given that you're 25% or so of the market then, it appears then that you've price invested compared to the market quite a bit here in Q3? Or are we talking different numbers that don't really add up here? Simone Margulies: Yes. I understand it's difficult for you to see because what you can see is the SCB figures on inflation, and that consists of a basket that is set once a year and it's not -- I would say it's not changes over the year. So they set the basket once a year and then they could, I would say, differentiate the volumes. However, when we look in the price factor internal figures, it's a gap between those figures. And I will not be able to say our figures, but there -- and that has been the issue for all times that we don't really see the same internal figures on pricing than SCB's reporting. Gustav Sandström: Okay. But then on a general topic question then, given that the margin seems a bit under pressure and also your comments on much price action in the market and price competition, is your view that you've lowered prices in the quarter and more so than competitors regardless of what the SCB figure is? Simone Margulies: No, I would say -- I mean, I normally don't go into details about our price strategy. But for us, it's always about securing our price positions in the market where Willys, of course, is the cheapest on the market. And also Hemköp, it's important to be really price attractive, and we see really good, how you say, development in the -- that's what I wanted to show you also, the customer figures about Hemköp really taking notice of the price position that they have changed during the years. So the only way, of course, it's about for us always to be competitive in the market, but within City Gross, we made the price investment that we talked about, both in August and in April. So for the other formats, it's all about always to be competitive in the market. So I would say the margin for both Hemköp and Willys has been stable during this year. Gustav Sandström: Sure. But turning then to Dagab, just help us understand what the underlying development is here. If I recall correctly, you called out SEK 11 million extraordinary costs for Middagsfrid and another SEK 20 million or so for ramp-up costs of the new facility last Q3. Just to understand, when looking at Dagab's development here, EBIT year-over-year, if you were to add back those figures to the comparable, EBIT is flat or actually a little bit down year-over-year. And you have called or guided the market for up to SEK 300 million in savings on a yearly basis once fully ramped up in Dagab. I understand you're not there, but it would be very helpful if you can help us understand, first of all, if that base is correct, so that operating earnings are basically flat to slightly down for Dagab? And secondly, if you have, how far you've come on that journey towards SEK 200 million to SEK 300 million savings on an annual basis for Dagab and where that money went. We note that margins in City Gross, for instance, are quite much better than consensus here today. Simone Margulies: Yes. Thank you. For Dagab, we are realizing the efficiency gains, both in BÃ¥lsta and also in Landskrona, our fruit and vegetable warehouse. So we see that the productivity is increasing, and we are realizing the efficiency gains. So we early communicated the spend from SEK 200 million to SEK 300 million on a yearly basis, and we are in the lower spend, i.e., SEK 200 million. However, we both have a negative margin development in Dagab due to mix effects, the gross margin, I mean, gross margin development in Dagab due to mix effects. And that is because Dagab is supporting the chains in the role in the market. And also, we have some product mix that is affecting the gross margin negatively for Dagab. So we see the positive effect in Dagab in realizing the efficiency gains and the productivity, and then we have a negative effect on the gross margin. Gustav Sandström: But is the mix effect explaining then the SEK 50 million negative underlying development for Dagab? You have volume growth, right? So it should be some type of uplift? Or is that going into some of the other retail concepts like City Gross? It would be, I think, very helpful since you have that breakeven target on City Gross, I think it would be helpful to understand how much of that is actually just transferral from Dagab and how much is sort of underlying improvement for City Gross? Simone Margulies: So the gross margin development in Dagab consists of different part, as I explained. First, the mix effect, which is a negative because we had deflation in fruit and vegetable that is affecting the gross margin in Dagab negatively. Dagab is also supporting the chains, and that is what we see on the negative side. We're realizing the efficiency gains in Dagab, both in BÃ¥lsta and the fruit and vegetable warehousing up till now. Gustav Sandström: Okay. So last one, sorry to dwell on this, but I think it's quite important since you have the target to go breakeven in City Gross and you have guided for up to SEK 300 million savings in Dagab. Do you expect Dagab to showcase any of those savings into Q4 next year? Or is that going to go into the other concepts? And how do you distribute them then between you think Dagab and City Gross and Willys, just to get a feel of what's going on underlying. Simone Margulies: For us, it's about leveraging our business model, and that's about growing as a group in a whole. And we do that by having strong store concepts, growing like-for-like and total sales. That gives us volume in the behind and then we become more efficient. So for us, it's really important to do the long-term investments we do in our logistics structure so we can be competitive over time. The efficiency gains, you don't -- maybe we don't see them in Dagab as well. You have to look at us as a group and a whole. So for us, it's really important to grow like-for-like sales in City Gross and then to have growth in all our segments. And this quarter, we show growth in all segments. We show increased operating margin in all our segments, which is really positive, and that make us summarize a really strong quarter. So for us, it's about leveraging our business model and also playing the game where our competitive edge is. And that I think that this quarter shows really that we're doing. Operator: The next question comes from Magnus RÃ¥man from SB1 Markets. Magnus Råman: I'd just like to ask on the price and inflation topic again because now you state that you see a bit different numbers internally. But if we just relate to the SCB stats, we had a food price inflation that rose in the early spring this year, an index level that came up and thereby also year-on-year inflation. However, this index level and the inflation rate has come down sequentially in the recent 2 months. And if we look ahead and if we just assume an unchanged index level, we will, of course, then come to very low inflation rates entering next year, and then we have the halving of the VAT in April. But from this perspective of food prices, I'd like to ask, firstly, if you see -- I mean, those price changes can be driven both from changes in your procurement cost and also from competitive pressure. Do you view that the decrease in prices that we've seen in recent months have been driven by reduced sourcing costs? Or is it an increased price pressure that you see in the market? Simone Margulies: I would say that the inflation -- even though we don't see the same figures at SCB, we see the same trends within our internal figures. I'd just like to clarify that. But the trends that we see is driven by the, how to say, the sourcing, the price fluctuations that we see in our sourcing. So as you said, we have a shortage in the market on red meat, also in dairy, and that increased the prices in the beginning of the year and continue during the year. And then we have deflation in fruit and vegetable that has come down because of the sourcing prices. And I would say that it's pretty much what you see in the market changes in the pricing. And then if you look into the VAT, as you asked, of course, we see positive on the VAT because we have a consumer that has been under pressure for many years. So by reducing the VAT in Sweden, we create a consumption spend for the consumer. And of course, that will be positive. How that will affect us volume-wise, it's really, really difficult to make any forecast on. So we better come back to that when we implement the new VAT level in April next year. Magnus Råman: Right. But there was a question also previously about underlying volume. And I guess that maybe it's good to clarify that underlying volume growth could not only be driven by sort of an increase in the number of units, it could be a mix shift when people trade up if they buy more meat sort of more -- yes, higher quality type of meat, then you get an implied volume growth, but it could mean that it's not more calories consumed, it's a higher sort of -- it's a shift up in mix towards the premium end. And I mean, with the halving of the VAT, I guess it's fair to assume that we would see some type of mix shift that could contribute to your end margin and profitability. Yes. Simone Margulies: It's difficult to make forecast about that. But I would just say that when we talk volume, we talk volume and when we talk mix or price, it's a different thing. So when I say volume, I don't talk about mix. I would just clarify that. But of course, we're hoping, as we see that the volume goes up within fruit and vegetables when the prices comes down, we are hoping to see a little bit more -- I would say, the share of the more sustainable food to increase, we hope for that, but it's very difficult to make any forecast about it. It's really positive for the consumers to have a larger consumption share. Magnus Råman: Right. But so to conclude, the overall gross margin improvement that we see clearly on the group level, both in year-on-year terms in Q3 and in year-on-year terms on the 9-month rolling or 9 months-to-date basis is, in your opinion, predominantly driven by a relief in the sourcing costs rather than a relief in the price pressure in the market. Simone Margulies: Now you said the development of the margin, that was not -- you asked about the price. So to start with the -- Anders, sorry. Anders Lexmon: Yes, sorry. Magnus, the gross margin that you see in our report is not the same as the gross margin that we see in our chains and in our stores because it's how to -- we disclose and report the COGS. It's a different way. Yes, I know that we have to wait for the annual report to get the product margin. But yes, what I'm trying to get at is that there should be -- if you look at the overall sourcing costs from an [ SAO ] index perspective, for example, we see that we should not expect an increasing pressure, rather a relief in the sort of pressure. And with the items that you mentioned that goes into the gross margin, for example, diesel prices and for transportation and so on, that is also points to a relief rather than an increased pressure. Magnus Råman: But this leasing pressure also obviously affects the prices in the stores. I mean they follow the way out in the stores. Anders Lexmon: Yes, exactly. And I mean the indexation of rent should be flat, if anything, entering '26, I guess, with the inflation rates we have now. Magnus Råman: Yes. What happens in '26, we have to come back to... Anders Lexmon: Right. Okay. I'm happy with that. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Simone Margulies: So I would like to thank you all for joining us today, and I hope to see you in next quarter.
Operator: Thank you for standing by, and welcome to the Regis Resources quarterly briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead. Jim Beyer: Thanks, Darcy. Good morning, everyone, and thanks for joining us this morning for the Regis Resources September quarter results. Joining me today is our Chief Financial Officer, Anthony Rechichi, and our Chief Operating Officer, Michael Holmes; and our Head of Investor Relations, Jeff Sansom. As usual, we will refer to some figures in the quarterly report released earlier this morning. So please, it might be helpful just to keep it handy as we step through the results. So firstly, starting with safety, as we always do. Through the quarter on a 12-month moving average basis, our lost time injury frequency rate actually got down to 0. However, unfortunately, towards the end of the quarter, we saw a single LTI occur, which pushed out LTIFR, lost time injury frequency rate, to 0.36, which was in line basically with our performance last quarter. Now while still below the industry average, as always, we should never be satisfied with any injury. And the team, I know, is driving hard as we are diligent and continue to build a strong disciplined safety culture for our teams across all our operations. Now on to production performance. The September quarter marked another period of consistent operational delivery and a resultant strong cash generation. Group production totaled 90,400 ounces at an all-in sustaining cost of AUD 2,861 an ounce. And I note that this also includes a noncash charge of just under $200 an ounce, and that relates to drawdown on historic stockpile inventories. Now we are comfortable with the performance in our first quarter, and we're well positioned to deliver within our FY '26 guidance ranges. From a financial perspective, this quarter has seen another period of unprecedented gold price movements. Spot gold during the quarter increased over 15% from just over $5,000 an ounce to just under $5,800 an ounce during the quarter. And during that time, we sold at an average price of $5,405 an ounce. Of course, since the end of the quarter, gold has risen another $500 an ounce, will actually rose more than that, and we have seen this slight correction in the last couple of days, but the fundamentals are still there, and it is a great time to be producing gold. This meant that we grew our cash and bullion position by $158 million for a balance at the end of the quarter of $675 million. That's another record for Regis and highlights the ongoing strength of the business and really continues to demonstrate the significant cash-generating capacity. We remain debt-free with significant balance sheet flexibility. From a growth perspective, we saw first ore from our underground development projects at Duketon, and these both remain on target. Now with that, I'll hand over to Michael for more detail on the operational rundown, followed by Anthony, who will cover more on the financials. Over to you, Michael. Michael Harvy Holmes: Thanks, Jim, and good morning, everyone. As Jim mentioned, it was disappointing that we had 1 lost time injury in the quarter, which continued our 12-month moving average frequency rate of 0.36. We are working on numerous initiatives within our operations to reduce the occurrences of safety incidents and injuries. Operationally, the quarter was steady across both sites with results consistent and in line with plan. At Duketon, we produced 58,400 ounces at an all-in sustaining cost of $2,832 per ounce, which includes a noncash charge of $238 per ounce. This is a few hundred dollars lower than the previous quarter on stronger production and reduced total material movement with lower open pit waste movement. During the quarter, open pit mining commenced at King of Creation, recommenced at Gloster and continued at Ben Hur open pits. Our open pits contributed 14,400 ounces at a grade of 0.92 grams per tonne. Underground mining at Garden Well and Rosemont delivered 31,800 ounces at 1.9 grams per tonne with development totaling 3,990 meters for the quarter. Milling throughput was 2.08 million tonnes at 0.99 grams per tonne with an 88.3% recovery. Importantly, as Jim mentioned, during the quarter, first ore was mined from stopes at both the Garden Well Main and the Rosemont Stage 3. The first ore contributed to the increased underground ore tonnages compared to the previous quarter. These 2 underground developments are key contributors to our long-term growth strategy, and Garden Well Main is progressing well towards commercial production in H2 of this financial year, so we should see growth capital from the development roll off towards the end of the year. In light of the ongoing strong gold price environment, the team continues to identify and evaluate options for organic growth across Duketon. At Tropicana, production was 31,900 ounces at an all-in sustaining cost of $2,821 per ounce, which includes a noncash charge of $198 per ounce, reflecting solid delivery and grade improvement. Open pit mining delivered 16,100 ounces at 1.6 grams per tonne, with material movement and grade in line with expectations. Total material movement was elevated related to the previous quarter related to the planned waste mining in the Havana open pit. Over the coming quarters, waste stripping in the Havana pit will ease, and we expect the strip ratio will moderate, and this will be particularly apparent in the second half of FY '26. Our share of what Tropicana underground delivered was 15,200 ounces at 3.12 grams per tonne and 983 meters of development with a recovery steady at 89.7%. Growth capital was moderate at $3 million with development of Havana underground progressing to plan. With that, I'll now pass to Anthony for the financials Thanks, Michael. Anthony Rechichi: We're continuing on from a really impressive financial performance that we reported for the full year ended 30 June 2025, with a great start in the first quarter of FY '26. We sold just under 83,000 ounces in the quarter at an average realized gold price of $5,405 an ounce, generating $447 million in revenue. Operating cash flow was $290 million, including $186 million from Duketon and $104 million from Tropicana. As an aside, when we were selling the gold in and around that $5,500 an ounce mark, the team was ecstatic. But as Jim mentioned, what a difference of a few weeks makes, noting that while those gold prices were impressive, the recent few weeks of gold sales have been in the $6,000, which is just incredible. It's an amazing time to be in gold really. Moving on to capital expenditure. We spent $114 million, including $70 million at Duketon, $19 million at Tropicana, and we spent $20 million on exploration. Within the capital spend amount, $66 million of that was growth capital, with $63 million at Duketon and $3 million at Tropicana. The majority of this spend was related to the underground growth projects. At Duketon, Garden Well Main is expected to commence commercial production later in the financial year. And therefore, the capital spend in that area from then on will report to sustaining capital, not growth capital anymore. With this in mind, in the absence of any new organic growth we create along the way, we expect to see the growth capital spend rate reduce as the year goes on. But again, that's on the basis that we don't find anything extra across Duketon that's worth pursuing. So for cash and bullion, in the end, we closed the quarter with $675 million, which is another record for Regis and the $300 million revolving credit facility remains undrawn. I'll just circle back now to all-in sustaining costs, and Michael mentioned the noncash charges across Duketon and Tropicana, and I want to talk some more about that. At Duketon, there was a noncash charge of $238 an ounce related to stockpile inventory movements. And at Tropicana, we had a charge of $125 an ounce for the same reasons. At a group level, that's a charge of $198 an ounce for the quarter. Focusing in on Tropicana, this quarter's all-in sustaining cost per ounce was higher than last quarter. If you cast your mind back, in the June quarter, Tropicana reported a significant noncash credit related to stockpile survey adjustments. If we net off the noncash stockpile movement impacts for Tropicana, then the all-in sustaining cost per ounce becomes similar across the 2 periods. On another topic, and as you now know, with the business high profitability and impressive cash generation, the directors declared a final fully franked dividend of $0.05 per share, totaling $38 million off the back of the FY '25 results, and we paid that earlier in this month of October. And as I've mentioned before, due to that strong profitability, Regis will return to a cash tax payment position and is expected to pay approximately $100 million in the third quarter of this FY '26. So that's all for me. Thank you all, and back to you, Jim. Jim Beyer: Thanks, Anthony, and thanks, Michael. At McPhillamys, we're progressing the dual-track strategy to return the project to an approvable status. And I want to very quickly go over some of the details of the project and remind or highlight why we continue to pursue this line. Look, we released the DFS at McPhillamys back in the middle of last year, and that highlighted a resource of 2.7 million and reserves of 1.9 million At the time we released the DFS, as I said, the reserves were about 1.9 million, which, of course, isn't a reserve anymore, thanks to the Section 10, but the key fact is it's still in the ground and quite valuable at the moment. As expected, it was to have a mine life of around 10 years, so an average production of 185,000 ounces per annum, at a capital cost of $1 billion and a life of mine average all-in sustaining of something like $1,600 an ounce. Now I do have to say that as a result of the Section 10 declaration, of course, the project is no longer viable in its current form, and we were through the DFS. However, if you benchmark the project on those metrics I just mentioned and look at the spot gold price today where it's sitting around $6,300, that gives nearly 3/4 or gives well over $2 million a day, $3.5 billion in pretax cash flow each year on average. Now that's the value to our shareholders. But there is also other stakeholder value in addition to this such as the value that it represents in New South Wales. And this would be significant. It takes the form of 300 steady-state jobs over -- well over now with this price $366 million in royalties along with millions in local rates and taxes. The list of benefits goes on as it always does when we have a grown-up conversation about the real contribution mine makes to our Australian economy and the quality of life, but that's a topic for another time. So with these multiple value benefits for many stakeholders, we are committed in our drive towards a positive outcome for the McPhillamys Gold project. And to that end, we continue to prepare the legal challenge of the Section 10 declaration, and we expect that to be in mid-December. And in parallel, we're also investigating alternative waste disposal options and concepts. This dual-track approach aims to put Regis in a position where we could conceivably return the project to an approvable status and positioned to proceed under either outcome, albeit with probably different time lines. Now back to our current operations. As Michael and Anthony have discussed, the quarter was in line with expectations. And as we sit here today, we are very comfortable with our FY '26 guidance range and see no changes required there. We'll maintain capital discipline focused on generating strong margins for our core assets while positioning the business for future growth. As also noted by Michael and Anthony, we continue to seek out organic opportunities that make good economic sense in this new gold price environment. Our exploration team continues with their focus on conversion and extensional drilling to build long-term optionality. And I haven't said anything -- I won't say anything more on that, but I do note that we will be providing a midyear exploration update later on this quarter. So to summarize, our team has delivered another quarter of consistent performance that has enabled us to capitalize on the exceptional gold price. Cash and bullion is up $158 million to a record $675 million. First ore mine from Garden Well Main and also Rosemont Stage 3, and we continue to ramp up both of these underground projects. Ongoing development at Havana Underground. We continue to seek out and evaluate organic growth opportunities within Duketon. McPhillamys is progressing through both legal and technical pathways. And finally, but very importantly, our FY '26 guidance is reaffirmed. So thanks for this morning. I'll now open the floor up to questions and back to you, Darcy. Operator: [Operator Instructions] Your first question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Obviously, as you said, a great time to be in gold. Just first one for me, just a clarification on the McPhillamys project. Just with the hearing in mid-December, do you have a rough time line for when you'd expect an outcome after that hearing? Jim Beyer: Yes, sometime after that hearing. I mean, unfortunately, these -- as we know, the courts run to their own beat. We would like to think that we would get a result back sometime in the first quarter of next year, but that's not certain. Remembering and understanding the legal process here, it's not actually an overturning of the decision. It's a process of going through and convincing the judge that there were elements of the process that we felt we were significantly disadvantaged over. And as a result, of that, the judge sort of says, well, the decision is set aside. The minister, who is a new minister now, of course, presumably asked the department to correct the injustices, for want of a better description, or the correct the flaws in the process. And then the minister will make a new determination. How long that takes, there is no time line to that? It could easily be out to the end of next year. Hugo Nicolaci: Got it. That's helpful color. And then just the second one for me just at Tropicana, just observing that your partner there had put in and then recently got an environmental approvals for a power plant expansion and a new pace plant there to support the Boston Shaker. Could you just provide a little bit of color around the need for the paste plant? Has there been a change in geological conditions what you expected? Or was it more around cost and greater ore recovery that you're putting that in? And then just any comments around sort of timing and cost benefits there? Jim Beyer: No. I mean the power thing is pretty obvious. We'll need more power. And the paste fill is really, it's a trial at the moment, and it's driven by the potential to improve overall economics by increasing ore extraction ratios. Hugo Nicolaci: And in terms of timing of having that trial up and running? Jim Beyer: I mean there's a trial in the first instance and then there will be -- have to be a decision, and that's on the -- on when it would -- a full approach will be implemented, and there's no timing on that, but I would consider that to be a least a year. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: Just exploring a little bit more of the returns piece of the big cash pile you built and building in the context of these growth options. So how are you thinking about it? Is there a scope to formalize some sort of returns policy? Or do we really need to wait for McPhillamys or potentially something from inorganic [indiscernible]? Jim Beyer: Yes. Look, I mean, it's -- you're the first person who asked that question lately. Look, the first thing -- and I guess, historically, what we've done is we've pointed to the fact that the company and the Board has always had a strong view on returning returns to shareholders via dividends. And it's great and very pleasing to see that as we've moved our way through all the recapitalization and the hedge books over the years that we've been able to return and the debt, of course, for Tropicana, we've been able to return to a position to be able to pay dividends. And our view has always been where we've got the capacity to do it and it makes sense, we will look at that ongoing process very favorably. But as you pointed out, we don't have a policy. That is something that we are under consideration at the moment. And I would imagine as we work our way through that, we'll make some decision on that over the coming months. The next key time for us to make any another decision on whether a dividend is payable or not. And obviously, it's a pretty favorable environment at the moment, but I wouldn't want to preempt anything, but the next time to be making any decision would be the half year results because we look at it on a half year and full year basis. So yes, no, we don't have a policy. We've always said that where we've got the money and the -- it's an important part of our reason for being is to return -- make a return to our investors via dividends as well as regular growth. So -- and that's what we plan to continue to do. We just don't have a locked-in policy at this stage. Operator: Your next question comes from Andrew Bowler from Macquarie. Andrew Bowler: Just a question on the McPhillamys study just looking at the dry stack tailing options. Just wondering on the timing of those studies? And will that be affected by the judicial review? So for example, if it falls in your favor, are we likely to see that study a bit sooner maybe as you sort of -- or should I say, if it falls in your favor, we likely never to see that study? Or if it falls against you, are you like to see it a little bit sooner as you try and get it out to market as quickly as possible? Jim Beyer: Look, our intention is, as I said, we're running a dual track. I think our preferred scenario because it's probably a little bit more timely and requires less additional approvals is -- and test work is to return to the original DFS concept, i.e., what I'm saying there is we much prefer to win the -- we much prefer to be successful in the challenge of the Section 10 and then follow that through with an appropriate decision by the minister after his review. That's the way we prefer it to go. But we don't want to sit around in hope, so we've also planned to find and prove up this alternative method. Probably the reality of that is that it's going to take, at this stage, it could take considerably longer for us to work that through. But the initial test work that we've done is encouraging. It's really a timing issue and making sure that we understand all the risks that this now introduces that we didn't have before and have we got everything in place. So the short answer to your question is we prefer the Section 10 to be successful, but we'll continue to pursue the other one. And if the Section 10 is successful and that's great because it means we've probably got a better time line as well. Andrew Bowler: Yes. Sorry I was on mute. Yes. No, sorry, I was on mute. And just a follow-up. I mean I know you're working through the study, and it's very early stage, but is it the intention for these dry stack tailings studies to retain the relative scope and scale of the old plan at McPhillamys? Or are you -- or is there some tinkering to be done with the dry stack tailings studies that might see a [ biggering ] of the project or a bit of a trimming as well? Or is it roughly the same with the dry stack scenario [ bolted ] on the back end? Jim Beyer: In terms of footprint, it's probably a little smaller. So it's not actually -- the concept that we're working on is not so much a dry stack. It's an integrated waste landform. So we -- there's -- obviously, in terms of what can move as much as I'd like to, we can't move the ore body. The process plant probably stay roughly where it is. There's a big waste rock dump that's already there. It's already part of the approval. But obviously, if we co-mingle the tails in that, then whatever we don't put in the tailings because we won't be able to which has to go under the waste rock dump. And that's why it's sort of, that's why it's called an integrated waste landform. And that would need to be bigger. And so there's a few things that we have to go through and get, work on to see whether that requires extensive changes or reasonably modest modifications. And so that's all part of the work that's kicking off at the moment. Andrew Bowler: Apologies. I wasn't very clear. I mean as in sort of, I guess, the processing capacity scale. So the project itself would be on a similar scale. Jim Beyer: Yes. No, it'd be a similar scale. I mean basically, the concept is you put -- it's not unusual. It's reasonably common certainly in South America, where water is exceptionally at altitude where it's scarce. And there's a couple of operations here in Australia, one over here in WA that uses a form of it. So it's not uncommon, but it is something that involves more equipment. But our plan would be to maintain the scale of the operation as it currently isn't just changed the back end of it. Andrew Bowler: No worries. That's very clear. Operator: Your next question comes from David Coates from Bell Potter Securities. David Coates: Just more on observation. I suppose it sounds like McPhillamys, understandably, is getting quite a bit of attention from you guys. Is that because sort of [indiscernible] the inorganic opportunities that are a bit sort of thinner on the ground and I guess, sort of harder to find value in the current market and McPhillamys obviously has those really compelling metrics that you mentioned -- referenced before? Jim Beyer: Yes. Good question, David. Look, I don't think what -- I guess the question don't misinterpret the fact that we only talk about McPhillamys as we're only inwardly focused. We do talk about it because I do genuinely think that the market doesn't recognize the value that's there. I mean, basically, what we're saying is one way or another, this thing is going to be developed. It's really just a question of when. And if you're sitting down and trying to work out what the value is -- in this new price environment that we see gold in, and frankly, this is not a flash in the pan. This is, you can see that there are global fundamentals that have driven us to this new level from where we were 18 months or 2 years ago. So it reminds us that we need to -- our team needs to keep pushing on and make sure that, that becomes approved in one form or another, and then we can develop it. The thing is the time line. So that could be a couple of years out. And so that we put our effort into it and you can see we're spending not an insignificant amount at the moment on an annual basis on that works under the McPhillamys guidance that we've given, but that doesn't mean that we're not looking for near-term opportunities to sit between now and then either, which is definitely on our agenda and probably everybody's at the moment, but then we're no different. David Coates: Cool. And then just sort of sticking with the organic opportunities. You mentioned with this price that everyone's out sort of looking hard and reviewing the at Duketon in particular. Can you give us a bit more detail on some of the opportunities that might be emerging up there? Jim Beyer: Look, we've -- at the moment, the exploration side of things is pretty interesting and getting exciting again for us, but we haven't really got anything material to sort of hang our head on there yet, although, I guess, we'll keep an eye for whatever it is those time. And -- but if you look at what else and what Michael and Anthony were talking about is where there's no doubt about it that this at this new price environment, we can go back to some of our old pits, be they big or small. And sometimes it's a small ones that are actually the opportunity or back to -- even back to some of our old oxide stomping grounds. We look and go, well, hang on at $5,000 or $6,000 an ounce. This stuff is actually quite viable. And so they are the things that we're looking at. I don't really not in a position, really, I don't really want to go through the nuts and bolts of the individual items. But when we get something that is material, we will certainly update the market on that so that what you can add to our model and add to your valuation work. So we are doing plenty of it at the moment. We're just not in a position yet to strike it into a gold bar. Operator: There are no further questions at this time. I'll now hand back to Mr. Beyer for any closing remarks. Jim Beyer: Thanks, Darcy. And thanks, everyone. Thanks, especially for the folks that asked questions. Thanks for joining us and enjoy the rest of your day. Take care. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Jonas Gustafsson: Good morning, everyone, and a warm welcome to this 2025 Q3 release call for Hemnet Group. My name is Jonas Gustafsson, and I'm the Group CEO of Hemnet. With me here on my side today at our headquarters in Stockholm, I have our Chief Financial Officer, Anders Omulf; and our Head of Investor Relations, Ludvig Segelmark. As usual, we will go through the presentation that was published on our website this morning during today's session. I will kick it off with a summary of the main highlights during the third quarter and a few exciting updates regarding strategic initiatives and planned product launches soon to come. Thereafter, Anders Omulf will cover the financial details before I will come back in the end to wrap up this session. As always, there will be opportunities to ask questions at the end of the presentation. Today's session will be moderated by our operator, so please follow the operator's instructions to ask questions through the provided dial-in details. So with that, let's get started, and let's move on to the next slide, please. Despite a continued challenging property market, Hemnet demonstrated strong ARPL growth and resilience in the third quarter. Net sales decreased by minus 1.5% on the back of low Q3 listing volumes. ARPL, average revenue per listing grew by 21% in the third quarter, driven by a continued increasing demand for Hemnet's value-added services, where conversion towards Hemnet premium continues to be the main driver. Paid published listings were down with minus 19.2% in Q3, reflecting a challenging Swedish property market with continued high supply levels, extended sales cycles and continued pressure on the housing prices. Around 4 percentage points of the volume decline was attributed to a new business rule introduced in Q1 2025, allowing sellers to change agents without buying a new listing that is impacting the year-on-year comparison negatively. EBITDA declined by minus 5.9% to SEK 195.4 million as the low listing volumes lead to lower net sales and lower fixed cost leverage. Today, we announced new strategic product initiatives to strengthen Hemnet's role throughout the sales process. The aim with these new initiatives, which include a new commercial proposition where you pay only when you sell is to help sellers and agents to fully realize the value of Hemnet, which we think leads to a better chance of a successful property transaction. I will come back to these initiatives later on in the presentation. Now let's turn to Page 3 for a quick look at the financial performance. Net sales amounted to SEK 367 million, down with minus 1.5% compared to the same period last year, driven by a significant decline in listing volumes during the quarter. EBITDA decreased by minus 5.9% to SEK 195 million. The decrease was driven by the lower listing volumes, which drove lower net sales and reduced fixed cost leverage. The EBITDA margin amounted to 53.3%. We are pleased that we're able to deliver a high margin despite low volumes. Anders will break down these profitability dynamics in more details as we move on in the presentation. Now let's turn to Page 4 for a look at the property market and the listing volumes. On the left-hand side on this slide, you see a combined chart showing published listings per quarter and yearly as well as the year-on-year change between quarters. Published listings decreased 19% year-on-year in the third quarter, reflecting a property market with high supply, longer sales cycles and continued price pressure, leaving many customers hesitant to enter the market. The most recent buyer barometer from Hemnet gives further support to the sentiment, indicating that more consumers now expect prices to fall compared with last month. At the same time, lower interest rates, stabilizing inflation and the easing of mortgage regulations planned for April ‘26 could gradually help increase activity. Listing duration, the average time it took for a property to sell on Hemnet during the last 12 months increased by 18% to 52 days compared to 44 days in Q3 last year. Anders will break down the financial effect of the longer listing duration later on in the presentation. Around 4 percentage points of the volume decline was attributed to a new business rule introduced by 1st February 2025. This new business rule allows sellers to change agents without buying a new listing. It's important to remember that our published listing number follows a specific definition and differs from general market numbers. The negative listing development is challenging, but it's more important to remember that property market can be volatile, and we've been through the similar development in the past years. Just look at 2023. Let's move on to the next slide and provide some additional color on the supply situation and how that impacts the current state of the market. We do get a lot of questions on the state of the property market and how new published listings relate to transactions and total supply. Therefore, I wanted to take this opportunity to provide some color on what we are seeing and visualize it in a few graphs to eliminate some misunderstandings. We continue to see a high supply on Hemnet, but the growth rate has started to come down during the past few months. In September, in 2025, our supply grew by 2% year-on-year compared to 22% the same month last year. With that said, we're still at aggregated supply levels on the platform that is 50% higher compared to 3 years ago. The supply of Hemnet and how it moves is a function of a number of different factors. The supply increases with new listings as new listings are down the last 12 months compared to the previous year, that has a negative effect on the supply. The supply decreases with transactions as transactions are up during the same time period, that also has a negative effect on the supply. The supply follows the sales duration as average days on the platform increases, so does total supply. Average listing days on a last 12 months basis in Q3 were 18% higher compared to last year, which obviously has a significant impact. In addition to these fairly straightforward effects, there are other factors like renewals, like relistings and where we are in the new property development cycles that also impacts the overall supply levels. Now let's look a bit on how this has looked over time on the next slide. The number of new listings have exceeded the number of market transactions on Hemnet since 2022, which has built up a large supply of unsold properties during this time, which is visible on the top graph. As you also can tell clearly from the same graph, that trend has started to reverse during 2025. This is a natural correction after a few years of increasing supply. Looking at the history, we've seen the same similar patterns historically. You can also see from the bottom graph that listings and transactions over time follow the same seasonal patterns, but that the relationship between the 2 can differ quite a lot in the short term. To summarize, supply coming down from aggregated levels is positive for the property market. Lower supply signals a more healthy market where more transactions are taking place, while it is also supportive for the price development. Now turning to Page 7 to look at the ARPL development in the third quarter. ARPL grew by 21% in the third quarter. The ARPL growth was mostly driven by a strong demand for our value-added services. The conversion rate to higher tier packages continued to increase during the quarter and 3 out of 4 sellers on Hemnet now shows either Hemnet Plus, Hemnet Premium or Hemnet Max. This highlights the strength of our offering and that our customers see clear value in investing for increased visibility and impact. Our newest package, Hemnet Max, introduced earlier this year is a natural step for sellers seeking maximum exposure. The product is showing strong performance per seller. So let's look a bit on the performance on Hemnet Max. So please move to Slide 8. As mentioned, Hemnet Max continued to show strong product performance, while adoption is still at low levels. In Stockholm County, for example, homes advertised with Hemnet Max that were sold between April and August received more than 70% traffic compared to homes advertised with Hemnet Premium. Moreover, the Hemnet Max homes also got more engagement on the listing and on the average generated a much higher bid premium. We have launched a number of key initiatives to drive Max adoption going forward, including further enhancement of product features and scaling up the marketing of Hemnet Max towards agents and property sellers. We continue to work with the product, and we look forward to it being an important growth driver for Hemnet in the coming quarters and years. Now turning to Page 9 for some other exciting news. Today, we are very happy to be able to announce a set of new strategic product initiatives to help sellers and agents to fully leverage Hemnet's potential. Looking at property transactions in Sweden, we have a large opportunity as Hemnet to increase the value of the Hemnet investment for agents and sellers. We know that ensuring visibility throughout the entire home selling journey is an important part of achieving the best possible outcome. For example, data shows that listings visible on Hemnet from the start of the sales process have a higher chance of a successful sale with homes published as upcoming on Hemnet on average, selling 5 days faster than those listed as directly for sale. To help sellers and agents fully leverage Hemnet's potential, we're announcing 2 strategic initiatives today. First of all, a new success-based product offering. Since 1st of October, we have had a live pilot where we are testing a new commercial model where sellers pay only when a property is sold. Second to that, we're also announcing new strategic partnership with franchisers and brand owners that want to recommend Hemnet as part throughout the entire sales process. Now let's move to Slide 10 to talk a bit more about the ongoing pilot. So we're announcing a new commercial model to further lower the threshold for sellers to list on Hemnet. We launched a pilot test for a new commercial model on 1, October, where sellers pay only when the property is sold. The new model aims to lower the barrier for sellers to advertise on Hemnet from the start and will be a part of our strategic partnerships, and I'll elaborate a bit more on those on the next slide. This is a highly demanded model from both sellers and agents as it becomes a risk-free for the seller and easier for the broker to recommend the most suitable package for the client. We share the risk with the seller to maximize the chances of a successful sale. And we do this because we know that Hemnet works. It is still early, but the initial response and the initial feedback and collected data from the pilot has been very supportive and very strong. with sellers showing increased willingness to list on Hemnet with the new model. We plan to roll out the new model as part of the strategic partnerships during 2026. Now let's move on to Slide 11 to elaborate a bit more on the strategic partnerships. The second exciting announcement that we have to make today is our new strategic partnerships. Hemnet will offer all franchises and brand owners that want to recommend Hemnet as partner throughout the entire sales process, the opportunity to enter into a strategic partnership agreement. The aim of the strategic partnership is to help home sellers and agents to fully realize the value of Hemnet to enhance the chance of a successful property transaction. It is also a way for Hemnet to strengthen the relationship on an HQ level, meaning headquarters. The new commercial model will form a part of this strategic partnership, along with increased visibility, increased brand exposure, increased traffic and increased lead generation and new product features. We very much look forward to being able to speak more about these news and what they will mean for Hemnet and our partners as they are being rolled out over the coming months. Moving on to Slide 12 for some additional launches and product news. We continue to accelerate the pace of our product innovation. Within short, we're launching Hemnet Insights, a new AI-powered analytic tool providing agents with valuable market data as part of their Hemnet business subscription. We're confident that this will be a very useful tool, and extremely appreciated tool for agents across the country, and we're excited about the launch. During the quarter, we improved our CRM functionality, which makes it possible for us to strengthen communication and add more value to both homebuyers and home sellers on the platform. Moreover, by the beginning of next year, we will also launch a new enhanced offering for property developers that is better suited to their needs. We have also launched a marketing partnership with hitta.se, where both our listings and valuation tools are now being integrated. Lastly, our increased marketing investment during the year have begun to show results. We are seeing positive development in key brand metrics with spontaneous brand awareness increasing 11 percentage points year-on-year in Q3. And according to Orvesto survey data covering May to August 2025, Hemnet remains Sweden's third largest commercial website, reaching close to 2 million unique visitors per week with a slight year-on-year increase of 0.4% compared to last year. This is particularly encouraging given the weaker market conditions. All in all, we continue to accelerate product innovation, invest in marketing and build for the future, and it's yielding results. With that, I will hand over to Anders for the financial update, starting with Page 13. Anders, please take it away. Anders Ornulf: Thank you, Jonas. Let's turn to Page 14 directly and the financial summary. Let me begin with an overview of the third quarter of 2025. Net sales for the third quarter were SEK 367 million, a decrease of 1.5% year-over-year. This demonstrates strong resilience. We managed to maintain revenues despite published listings dropping by almost 20% in the quarter. It's a testament to our business model holding up across market conditions, much like we saw in the first half of the year 2023 before bouncing back the second half year. Key driver, of course, sustaining revenue was ARPL growing 21% year-over-year. This was supported by continued strong demand for our value-added services for home sellers, Hemnet Plus, Premium and Max. This underlines the value our platform delivers to home sellers also in a challenging housing market. In addition, our B2B segment had a strong quarter with a growth of 1.5%. We will discuss the B2B segment in more details on the next slide. Another noteworthy point is the average listing time, which on a rolling 12-month basis increased from 44 days in Q3 2024 to 48 days in Q2 2025 and now 52 days in Q3 2025. The year-on-year effect of a longer listing time is negative SEK 9 million in revenue and the sequential effect of 4 additional days from Q2 to Q3 is also SEK 9 million. To smooth out seasonal variations, we recommend tracking ARPL growth on a rolling 12-month basis as shown on Page 4 of the presentation. Turning to profitability. EBITDA came in at SEK 195 million, down 5.9% development in more detail later on. The EBITDA margin for the quarter was 53.3%, which is 2.5 percentage points lower than the margin in Q3 2024. This decline is mainly due to fixed costs that cannot be fully adjusted to offset the 9% drop in listing volumes. One important component in the margin development is compensation to real estate agents. When expressed as a percentage of property seller revenue, this ratio increases quarter-on-quarter from 30.1% in Q2 to 30.9% in Q3, driven by further improvement in both recommendation rates and actual conversion to value-added products. Looking at the effective commission compared to Q3 2024, it rises from 29.4% to 30.9%, higher commission reflecting a substantially stronger underlying improvement of our [ VAS ] products. And as always, the effective commission is a variable component and tends to fluctuate somewhat between quarters, making it more suitable to measure over longer periods. Free cash flow last 12 months was SEK 808 million, a 36% increase year-over-year. This robust cash generation underscores both the scalability of our business model and our strong profitability even in a very soft housing market. Our operations continue to convert a high portion of revenues into cash, highlighting the quality of the earnings. We continue to uphold a strong financial position. Net debt leverage ended the quarter at 0.5, an improvement from 0.6 in Q3 last year. This low leverage provides us with flexibility going forward. The reduction is particularly encouraging given our active capital allocation strategy. As you know by now, we expanded our share buyback program from SEK 450 million to SEK 600 million this year following the mandate approved at the AGM. We have been returning capital to shareholders while still maintaining a conservative balance sheet. At first glance, the headcount increase of 13 may appear notable. However, it is important to take into account the technical nuance that helps explain the development. A higher number of employees were on parental leave during Q3 '25 compared with the same period in 2024. In addition, the organization has been selectively strengthened primarily within product and tech. With that overview, let's turn to the revenues by segment and take a closer look at the Q3 figures. Moving into Slide 15, which breaks down the revenues by customer group. Since we focus the seller -- very much on our seller revenue so far, let's turn the attention to our B2B segment, which grew by 1.5% despite the continued challenging and cautious market environment. Revenues from real estate agents increased by 2% to SEK 26 million and property developers contributed SEK 13 million, up 14% year-on-year. These gains reflect strong engagement for our prioritized customer segment, and it's particularly encouraging to see both an increase in listings and an uptake in VOS products for property developers, leading to a double-digit growth. However, advertising revenues from other advertisers declined by 8% to SEK 16 million, reflecting a softer display advertising market. This was again driven by broader macroeconomic headwinds and lower impressions as a result of reduced listings volumes on the platform. Overall, an uplift for the B2B segment, marking it the strongest quarter this year. With that, let's move to the EBITDA bridge to dive deeper into the Q3 figures. On Slide 16, we show the year-on-year development of EBITDA. We have already covered what has driven the top line for the quarter, so let's turn to costs. As mentioned, EBITDA declined by 5.9% compared to the third quarter of 2024. Agent compensation increased in absolute terms, driven by strong recommendation and commercial levels despite net sales declining by 1.5%. And again, remember, ARPL grew 21% in the quarter. Looking at costs, expenses were higher than last year, mainly driven by increased marketing investments. We continue to raise our ambition in external brand building activities, and we have also increased tactical digital marketing efforts. In addition, higher pace in product development resulted in higher consulting costs. In total, fixed OpEx, excluding personnel costs increased by SEK 9 million. Personnel expenses increased somewhat, reflecting wage inflation and larger headcount. However, this quarter was -- we also benefited from a reversal of a bonus provision, which explains why personnel costs as a total were slightly lower compared to last year. The other cost category remained fairly stable, although slightly higher capitalized development costs reflect the higher product development activity. Overall, the minus SEK 19 million listing effect naturally mirrors our revenue and profit development and puts pressure on the margin. That said, taking a step back, it's encouraging to see the resilience of the underlying earnings capacity. We're not afraid to continue investing in marketing and product development, even though the total cost increase remained relatively modest at around 9%. In total, this adds up to an absolute EBITDA decline of minus SEK 12 million year-on-year. Moving on to Page 17 and some spotlight on the cash flow. Starting on the left-hand side, our rolling 12-month free cash flow continued its upward trend and exceeded SEK 800 million. Cash conversion remains strong, supporting both reinvestments in the business and capital returns to shareholders. In the middle, you can see the development of our share buybacks. During the third quarter, we repurchased shares worth approximately SEK 149 million. In volume terms, we acquired 560,000 shares, reflecting the lower share price during the period. This is part again of the SEK 600 million mandate approved in May. And finally, on the right-hand side, our net debt stood at SEK 427 million, corresponding to 0.5 leverage, well below our target of 2x. In summary, continue to accelerate investments in marketing, product development while delivering strong cash flow, gives us the flexibility to keep executing on our strategic priorities and maintain attractive shareholder returns. With that, I want to hand over to Jonas for a summary on Page 18. Jonas Gustafsson: Thank you, Anders. Let's move to the summary slide on Slide #19. To summarize the third quarter and the news that we announced today. First of all, we saw continued pressure on new published listings in Q3. The weak volumes negatively impacted both net sales and EBITDA. Second to that, we had a strong ARPL growth of 21%, and we continue to show resilience in a difficult property market. Thirdly, we announced 2 new strategic product initiatives that will aim to help sellers and agents to fully leverage Hemnet's potential, and I'm extremely excited about the impact this will have on our business in 2026 and onwards. All in all, we continue to act decisively. We're working faster. We're working smarter, and we're working with a continued focus on innovation. By doing so, we're strengthening Hemnet's position for the benefit of buyers, sellers and agents alike. With that, let's open up for the Q&A. Operator: [Operator Instructions] The next question comes from Will Packer from BNP Exane. William Packer: Three from me, please. Firstly, could you help us think through the strategic rationale of pivoting your revenue model now? You had a very strong track record over the last 5 years. Paying a bit later does bring in new risks such as arguably low inventory quality and revenue recognition headwinds. Can you just help us understand why now? Secondly, thanks for the initial details on the agent partnerships. Would you consider listing exclusivity as a part of that partnership? Or do you think the regulator wouldn't allow it? And then finally, as has been well flagged, inventory is down significantly in the quarter, 19%. Could you help us understand what cyclical market dynamics versus inventory share loss? So for example, Boneo claimed Q3 listings and the market were down high single digit for Q3. What do you think market listings are down? Jonas Gustafsson: So we'll take them one by one. And on the split ship in, and I'll start. So with the sort of the new model from a commercial perspective that we now are piloting, I think this is, to a large extent, based on discussions and feedback that we've had with agents that we've had with sellers. And it's especially sort of important, the reason for testing this out right now is the fact that we have a -- the market dynamics have changed, and we've seen them gradually changing driven by a few different factors. I mean one is related to the high competitive situation that you see on supply. Number two is driven by the fact that you have longer sales periods that we also spoke about. And I think it's one dynamic that is important and that has changed over the last 5 years is that you now see a pattern where a seller of a property typically sell before you buy. That is creating a different market dynamics. What we want to achieve is to ensure that you use the full value of Hemnet. And a way of ensuring this is that we're now testing this new model, and it's conditional to the fact that you would list directly on Hemnet. We know that we have a model that works. We know that we have an extremely efficient platform. We're the market leader. But at the same time, we need to adopt to the changing market conditions. And I think this is something that will be highly appreciated. It will help us to drive volumes. It will help us to strengthen the relationship with the agent industry that is so extremely important. So that's number one. Number two, related to the agent partnerships. We elaborated a bit on the different components as part of these strategic partnerships. And as it goes, by definition, this is a partnership. So obvious when you go into a partnership is that you want to find mutually beneficial wins. So this is a win-win partnership where we see an upside, but we're also going to help our friends out there who wants to be a part of this agreement to help them to sell more properties and help them to gain market share. And when it comes to exclusive listings, I think having exclusive listings totally depends on how you would do it, but it's obviously something where you would need to look at the regulatory dimensions very closely. And that's something that we will explore going forward. Thirdly, when it comes to volumes, so I think -- the sort of -- if you start with the minus 19%, which is our starting point, I think we clearly laid out both in the CEO letter in the presentation that we conducted earlier that parts of this 4% is driven by a business rule change that is impacting the year-on-year figures from a Hemnet perspective negatively in Q3. And it's important to remember that the numbers that was published by Boneo without knowing them in detail, I think if you look at the market and how it defines sort of the volume development, it is not like-for-like compared to Hemnet. The business rule change, I'm pretty sure that the numbers from a market perspective would not capture the relistings and the effect that the 4% had on our numbers. So that is also explaining it. Then I think there's a number of different factors, right? And it is the low demand in general. It is the duration of the sales cycles that is impacting. And also, the way I understand those numbers is not taking into consideration impact from new property developments. So there's a lot of different factors. And the most important thing for Hemnet is to ensure that we remain as the #1 player in Sweden. We want to ensure that the listings end up on Hemnet. And eventually, they do. We've seen that in 2024, and you know the numbers that we published in July, we had 89% market share in 2024. That has moved up and down. In 2023, it was 90%. In '22 and '21, it was 86%. In '20, it was 90%. So market shares tend to move with the market dynamics. So it's difficult to make a full assessment, and there are so many different type of market shares that you could define, whether it's content market share, whether it's new published listing market share, whether it's sold market share. For us, it's most important to ensure that the properties end up [ atonement ] eventually. Anders Ornulf: I can just -- maybe it was a good overview, Jonas. Maybe I can just add that of course, when it comes to our dominant position that we will -- we take that into a very deep consideration before signing any contracts. So as we have always said around that question, it's a very important question it has to be with the position we have. Operator: The next question comes from Yulia Kazakovtseva from UBS. Yulia Kazakovtseva: This is Julia Kazakovtseva from UBS. I have 2 questions, if that's okay. So my first question would be about volumes. So you said that 4 percentage points of the 19% decrease in Q3 was driven by the change in the business terms. Could you please give us the estimate of this impact for Q2? And my second question would be about the new pilot scheme where sellers only pay once the property is sold. So just thinking about the process and the mechanics of this. So if a seller lists their property, but it remains unsold after, let's say, a few months, and they decide to eventually remove it from Hemnet, will they still be required to pay for this listing? And then in this situation, if this happens and then eventually if the property is transacted somewhere outside of Hemnet after this, what's your position here? Would they still need to pay for this or not? Jonas Gustafsson: I'll start off and then Anders, please fill in. So when it comes to the volumes, you're absolutely right, Julia. 4% is connected with the change in terms of the business rule. The 4% that we saw in Q3, if you look at Q2, that number was also 4%. So you should sort of consider the same levels in Q2 as in Q3. So hopefully, that covers the first question. Second to that, when it looks -- when we look at the new product proposition, First of all, we're testing right now. So we don't know the exact scope, the exact terms and conditions of this pilot. We're extremely satisfied with the initial results that we've seen, the reception that we've had from both sellers and especially from agents, it's been very, very positive. When it comes to the specific case that you asked for, obviously, something that we need to detail out. But the current hypothesis and that hypothesis is very strong, is that if you take one listing as an example, you would use this new business opportunity, meaning that, first of all, you would list directly on Hemnet with this new proposition and just play with the thought that it would not be sold for 3 months or whatever period you decide, and it would be taken down. If it's then selling on off Hemnet, if the property has been taken down, you would still need to pay for it. So we will track individual properties and ensure that we get the money for it. The terms and conditions would be that you have used and you have leveraged the marketing power of Hemnet being the most or the leading and the strongest property platform in Sweden. So therefore, you should pay for it. So that's the hypothesis. With that said, it's one of the things that we're testing. But I think otherwise, it would be a way too large risk, and we don't want to cannibalize on our core business. That is a key component in deciding this new proposition. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: I have a couple. So just starting with this new initiative with success-based product offering, how is that going to work with the other product that you have, which is pay when listing is removed because that doesn't seem to make much sense anymore if you go live fully with this. Jonas Gustafsson: Obviously, just repeating the same message that we said before, this is a pilot we're testing. And as part of this pilot and making the full assessment of this new product proposition, we would also look at the totality and the full scope of our portfolio. Current hypothesis is that the pay later if removed, that product would remain. However, and I'm sure there will be questions going forward around this as well, is obviously what price point we would price this new proposition at. And that's something that we're testing and you could expect potentially a differentiation from PL when it comes to the new product. Hopefully, that's helpful, Georg. Georg Attling: Yes, it is. And just second question on the ARPL slowdown here. It's 14 percentage points lower than Q2. if you could just help with the components to this. I mean the price effect should be similar, if not higher than Q2. So I guess mix is really the main reason for the delta helpful for -- with any details would be helpful. Jonas Gustafsson: Please take it. Anders Ornulf: The main explanation is actually tougher comps. So last year, 1st of July, we launched a new compensation model. So a very high uptick to [indiscernible] and now we are lapping and meeting those. So remember, ARPL growth is a growth figure year-on-year, right? So -- and we called out on the call that [indiscernible] is actually growing, continue to grow. So even though we continue to grow, the ARPL growth actually slowed down, as you called out here. So the main reason to answer your question is actually tougher comps. Georg Attling: Yes. And then tougher comps in terms of mix, right, because of the steep increase in premium in Q3 last year. Anders Ornulf: So the uptake between Q2 and Q3 last year was a lot higher than Q2 and Q3 this year. Operator: The next question comes from Giles Thorne from Jefferies. Giles Thorne: The first question was back on the PO sale new commercial model. And the elephant in the room for Hemnet for the past 6 months, maybe 12 months has been buy in the free-to-list model. So it'd be interesting, Jonas, to hear you talk on how the pay on the new commercial model will directly deal with that competitive threat. The second question was a bigger picture question, and it's on agent compensation. And I suppose, Jonas, it'd be useful to hear your case with this new partnership model as to why that amount of capital being allocated to the agency base is still the best thing for Hemnet's long-term interest. I appreciate that's a much bigger, harder question to answer, but it's certainly something on a lot of people's minds. And then the final question was on the open letter that we all saw over the summer from one of your largest shareholders, which called out many things, but in particular, how you're allocating capital your shareholder remuneration. So maybe Anders, some comments on any changes you intend to make on the back of that pressure. Jonas Gustafsson: Thanks, Giles. I'll start, and we'll take them one by one. And Anders, please help me, and I think you are the best one to ask the last question, but let's take it off. So when it comes to this pay on sale, I think the most important reason for us elaborating and testing this pilot now as we speak is that there are -- the market dynamics have changed. And I think I've been repeating this message over the last months since I've had the privilege to be the CEO of this company is that there's a few market dynamics right now where you have an all-time high supply where competition in the supply segment and in the own sales segment is tougher than it's ever been before. Second to that, it takes much longer time to sell a property today than it used to do 3 years ago. If you just look at the average sales duration, that was hovering around 25 days 3 years ago. Now on the last 12-month basis, it is 52 days. That has changed the sales process, the way the agents work and the way the sellers think. Thirdly, which is important is the fact that you now sell before you buy. So what we see right now with the data is that roughly 70% of all property transaction happens in sort of in a way where you sell before you buy. That used to be the opposite. So that used to be 30%. So the market dynamics have changed. This means that we want to ensure that we adopt our product proposition towards the market rather than the competitive situation to ensure that we become relevant, we remain relevant throughout the entire sales process. We know that we have a platform that works. We know that if you list on Hemnet from the beginning, the likelihood of a successful transaction and successful transaction covers everything from finding the right buyers, ensuring that you get reduced sales cycles and maximizing the bidding premium. Those 3 factors are improved when you use Hemnet the entire way. So that is a way -- and that's our hypothesis of using this. And given sort of the market situation, we want to lower the entry barriers for the sellers. We want to help the agents from the beginning. And we think that this product is going to make the difference here. We think it's a very strong proposition that will get listings earlier on Hemnet, more listings and it will help sellers to make better transactions. I think that should cover the first question. When it comes to the second question, it was a bit difficult for me to hear. But I think the question is around agent compensation and how that is related to the new strategic partnerships. But please clarify if I misunderstood it. Giles Thorne: Yes. It was -- it's at heart, a very simple question, albeit probably quite a difficult answer, which is you pay away a lot of your value to this large pool of important stakeholders. And for a very long time, that served you very, very well. But now there are open questions about whether that is the best use of your capital. So it was a question for you, Jonas, to make the case of why this is still the best use of your capital and perhaps use the new strategic partnership as a way of illuminating that case. Hope that's clear. Jonas Gustafsson: Yes. Perfect. So I think when it comes to the agent compensation, I think that has served us well. I think it continues to serve us well. It's strengthening the relationship with our most important ambassadors in the market, and that's individual agents. I think it's fair. And I think I fully understand where you come from, it's a substantial part of our P&L on the cost side that is related to compensation, but it's also helping us to build very strong relationship and mutual beneficial opportunity for both Hemnet and for the agents. When it comes to the way you understand this, Giles, but I think -- I mean, the agent compensation and the compensation model, that is a contractual and transactional relationship between Hemnet and the franchise owners. We see large opportunities of also strengthening our relationship with the HQs, the ones that has a central role and in many cases, a very important influence. And creating opportunities also on HQ level is important. And what we haven't spoken too much today about is also the individual agents. I think Hemnet in the past has been very strong with the franchise owners. We need to remain strong there, but we should also strengthen the relationship with HQs, and we should become better friends and become more supportive to the individual agents. So it's the full slate that we're thinking about. Then thirdly, the open letter from GCQ. Anders, would you like to elaborate around our view when it comes to the capital allocation? Anders Ornulf: Sure. Of course, we saw the letter and the shareholders' input is very important for us. It's one very important piece of the puzzle. But we stick to the current capital allocation strategy that we will continue to distribute excess cash through buybacks on an arm's length basis via Carnegie. On a personal view, I think not, I think it's a good success story for Hemnet since the IPO to be consistent with the buybacks and not taking bets on share price from time to another. So that's the answer. Giles Thorne: So Anders, you won't change the cadence or the pace of buybacks depending on share price moves? Anders Ornulf: No. Operator: The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: What development do you expect for staff costs and other costs at Hemnet in 2026 and 2027? Jonas Gustafsson: Anders, would you like to take that? Anders Ornulf: Sure. We don't know since we haven't decided, but what we said in the beginning of the year is that we will continue to grow this company. We will invest in marketing and talent and the product, and we will continue with that. Last year, we had a fixed OpEx growth of 30%. We said then that you will not see that this year. And now after 9 months, we are at around 15%. So all else being equal, you should expect us to continue that. But to be fair, the details has not been decided and the best way to look at it is to look at the current run rates. Jonas Gustafsson: And I think just to kick in an open door, we like operational leverage, and that's what we're going to plan for also for the next year and after that. Thomas Nilsson: Okay. And one second final question, if I may. Looking at your growth targets of 15% to 20%, how much do you think this will come from structural price raises and how much will come from promoting higher-priced packages? Jonas Gustafsson: We remain committed, and we think that the growth ambition of 15% to 20% is important. I think what we've said is that in the past, I think the largest price hikes days for Hemnet, those days are over, and we need to work on value-based pricing. And when I talk about value-based pricing, we need to ensure that we deliver products that the customers are willing to pay for. And I think this quarter, Q3, but also what we saw in Q2 and Q1 is a testimony of that. We do see that the product mix and the BOS penetration is the main driver. It is not prices. Operator: The next question comes from Ed Young from Morgan Stanley. Edward Young: Two questions, please. First of all, you've mentioned about further enhancements of Max. Should we read that as small sort of iterative additions to the Max package or perhaps a bit more of a rebalancing of the relative benefits across the package structure, so potentially including elements like free renewals? And then you've also talked about increased Max marketing. How receptive do you think agents have been able to be to these messages about the value of Max in a sort of difficult market backdrop? Or do you think their interest and ability to upsell packages will also be reliant on picking up when the macro also picks up? Jonas Gustafsson: So on the first one, I think when it comes to the enhancement of Max, I mean, Max is still a baby. It's been around for 6 months. So it's still young. We are continuously testing new features. We're elaborating with the price point. We've been running different campaigns. There are campaigns live now in the larger cities to just learn. So we're still in data collection mode. I think we need to look at a few maybe potentially bigger things as well going forward. And per your point, classifieds. So it's all a relative game comparing the features of Max also towards premium and others. But I think -- I mean, I don't think that you should continue to decrease the proposition of premium and Plus. This is all about ensuring that you improve features when it comes to Max. So that's something that we continuously work on. Anders Then I think, would you like to take the second one? Anders Ornulf: I didn't get that to be fair. Jonas Gustafsson: Sorry, can you take it again, Ed? Edward Young: Sure. I was just saying you're talking about increased marketing behind Max. I was just wondering, do you think that agents have been receptive to those messages? Or do you think ultimately that in sort of in the difficult macro backdrop? Or do you think that you need macro to pick up for them to sort of have more space if they're under pressure? Is it really a priority for them to push that? Is the macro impact an important part of the backdrop there? Jonas Gustafsson: Thanks, Ed. I can take it, Anders, and then you can fill in sorry. So I think -- I mean, it's a very good question, Ed. I mean, I think if you look at the actual product performance, and we showed a few highlights with 70% more traffic, 50% higher premiums, 50% more lift, things and engagement up. So I think those are fantastic results. I think that when it comes to Max, obviously, it is priced at a 50% premium versus Hemnet premium. And I think that has been part of the challenge in getting a quick adoption given these current market conditions. The key -- the sort of -- the way this business works to a large extent, is the fact that conversion follows recommendations. So it's all about ensuring that the individual agents recommend Max to a larger extent. That's really the main lever that we have to pull. And I think these marketing investments that we refer to is to a very large extent, B2B marketing, so investing in communication, investing in roadshows, investing in getting the message out there. But I think the sort of the Max adoption to some extent, is held back given the current market conditions. Operator: The next question comes from Eirik Rifdahl from DNB Carnegie. Eirik Rafdal: I got a few at the end here. Just to start on the strategic partnership. Are you configuring or looking to configure the commission model as well to kind of drive more agents to push this offer with pay when sold? Jonas Gustafsson: Simple answer is no. We're not looking to adjust the compensation model. Obviously, kicking an open door, everything, you would understand this. But obviously, I mean, we would pay a commission towards the agent if the property is sold and only so. So that's the part of it. But that's also one thing that we're obviously testing. Eirik Rafdal: That's very clear. And Jonas also you stated that the initial feedback and data from the pilot has been supportive and sellers showing increased willingness to list on Hemnet with the new payment option. Have you also seen increased willingness to jump on Max on the back of this? Jonas Gustafsson: What we've seen is that I wouldn't comment on Max specifically because the numbers are still quite low, but we see that there is a willingness to recommend higher tier products and higher than we have today. So that has been part of the reason why we see a very positive response. Perfect. Eirik Rafdal: And just a final question for me, which is a bit more big picture. What's your overall thoughts right now on AI risk, particularly on the back of the Silo ChatGPT integration announced a couple of weeks back? Jonas Gustafsson: I mean if you look at AI, and I'll take the big picture answer. I mean we're actively looking at how to best integrate AI into our operations to enhance user experience and internal efficiency. Up until today, our efforts internally, we focused a lot on our valuation pool. But obviously, we follow and see what is happening. And I think the -- so and the ChatGPT integration last week are very relevant and interesting. So we continue to look at that, and that's something that the team is looking at it, and we're exploring those opportunities. We want to be part of this when this takes off and when it gets to Europe. Operator: The next question comes from Annabel Hames from Deutsche Bank. Annabel Hames: Just one from me. Can you give more color on why the Max package uptake hasn't accelerated given the data that you have on product performance and investment? Is it purely just a lack of understanding from sellers? Or is it something you eventually consider having part of the commission model for agents to help uplift that uptake? Jonas Gustafsson: I think I mean taking a step back, Hemnet Max is something that would help us in '26, '27 and '28 and will be an important component to continue to drive ARPL growth. We're still in the learning phase. Please remember the last time the Hemnet launched a new product was back in 2019. So this is not something that we do on a sort of on a quarterly basis. And I think -- I mean, sitting here today and being a part of this earnings call, the key driver of what is actually driving ARPL growth in Q3 2025 is Premium and Plus, and that was introduced in 2019. So this is a long-term bet. I think when it comes to why the adoption has not picked up faster, I think parts of it is sort of related to what Ed asked about before. There is tough market conditions right now that I think has been holding back the MAX penetration. That's just a fact. And second to that, I think the awareness, this is the numbers that we show to you guys today are very, very strong. Now it's -- we have a lot of things to be done at our communication department. We need to be out there and spread the dos. Operator: The next question comes from Nicola Kalanoski from ABG Sundal Collier. Nikola Kalanoski: So firstly, interesting news regarding the new model. I appreciate that this is just in pilot mode so far, of course. But just to understand the mechanics of this. Will the cost of the listing ad be automatically deducted during the settlement with the banks when a home transaction closes? Or will the seller have to pay as they've done previously, that is just paying a regular invoice to Hemnet? Jonas Gustafsson: So the simple answer is that what we're testing right now is that the payment method and the payment flow would be very similar to our current products, meaning that would be a separate bill. However, I mean, if you look ahead, and that's a question about product development and integration towards our partners, I think sort of having the Hemnet cost being deducted in the overall settlement, that's also an interesting opportunity. But what we're piloting right now is the first stage. Nikola Kalanoski: Yes, that's crystal clear. And just another thing to clarify. I believe you mentioned earlier during this conference call, some changed market dynamics, which I'm sure we're all familiar with. But I reacted a little bit to you saying that competition in the supply segment and -- or sorry, competition in the on sale segment is tougher than it's ever been before. I just want to make sure, does this refer to there being competition among home sellers trying to sell their home or competition between Hemnet and other marketplaces, right? Jonas Gustafsson: Thanks for allowing me to clarify that if that was unclear. What I meant and clearly meant is that if you look at the on sale segment, supply levels are at record high levels, meaning that if you're a home seller, the competition to sell your property is very, very high. So it's a question about supply/demand to put it simple. Do you follow me, Nikola? Nikola Kalanoski: Yes, absolutely. I was just looking for a clarifying Operator: The next question comes from Julia Kazakovtseva from UBS. Yulia Kazakovtseva: Just one small follow-up for me. What's the current penetration of the pay later feature at the moment? I mean, the number of new listings. Anders Ornulf: It tends to fluctuate a bit, and we've commented before that it's been around 40% to 50% since launch, and it might be -- I haven't looked at it today, but it might be a little bit lower today. Jonas Gustafsson: Hovering around 40% but it goes with seasonality. So around 40% to 50%. Operator: The next question comes from Eirik Rifahl from DNB Carnegie. Eirik Rafdal: It's Eirik again. Just a quick follow-up question because we've been kind of discussing the perception of the max value and the perception of the value you guys create overall. And one thing is the perception that the agents kind of know of your value. But do you have a feeling that they understand the relative value between you and for instance, [indiscernible], I mean, on the numbers we're tracking and looking at, you guys are reporting all-time high time on site today of 52 days, but [indiscernible], at least on our numbers, is north of 120 days, so more than 2x what you guys can deliver. Do you feel that the agents kind of understand this in this market that it doesn't really help them to go there and kind of try to avoid going on Hemnet? I mean I think obviously, it's a mix. I think we have we have more work to be done and continue to educate the market around that. And you're absolutely right. I mean Hemnet is a much more efficient and much stronger property portal when it comes to ensuring that you sell your property quickly and fastly. With that said, I think this is something that we're continuously work on. And I think I've been talking a bit about how we invest in our sales force. The main reason for investing in our sales force is that we need boots on the ground to be out there, help the individual agent to understand the fantastic value that Hemnet is delivering. And also what we did in Q3 was to lift up Marcus to become my management team. And I think becoming closer to the agent, becoming closer to the industry is it's a strong rationale of why we're doing that and not only because Marcus is a fantastic salesperson. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Jonas Gustafsson: Thank you, everyone, for joining the call today and for a lot of good questions. We ran slightly over time. But with that said, we'll conclude today's session, and I wish you a fantastic day. Thanks.
Operator: Good day, ladies and gentlemen, and welcome to the Medpace Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Lauren Morris, Medpace's Director of Investor Relations. You may begin. Lauren Morris: Good morning, and thank you for joining Medpace's Third Quarter 2025 Earnings Conference Call. Also on the call today are our CEO, August Troendle; our President, Jesse Geiger; and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements even if estimates change. Accordingly, you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to August Troendle. August Troendle: Good day, everyone. Cancellations were well behaved in Q3, permitting record net bookings and a net book-to-bill of 1.20. RFP quality remains solid with decisions progressing on a usual tempo. Initial award notifications were strong and our total dollar value of awarded work not yet recognized in the backlog was up approximately 30% in Q3 on a year-over-year basis. We are making good progress toward refilling our pipeline of opportunities. We will provide 2026 guidance when we report full year 2025 results in February. However, I will provide a brief preliminary view in an attempt to avoid significant divergence between our view and analyst models. We anticipate 2026 revenue to grow in a low double-digit range off our updated 2025 full year guidance. We expect EBITDA to grow at a high single-digit pace or greater. We believe pass-through costs will remain high compared to historical levels and represent between 41% and 42% of revenue. Jesse will now provide comments on the Q. Jesse? Jesse Geiger: Thank you, August. Good morning, everyone. Revenue in the third quarter of 2025 was $659.9 million, which represents a year-over-year increase of 23.7%. Net new business awards entering backlog in the third quarter increased 47.9% from the prior year to $789.6 million, resulting in a 1.20 net book-to-bill. Ending backlog as of September 30, 2025, was approximately $3 billion, an increase of 2.5% from the prior year. We project that approximately $1.84 billion of backlog will convert to revenue in the next 12 months, and our backlog conversion in the third quarter was 23% of beginning backlog. With that, I'll turn the call over to Kevin to review our financial performance in more detail as well as our guidance expectations for the balance of 2025. Kevin? Kevin Brady: Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $659.9 million in the third quarter of 2025. This represented a year-over-year increase of 23.7%. Revenue for the 9 months ended September 30, 2025, was $1.82 billion and increased 15.9%. As expected, revenue for the quarter was favorably impacted by higher reimbursable cost activity, particularly investigator sites, driven by a therapeutic mix shift to faster burning studies in areas which have a higher concentration of reimbursable costs. EBITDA of $148.4 million increased 24.9% compared to $118.8 million in the third quarter of 2024. Year-to-date EBITDA was $397.5 million and increased 14.7% from the comparable prior year period. EBITDA margin for the third quarter was 22.5% compared to 22.3% in the prior year period. Year-to-date EBITDA margin was 21.8% compared to 22% in the prior year period. EBITDA margins benefited from productivity and lower employee-related costs, offset by higher reimbursable costs. In the third quarter of 2025, net income of $111.1 million increased 15.3% compared to net income of $96.4 million in the prior year period. Net income growth below EBITDA growth was primarily driven by a higher effective tax rate and lower interest income compared to the prior year period. Net income per diluted share for the quarter was $3.86 compared to $3.01 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 23% and 33%, respectively, of our year-to-date revenue. In the third quarter, we generated $246.2 million in cash flow from operating activities, and our net days sales outstanding was negative 64.3 days. During the quarter, we repurchased approximately 14,649 shares for $4.5 million. Year-to-date, we repurchased 2.96 million shares or $912.9 million. As of September 30, 2025, we had $821.7 million remaining under our share repurchase authorization program. Moving now to our updated guidance for 2025. Full year 2025 total revenue is now expected in the range of $2.48 billion to $2.53 billion, representing growth of 17.6% to 20% over 2024 total revenue of $2.11 billion. Our 2025 EBITDA is now expected in the range of $545 million to $555 million, representing growth of 13.5% to 15.6% compared to EBITDA of $480.2 million in 2024. We forecast 2025 net income in the range of $431 million to $439 million. This guidance assumes a full year 2025 effective tax rate of 18.25% to 18.75%, interest income of $12.2 million and $29.5 million diluted weighted average shares outstanding. There are no additional share repurchases in our guidance. Earnings per diluted share is now expected to be in the range of $14.60 to $14.86. Guidance is based on foreign exchange rates as of September 30, 2025. With that, I will turn the call back over to the operator so we can take your questions. Operator: [Operator Instructions] Our first question comes from the line of Charles Rhyee with TD Cowen. Charles Rhyee: Obviously, congrats on the quarter here. When we think about sort of the kind of ranges that you've given for next year, how should we think about the pass-throughs in relation to maybe the increase in metabolic work? Obviously, we saw another increase here as a percent of total revenue to 30% in the third quarter from 25% in the first half. But you're still calling out for pass-throughs to remain stable in '26 at that sort of 41% to 42% range. When we think out of your current bookings, are you seeing less metabolic trials compared to your current burn? Or should we expect to see some kind of leveling off in terms of the higher metabolic mix? August Troendle: Yes. I think over the course of '26, it will level off some and might even come down a little bit. But -- and it isn't just the shift to metabolic studies. That is the largest driver, which we've talked about, of course. But timing of projects and having a lot of late-stage projects in what we're burning as we're going to start ramping up new studies, new studies are -- even if they have the same mix of pass-through costs, there's greater direct costs incurred earlier in a trial. I mean pass-through costs are late in the trial. A trial starts and -- some trials, you can get halfway through the trial in terms of direct fees, and we've earned half of our -- half of the revenue from our activities, and we haven't paid sites anything hardly. It's start-up, if it's a very short trial and start-up is a big part of it. So the pass-through parts of a trial are backloaded. So if you have a back-loaded portfolio stuff you're burning, you're going to have more pass-throughs as a -- pass-through expenses at that time. So there's a number of things driving it. But yes, we do expect pass-through to maybe peak in Q4 or so and come down over '26. Operator: And our next question comes from the line of Ann Hynes with Mizuho. Ann Hynes: Thanks for the 2026 guidance. Typically, your EBITDA grows above your -- initial thoughts, okay -- yes. But typically, your EBITDA grows above revenue and it's growing lower. Is that just because of the pass-through dynamic? Or is there something else going on? And within that, if you can just talk about the pricing environment, that would be great. August Troendle: Yes. I think the driver there is the pass-throughs. I mean, look, there's a number of challenges to EBITDA, and that includes exchange rates and a number of factors. But the biggest factor, I think, is the pass-through that challenges that a little bit. But pricing, look, we've talked and everyone's talked about pricing environment as things have slowed in the industry over the last couple of years, there has been a bigger focus on pricing. Pure pricing is more an area for large pharma to get really aggressive at and has the cloud to do it. It is an area of -- it's always a competitive environment. It's always top of mind, but -- and there has been a greater focus. And some clients just can't get the cash to make it work. And so you're looking for ways to help them get there. But I do not think pricing is going to drive a meaningful change in margins at all. Operator: Our next question is going to come from the line of Michael Cherny with Leerink Partners. Michael Cherny: Maybe if I can go back to your comment, August, on some of the pre-backlog filling, encouraging to see, especially given your customer base. As you think about what you're positioning with relative to your preliminary views on FY '26, how do you think about the conversion rate of those -- of the pre-backlog, your win rate and how that should factor in relative to what you've seen over the last couple of years? August Troendle: Yes. I mean, the conversion of how much of it's going to anticipated pull into revenue versus backlog, I really don't have that breakout. I provided the number to -- there has been some concern that our burn rate has gone up quite a bit. Our backlog hasn't grown much this year. It's a single -- low single digit, a couple of percent up over the past year. But I wanted to let people know that the overall pipeline of awarded studies, I mean I'm not just talking about pipeline of opportunities, of awarded studies, we got a fixed scope of work -- we've negotiated the price on it. They've given us written award of that. And it just hasn't gotten to first patient in yet. So we may be working on it, et cetera. And it just hasn't gotten to first patient enrolled. And that's in our -- this bucket pre-backlog. And that is up 30%. And this pre-backlog bucket of awarded -- firm award work is larger than our backlog itself and is up 30% over the year. So I think that puts us in a good position for refilling our backlog over the next year and not having what a number of people have described as some sort of air gap in our revenue growth and things will stall, we run at a backlog kind of. So we really are improving our opportunities for backlog conversion in '26 and revenue generation. Operator: Our next question will come from the line of David Windley with Jefferies. David Windley: So that's good timing. I'll come in right behind that. So -- so August in '23, '24, a lot of your peers saw their activity levels, which would be more akin to your kind of initial award timing moderate decline begin to feel the impact of lower funding. And then for you, that materialized for Medpace, I should say, that materialized in the weaker book-to-bills more in the mid '24 timeframe as you saw some of that pre-backlog cancel out and not move forward, et cetera. So kind of the same timing dynamic sets up for what was a pretty weak funding environment in the first half of '25. So your last answer may have been pointing at me specifically, I'll take that. Why is this time difference -- why is this time different? August Troendle: I don't know. The difference -- a big difference is this has been driven by cancellations, not weak business. There are many challenged clients, and that does affect the business environment. And there's been a really a highly unusual series of cancellations that we went through. But the business environment underlying it has always been pretty okay. And maybe you're saying, well, I'm not real strong compared to what it had been a few years ago, but it's pretty good. And despite all these huge cancellations out of this pre-backlog awarded study bucket, despite all of those, we still grew that bucket by 30% over the last year. It would have grown much faster, and we'd have a much bigger backlog at this point if we hadn't had those cancellations. But the difference is this has been driven by cancellations, not really weak funding environment causing lack of opportunities. David Windley: Got it. And so then from kind of a metric cycling standpoint, you and I, after the last quarter talked about your burn rate kind of naturally increasing in at least some large part because you hadn't been adding a lot of early new-to-start studies into the, call it, the early part of the backlog. And so now you're getting into a period where it feels like that is probably going to happen, get healthier, more added to the backlog. And so I appreciate also the '26 commentary. If I were to kind of interpret, you would expect backlog to grow faster, burn rate to come down and then your need to -- and this is -- my next question is your need to hire to support that growth is probably going to accelerate. Is that the right way to think about how the business is going to evolve? August Troendle: Yes. I think that's a reasonable scenario. David Windley: And on the hiring, where -- we haven't talked about your beginnings of your offshoring activity that I think you started in 2024. How is that progressing? And where is your hiring happening? And that would be my last question. August Troendle: Sure. So hiring in year-to-date and in the last quarter, the largest region of growth was North America and all that really United States. Second largest would be Asia Pac. The kind of two outlying areas that we've not really grown staff at all are Europe and China. And throughout Asia Pac -- it's throughout Asia Pac, although our largest hiring area in Asia Pac as a single country, it was India. Over the last few years, starting, as you say, a couple of years back, we started hiring in India, and that has added a substantial number of staff over time, not compared to our overall numbers, but that's been a focus area in Asia Pac. So I think that it's pretty balanced and most of the hiring recently has been U.S., and that's kind of a transition in the market. There's been more U.S.-focused work lately and a lot of that metabolic stuff is more U.S. focused. So that's been a very strong area of growth. Operator: Our next question comes from the line of Max Smock with William Blair. Max Smock: August, maybe one on the just expectations for book-to-bill here moving forward. You talked about initial awards being up 30% year-over-year. But based on kind of the midpoint of the guide here, I think you need to do 55% growth in bookings in 4Q to put up a 1.2 book-to-bill in the quarter. Can you help us bridge that gap? And maybe just elaborate on your booking expectations for 4Q and what you've embedded in your guide for bookings in 2026? August Troendle: Yes. We're not giving a guide to '26, I don't know where the bookings are going to come out. So I'm not going to get into trying to set them. We did say that -- second half of '25, we did think that we could get to 1.15. We thought a reasonable chance of getting there, and that's kind of where we're looking at towards Q4 is sort of the target. And I think that looks reasonable, but I'm not going to get into next year yet. Max Smock: Maybe just following up on that point. I mean 1.15 still kind of implies 45% plus bookings growth in 4Q. Is that disconnect from the 30% growth in initial awards to that 45%, give or take, on net new business awards in 4Q. Is that disconnect? Is that typically there in a quarter? Like what's your visibility into that bookings in 4Q, given the initial awards up 30%? August Troendle: Well, look, as I said, that bucket is a little bit bigger, and it's 30% growth, not 30% increase in awards. I'm talking about the total bucket is up 30%. Awards -- new awards were up sequentially a bit, but that -- it's the total bucket. And how much of that has to -- is needed to drive a given booking number, I don't know. Max Smock: Yes. Okay. That makes sense. Maybe just as a quick follow-up here. You gave some color on decisions progressing at a usual tempo. Just wondering how those decision-making time lines have changed more recently and what you're hearing from customers around their confidence in the funding environment moving forward? August Troendle: Yes. No, I think things are moving along -- Q1, we had a sort of -- things were held up. We weren't getting our sort of pending RFPs, total dollar pending decisions had kind of spiked and there was a lot of slowdown in things. And that's then improved quite a bit. And it's been now -- I wouldn't say there's still challenged -- funding challenges for clients. And so some are delayed, et cetera. But I think overall, things are going on a pretty reasonable pace. And certainly, it's somewhat normalized. I don't -- there isn't a big -- a large jump in sort of that pending work and people not making decisions and holding things up. So I think they're moving along -- things are moving along pretty well. And that's what we hear in terms of feedback. People are getting funding. I think things are moving along and there's a parallel group that are stalled and having trouble, but we have the flexibility to jump where we need to be. Operator: Our next question will come from the line of Jailendra Singh with Truist Securities. Jailendra Singh: First, a quick clarification on your preliminary 2026 growth expectations or numbers. Just to clarify, that underlying assumption there is, the environment looks similar to what you are seeing in Q3 in terms of bookings, flow and pipeline, right? That's the underlying assumption. I want to make sure that. August Troendle: Yes. We kind of always push forward the environment. But a lot of '26 is already kind of -- cancellations are the biggest sort of wild card. But yes, you're right, the business environment, there still are things that -- to be newly awarded now that will affect next year. But kind of most of the pipeline is there and the big question mark is cancellation rate. And what we're assuming is actually, it could be a little bit higher than where it has been this quarter and last quarter in Q3 and in Q2. But it doesn't jump up again to like levels of Q1 and Q4 and things like that. Jailendra Singh: Okay. And then a quick follow-up on the margin trends. So thanks for the color on the growth number for next year. But outside of pass-through, as you think about the margins on the core direct service revenue business, can you talk about the leverage on gross margin and SG&A? You had a nice kind of improvement this quarter. Just trying to understand the trends there. And I mean, do you think that you are pretty much at the peak on those margin on the -- again, outside of pass-through impact? Kevin Brady: Yes, Jailendra, as August mentioned, we provided some color on both revenue and EBITDA for 2026. And the margin for the most part, is expected to remain in a very good spot. And so we're continuing to see improved productivity from our existing employee base. Some of that is just driven by improved attrition rates. They remain very low. Great utilization levels and studies are progressing at a very good pace. As we said in the third quarter, we are seeing improved funding and with the fewer cancellations, things are progressing in a very good way. So we do expect margins to remain in a good spot in 2026, and it's really driven by just continued productivity of the business. Operator: Our next question is going to come from the line of Dan Leonard with UBS. Daniel Leonard: I'm curious how you would describe the breadth of outperformance in Q3. Would you attribute the upside to a narrow set of 1 to 2 customers? Or was it broader than that? August Troendle: In terms of what, revenue? Daniel Leonard: Yes, exactly. Just looking at the revenue in Q3 compared to Q2, it looks like the growth came in top 5, it came in metabolic. I'm just looking for color on breadth versus what otherwise might suggest that there was just a big trial that landed in the quarter? August Troendle: Kevin, do you want to... Kevin Brady: Yes, Dan, I'd say it's pretty broad-based. I mean, certainly, some of that was just influenced by the pass-throughs. I mean pass-throughs continue to increase. I think for the quarter, we were right around 42%. So that certainly had an influence. But then also just the carryover of the improvements that we saw coming out of our conversation in Q2, where we saw improved funding in those studies progressing forward, the fewer cancellations in the second quarter and that translating further into the third quarter. So it's pretty broad-based. I wouldn't say it's isolated to a handful of studies. Daniel Leonard: Okay. Appreciate that. And then just a quick follow-up. Do you need to accelerate headcount growth further to service your sales forecast for next year? Or is that low single-digit growth rate in headcount growth the right number? Jesse Geiger: Yes. We expect headcount acceleration as we head into next year. Operator: Our next question will come from the line of Luke Sergott with Barclays. Luke Sergott: Great. I'm also one of those that thought that there would be an air pocket. I just want to talk about the competitive win rate that you guys are seeing. We're hearing from some of the larger CROs that typically haven't played in that part of -- in your part of the market that they're going to start competing or entering or bidding on some of this business. So are you guys starting to see the likes of them show up? Or just any color around that? August Troendle: Yes. They've always been there. I don't know about the additional effort or attention there. Certainly, there's a lot of talk about it, but we see the same players, and it is the large providers that we're often competing against. Our win rate has been okay. I mentioned last quarter, it was actually down a little bit. Awards were actually good because the total decisions were elevated. Our win rate did come back up this quarter and some fewer number of decisions, but again, good awards. Look, we don't see a trend towards greater competition causing our win rate to deteriorate. There has been some movement over the last year or so to bring more providers to an opportunity. So instead of what you often see was 3, maybe 4 CROs now is -- often it's 6 or even more. And so that obviously reduces the win rate a little bit for everybody. But I think you correct for those situations. And I think our competitive position is very strong. Luke Sergott: Great. And then I guess a follow-up here, not to be a dead horse, but on the burn rate and kind of how you're thinking about that through next year, where do you think that like -- not even through the end of next year, but where do you think that this kind of settles out as we think about kind of the out years? Could it be more elevated versus what you had in, let's say, before it started ramping up in like the high teens? Kevin Brady: Yes. I mean, I don't think we can answer that question in terms of long term. It's a lot dependent on our mix of programs, where they are in their life cycle. It depends on future bookings. If you go back to a couple of years coming out of COVID when our bookings were very strong, our burn rate came down quite a bit. So it is influenced by how things are progressing from award notifications into programs in the backlog. So it's hard to say. Our range has been quite wide. Operator: Our next question comes from the line of Justin Bowers with DB. Justin Bowers: All right. So I just want to follow up on Luke's comment and your remarks on the win rate, August. You said fewer decisions, but good awards and the win rate was up. So are we to infer that your average award size was larger or more than substantial this quarter? So that's part one. And then part two is just, can you give us a sense of how your conversion or retention or win rates have been trending, call it, over the last couple of years of programs that progress from Phase II to Phase III? August Troendle: Yes. I don't think there's been any change in that. We -- it's kind of all over the map. But usually, we can progress from Phase II to III, but there's -- there is a -- I think there's a lot of times that products in our clientele are sold or moved to someone else. And sometimes we also just don't win the Phase III. We're considered not strong enough in a particular market or something. So I don't know that that's changed at all. Justin Bowers: Okay. And then in terms of the award size in the quarter? August Troendle: Yes, I'm sorry. I don't actually have that. Anybody on the line have that? Kevin Brady: I mean, it's pretty normal, I would say, Justin. There's been -- there were no significant decisions. And remember, decisions where we're notified of an award. Those don't go in the backlog, right? Just fit into that kind of pre-backlog bucket. But I wouldn't say there was anything out of the ordinary in the quarter from a decision standpoint. Justin Bowers: Okay. And then in terms of the pre-backlog, how does that -- how does the therapeutic mix of that compare to the revenue that you're showing right now? So just sort of frame things a little bit, like oncology is 30% -- was 30% in 3Q and like metabolic was 27%. When you look at the pre-backlog, is it over-indexed or under-indexed relative to those 2 therapeutic areas? August Troendle: It's over-indexed in metabolic, as you might expect. Not massively, but there's a -- it's a higher proportion. And that, again, fits in with what we're currently seeing and burning. Operator: Our next question will come from the line of Eric Coldwell with Baird. Eric Coldwell: I have maybe 3. First, on the preliminary views of 2026, talking about the revenue outlook. If we run various inputs on what the fourth quarter service revenue might look like and then also what does low double-digit growth mean and 41% to 42% pass-throughs, you can run various scenarios. They all lead to service revenue implied growth or preliminary view growth of being somewhere in the upper mid-single digits to low double digits growth. Is that your interpretation as well? Or am I missing something? August Troendle: I believe your math. All right, Kevin, do you want to comment on that? Kevin Brady: Eric, could you say that again, upper mid -- upper mid double digit... August Troendle: Upper single... Eric Coldwell: Yes, no, no, I don't know if you're going to do $400 million of -- sorry, go ahead. August Troendle: No, no, go ahead. Say it again. Eric Coldwell: Yes. Look, I mean, it's going to be annoying on the call here, but I don't know if you're going to do $400 million of service revenue in Q4 or $410 million. I don't know what that number is. So there's various bases from which we have to grow. But if I model low double-digit revenue growth and I take it all the way up to 12.5%, which is my view of the low end of low double -- or the high end of low double digit, and then I say pass-throughs at the low end of mix, 41%, even using various inputs like that, I'm coming up with service revenue growth somewhere in the mid- to upper single digits on the low end of the range up to low double digits on the high end of the range. And the only reason I'm focusing on that -- yes. August Troendle: TThat's fair, that sounds reasonable. Kevin Brady: Yes, that's fair. Eric Coldwell: Yes. So I thought -- and maybe I'm still taking too many crazy pills here, but I thought last quarter, we came off thinking it was going to be more like 15% service revenue growth. And I -- maybe I misinterpreted comments last quarter, but admittedly, I was a bit higher on my service revenue outlook for next year. August Troendle: Yes. I don't think we made any comments about next year's growth at all, let alone service revenue. Eric Coldwell: Yes, yes, I might have misinterpreted something. On the pre-backlog, the 3 to 6 -- or I'm sorry, you said pre-backlog, you kind of again confirmed that it's above backlog. So it's above $3 billion. I think there's a range out there of where it might be, obviously, more than $3 billion, but less than X, so I was hoping you could give us a little more specificity because I still think there's a lot of confusion on the Street about these quarterly net new awards. There are really not things that are happening in the quarter. It's the amalgamation of everything you've built up in the past that's moving into revenue generation phase. So having a sense on that bucket, is it $4 billion, $5 billion, $6 billion, having a sense on that bucket could help -- maybe help people think about what magnitude of that pre-backlog actually needs to convert to revenue generation phase, whereby it then goes into your reported backlog? August Troendle: I mean, look, it's part of an overall pipeline. And they are firm awards at that point, but it is part of an overall pipeline. And we do tend to see -- we have seen some very large cancellations there. So we don't treat it like backlog because until the study is actually running and gets patients in, there is a higher risk. But look, I don't want to get into putting numbers on that and then tracking just the size of it and size of what other buckets, et cetera. I think we provide adequate information on the overall parameters that we look at and measure and pay attention to give trends. But yes, the bucket is somewhere under $4 billion, right? Eric Coldwell: Okay. That's super helpful, actually. And then last one, thank you for allowing my time here. You made a comment earlier about this total bucket of awarded work that isn't in backlog being up 30% year-over-year. And then in that same vein of commentary, you said something about haven't gotten the first patient in. So then I got thinking, are you basically telling us that you don't put an award here until you actually have the first patient in the study? Because I used to think that the parameter was that you needed to be within 30 days of revenue generation. But maybe the real parameter is you actually are live in the study generating revenue before you put something into backlog -- street-facing backlog. August Troendle: That's correct. It could be that there's revenue prior to -- and even sometimes a chunk of revenue prior to reaching backlog... Eric Coldwell: So this is how the revenue started growing before the headcount did. I'm just -- I'm trying to get a sense like things started -- the work sped up maybe a bit faster than you were thinking 6 months ago when you had some cancels and market uncertainty. The work sped up sometime between April and July, the tone and the messaging clearly shifted. It just feels like maybe this work really picked up pace and you were sitting right there, not quite in backlog, but suddenly, the stuff is in backlog and now we get the big revenue spike. I'm just trying to get a sense on what really are these dynamics between reported backlog, the pre-backlog and then the notion that your revenue actually accelerated pretty quickly before your headcount growth did and that... August Troendle: So yes, and there's a couple of components to that. One is, yes, you're right, we put it in very late. Generally, a patient doesn't -- but patients got to be kind of -- we think a patient is going to go in, in a very short near term, right? So it's right about when you get the first patients in. But there's other reasons why there might be some concern on that. There's studies where we have a manufacturing problem. And actually, that was an issue recently. And in terms of -- it's right up to a lot of work being done, and we haven't got the patient, but there's uncertainty around drug availability. There may be some other regular -- they need some decision at some regulatory authority to move forward with this. So those kind of things we don't put in backlog. So there's a number of gates. But yes, things can be very close to large-scale revenue generation when they go into backlog. Operator: And we have a follow-up question from the line of David Windley with Jefferies. David Windley: Eric asked one of the two I was going to follow up on. The other one is on your metabolic indexing. So a lot of the inbound questions I get on this particular topic assume GLP-1. I wondered if, August, you'd be willing to provide some color on the breadth or lack of your participation in metabolic. My sense is that it is broader than just GLP-1 and maybe mostly non-GLP-1, but I wondered if you'd be willing to comment on that just so we'd have a better perspective of what your -- what the drivers are of that fast-growing part of your revenue and backlog. August Troendle: Yes. So GLP-1 is probably 2/3 of our obesity, so it is a big chunk -- we can call the GLP class kind of is a large portion of the overall obesity, but it's not all of it. There's still a fair amount of other. David Windley: And is that spread across multiple clients, I would presume? August Troendle: Oh, yes. Operator: And I'm showing no further questions. And I would like to hand the conference back over to Lauren Morris for closing remarks. Lauren Morris: Thank you for joining us on today's call and for your interest in Medpace. We look forward to speaking with you again on our fourth quarter 2025 earnings call. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Natalia Valtasaari: Good morning, everyone, and welcome to KONE's Third Quarter Results Webcast. My name is Natalia Valtasaari. I head up the IR function here at KONE, and I'm very pleased to be joined by our President and CEO, Philippe Delorme... Philippe Delorme: Good morning, everyone. Natalia Valtasaari: And our CFO, Ilkka Hara. As usual, we'll start by walking you through the financial highlights of the quarter, what we're seeing in the business and what we're seeing in the markets, then we'll move on to your questions. [Operator Instructions] but with that, over to you, Philippe. Philippe Delorme: Thank you. Thank you, Natalia, and good morning, everyone. I'm very pleased to be presenting our third quarter results today. And let me start by saying that Q3 was, in many ways, a strong quarter. Order development was, of course, a key highlight. Nearly 8% growth is an excellent achievement, and I'm happy that growth was broad-based. We delivered again on our target to consistently improve profitability towards our midterm margin corridor. Not only did we grow earnings, but we also had healthy cash conversion in the quarter. For me, a key point worth emphasizing is that over 60% of our sales is today coming from service and modernization. This shows that our pivot towards a more resilient business model is proving successful. And last but not least, we continue to drive our strategy forward with precision and speed. I will share a few concrete examples of strategy progress, but let's first take a look at our financial performance in more detail. So as just mentioned, order growth was strong this quarter. We saw over 10% growth in all areas except China. The biggest driver was modernization, where orders were up double digits. And I'm also pleased that our efforts to strengthen competitiveness in the residential segment paid off. This supported good momentum in New Building Solutions, especially in Europe and in the Americas. Sales grew by 3.9% at comparable currencies. Modernization delivered another excellent quarter with sales up 15.5%. Our Service business also performed well outside China, while in China, development was more stable. Adjusted EBIT margin expanded by 75 basis points from a low base. And the main driver was the growth in our largest profit pools, service and modernization. And finally, cash generation was strong with operating cash flow increasing by roughly EUR 100 million year-over-year. Let me now share some highlights from the quarter. The first one, and you see the smile on my face, is a very exciting milestone where we secured the contract to equip the Jeddah Tower in Saudi Arabia, rising to over 1,000 meters. This will be the world's tallest building once completed. It will be equipped with solutions from KONE next-generation high-rise offering, including our superlight UltraRope hoisting technology. I'm very proud of this win. It showcases not only our unique innovations, but also our capacity to deliver highly complex projects in a reliable way. With this win, 5 of the world's 10 tallest building will feature KONE technology. I see this as an excellent recognition of the work we've done to reinforce our leadership in the high-rise segment. As you know, our strategy focuses on making KONE an even more resilient business with service and modernization as the key drivers of growth. And I'm pleased with the progress we've made in accelerating this shift during the year. Let's start with services. We began the year with roughly 35% of our maintenance base connected, and we are now approaching 40%. At the same time, our field service technicians are leveraging productivity tools in 41 countries, and we're enabling remote service in 35. These advancements are critical to deliver greater transparency, improved predictability and more efficient service for our customers. Let's now turn to modernization, where customer response to our partial modernization offering has been very positive. This is the fastest-growing segment within modernization and accounts for the largest share of modernized units. For KONE, partial modernization provides scalable growth and enable us to address market opportunities more broadly. For customers, it offers easier installation and improved energy efficiency at a more attractive cost. I see this as a true win-win. Let's now move on to sustainability, where we have lots of good news to share. Let me highlight a few components of our sustainability index, where we've made particularly strong progress. First, we have continued to scale our solution to drive energy efficiency. A good example is the growth of our partial modernization business and the fact that regenerative drives are now included in more than 60% of our deliveries. We have also improved our [indiscernible] rating, which is how we measure progress in cybersecurity, a key priority for us. We're actually now in the top 10 percentile of the engineering peer group. On the people side, I'm proud to share that KONE was recognized for the 6 years in a row on Forbes and Statista's list in the World's Best Employer. This is a fantastic acknowledgment of our commitment to being the #1 choice for employees, fully aligned with our strategic ambition. Finally, we announced a partnership with UNIDO. Together, we will conduct training programs for our suppliers to promote sustainable practices and human rights across the supply chain. Now let me hand over to Ilkka, who will go through the market development and financial in more details. The floor is yours. Ilkka Hara: Thank you, Philippe. And also a warm welcome on my behalf to this third quarter result webcast. As usual, let me start talking about how we are seeing the markets developing in the different regions over the past 3 months. Overall, the trends were broadly similar to what we've seen earlier this year. In terms of New Building Solutions, as I'm sure you are well aware, market conditions continue to be difficult in China. In all other areas, we actually saw increasing market activity. If we move East to West, demand continued to be strong in Asia Pacific, Middle East and Africa. In Europe, activity picked up from Q2, growing slightly compared to last year, and we also saw some growth year-on-year in North America, despite trade policy-related uncertainty. Then looking at Service and Modernization, we continue to see healthy growth in all regions. Next, let's go through our financial development in the quarter in more detail. As usual, I'm starting with orders received, which, as Philippe mentioned, was a highlight of this quarter. 7.8% growth at the comparable currencies is a great achievement. Interestingly, China New Building Solutions was the only soft spot. Modernization continued to grow strongly in all areas, and we had a good quarter also in New Building Solutions outside of China, both in volume business as in the major projects as well. Order margins were stable overall with China still under pressure and more stable development in other areas. Turning into the sales, which grew 3.9% at the comparable currencies in the quarter. Looking at the development by business, it was great to once again see the strong order book rotation in modernization. Sales increased by 15.5% overall. And more importantly, all areas contributed with double-digit growth. In New Building Solutions, continued low delivery volumes in China was the main driver behind the 5% decline. In Service, we grew by 7.3%. Outside of China, growth was very much in line with our targets. In China, we have taken deliberate actions to prioritize margin and cash flow over volume in all of our businesses, including service. This means being selective and sometimes walking away from contracts that are not meeting our performance criteria. Pricing and revenue uplift from digital services solutions continued to contribute positively to service growth. The repair business also performed well in the quarter. This is actually a great example of the benefits of accelerating digital. As Philippe said, connectivity enables productivity. And when we perform service more efficiently, we release time that we can use, for instance, more proactively drive repair sales. Then moving to adjusted EBIT and profitability. Margin expansion in the quarter was 75 basis points year-on-year, which is a good outcome despite the lower -- low comparison point. This took adjusted EBIT to EUR 341 million. Looking into the details, we saw again some negative impact from higher investments into R&D and our strategic growth areas. That said, the main headwind continued to be the new equipment market in China, more than offsetting was the positive mix impact of services and modernization growth. So overall, good delivery of our 11th consecutive quarter of profitability improvement and especially good to see also sequential improvement, which is not always the case for Q3. Then turning to cash flow, one of my favorite metrics. Cash generation was strong in the quarter, supported by growth in operating income and by changes in working capital. Cash flow from operations increased to EUR 364 million, bringing year-to-date cash flow to EUR 1.3 billion. The contribution from working capital came mainly from advances received, which, of course, related to a strong growth in orders. And although not a big contributor this quarter, our focus on collections continues and it's progressing well. Then looking at the whole year '25. First, we have made a small update on our market outlook. We now expect the New Building Solutions market in North America to grow slightly, as activity continued to trend upward in Q3. Of course, the business environment in the U.S., in particular, remains fluid. Our view on other areas is unchanged. China continues to be the main challenge. In Europe, we expect some growth. And in Asia Pacific, Middle East and Africa, we expect clear growth. For Services and Modernization, our outlook continues to be positive with growth opportunities in all areas. Then to our business outlook. With 3 months left in the year, we have specified our guidance slightly. We now expect sales to grow 3% to 5% at the comparable exchange rates and the adjusted EBIT margin to be in the range of 11.9% to 12.3% this year. FX is expected to be a headwind. If it remains at the October levels, we estimate a roughly EUR 30 million negative impact to EBIT. China continues to be burden to both volumes and margin. We also expect some small impact from tariffs. But as we discussed already previously, most of the impact is recoverable in our view. We have already made good progress in mitigation actions. In terms then on tailwinds, service and modernization growth is the main positive. We also expect some support from the ramp-up of performance initiatives. Then Finally, let's look at how we're currently thinking about year '26, starting with challenges. China construction market is not yet showing any signs of leveling out. So this will continue to be a burden, less than in '25 as our exposure continues to come down. We also expect similar inflationary pressure on wages, as we have seen this year. On the positive side, we continue to see opportunities to grow our service and modernization business, which will contribute positively to the earnings mix. We also expect meaningful contribution from our performance improvement measures. And we have made it very -- and we have made very good progress in our product cost reductions this year, which will also be supportive. So those are our initial thoughts. And of course, we will provide more color when we report the Q4. Let me now hand back to Philippe to close the presentation before going to the Q&A. Philippe Delorme: Thank you, Ilkka. So to wrap it up, let's make -- sorry, changing slides. So let me first take the opportunity to thank all the KONE teams for their great achievements and for delivering a strong Q3. We had yet another quarter of good momentum in service and modernization, which shows that the transformation we are driving is well underway. I'm also very happy with the progress we are making in executing our Rise strategy, and we continue to move full steam ahead. And finally, our performance this quarter shows that we are on track to delivering on expectations for 2025 and building solid momentum towards reaching our midterm financial targets. Thank you all for your attention, and I suggest now we move on to your questions. Operator: [Operator Instructions] The first question comes from the line of Andre Kukhnin from UBS. Andre Kukhnin: Maybe actually, I'll start with a quick follow-up on what you mentioned on China exposure coming down during this year. Maybe could you help us to calibrate that a little bit? I think we talked about China New Equipment margin being clearly below group average in 2024. Is it fair to assume that it has come down substantially further in 2025 in sort of more mid- to low single-digit range? Ilkka Hara: It's always difficult with these objectives substantially, like you said, but what I would say that our margins in China in New Building Solutions have come down in '25 further. Andre Kukhnin: Got it. And the main question really for me is on the performance improvement initiatives that you talked about and we've been kind of tracking and talking about since the Capital Markets Day last year. Can you just walk us through what has been done during 2025 and what will be delivering those kind of meaningful contribution, as you mentioned, in 2026? And is there any way we can start sort of quantifying that already for 2026? Ilkka Hara: Well, if I start, I think you're quite passionate about this, Philippe, yourself. So what we outlined in Capital Markets Day is that we see an opportunity for us to improve our profitability by 150 basis points by year '27. And then, of course, we need to make a decision that we invest some of that back to growing the business further. In that progress, we have started to now execute those programs. The largest ones which are contributing to the profitability are focus on our procurement, how we source both at the factories as well as in the local operations and as well as how we perform at the regional level or the lowest level where the KONE teams come together, and we call it sales and operational excellence. On sourcing, I'm very happy how we've been able to drive our product cost down this year. We have yet another record in terms of product cost reductions as a result. We have more work to be done on the local sourcing part, and that's because it's touching more teams, and we need to then just lower to get that executed. So good progress in where it's more centralized, more work to be done and good opportunities in there. And then sales and operational excellence, we are seeing that the teams are really now able to drive better and better outcomes, and we have more and more consistent execution. But also there, we have plenty of work to be done on that one. Maybe you want to comment? Philippe Delorme: Yes. I mean those things take time. I'm rather impatient as a person, but you -- I mean, you don't -- the company is not a light switch. So when you drive things at a branch level with much stronger sense of execution, timely, weekly, tactical and things like this, it takes some time to spread within the company. I think we've said during the Capital Market Day that we would start to see the impact of most of these actions by the end of 2025. Nothing has changed on that front. The only thing I can say that we've been extremely diligent in '25 to ramp up our actions, be extremely systematic. And I feel much better about, let's say, the level of detail and scrutiny and capacity to execute we have on this work. And I would say on procurement, the arrival of Michelle Wen, who came with a very strong automotive background, and she just came in actually in August. So it's not yesterday, but it's a few weeks away, is giving me confidence that we can actually intensify the work we want to do on the procurement side. Operator: The next question comes from the line of James Moore calling from Rothschild. James Moore: I wondered if I could talk about your service growth. Would it be possible just to give us a flavor for the speed of the unit growth in maintenance base versus the price behind that and other topics is the first question. Just to understand whether the speed of maintenance base growth is broadly stable or accelerating or slowing for any reason and whether price is broadly the same behind that? Ilkka Hara: Yes. So overall, on the LIS growth, and I guess I commented that already during the presentation. So the LIS component of that is growing in Q3 a bit less than we've seen as a trend line. And the main reason for that is 2 things. One, which is that in China, we clearly focused more on lining up the business to focus on cash flow and profitability. And in some cases, also in the service business, we've actually decided to let go some of the customer contracts, as they're not meeting our performance criteria. And then it's more of a quarter-by-quarter, there's fluctuations. So it happened to be that in Q3, we had a bit less acquisitions than we've seen in the recent quarters as a result. The good thing is that both pricing including digital as well as repair sales are actually progressing quite well. So in that sense, we are making very good progress on that front. And then lastly, I think it's also that given what I said, so we had very close to the targeted level of 10% growth or close to 10% growth in services in 3 of the areas, whereas really the slowdown in sales was more related to China actions we've taken. Philippe Delorme: Which is a clear choice. And actually, I'm very happy to see the result, which is our cash generation in China and our profit improvement in China on that front is according to plan. So I would say we are executing what we want to execute. And it's a bit of 2 way of doing things, which is China on one side, where we've always said cash margin and moving to more service and modernization versus elsewhere where clearly our -- the way we are executing is different because the markets are different. James Moore: Could I just follow up on that? I mean, over time, I felt that the maintenance base grows with a lag after the first service period from the unit deliveries, but also your win-loss ratio and your conversion ratios. And you always had a very high U.S., European conversion ratio, 80%, 90% and a more muted 50%, 60% conversion ratio in China. I'm just trying to understand, is it that the conversion ratios are broadly staying the same across the 3 regions and that it's the active choice on the win-loss ratio to effectively proactively lose? And is the intensity of this change, which slows your maintenance base growth at the moment? Is that something that's going to intensify yet further going into '26, if you like, with more proactive contract management? Ilkka Hara: No, I don't think that's something which will continue going forward. It's been more of a targeted efforts right now. And it's good to note, so first, your comments on conversions as well as retention. So they are quite stable. And for example, in Europe, where the NBS market has been now for a few years, been down, we've been able to actually quite nicely grow the services business, as I've noted in previous quarters. So we've been able to mitigate with good retention, win-loss ratios improving and some acquisitions as well to drive growth in a market where there's less conversions. Philippe Delorme: And talking about our service business, we -- you've probably noticed that we talk quite a bit about our repair business. Actually, we've done quite some work to make sure that we would optimize that part of the business. It's actually significant in our service figures, both top line and profit. And when trying to understand how the service business work, I would encourage you to really look at, yes, the pricing and the service base but also the repair business, which for us, at least is very important. Ilkka Hara: And actually, the repair business grew really nicely, almost double the speed of our service business in the quarter. Philippe Delorme: Yes, absolutely. Operator: The next question comes from the line of Daniela Costa calling from Goldman Sachs. Daniela Costa: I'll ask just one and it's regarding modernization, obviously, very strong 10% organic order growth there. Can you give us some light on how sort of your installed base age has evolved? I know you talked about the mono elevators being very important for that modernization. So can we see this 10% plus as sustainable going forward when you look at sort of how the curve of age of installed base is? Any light there would be helpful. Ilkka Hara: Well, I guess, first, good to note that the modernization growth was actually on a quite close to the 15% target that we talked about in the quarter. So very good numbers. Then on this aging of the portfolio, so I think there's 2 topics I would highlight. So first, there are so many elevators in the world that need to be modernized that we're not yet making a dent onto the aging as a whole. And most of the elevators that are old are actually outside of our own LIS base. So for us, the growth opportunity, we've been working and targeting previously our own service base. But really, the big blue ocean is the elevators that are not in KONE maintenance. And there, I think we're increasingly making good progress in identifying those and having the right go-to-market to really get to those customers. So at this rate, we're still -- the elevator base is aging more than we're able to modernize as an industry and also, I guess, for KONE as well. Philippe Delorme: Maybe to illustrate a bit more, Daniela, the topic, and I'm going to quote some figures that I think I have listed in the Capital Market Day, but there is 25 million elevators in front of us, of which 10 million are more than 15-year-old total in the world. This 10 million will become 13 million by 2030. So whatever happens every year, whatever happens to real estate market in China, outside of China, there is growth because elevators are aging, whether our elevators or the elevators of competition. With that in mind, today, when I look at our figures -- and we are happy with our figures, and we'll try to do our best to sustain that growth. We are actually modernizing tens of thousands of units versus 10 million units in front of us. So we've said it many times, but we'll repeat and we'll repeat and will repeat, this market is growing structurally because elevators are aging. And today, we have good figures, but we are not -- I mean, there is still a lot more that could be done with innovation, with better execution and so on. So we are confident in our capacity to drive scalable growth in that field. Operator: The next question comes from the line of John Kim calling from Deutsche Bank. John-B Kim: Could we just go back to wage inflation for a second. Can you give us a sense of quantum of growth there as a growth rate and how that compares to what you maybe were seeing earlier in the year? And how should we think about the cadence of the price ups that are in the contracts versus this inflation? Ilkka Hara: So twofold. We are seeing -- I guess, I've said also earlier that our wage inflation this year is around about 5% on average for KONE as a whole. And yes, our escalation in contract prices for services have actually been quite close to the inflation level. So we've been able to continuously now drive not only the CPI level inflation, which is continuously coming down, but actually representing the inflation we are seeing and then we have the productivity as a separate item. So pricing, yes, we can escalate service contracts. But of course, then also we see broadly outside of the service operatives, also the wage inflation impacting our cost base as such. John-B Kim: Super helpful. One follow-on, if I may. Can you give us any color on how you're driving better penetration of connectivity? Ilkka Hara: I think that's for you. Philippe Delorme: Discipline. Discipline and it looks like -- it's not easy. I mean, in every, let's say, original industrial company, I think it takes some time to make sure that our people understand the value of connectivity. And on the few things that I'm really happy with, when I look at the step-up that has happened in the company for every one of us to understand, especially in our service business that service will have to be digital. I think we've been good at discipline. And we'll be even better at discipline. And we've been -- I've been very clear to the people in KONE. We want by 2030, 100% of our installed base to be connected. And we're going to be very disciplined and focused on driving that goal and it makes sense for customers. And actually, I've been on the road for 3 weeks in North America, meeting many, many customers. The great news is -- the feedback from our customers is we execute well. They see the value of our connectivity around transparency, around predictive capabilities, around from time to time remote services, and they really like it. And the feedback we get is we seem to be executing pretty well on that front. So we'll keep doing that. Operator: We are now going to take a question coming from Martin Flueckiger calling from Kepler Cheuvreux. Martin Flueckiger: Two questions. The first one is on China and particularly the property market there, where July, August data seemed to suggest that there was a steepening of the decline. And yet when I look at your data on the Chinese property market, it looks like NBS orders were relatively -- in real terms were relatively stable in terms of dynamics. So just wondering, is that because of rounding? Or -- what do you see on the ground in the field? Was there a worsening in the NBS market actually maybe towards the end of Q3? That would be my first question. The second question, if I just may add on, is on the financial income that you've reported for Q3. If I saw this correctly, you've posted a negative financial income for Q3. If you could just elaborate on the reasons for that, that would be helpful. Ilkka Hara: Okay. I'll take them in reverse order. So the financial income is related to hedging. And if you look at the 9 months year-to-date, that gives you a better picture. So Q2, Q3, you see the opposite direction there. So in 9 months, you see the real underlying performance there. Then on China, so I think as I've said during the last few years that a lot of the KPIs fluctuate somewhat. And whether it's better or worse around that volatility, our view of the market has not changed. So we are seeing the market to decline this year in units and value double digit and more in value than in units. And I would say that during Q2 Q1, Q2, there was a bit some signals that were better, but I would not say that the Q3 has been something where we've seen a big change overall. And it's important for us to also note that, yes, we want to be a meaningful player in China and want to go after the service and modernization opportunity. But as Philippe already said, and I said, I guess, as well that we are optimizing the business to cash flow, profitability and the pivot to services and modernization. So we'll take the business that we see supporting those priorities in NBS then in the market. But I don't see that the market has dramatically -- or there's been a bigger shift during the Q3. Philippe Delorme: And the repeat on the China market, maybe it's clear for everyone, but I will repeat. The market today is 50 NBS, 50 modernization and service. So if there is any change, that is that over multiple years, what was NBS-dominated market, now it's coming 50-50. I'm not having any crystal ball, but it's pretty obvious that, that trend will continue, meaning the share of modernization and service will likely keep increasing if we see what's happening because the country is aging. We see growth and actually pretty healthy growth in modernization. We are driving our service mix first with cash and margin, but there are still opportunity in service. And we are clearly adapting our forces in NBS to take into account that market reality. And I would say on that front, I want to compliment the team for reducing their cost very aggressively, both product cost and the fixed cost we have to adapt ourselves to a market reality, which indeed is going down, on NBS. Operator: The next question comes from the line of Vlad Sergievskii calling from Barclays. Vladimir Sergievskiy: Two questions from me. Can I please start with the follow-up on modernization growth opportunity ahead? To what extent it is driven by the market growing? Or it is actually KONE creating the market for itself by addressing installed base, perhaps in a more proactive way or opening new market niches for themselves? Because I hear your comment that fleet -- the installed base is aging, but it probably has been aging for forever. And KONE modernization growth was almost never as impressive as it is today. Philippe Delorme: I think it's a mix of both. The market is growing, and you have the data on our assumption of the market, but the market growth is good. And we believe that we are gaining market share in that space because we are focused and because we try to drive the right innovation and be customer-centric, which is when you have an elevator in your premise, the last thing you want is having any OEMs coming and say, okay, for months, your elevator is not going to work. So what we are doing is we are listening to our customers and say, you know what, we are going to make it shorter, simpler so that actually we do what's strictly necessary to start with, which very often is electrification upgrade. And then we'll go in a life cycle discussion with you to make that improvement over multiple years with smaller chunk that will be less risky. That's not -- I'm not reinventing the wheel here, but we are executing in a very focused manner, trying to have modular offers in front of this, and it's working very well. So we are gaining share in that regard, and we're really trying to push our team to be very customer-centric on a growing market. And the result is a double-digit growth, which is very consistent, which is driving value for the company, and we are very happy with that. Vladimir Sergievskiy: That's great. And a quick housekeeping question, if I may, to Ilkka. Interest income line was negative about EUR 15 million this quarter, which I think is almost the first time ever when this line was actually negative. Is there something to do with hedging practices? Has any hedging practices changed to drive this change? And where in the P&L, there could be an offset to this line if there is one? Ilkka Hara: So actually, the previous question was on the same one. I said, yes, it's on hedging. And the year-to-date picture gives a better picture of the real underlying income and expenses. So between Q2 and Q3, we had an opposite development on there. Operator: The next question comes from the line of Panu Laitinmäki calling from Danske Bank. Panu Laitinmaki: I have 2 questions. Firstly, on China NBS, just on the margin. So was it still positive in Q3? And going forward, do you expect to kind of protect the margin with the actions you mentioned reducing fixed costs and so on. So that is why you gave the comment that it's a smaller headwind going into '26. Ilkka Hara: Well, yes, on both of the questions. And I guess I was also in the smaller headwind, meaning that the size of the business relative to the size of the rest of the business is smaller. Panu Laitinmaki: Okay. That's clear. Then the second question is on modernization. So how much is parcel modernization out of orders and sales roughly? And then how has the margin of modernization developed? I mean, a year ago, you said at the CMD that it's close to the group average. So is it still there? Or has there been changed so far? Ilkka Hara: We see on the parcel modernization, it continues to be a bigger and bigger part of the modernization. I don't think we've been very clear on exactly how big part of that is. And on modernization, we continue to see, as it has been during the last years that the profitability continues to be improving as we are scaling up the business on modernization. Panu Laitinmaki: Okay. And is it fair to assume that the parcel modernization is more profitable for you than the kind of traditional modernization? Ilkka Hara: Yes, it is. It is focused on the most important components of the elevator and there's less construction work related to that as well. Philippe Delorme: That's what we call the benefit of being modular and standardizing work, which actually for the customer is better value for money. And for us, it's better execution, less time lost in the field. So it's a win-win for everybody. Operator: The next question is from Ben Heelan calling from Bank of America. Benjamin Heelan: I just had one, which was on M&A. Now you've obviously said in the past that you want to be a consolidator of the industry. I just wondered if you -- is that still where your minds in terms of the future of the business? You see consolidation as a focus? And when we think about leverage ratios, is there any sort of framework that you can give us in terms of the leverage that KONE would be willing to go up to? And any framework there? Is it based on credit rating, et cetera? Ilkka Hara: I don't think the comment on the consolidation making sense in the industry has changed. We've said it for a very, very long time. Lately, actually, we've been doing consolidation more on the smaller maintenance companies on an increasing speed. So that's also then that we want to be a driver of the consolidation. Then on leverage, so I guess we don't -- we're net debt negative right now. So it's not been an issue. But I've said previously that we want to continue to be an investment-grade -- strong investment-grade company going forward. Operator: The next question is from Rizk Maidi calling from Jefferies. Rizk Maidi: Just to follow up on M&A and more specifically transformational M&A. Can we maybe just chat around whether you would be considering issuing equity, if you were to pursue a larger acquisition? And then maybe geographically, what are the regions where you feel you have a little or perhaps where we would like to add sort of more exposure? I'll start there. Ilkka Hara: Well, I guess on the first one, so I wake up every morning, and I guess, Philippe as well as somebody who sees that there are bigger companies in the industry. So we're a challenger. We want to grow faster to be the leader in the industry. So that's clear. I don't think it's one geography per se. I think it's a general statement where we want to grow faster than our competitors to make that happen. And as such, then on other things on capital structure, capital raising, I don't think it makes much sense to speculate on that. Rizk Maidi: Okay. And then the second one that I had is just covering the industry for quite some time, and this question is specifically on China maintenance. I think we've seen historically that whenever new equipment business being weak for an extended period of time, we saw that basically spread to the maintenance side of things. I'm just wondering why this should not be applicable. I mean I remember this happening to Europe back in 2013, '14 after the European debt crisis. Just wondering why you think this should not happen in China, whether it's -- you compete with different players, structure of the market different and whether the slowdown in maintenance has anything to do with this? Ilkka Hara: Well, first on China maintenance, I don't think I've ever said it's easy or something where there's not a competition. It is like we see it it's -- half of the market is service and modernization. So of course, everybody knows the same thing. And among the world's fragmented, so i.e. most competitive market in service is China by far. So I think that's a starting point. And then when you have less new elevators enter into the market, then, of course, it makes it tougher. What I'm very happy about is that how our team has been able to address it. And now I call it out because we made conscious decisions now in Q3 that impact the outcomes. And it's not a market-wide comment. It's rather our focus on profitability and cash flow. Philippe Delorme: And maybe to build on your point on China market. When we benchmark across the world, clearly, the China market is more fragmented. And we see at the lower part of the market, companies that are doing the very minimum of what they should do in terms of safety. We see on the other side, the China government being conscious that safety standards should move up, also seeing an opportunity with digital. So my point is not about next quarter, but when I look at a longer time period, I would expect some further concentration because on one side, the lower part of the market would have a hard time to survive with a standard that I would expect would increase with more digital technology that would make it less accessible for, let's say, lower cost, low-value player to deliver a value, which is more and more essential in a country that's being more and more modern and more and more asking for top safety standards. And we have work to do as an industry to help the industry move to a higher level of digital safety and so on. So this is upside. How fast it will materialize, we'll see. We have our role to play here. We are very active on digital to be a digital driver in China. It's taking some time. Rizk Maidi: Perfect. And I promise the very last one, so apologies if this was tackled before because I joined late. Section 232 and its extension to more than 400 products in August, maybe how you're thinking about the direct, but also more importantly, the indirect impact on the business. Ilkka Hara: It is first question on tariffs, and I think there is a reason for it because we don't see that meaningfully impacting our results. We are, number one, of course, working with our own supply chain on what we produce in U.S. and what do we ship to U.S. And actually, the export -- sorry, import to U.S. is less -- about 10% of our business. So it's actually quite small. And then secondly, we're protected by our contracts. So we are actually moving the cost of tariffs largely to our customers. And then, of course, we need to continue to drive product cost actions and efficiency in our supply chain going forward. Operator: Moving on to our next question from John Kim calling from Deutsche Bank. John-B Kim: He just took my question. Someone was strong. Ilkka Hara: Okay. That's good efficiency in action. Operator: And the next question is from Vivek Midha calling from Citi. Vivek Midha: Hope you can hear me. I just have one follow-up really on the questions around service growth with one eye on the quite ambitious aims for midterm growth here and the building blocks there. Is there also any material contribution at all from the strong modernization growth that you've been seeing in adding to the service installed base? Is there expected to be some over the midterm, helping you achieve your targets there? Ilkka Hara: You're seeing me smiling because that's actually a really important topic. And I was talking about the modernization. So the focus and the volume of the opportunities outside of our own maintenance space. And indeed, once we partially modernize an elevator, it becomes a digital modern elevator for us to maintain. So increasingly, that will be a driver for unit growth. And of course, already now with this modernization growth, we're starting to see increasing impact coming from that. And the more mature the markets are the bigger driver for unit growth is modernization in the long run. Philippe Delorme: And those, as you call, modernized connected elevators, actually, we are more efficient in delivering the right output with our customers because we use all our capabilities. So it's playing very positively in the mix. But that's a great point. Vivek Midha: Understood. Just a quick follow-up -- as a quick follow-up on that -- I don't know if you have data, but in terms of the conversion rate of, say, one of these partial mods, for example, compared to NBS, I mean, how does it compare in terms of driving the service there? Ilkka Hara: Well, twofold. So the relative conversion rate is quite high. So it's a very good level. Then still on the absolute volumes, it's still a smaller contributor. So we need to scale up the business, but it's a very good way to increase our LIS base. Operator: There is a follow-up question from Andre Kukhnin from UBS. Andre Kukhnin: So firstly, on the service adjustment in China that where you decided to let go some customer contracts, can you just confirm that, that's a one-off? Or should we think about that for Q4 and then maybe into 2026 as well? Ilkka Hara: I guess I already said it's not a long-term action. But of course, we continue to monitor the business. So let's see now how Q4 develops, but it's not something we expect to continue for years. The priorities don't change, but I think it's more of a discrete focus on this. Andre Kukhnin: Got it. And if I were to think about it, I'd probably think about it being more margin focused than cash as such, as probably some of these units are in fairly sort of spot locations, not really helping density. Is that the right sort of avenue? Or is it cash driven as well? Philippe Delorme: I think it's both, but it's driven by margin, but we've been really very clear with our China team, cash, margin rebalance the business. And there -- I mean, China is seeing some cash tension across the board. So how much is margin and cash? Usually, the 2 are related actually, but it's a bit of both. Andre Kukhnin: And if I may, just one more on China... Ilkka Hara: A follow-up on follow-up. Andre Kukhnin: Yes. Triple follow-up. Is modernization still the highest margin business for you in China? And is there -- well, I think there is scope, but are you also implementing a kind of modular approach there given that you've got a substantial and sort of broader universal installed base there? Ilkka Hara: Yes. So we plan to drive this more modular approach in China as well. And if you think about the size of the buildings, the time to execute the modernization is even more critical for the customers. And we have actually progressed really well be, I guess, fastest in the world in China in terms of driving modernization, is a fair statement. So kudos to the team on that one. And yes, modernization continues to be a good margin business for us in China. Operator: There is another follow-up question coming from James Moore from Rothschild. James Moore: I just wanted to follow up on service and NBS margins at a global level. You mentioned that China's margin is now in a loss in NBS in new equipment. Is that such a loss that the whole global NBS profitability is now a negative one? And the second question is on service margins. Are we at an all-time high in terms of service profitability? And if not, could you say when that was and how many bps or percentage we are below the all-time high? Ilkka Hara: On the first comment, I absolutely did not say that we are making a loss in China in NBS, neither did I say that we're making a loss in NBS globally. So it is clearly a lower-margin business compared to the other 2, but I have not said that we're making a loss. Then second, on services, I'm sure that in the history of 115 years, we've had margins that are peaking due to many reasons in services as well. But I would say that directionally, we continue to see margins improving in services, as we're digitalizing the business and driving productivity and the actions we talked about in pricing and more repair work. So it's directionally continuing to develop quite positively. Operator: Well, ladies and gentlemen, there are no further questions so I will hand you back to your host to conclude today's conference. Thank you. Natalia Valtasaari: Thank you, and thank you, Philippe and Ilkka, for the answers. Thanks, everyone, online for the plentiful questions, lots of varied ones. Really good to have active dialogue. Thanks for everyone who just listened in as well. I know it's a busy results today, so we appreciate the time. And as usual, if you do have any follow-ups, please reach out to me or the team. We're here for you. With that, have a great day. Philippe Delorme: Have a great day. Thank you so much. Ilkka Hara: Thank you.
Operator: Good morning. Thank you for standing by, and welcome to the Sodexo Fiscal Year 2025 Results Call. If you -- I advise you that this conference is being recorded today, Thursday, October 23, 2025. I would like to hand the conference over to the Sodexo team. Please go ahead. Juliette Klein: Good morning, everyone. Welcome to our fiscal 2025 results call. I'm here with Sophie Bellon and Sebastien De Tramasure. They'll go through the presentation and then take your questions. [Operator Instructions] The slides and the press release are available on sodexo.com, and you'll be able to access this webcast on our website for the next 12 months. Please get back to the IR team if you have any further questions after the call. I remind you that our Q1 fiscal 2026 revenues announcement will be on Thursday, January 8. With that, I now hand over to Sophie. Sophie Bellon: Good morning, everyone, and thank you for joining us today. We spoke to you a couple of weeks ago regarding our governance changes. And today, we are going to cover our fiscal year '25 results and our priorities and outlook for 2026. Just on the slide here, a brief summary of what we're going to cover today. When I became CEO in 2022, our priorities were clear: reposition Sodexo as a pure-play food and services company and simplify the organization. Over the past 3 years, we've made solid progress, streamlining the portfolio, refocusing on food, accelerating key investments and strengthening client relationships. These were essential steps to build a strong foundation for sustainable growth. In financial year '25, results came in line with revised guidance, reflecting both operational and commercial challenges. We are actively addressing these with targeted action plan in commercial and in U.S. universities. We're also continuing to strengthen our foundation. With this in mind, fiscal year '26 will be a year of transition and the start of a new phase for the group. Thierry Delaporte will soon take over as CEO, bringing the right experience and profile to drive operational execution, accelerate commercial momentum and lead the group forward. But let's now first take a backward perspective on our key achievements from the last 3 years and 2026 priorities before Sebastien walk you through the fiscal year '25 results and the resulting fiscal year '26 guidance. Turning to the next slide. While I won't go into every detail here, this timeline of recent years shows the major steps of our shift to a pure-play food and services company. We have simplified our structure through geography reorganization and the sale of Sofinsod. We have actively managed the portfolio by spinning off Pluxee and making other non-core disposals, while pursuing targeted acquisitions to accelerate in food. So if we look now at the impact of this refocus on core activities, you can see that there has been real progress in the numbers. Let me pick out some highlights. Food now covers more than 2/3 of our portfolio, up from 62% in fiscal year '22. We have modernized the offer based on data-driven insights across culinary, digital and sustainability. Digital engagement has surged almost 6 million active consumers, up from just over 1 million, showing how we're expanding our reach and creating new growth avenues. Our branded food offer now represents over 50% of revenues versus less than 20% 3 years ago, improving client experience, standardization and operational efficiency. Entegra has more than doubled in size, boosting procurement benefits, and we have also advanced catalog compliance, both strengthening our competitive edge. On sustainability, we are hitting the targets we set on workplace safety, carbon and food waste, thanks to close collaboration with our clients and partners, and we are leading by far the industry on those aspects. And all of this is creating tangible value. Our underlying earnings per share has grown at 14% compound annual growth rate, and we have seen a marked improvement in our return on capital employed. Moving on to commercial performance. We have made a solid improvement in retention and development compared to the pre-COVID period. Over the last 3 years, our average retention is 94.5% versus 93.5% between 2017 and 2019. Likewise, on development, we signed around EUR 1.7 billion of new contracts per year, including cross-selling compared with EUR 1.4 billion before the pandemic. This is a result of our ongoing focus on processes, team culture and competence, but also client relationship. However, this does not reflect our full potential with fiscal year '25 presenting some commercial challenges. In fiscal year '25, retention came in at 94% due to the negative impact from the loss of a global account and softer performance in North America, in particular, in Education. Performance is uneven across the business. For example, U.S. Healthcare. In U.S. Healthcare, we delivered retention above 97%. And in France and Australia, we were above 96%. On development, H1 was strong, especially in Europe and Rest of the World, but H2 softened and total new business landed at EUR 1.7 billion. North America, which remains our largest market, is where we need to improve. We have clear actions underway. We are addressing near-term priorities in U.S. Higher Education, and we are strengthening our U.S. sales team through expansion and training. We are also investing and reorganizing to make sure we capture the market's potential. I will now walk you through in more detail how we are addressing the challenges in U.S. Higher Education. We clearly had some performance gap over the past couple of years in this segment, and it's translated into market share losses. Since February, together with Michael Svagdis and his team, we have carried out a comprehensive diagnostic process to fully understand the root causes behind this lack. A few key issues stood out. First, our footprint is still too concentrated in small and midsized institutions. Second, we have not focused enough on mid-plan renegotiation. And third, we've had some resource misalignment. The remedial action plan is already well underway. Michael has put in place a new organization with culinary and digital now reporting directly to him, and he has reenergized the team to drive best practice and greater standardization. Our sales function was clearly subscale, so we have expanded the team by 50% with the newly hired sales executives already in place and operational. We are also targeting more large universities and athletics, working more closely with Sodexo Live!. To strengthen existing relationship, we are growing our account management team and refreshing our broader teams, bringing in new talent where needed to ensure the right capabilities are in place. Execution is a big focus. We are currently renegotiating 75 meal plans for implementation in fall 2026, and we have rebuilt the meal plan team, which had been disbanded during the COVID period. Now we are harnessing data and tech to methodically track what's selling, where and to whom. We are deploying digital platforms like Everyday and Grubhub, and strengthening our own retail brands to streamline the offer. This plan is clear, but it won't be executed overnight. Some levers will take time. And given the timing of the selling season, fiscal year '26 is largely set already. The goal is, therefore, to restore growth momentum and capture new market opportunities progressively from fiscal year '27 onward. Michael and his teams are laser-focused. Michael has visited more than 20 campuses in the last 3 weeks. The feedback is very consistent. Universities are under financial pressure. They are becoming more business-driven, and they are open to change. That creates challenges, but also a lot of opportunities, and we are now in a much better position to seize it. So as you can see, we have set focused priorities in the U.S. for this year, short term very execution-driven, to put us back on a stronger trajectory. With that in mind, fiscal year will very much mark itself as a year of transition. It will still reflect some of the commercial challenges we have just discussed, but also the investments we are making to strengthen our foundation to drive efficiency, accelerate digital and prepare for long-term growth. Sebastien will get back to that. We have a strong foundation to build on, with a solid balance sheet and the flexibility to invest where it matters most. We are the #2 player globally with a balanced portfolio across regions and segments. We have the scale to leverage procurement, technology and operational excellence across the group. Our culture remains a key driver of sustainable performance, purpose-driven, people-focused and deeply engaged with our clients. Retention in our industry drive resilience, and our teams are proud to deliver on our mission every day. And of course, we operate in a large and attractive market, still 50% in-sourced with significant outsourcing opportunities ahead of us. Looking ahead, I'm also very confident in the next phase for Sodexo. On November 10, Thierry Delaporte will join us as Group CEO. He brings over a decade of leadership experience in the U.S., strong digital and AI expertise and proven track record in leading large people-intensive organization. He's operational and execution focused and deeply aligned with our values. He is the right fit to take Sodexo into its next stage of development. And with that, I'll now hand over to Sebastien to take you through the fiscal year '25 financial and fiscal year '26 guidance in more detail. Sebastien De Tramasure: Thank you, Sophie. Turning now to our fiscal '25 performance. Overall, our performance was in line with our revised guidance. Organic growth came in at 3.3%, slightly higher at 3.7%, excluding the base effect from the major sports events and the leap year in fiscal 2024. Underlying operating margin was 4.7%, up 10 basis points at constant currencies, while on a reported basis, it was broadly flat due to the FX headwinds. Free cash flow was EUR 459 million, including the exceptional cash out of circa EUR 160 million related to the finalization of the tax reassessment in France. And excluding that, our cash generation remained robust with an underlying cash conversion of 91%. Underlying EPS reached EUR 5.37, representing a rise of plus 3.7% at constant currencies. And the Board will propose a dividend of EUR 2.7 per share, up 1.9% versus last year and in line with our 50% payout policy. So now let's have a look at our performance by geography. Breaking down our results further, all regions contributed positively to our performance. Our largest region, North America, delivered 2.8% organic growth, reflecting strong results in Sodexo Live! and Business & Administrations, along with solid underlying momentum in Healthcare despite timing impact and partly offset by contract losses in Education. In Europe, organic growth was plus 1.7%, or 2.7%, excluding the base effects from the Olympics and the Rugby World Cup with steady progress across segments, notably in Healthcare & Seniors and Sodexo Live!. Rest of the World delivered strong organic growth of 7.5%, which was mainly driven by strong performance in India, in Australia and Brazil, which remain key countries where we are strengthening our positioning and consolidating our market share. And overall, close to 86% of our revenue in this segment are generated by Business & Administrations services. On margins, North America was stable at constant currencies, while Europe and Rest of the World improved 20 basis points, lifting the overall margin for the group of 10 basis points, to 4.7%. And the margin also reflects procurement efficiencies and benefit from our Global Business Services Program. So now let me guide you through the full P&L picture. Fiscal '25 consolidated revenue reached EUR 24.1 billion, up 1.2% year-over-year. As already mentioned, we faced currency headwinds this year, mainly from the U.S. dollar and several Latin America currencies, which had a minus 1.8% negative impact on revenue. And we also saw a small net impact from acquisition and disposal of minus 0.3%. Underlying operating margin, as we discussed, was stable on the reported basis and improved 10 basis points at constant currencies. Other operating income and expenses reached minus EUR 154 million with minus EUR 97 million of this related to restructuring and efficiency initiatives covering our global business service program, ERP implementation and other organizational optimization. Operating profit came in at close to EUR 1 billion compared with EUR 1.1 billion last year. Net financial expenses were EUR 88 million, lower than expectation due to some one-off gains. The new USD bond issuance had little impact this year as higher coupons were largely offset by cash interest income and gains from tendering existing bonds. However, net financial expense will increase next year as a result. The tax charge was EUR 198 million with an effective rate of 22.2%, reflecting updates on the tax credit and use of previously unrecognized tax losses in France. And looking ahead, our normative tax rate is expected to be around 27%. As a result, group net profit reached EUR 695 million, translating into EUR 785 million of underlying net profit, which was up 3.7% at constant currencies. So let's now turn to cash generation, which remains a key strength for the group. Free cash flow in fiscal '25 was EUR 459 million, compared with EUR 661 million last year. The change in operating cash flow mainly reflects the exceptional tax outflow for around EUR 160 million related to the finalization of the tax audit in France. Working capital remained well contained and net capital expenditure increased by 3%, translating into a CapEx to sales ratio of 2%, broadly in line with last year. Acquisition net of disposal amount to an outflow of EUR 93 million following the acquisition of CRH Catering in the United States and Agap'pro, a GPO in France. Both acquisitions fully aligned with our strategy to strengthen our convenience business in the U.S. and our procurement capabilities. Overall, our free cash flow remains solid, supporting both reinvestment in the business and shareholder returns. Then at the end of the financial year, net debt stood at EUR 2.7 billion, which was slightly higher than last year, while EBITDA increased by 2% over the same period. So this translated into a net debt-to-EBITDA ratio at 1.8x, within our target range of 1 to 2x. During the year, we repaid the EUR 700 million bond maturing in April 2025 and successfully issued a USD 1.1 billion bond. And part of the proceeds was used to repurchase some of our 2026 bonds. Overall, the balance sheet remains solid and give us the flexibility to invest in growth. So now that we have looked at the performance and the financials for the year just ended, I'd like to take a step back and talk about how we are accelerating our investment in foundations that will drive our long-term efficiency and profitable growth. This is really a strategic phase for the group as we are making significant investment into our HR, finance and supply system and our food and FM platform. In short term, this will put some pressure on margin, but it is essential that we position ourselves for improved efficiency and stronger profitable organic growth. We will continue to invest in sales and marketing, especially in North America to ensure more consistent net new business, as Sophie stated earlier. An important part of our investment program is supply chain management with a strong focus on the U.S., where we are optimizing processes, systems and ways of working to improve both cost and agility. The idea is really to bring more sites into a single unified purchasing system, giving us much better visibility on spend and allowing us to track compliance in real time. We are also standardizing our menus and recipes, so that they automatically link to order guides and purchasing system. And that means simpler execution for our site manager, stronger compliance and more leverage from our volume, including greater pooling between our on-site operations and Entegra. All of this is about making compliance and efficiency happen at the site level, and we are now incentivizing our unit manager directly on compliance. Another key area is our digital and IT foundations. Our global ERP rollout is a perfect example. It allows us to standardize end-to-end processes, secure our infrastructure, which is instrumental in all aspects of our operation, obviously, for data and performance management, but also to strengthen client account management by giving teams better visibility and faster insights. We are also investing to enhance our analytics and AI capabilities to support better decision-making, sharper performance tracking and faster execution across the organization. Finally, Global Business Services is another major focus. We are transforming support function into a shared service model with center in Porto, Mumbai and Bogota, now employing over 900 people. And these teams are centralizing finance, HR, other functions like supply and legal. And by doing this, we are driving efficiency, standardization and innovation while also creating talent hubs for the future. And we are already seeing some early benefits. For example, in the U.S., more than 90 positions were moved over to the Bogota center during the summer, improving competitiveness, process harmonization and supporting employee administration, recruitment and tender preparation. So this is really the second leg of our near-term priorities. The first being the U.S. turnaround that Sophie discussed before. And this investment position us to capture growth more effectively in the future and over time, and the margin improvements will follow. It's also about building the right platform today to deliver stronger performance tomorrow. Now moving to the outlook for fiscal year 2026. As we mentioned previously, fiscal 2026 will mark a year of transition as we proactively address the commercial challenges faced in 2025, especially in North America. And at the same time, we are accelerating the investment in our foundation, as just mentioned, to build a stronger platform for future efficiency and profitable growth. With that in mind, our guidance for fiscal year '26 is as follows: We expect organic growth between 1.5% and 2.5%. This includes a minimum plus 2% contribution from pricing, neutral to moderate contribution from both like-for-like volume and net new business and a one-off reclassification triggered by the renewal of a large contract. And this last point relates to a large NorAm contract currently being renegotiated. And under the new terms, we will act as an agent rather than the principal, meaning that revenue will be recognized on a net basis. And this will mechanically reduce reported organic growth by around 70 basis in fiscal year '26 with the new terms of the contract taking effect during the second quarter of the year. And our underlying operating margin should be slightly lower than fiscal year 2025, reflecting mix and timing of growth driver and the targeted investments we are making. In terms of quarterly phasing, we expect a relatively soft start with growth gradually improving over the year. This will be mainly driven by North America, where the impact of last year's Education losses will be most visible early on. And in addition, several contracts existed last year will annualize in the second half. Now I would like to conclude with you on our capital allocation priorities. We remain focused on disciplined execution, and that also applies to how we allocate capital. On capital allocation, framework remains balanced and consistent, designed to support both near-term execution and long-term value creation. First, we continue to focus on organic growth, with acceleration of our investment and CapEx objectives remaining unchanged at 2.5% of revenue. We remain selective on M&A, targeting midsized bolt-on acquisitions that are accretive and aligned with our strategy. On average, we expect to allocate about EUR 300 million per year to M&A, mainly focused on convenience, GPO and food services in our key existing markets. And recent acquisitions fit perfectly within the framework and the closing of the acquisition of Grupo Mediterránea expected to happen by the end of the calendar year. It's also part of the objective to strengthen our food services position in our key markets. And this acquisition will allow us to double our footprint in Spain. Furthermore, we are committed to optimizing returns to shareholders. Our dividend payout ratio is unchanged at 50% of underlying net income, ensuring an attractive and balanced remuneration for shareholders. And finally, we keep a close eye on liquidity and balance sheet strength, with a leverage ratio maintained between 1x and 2x and a commitment to preserving our strong investment-grade ratings. Overall, this framework supports our near-term priorities while providing the flexibility to adapt. With that, we are very happy to take your questions. Operator: [Operator Instructions] First question is from Jamie Rollo, Morgan Stanley. Jamie Rollo: Two questions then. First, could you please quantify the margin guidance? What is slightly lower, please? And also, is that pressure in all the regions? Or is that going to be concentrated in North America? And the second question is, you're describing '26 as a transition year, but you said the other day that the new CEO probably wouldn't announce their review until maybe early summer, which could that not mean that 2027 then is another transition year if there were further changes to be made? Or are you going to be doing all of the implementation in 2026? Sebastien De Tramasure: Thank you, Jamie. So I will take this first question about the guidance. So as I said, the objective is to have an operating margin to be slightly lower than fiscal year '25, reflecting really the mix phasing of our growth driver and also the phasing of the targeted investment we have to do. Then, the reason we did not give a range is that because there are a lot of moving parts. Again, at this stage, we do expect margin to be slightly below fiscal year '25. There are different drivers. Again, the low organic growth with small optimization in terms of volume increase. And then there is a timing of the investment. And also, we do expect also some headwinds from the -- from the exchange rate that will also impact our margin. So a lot of moving parts, the reason why we decided not to quantify this guidance. Sophie Bellon: So thank you, Jamie, for your question. I will take the second question on the transition. So 2026 will be a year of transition in several ways. First and foremost, it's a year marked by a change in leadership with the upcoming arrival of Thierry as the CEO next month, on November 10. It's also a year of investment to continue to lay the foundation for sustainable future growth. We are investing heavily in our HR, in our finance, in our procurement system, in tech and data as well as in our food and FM platform. And in the short term, this weigh on our margin, but I think it is essential to prepare for the future to be more efficient, more agile and to support sustainable growth. So for example, in the supply chain, particularly in the U.S., where we are improving our processes and system to better manage our expenses. And also, we want to increase our compliance in real time. We're also investing in data and analytics and artificial intelligence to better track the performance and execute faster. And -- does it mean another year of transition in '27? No, we are not standing still. We have our near-term priorities, U.S. Education, as an example, the investment in the commercial, and our underlying organic growth is between 2.2% and 3.2%. So we are moving forward, and we are in the actions. Jamie Rollo: If I can -- can I just come back on the margin answer? I appreciate you can't give guidance. There are lots of moving parts. But obviously, with a margin of under 5%, every 10 basis points is quite a big impact. I mean, is slightly lower nearer to 10 basis points or nearer to 30? Sebastien De Tramasure: Again, as I said, Jamie, we are not quantifying the guidance at this stage. We are talking about a slight decrease in terms of margin. And to also answer your question, the pressure on margin will be mostly in the U.S. because, again, as I said, our focus on accelerating investment in sales and marketing and all the supply initiatives will be also focused on strengthening our position in North America. Operator: Next question is from Estelle Weingrod, JPMorgan. Estelle Weingrod: I've got three, please. I mean the first one on U.S. Education and Higher Education more specifically. Could you give us some initial colors on the full-term enrollments? Then on North America, again, you elaborated on the action plan underway in the U.S. When you talked about targeted investment to enhance foundations for profitable growth, is it mostly investment in U.S. Higher Education? And within this, is it mostly about expanding sales higher? You mentioned 50% expansion of sales teams. And last question is just on your -- on modeling details. You've got that slide in the PowerPoint. On other income and expense, you guide for EUR 160 million, which is broadly flat year-on-year despite the step-up in investment this year, being an investment and transition year. So I was a bit surprised there's not more of an increase there. Sophie Bellon: So thank you, Estelle. I will take the first question on U.S. Education and Sebastien can answer on the other two questions. So first, you asked on the enrollment. The early indication from our boarding data show that we are about 0.7% below last year in our comparable base, and it really varies from countries to another. Some are growing, others are slightly down. Geographically, we're seeing softer trends in the Midwest and Northeast, while the Southwest and Southeast are showing increases. And these figures are still preliminary, and we'll have a more definitive year-on-year view once final enrollment numbers are confirmed over the next few weeks. But obviously, we are not standing still looking at that. Let me remind you the measures we are taking, and I told you, to boost volumes, retail and of course, to win new clients in the next selling season. And I explained that earlier in the presentation. Also, if we go specifically on international students, enrollment for the fall 2025 is expected to drop due to visa delay, denial, revocation, post-graduation restriction. So it will mostly be graduate program and will be most affected. We could reduce demand for housing, dining and other campus services. And undergrad services like mandatory meal plans are less affected. And also, what we see is that universities are adapting with, for example, mid-semester starts, which may mitigate some of that decline. And of course, we will monitor those trends closely and be ready to adjust our offering, our financial planning and the support to respond to the potential changes in the campus demand. And also, as I said on the slide, we are really investing in our sales force. We expanded our sales team by 50%. So I think it's -- and also investing in our account management team. So we are in the action. Sebastien De Tramasure: So on the second question regarding the investment and the acceleration of the investment in North America. So we have specific investment as described by Sophie for the Education segment. But we are really targeting investment across the organization. We want to strengthen the sales and marketing organization, not only for Education, but for all the segments. And all the investment regarding supply is not only for Education, it's, again, for all our businesses. And on your third question. So we are guiding other income and expenses at EUR 160 million, flat versus fiscal year '25. But the combination of the different restructuring program is slightly different. We had many regional restructuring program to optimize the structure at the regional level in fiscal year '25. We will have less than in fiscal year '26, and we will increase our investment again in our GBS program. The restructuring costs related to the GBS will increase in fiscal year '26. But if we combine both, yes, it's flat between fiscal year '25 and '26. Operator: Next question is from Jaafar Mestari, BNP Paribas. Jaafar Mestari: I have three questions, if that's okay. First one is in terms of your operating models and services. You mentioned some of the qualitative targets that you've achieved this year: branded offers, more than 50% of revenue; Entegra, more than doubled; carbon emissions, minus 34%; food waste, you didn't quite get to minus 50%, but not far. There was another one on digital and new services, 10% of revenue, you haven't said, but I assume you're not that far. My question is, you've achieved most of your soft qualitative targets and yet the overall financial performance was disappointing. What is your assessment here? Did you take targets that were not the right ones, and they need a complete rework under new management? Or was the delivery not deep enough? I guess you can get to 50% branded by changing a logo on the site. So have the teams delivered on these targets the right way, a way that benefits the business? Or have they delivered sometimes in a cosmetic way that has not really helped cross-sell or cross-fertilize the business? Second question, shorter, just on business development. You said yourself, your average signings pre-pandemic were EUR 1.4 billion each year. In H2 '25, this is where you are, EUR 700 million. What have you seen? Is it the industry? Is outsourcing less dynamic? Or would you say it's entirely market share issues on your side? And lastly, on full year '26, net new business, if I look at the forward-looking retention and signings, it looks like you could be a plus 1%, but you never quite get there. And I think that was one of the issues last year where you had 1.6% forward-looking, but you don't quite get there because you lose more staff, because the contracts take time to ramp up. So in terms of net new, could you help us a little bit more in terms of your assumptions in the guidance? Sophie Bellon: Okay. Thank you, Jaafar, for your question. So first -- on the first question, yes, we have delivered. I think when you talk about the offer and the branded offers and the fact that we have reached our target, I think it's a first step. No, it's not just a logo on -- it's not just a logo in a restaurant saying that we are implementing a new offer. It is much more than a logo. It's a menu. It's a number of SKUs that are linked to that menu, and it's more compliance. So I think it's a first phase. And I agree with you that it's not driving gross profit enough yet. And we are fully aware of that and especially in the U.S. where our compliance, at the site level, is not sufficient. And that's why starting in September, all our managers are incentives, from the site manager and upwards are incentives on the compliance. It's a new -- it is for every member in the organization. I think also when you have -- so it takes more time than just sending the offer. You need to also go -- we need to go deeper now. Second, when we talk about the, for example, the digitalization and the fact that now we have 6 million of people that can have access through -- digital access, it will also drive the revenue because we have seen that. And it will also drive the margin because we will be able to answer better what people want on a daily basis. So on your third question, I will let Sebastien answer, and then I will get back to you on the net development. Sebastien De Tramasure: Yes. So on the net new, you're right. I mean, the net impact, if we take the looking forward KPI, 1.4%, and then the in-year impact expected for '26 will depend obviously of the net new from '26 as well and the in-year impact. It depends on the phasing of the development, phasing of the retention. And it's the reason why we took this year a more cautious approach, I would say, baked into the guidance, as we said that the net new impact in-year expected for fiscal year '26 should be between neutral to moderate contribution. And again, the phasing development retention is explaining this cautious guidance in terms of net new impact for fiscal year '26. Sophie Bellon: And in terms of the -- the last question was about the development, right, and the EUR 1.7 billion. Clearly, this year, as I said it in my introduction, financial year '25 has been a challenging year and on new development, especially in the second half, we had a first -- a good start in H1. And what we see -- and the second half was very disappointed. What we see is that, for example, in the U.S. our hit rate with big contract is not sufficient. I think we are doing well in Healthcare, and we had a good net development. We had, as I said, a good retention in Healthcare in the U.S. this year, but we also had a good development. So a net development above 2% in Healthcare in the U.S. We have invested for a while in those teams. We have teams that are capable of addressing and winning a large contract. And we are in the process also of building and strengthening those teams in the U.S. in the other segment. But that being said, there are countries or geography where -- like France or like Australia, where we are winning market share and where we have a good net development rate. So we need to make it happen everywhere. Jaafar Mestari: And that last qualitative target that you didn't explicitly say, the 10% of revenue from digital and new services. Did you achieve that in '25? Sophie Bellon: I'm not sure I understand your question. Jaafar Mestari: I think in your qualitative target, you had doubling Entegra, and you had reaching 50% branded offers, but you also had a target to reach 10% of group revenue from vending and digital and new services. So I just wanted to check if that one was on track as well. Sebastien De Tramasure: On that one, we are slightly below this 10% objective we defined at the beginning of the... Sophie Bellon: 8%. Sebastien De Tramasure: Yes, we are around 8% in terms of covering of -- from advanced food model. Operator: Next question is from Simon LeChipre, Jefferies. Simon LeChipre: I've got three, please. First of all, on organic growth for next year. Could you clarify the timing of the demobilization of the global accounts and also the timing of the -- impact of the reclassification of the contract? I don't quite get why organic growth should drop from 4% underlying in Q4 to kind of 1.5% in Q1, and then how you would then accelerate in subsequent quarters. Secondly, on this contract reclassification, could you clarify if there is any impact on profit and on margin in percentage terms? And lastly, in terms of the organization, I mean, I noticed that Michael is managing Government Services on top of universities. What is the rationale for this? And does that mean you do not necessarily believe in a strategy focused on sectorization similar to what your closest competitor is doing? Sebastien De Tramasure: I will take the first one. So regarding the timing of demobilization of the global account, if you look at the one we lost in fiscal year '24 and the one we lost in fiscal year '25, basically, the overall impact for fiscal year '26 is minus 50 basis points. And it's -- combining both, it's similar impact between H1 and H2. Regarding the reclassification of a large contract in North America. So here, we are talking about a preemptive renegotiation and to extend, the duration of this contract. As I said, we -- given the new term of the contract, we moved from gross revenue to net revenue. And overall, we are renegotiating the economics of the contract, and we are not expecting any significant impact in terms of margin, in terms of [ UOP ] margin. Sophie Bellon: And on the third question on organization, it -- why is it together? Because it has been historical. The person that used to be in charge of Government then extended his role to University. Yes, of course, we are doing market sectorization. It's the only exception. I want to remind you that for us, Government is not a priority. It only represents 4% of our revenue and with a huge contract that you know, U.S. Marine Corps. And so it has been part of that portfolio. And I don't think it's -- it doesn't affect the bandwidth of -- that Michael has to put on universities. And just for the U.S. Marine Corps, because it's the biggest part of that Government business, it still runs for another 18 months. And we are working proactively to -- we expect the client to launch an RFP , but we are fully engaged in the process and also -- yes, fully engaged in the process. Sebastien De Tramasure: And I will go back to your question -- sorry, I'll go back to your question about Q4 underlying versus the guidance in terms of organic growth. We have to keep in mind that Q4, the mix and the weight of Education is lower. So it means that this had a positive impact in our Q4 organic growth. It will not be the same for the full year '26. And also, we had a very strong Q4 fiscal year '25 in Sodexo Live!, with a more than double-digit organic growth in the U.S. with some specific events. And this will not obviously reproduce the full year '26. We will not have 10%, double-digit organic growth in Sodexo Live! during the full year '26. Simon LeChipre: Okay. Just on this impact of contract reclassification, I mean, can you quantify it? And is it going to impact you as soon as Q1? Or does the impact start later on in the year? Sebastien De Tramasure: Okay. So we are currently, again, under renegotiation of this contract. Again, it's a preemptive extension of the contract. Today, we are expecting to sign the renewal of the contract in Q2. So the impact will start in Q2 fiscal year '26, and it will impact negatively the organic growth by 70 basis points for fiscal year '26. Simon LeChipre: So it means that you need to accelerate organic growth after Q1 to offset this impact on top of the rest, right? Sebastien De Tramasure: Yes. And that is the plan, again, with some ramp-up of development. And again, this phasing of Sodexo Live! will be quite different between fiscal year '25 and fiscal year '26. Operator: Next question is from Leo Carrington, Citi. Leo Carrington: If I could ask just two questions. Firstly, I appreciate he doesn't officially start for 3 weeks, but did Thierry Delaporte have any input into setting this guidance? And then secondly, just on the margin outlook again. In terms of the factors pushing margins down mix phasing investments, is it correct to say these are all headwinds? And in terms of the relative importance of all three of them, is one more important than the other? The investment sounded significant, but I wonder if you can quantify that. Sophie Bellon: So thank you, Leo, for your questions. I will take the first one. So regarding the involvement of Thierry, of course, we had a few preliminary discussions with him. But I remind you that he's only starting on November 10. And however, the financial year '26 guidance reflects the work of the current team. It's also the result of a bottom-up approach based on the visibility we have for the year. Sebastien De Tramasure: Okay. And on the investments, so we are not providing any specific quantification at this stage of each investment. We'll do it in another time, I would say. And again, there are moving parts on this timing of the investment. It's the reason why we said that, again, it will have [ this ] negative impact in terms of margin for next year. Operator: Next question is from Kate Xiao, Bank of America. Kate Xiao: I have a couple. The first one is a follow-up on the previous question on branded offer. You mentioned, Sophie, that now the first step is done, and you need to go deeper now. I wonder if you could elaborate what that means? Do you mean a further, I guess, change of the organization, change of the team so that it's more brand focused, more sectorized? And would this be a big task for the new CEO? That's my first question. And the second question also on just investment. I think, Sophie, you mentioned before for fiscal year 2024, you spent more than EUR 600 million on IT, data, digital. I wonder what that number is for '25? And do you see a step-up in '26? If you could just -- obviously, I appreciate you cannot give us exact numbers, but the level of step-up would be really helpful. And then just number three, specifically on retention. I think you mentioned that you're doing preemptive renegotiations with big contracts. I guess, any progress there? Are you doing more in terms of preemptive retention -- preemptive efforts to help really with retention? If you could elaborate on the efforts there? Sophie Bellon: Okay. So I will take the first question on the branded offers. I think it's a work, as I said, that started a couple of years ago. And when I mean go deeper, it's that -- for example, we are implementing in Education a brand that -- are -- one and all brand, it's close to EUR 1 billion of revenue, thanks to the active conversion of the sites during summer break. Now it's our largest brand globally and regionally. So it means that now the team have adopted the brand, but then we need to make sure that the implementation is happening right, that the right recipes are implemented, that the right menu, the right products. And it's by -- when I mean go deeper, it's making sure that operationally, it happened on each and every site the way it should happen. That's why I explained that, for example, in the U.S., where -- when you implement a brand, like I just said for University, it implies a lot of people. We have also added for every single manager the compliance because that's what will improve the margin and the profitability on those sites. And then about Thierry, of course, he will make his assessment of the situation. But definitely implementing the brands and not just putting names but an offer with -- that matches the client and also especially the consumer needs with price points, more standardization, less SKUs, better leverage on our purchasing powers simplifying the bid process. All that takes time, but it will definitely help us make progress. Maybe, Sebastien, you want to answer the second question? Sebastien De Tramasure: On the investment in IT and digital, based on all the ongoing program, we have been increasing our investment if you take OpEx and CapEx in fiscal year '25 compared to fiscal year '24. And again, with this acceleration of our transformation with the ERP, with the finance supply platform, the food platform as well, AI and data, again, this amount will continue to increase for fiscal year '26. Sophie Bellon: And in terms of retention, as we said, we have made progress, and there are areas or countries where we are fully aligned with our targets, to be above 95% and at some point, in midterm, at 96%. And on the preemptive bid, yes, we are pushing. I don't have the exact number with me today, but we can get back to you. And we are definitely pushing, and it's something that we want to make happen, as I said, not just in some geography, but all geography and all segments, especially in the U.S. Operator: Next question is from Sabrina Blanc, Bernstein. Sabrina Blanc: I have three questions from my part. The first one is regarding the branded offer. I would like to have more idea of how it has been organized. I mean, who has designed the brand, who is in charge of the leadership of the brand? My second question is regarding -- you have mentioned the hiring of commercials. I would like to understand in which areas specifically, if it's regarding the GPO for new commercial? Or is it commercial dedicated to the retention? And are they incentivized in these three key segments? And lastly is regarding the M&A. You have mentioned bolt-on acquisition, but we would like to understand in which areas you are focusing and what are your KPIs? Sophie Bellon: Okay. Thank you, Sabrina. So for the branded offers, for example, I just discussed, all in one, in the Education market in the U.S. This brand has been designed one and all -- sorry, in the U.S. in the University business. It has been designed by the team in Universities and getting some support from the North American marketing team. There are some brands like Modern Recipe where we have -- that we have implemented in different countries, in the U.S., but also in Europe. And there, we have a center of expertise at the group level, so we can accelerate the share of best practice between countries. And -- but it's the countries that are responsible for growing the brand at the local level by segment because, of course, those offers are different what we propose, an indication is different from what we propose with a Modern Recipe or Good Eating Company in corporate services, even though sometimes Good Eating Company, if there is a need, could also be proposed on a campus. But the brands belong where most of the revenue happen with that brand. On the second -- your second question about commercial: in which area specifically? Well, in all areas. Now we hired a number of salespeople with -- in the GPO and in our Entegra business and especially in the U.S. But we also hired -- as I said, we want to increase our sales team. And we have increased our sales team, I think, in the U.S. by 30% this year. And how are they incentivized? We have changed the incentive for our sales team. And we have revamped our sales incentive structure. Previously, it varied by region and wasn't always linked to the individual performance or profitability. Now we have a global commission that based system with a consistent rule across the region. It includes clear threshold and accelerators for over-performance and staggered payouts to ensure quality and overs. And we also -- we have also added specific incentives for renewals, cross-selling and strategic priorities. So in terms of sales incentive, we have worked a lot. And now it's really rolling out, and it's really implemented for fiscal year '26, but we have really worked a lot on making sure that we have the right incentive and also the right teams. We have changed a number of people in our sales team. Sebastien De Tramasure: And to the third question regarding M&A. So we have a very clear strategy regarding M&A. We want to invest in food. We want to invest in our existing markets. And then we have done investment in GPO, especially in Europe over the past year and especially in France in fiscal year '25. We are also investing, and we have been investing since 2022 in convenience in the U.S. So here again, we are talking about small, midsized bolt-on acquisition, very important to get the scale and the efficiency with the supply. And then we want to invest in also a key market on food, again, market share in the U.S., in Europe, also in the Rest of the World, but again, focusing on our key existing markets. A good example is the acquisition, the signing of Grupo Mediterránea in Spain. It will allow us to double our footprint in the Spanish market. And also, we can also do some small acquisitions to gain capabilities in advanced food models. It can be also linked to commissary and central kitchen capabilities. And in terms of indicators, [ LGO ] payback, we look at the [ LGO ] payback below 10 years. And we looked at the ROCE and the objective is to have a ROCE above 15%. Operator: Next question is from Andre Juillard, Deutsche Bank. Andre Juillard: Just a follow-up on investments in general. Could you give us some more color about what you plan to do in terms of IT and reporting software? Do you still have some significant investment to do on that side? And could you give us some quantification on that? And regarding CapEx, you remain relatively low with 2% compared to your main competitor. Do we need to anticipate a significant improvement on that side or not? Sebastien De Tramasure: So I will start with the CapEx. So you are right. Today, our CapEx level is around 2%, fiscal year '24 and fiscal year '25. The objective is really to reach 2.5% with, I would say, two main components. The first one is supporting retention and development. So we need CapEx to sign large deals. And as we said before, this is one of our priority. And then we need also CapEx for the -- our investment in IS&T and digital, especially for our ERP program. So this is really the reason for the targeted increase in terms of CapEx. Sophie Bellon: And just to add to what Sebastien just said, in terms of CapEx, as I said -- and as I said also earlier, we want to sign more large deals, and we want to improve our hit rates on large deals. So the way that happens, the large deals are the one where we spend more money. And the fact that our hit rate has not been as good as expected explain also the fact that our CapEx today is closer to 2% than 2.5%. So hopefully, when our hit rate with those big targets improve, it will have an impact also, and it will automatically increase the percentage of our CapEx, and we will get closer to 2.5%. Andre Juillard: But you still consider that 2.5% is the right number? Sophie Bellon: Yes. Well, we have been talking about 2.5% and still staying at -- so far now, we really want to reach 2.5%. And if you know, some specific deals that sometimes it happens in Sodexo Live! or in Universities in the U.S., if we need to go beyond, we will go beyond but not systematically. Operator: Next question is from Johanna Jourdain, ODDO BHF. Johanna Jourdain: Two questions from me. First one, could you please remind us the level of renewals in large contracts to come in '26? And can you update us on where you stand there on those renewals? And second question, can you update us on the ramp-up of the Healthcare contracts that were delayed in '25 or late to start and in particular, the captive contract in North America? Sophie Bellon: So thank you, Johanna, for your question. So the level of renewal for the large contract, I think you're talking about the GSA contract because last year, we had -- in fiscal year '24 and '25, we had a big number of those GSA contracts in renewal. And today, this fiscal year, we don't have any. So there will not be any renewal of those large contracts and a very small number also for fiscal year '27. The contract that we discussed earlier is not -- it's not a global account. And so that's for a clarification on those large contracts. And then for captive, first, last year, we talked about the ramping up of Healthcare and especially that contract. We have had two big contracts in Healthcare, ProMedica and University of Cincinnati that started in June and July. So there, we are on track. And as I said, we had a very good net development for Healthcare during the fiscal year '25. For captive, during the first year, as I remind you, it was a very innovative contract. And the first year, we spent more time and focus than anticipated in evaluating the existing client for the transition into the captive program. And this led, as you know, to a slower-than-anticipated ramp-up of new business. We signed the very first contract with captive members at the end of financial '25. Currently, we are negotiating with a significant number of clients. The pipeline is well advanced and robust. And our objective remains unchanged to sign over EUR 100 million in contracts within the first 2 years of the program. But since the launch was shifted to the end of fiscal year '25 instead of the beginning of '25, our target is now to reach EUR 100 million in signed contracts across '26 and '27. Operator: We have no further questions registered at this time. Back to Sodexo for any closing remarks. Sophie Bellon: Well, thank you very much for your question. And as this is my last call as CEO, I would like to sincerely thank you for all your -- for your engagement and your constructive dialogue over the years. I remain deeply confident in Sodexo's strength, and I look forward to continuing to support the company as Chairwoman. Thank you very much, and take care. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics Third Quarter 2025 Earnings Release Conference Call and Live Webcast. I am Myra, 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 Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead. Jerome Ramel: Thank you, Myra. Thank you, everyone, for joining our third quarter 2025 financial result call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, Creditor and CFO; and Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensor Group and Head of ST Microelectronics Strategy, System Research and Application and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST result to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk factors. Also to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to 1 question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST's President and CEO. Jean-Marc Chery: Thank you, Jerome. Good morning, everyone. And thank you for joining ST for our Q3 2025 earnings conference call. I will start with an overview of the third quarter including business dynamics. I will then hand over to Lorenzo for the detailed financial overview, and we'll then comment on the outlook and conclude before answering your questions. So starting with Q3. We delivered revenues at $3.19 billion $17 million above the midpoint of our business outlook range with higher revenues in Personal Electronics while Automotive and Industrial performed as anticipated, and CCP was broadly in line with expectations. All end markets, but Automotive are now back to year-on-year growth. Gross margin of 33.2% was slightly below the midpoint of our business outlook range, reflecting product mix within Automotive and within Industrial. Excluding impairments, gross recurring charges and other related phase on costs, diluted earnings per share was $0.29. During the quarter, we managed to work down inventories, both in our balance sheet and in distribution and we generated a positive $130 million free cash flow. Let's now discuss our business dynamics during Q3. In Automotive, during the quarter, we grew revenues about 10% sequentially, in line with expectations, driven by all regions, except Americas. Our book-to-bill came above 1. We expect to grow mid-single digits in the fourth quarter compared to the third quarter, which would be the third consecutive quarter of second During the quarter, we continued to execute our strategy for car electrification. We had with both silicon and silicon carbide devices for electrical vehicle applications, such as traction inverter and onboard charger designs. On new application where we see silicon carbide being used is investors for full active suspension. Here, we have a design win with a module solution for our key Chinese electrical vehicle maker. Another key event is a switch to electronic fuses to support the land and domain architectures, both in 12 volts and 48 volts. Here, we added to our pipeline of designs for our IFUs controller with leading electrical vehicle makers and qualified our products for volume ramp up. Other wins in the quarter included microcontrollers for DC/DC management in electrical vehicle powertrain, body control modules and HVAC systems across multiple vehicle models. In car digitalization, we are executing our micro color product road map with a strong lineup of new solutions across both our Airbus Stellar and STM32 product families. Design-in activity continues globally with engagement from both large-scale automotive OEMs and Tier 1 suppliers. In legacy application, we have several significant wins based on our smart power technologies in application where we lead such as airbags, Steele and braking solutions. With our automotive brake sensors, we continue to see strong designing momentum and growing opportunities. Wins in the quarter included MEMS sensors for road noise constellation and door control and both MEMS and imaging sensors for in-cabin monitoring. Shortly after our results announcement in July, we announced that we entered in a definitive transaction agreement for the acquisition of NXP's MEMS sensor business, for a purchase price of up to $950 million in cash, complementing and expanding our current leading MEMS sensor technology and product portfolio. The transaction remains subject to customary closing conditions, including regulatory approvals and is on track to close in H1 2026. In Industrial, revenues were in line with expectations, showing increase of 8% sequentially and 13% year-over-year, back to year-on-year growth for the first time since the third quarter of 2023. Importantly, inventories in distribution further decreased. In Q4, we expect to grow value low single digits sequentially, as we continue to decrease inventories in distribution. During the quarter, we saw strong designing activity for our Power and Analog portfolio across a range of applications. These included factory automation over system medical equipment, motor control, white goods, solar inverters and metering. We also continue to expand the use of our industrial sensors in robotics, including robots and cobots and robots, an area where we see demand for significant number of sensors. We also had wins in medical devices like insulin pumps and full detectors. In Embedded Processing, we continue to win designs with our STM32 microcontrollers for a wide range of industrial applications with products from all parts of the portfolio from high end to wireless to specialized functions. This included power supply and optical modules for AI servers, industry automation and robotics, energy storage, metering and goods. We have a full pipeline of new products and software coming to market in the next quarters, and you will hear more about this during our STM32 summit in November. For general purpose microcontroller, we grew revenues both sequentially and year-on-year and we are on the right trajectory to return to our historical market share of about 20% -- 23%, sorry. For Personal Electronics, third quarter revenues were above our expectations, up 40% sequentially, reflecting the seasonality of our engaged customer programs, but also increased silicon campaigns, which also translated into year-over-year growth. Further strengthening of our unique position as a sensor supplier with both MEMS and optical sensing solutions, we signed a new license agreement with This new agreement broadens our capability to produce advanced meter leveraging ST's 300-millimeter semiconductor and optics manufacturing capabilities. This opened up new opportunities from smartphone application like biometrics, LiDAR and camera acids, robotic, jester recognition and object detection. Revenues for communication equipment and computer peripherals were broadly in line with expectations and up 4% sequentially. For AI data centers, we had multiple wins with silicon and silicon carbide devices for high-power solution. Although last quarter, we announced that we are working closely with NVIDIA, a new architecture for 800-volt DC AI data center, leveraging our power By combining silicon care, guided nitride and silicon-based technologies with advanced custom design at both chip and package level. I am pleased to underline that we recently completed the full power testing on a prototype social successfully demonstrating over 98% efficiency. Silicon photonics is another key technology for future data center and AI factories. ST now has the collaborative R&D programs across the full value chain with key suppliers and customers to develop high-speed optical solutions for data center, AI, telecommunication and automotive, from the substrate to the final product. During Q3, we have seen an increased demand for photonics IC prototypes to be launched in the next quarter and beyond in our 300-millimeter wafer fab. This confirms that photonic ICs will be a revenue growth driver for ST in the detail. In low earth orbit satellites. We have further strengthened our leadership position in the rapidly growing low broadband market by beginning shipment to a second global customer, leveraging our combination of biosimilars technology for front-end modules and paddle level packaging for user terminals. Our business in this segment is well positioned for steady growth delivered by several satellite constellations. Now over to Lorenzo, who will present our key financial figures. Lorenzo Grandi: Thank you, Jean-Marc, and good morning, everyone. Let's start with a detailed review of the third quarter, starting with the revenues on a year-over-year basis. By reportable segment, Analog Products, MEMS and Sensors was up 7.0%, mainly due to imaging. Power & Discrete products decreased 34.3%. Embedded Processing revenues grew 8.7%, mainly due to general Marconi. RF and optical communication declined 3.4%. By end market, Industrial increased by about 13%; Personal Electronic by about 11%; Communication Equipment and Computer Peripheral by about 7%. Automotive was still decreasing by about 70% and by showing some improvement in respect to the 24% decline recorded in the second quarter. Year-over-year sales to OEMs decreased 5.1% while revenues from distribution increased 7.6% back to year-over-year growth for the first time since the third quarter 2023. On a sequential basis, Power & Discrete was the only segment to decrease by 4.3%. All the other segment grew led by analog products, MEMS and sensor up 26.6% with Embedded Processing up 15.3% and RF and Optical Communication, up 2.4%. All our end markets grew, led by Personal Electronics, up by about 40%, followed by Automotive, up by about 10%. With Industrial and Communication Equipment and Computer and Peripheral up, respectively, by about 8% and 4%. Turning now on profitability. Gross profit in the third quarter was $1.06 billion, decreasing 13.7% on a year-over-year basis. Gross margin was 33.2%, decreasing 460 basis points on a year-over-year, mainly due to lower manufacturing efficiencies, negative currency effect lower level of capacity reservation fees and to a lesser extent, the combination of sales price and product mix. Total net operating expenses excluding restructuring, amounted to $842 million in the third quarter, broadly stable on a year-over-year. They were better than expected. Preferably, notably our continued cost discipline with the first benefits of the resizing of our global cost base. For the fourth quarter of 2025, we expect to stand at about $950 million, increasing quarter-on-quarter due notably to calendar base effect. This will lead the net OpEx for the full year 2025 to decline by 2.5% compared to 2024 despite unfavorable currency effect. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the third quarter, we reported $180 million operating income, which included $37 million for impairment restructuring charges and other related phase-out costs. This reflects impairment of assets and the restructuring charges predominantly associated with the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Excluding this not recurring item, which is partially not cash, Q3, non-U.S. GAAP operating margin was 6.8%, with Analog Products, MEMS and Sensor at 15.4%. Power & Discrete at minus 15.6%. Embedded Processing at 16.5%, and the RF Optical Communication at 16.6%. This quarter, to 2025, the net income was $237 million compared to $351 million in the year ago quarter. Diluted earnings per share were $0.26 compared to $0.37. Excluding the previously mentioned nonrecurring items, non-U.S. GAAP net income and diluted earnings per share were respectively, $267 million and $0.29. Net cash from operating activity decreased 24.1% on a year-over-year basis in the third quarter to $549 million. Third quarter net CapEx was $401 million compared to the $565 million in Q3 2024. Free cash flow was a positive $130 million in the third quarter compared to the $136 million in the year ago quarter. Inventory, at the end of the third quarter, was $3.17 billion, a reduction of about $100 million compared to the end of the second quarter. These sales of inventory at the quarter end were 135 days, slightly better than our expectation and compared to 166 days for the previous quarter and 130 days in the year ago quarter. Cash dividends paid to stockholders in the third quarter totaled $81 million. In addition, ST executed share buybacks of $91 million. ST maintained its financial strength with a net financial position that remained solid at $2.61 billion as of the end of September 2025, reflecting total liquidity of $4.78 billion and total financial debt of $2.17 billion. It is worth to mention that in the course of the third quarter, we repaid fully in cash, $750 million for the first tranche of our 2020 convertible bond. Now back to Jean-Marc, who will comment on our outlook. Jean-Marc Chery: Thank you, Lorenzo. Let's move to our business outlook for Q4 2025. So we are expecting revenues at $3.28 billion, an increase of 2.9% sequentially, plus or minus 350 basis points. We expect our gross margin to be about 35%, plus or minus 200 basis points, including about 290 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs compared to the current situation. The midpoint of this outlook translates in full year 2025 revenues of about $11.75 million. This represents a 22.4% growth in the second half compared to the first half, confirming signs of market recovery. Gross margin for the full year is expected to be about 33.8%. Finally, to optimize our investments in the current market conditions, we have reduced our net CapEx plan, now slightly below $2 billion for full year 2025 compared to a range of $2 billion to $2.3 billion previously. To conclude, in the fourth quarter, we expect to report further sequential revenue improvement. With revenues now broadly stabilized on a year-over-year basis as well as an increased gross margin while continuing to decrease inventories in distribution. We are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint and definitively our product mix improvement. In a context marked by signs of market recovery, our strategic priorities remain clear, accelerating innovation executing our copay program to reshape our manufacturing footprint and resize of our global cost base, which remain on schedule to deliver the targeted savings, and strengthening free cash flow generation. Thank you, and we are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Francois Bouvignies from UBS. Francois-Xavier Bouvignies: My first question is on the top line. I mean, you guided plus 3% quarter-on-quarter, 2.9% to be precise. It seems to be below your seasonal at plus 7% quarter-on-quarter, if I'm not wrong. I mean you can remind us maybe the seasonality. Can you explain us as to why you are a bit below seasonal in Q4 for the top line and the drivers? And then secondly, on the gross margin, I mean, it's nice to see this improvement of 180 basis points quarter-on-quarter, how sustainable it is this gross margin? I mean, if you have any seasonality, product mix, should we extrapolate this dynamic of 35% into the first half of '26? Just trying to understand the work you have done on gross margin, how sustainable it is at least in the first half of '26 would be great. Jean-Marc Chery: So we'll take the revenue seasonality and Lorenzo, the gross margin. No, on the revenue seasonality of Q4, basically, there is 2 effects. The first effect is on automotive. Because in automotive, even if we will grow on a quarter-over-quarter, but year-on-year, it is still minus 12%. And why? Because, okay, 80% of this performance gap is explained by 2 reasons. It is a decrease of our capacity reservation fees compared to last year. And you know it is overall volume of one important customer of ST in the field of electrical vehicle. So this is what is explaining why in Q4, we are below the seasonality. The second explanation to be below the seasonality in Q4 is because in Industrial, we continue to decrease inventory in distribution. So our POP revenue recognition is significantly below the POS. However, on the other, let's say, verticals like Personal Electronics, Communication Equipment, Computer Peripheral and other legacy on Automotive or Industrial in the field of power, energy; basically, okay, we are at the seasonality we expect. Lorenzo Grandi: About gross margin. In Q4, the gross margin, the main positive driver, let's say, when we look at the sequential increase of our gross margin moving from the result of Q3 and the expectation of Q4 is clearly improved manufacturing efficiency. That is -- if you remember, let's say, in the first half and also in Q3, we were impacted by a significant negative impact on the efficiency -- manufacturing efficiencies that was due to the very low level of production that we have, especially in the first half of the year. There is also some improvement in terms of new charges. When we look, let's say, to how we will move moving in the first half of next year, but we have to remind that clearly, there are negative effect that we will impact moving forward. One effect is related to the fact that there will be some reduction entering 2026 of capacity reservation fees. And definitely, you know that in the first half of the year, there is some seasonality in terms of our revenues, let's say, in respect to the second part of the year. And then don't forget that there is also the negotiation of the pricing that will impact even if we see to a significant drop. We think that it will be something in the range of low single digit, mid-single-digit decline. On the positive side, we will have, let's say, still continued positive impact on manufacturing and reduce -- continue to reduce level of saturation. At this stage, it's a little bit to difficult to size, let's say, the level of gross margin because it will depend also on the level of the revenues. But this is directionally the trend that we will have moving -- entering in the next year. Operator: The next question comes from the line of Joshua Buchalter from TD Cowen. Joshua Buchalter: Maybe to follow up on that last one. Could you maybe spend a couple of minutes talking about how you're thinking about managing utilization rates right now? It seems like you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and/or on your balance sheet given the comments. You mentioned you're going into some negative seasonality into 1Q, but it sounds like utilization rates are going to be up in the fourth quarter and the first quarter. Could you maybe just spend a couple of minutes talking about what you're seeing there? Lorenzo Grandi: Now for the inventory, clearly, let's say, as you have seen, we try to keep control on the level of inventory in the current quarter, we think to stay substantially stable in number of days. This is our expectation in respect to Q3. But the positive point is that entering in the next year, clearly, let's say, as I said, there is our seasonality, the normal seasonality that means that, in general, the inventory in the first half of the year is a little bit higher also in number of days in respect to the second part of the year. Then you have to consider that entering next year, let's say, we start to have some decrease in terms of overall capacity, linked to the fact that we started to have some benefit coming from our reshaping of the manufacturing infrastructure. This will somehow mitigate the level of unused moving in 2026. This is, let's say, one of the drivers that we see in terms of progressively improve in terms of the utilization rate, together, of course, with some growth in Joshua Buchalter: I was hoping to ask about the Industrial segment. So it looks like book-to-bill went back to parity. Anything major going on there? Any geographies that are better or worse? And maybe how would you categorize the health of the general purpose microcontroller business underneath there? Basically, should we assume sort of shipping back to normal now? Jean-Marc Chery: No. In industrial, we see a different dynamic when we grow on some segments. We see a growth and dynamic more pronounced for power energy, basically all subsegments, okay, of this one are growing. And it is growing more definitively than the smart industrial, it means the factory automation. We can say that robotics is so far good, but overall, the factory automation is really, really soft. More than all the industrial, which are volume-driven, means consumer-driven, the hub cycle is pretty soft. So the takeaway we can have on the Industrial is what is related power energy infrastructure and robotics is now upcycle pretty solid. What is related volume and consumer is a very soft upcycle. It looks like inventory are digested, but the visibility is pretty short, it's pretty low. So that's the reason why the customers are still putting order on short term. But here, our decision is to continue to manage the distribution very closely and continue to adjust our POP below their POS forecast to continue to decrease inventory. Inventory and general purpose microcontroller came back what we classified normal, means a level of months of inventory that enable short-term business. Well, we have still some pockets of other inventory on some specific products like Power & Discrete or sometimes general purpose microcontroller, but we are going in the right direction. So this is a dynamic, okay, we are seeing on the industrial market. Operator: The next question comes from Tristan Gerra from Baird.. Tristan Gerra: I wanted to see how linear is the reduction in capacity reservation fees that you expect in '26 from the $150 million, $200 million reduction that you're looking at for this year. Is there a big drop in Q1? Or is it going to be pretty linear throughout all of next year? Lorenzo Grandi: In terms of capacity reservation fees, it works in this way, let's say, substantially, the capacity reservation fees that are ruled by contract with the carmakers quite constant over year the in term of million dollars. But yes, you can have a little bit higher, a little bit lower during the various quarter of the year, but they are not linearly going down. Let's say, they are substantially quite flattish, I would say, quarter after quarter. Clearly, when the contract expires, that is, at the end, for instance, of 2025, many of these contracts are expiring. But then, yes, you have a decline. And then the decline remains the level that you get in the first quarter will remain substantially similar all over the other quarters. So this is the way that it works. So what we will see in Q1 will be this reduction? And then that after that, we will stay stable, more or less stable during the course of 2026 at the level of capacity reservation. Tristan Gerra: Just a quick follow-up. Of course, it's going to depend on end demand, but any sense of -- or when you think POP can get back in line with point of sales in Industrial next year? Jean-Marc Chery: Globally, POP will be aligned with the POS each time our product line reach the target of inventory, we didn't want to exceed. This is okay, a lesson we learned from the past. And now, we are really disciplined on this point. So you cannot see the POP overall. We have to look the POP in detail by product line. And I repeat our microcontroller is pretty well aligned. So our POP is really driven by the end demand POS and by region, I have to say. While China, APAC, America are pretty okay, but Europe is still soft. And for the other product line, okay, we are still in a mode where the POP is below the POS; however, we expect to go back normal in H1 2026, most likely Q2. Operator: Next question comes from Stephane Houri from ODDO BHF. Stephane Houri: Yes. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and so an expectation of 2026. But what are you reducing at the moment? And how do you look at 2026 in terms of CapEx at the moment where you're transforming your tool from 200-millimeter to 300-millimeter? Jean-Marc Chery: We reduced the CapEx. In fact, there is 2 dynamics. There is a dynamic driven by where you know we want to close the 200-millimeter, so And of course, okay, we need to put the CapEx to increase the capacity at the right level in 300 and in coal 200. But here, we have not especially limited the dynamic because the demand is pretty solid. But then the other main important action is the CapEx for 200-millimeter conversion on silicon carbide because we will close the 150-millimeter. But here, we have limited the CapEx delivered by the demand, which is below what was -- we expected 1 year ago. So the main impact of the capacity limitation is on, let's say, silicon carbide. But then after it's more spread across test assembly, where we clearly adjust the capacity of what we need and no more. And generally speaking, is more adaptation to mix rather than volume increase. Stephane Houri: Just to ask you, with the Nexperia situation, you do receive phone calls or kind of rush orders from your customer? Or you see nothing for the moment? Jean-Marc Chery: No, I mean, we are sure that the carmaker and the Tier 1 of the automotive industry have clearly taken the lesson of the previous shorter period, and they have enabled many source to prevent such issues. And of course, okay, as the other semiconductor player, STMicro is part of this process. More than that, I have no comment. Operator: Next question comes from Didier Scemama from Bank of America. Didier Scemama: I have first question maybe on your inventory and related to that. on what you're thinking about in terms of factory loadings for the first half, I think, one of your U.S. peer already announced last week or earlier this week that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery? So I think it looks like your inventory are tracking about 30, 40, 50 days above where they used to be. So are you thinking about taking down further factory utilization in the first half, I guess. Lorenzo Grandi: In terms of inventory, I would say that, yes, you're right, it's a little bit higher in respect to what was our historical ending of the year, that is a little bit higher. But at the end, I think that when we look next year, I think the dynamic of our -- we will continue to keep under controlling that. The dynamic of the inventory will, let's say, be, as usual, a little bit increasing during the first half of the year to go back and to decrease in the second part of the year. In terms of that, let's say, unloading factory utilization I think that moving in 2026, there will be an improvement. Notwithstanding, we will continue to keep the control our inventory. This improvement that I was saying before is due to the fact that we do expect some, let's say, increase in terms of our revenues, so looking at the evolution of the market. And the other element is that we start to, let's say, reduce capacity in some of our fabs. The one that we aim, let's say, to progressively close in the course of the -- by the end of 2027. So we will start, of course, to move out some equipment, and this will reduce the capacity, and this will reduce the level of unused then. Didier Scemama: Got it. And then I think last quarter, you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of the 140, at 70 basis points of FX headwinds on and 70 basis points of related basically the manufacturing transition from 6 to 8 and 8 to 12. Is there any of that in Q4? Lorenzo Grandi: No, no. Let's say, moving from Q2 to Q3, let's say, the FX was overall an impact of 140 basis points. Q2, Q3, let's say, related to the combination of these 2 effects, but very different. Let's say, something in the range of 120 basis points was the FX and around 20 basis points was the impact of these extra costs, let's say, related to our programs. Now, let's say, in this quarter, clearly, the FX is a minor impact. This is quite stable. It's a little bit negative because we moved from 114 to 115 is ranging in the range of 20 basis points negative impact. It's not so material, while these extra costs related to the activity to reduce the capacity and to start to move products from one side to the other is impacting our gross margin expected for Q4 between 30 to 40 basis points. This is -- so the turnkey impacted by something ranging between 30 to 40 basis points of extra cost. Didier Scemama: Understood. And just a clarification, because it wasn't clear, your OpEx guide for Q4 is 915, right? It's not 950? Lorenzo Grandi: No, no. It's 915. And this is driven by the fact that we have a negative calendar days impact for 2 reasons. The calendar is longer. And the vacation in Europe is, let's say, less than what we benefit in the course of the previous quarter. On the other side, we will continue with our, let's say program to reduce account in expenses, and this will bring us some benefit. Operator: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding the trends into the first quarter. I mean, you normally have a weaker first quarter. And thus would you expect the utilization rate to go down? And given all the other factors you've talked about in the earlier factors, which are there, there is a downtick associated with the capacity reservation fees. Should we expect that your gross margin in the first half of the year to be weaker than where it is at the moment? And I have a quick follow-up after that. Lorenzo Grandi: Yes. In terms of gross margin, it's true that in the first half, the seasonality is not favorable. And yes, there are the lower capacity reservation fees. On the other side, in respect to where we stand today, our expectation is that the level of a new budget will decrease. The decrease is not due to the fact that we aim to increase our inventory. There is some seasonality in our inventory, but the decrease, as I was trying to explain before, it's mainly driven by the fact that we start to reduce the capacity. So it means that we will start to some transfer of equipment. And this or, let's say, not utilization of equipment due to the fact that we progressively in some fab, we started to reduce the capacity aimed, at the end, let's say, to move to close the spec. So we will start, and this will progressively impact our capacity and, for some extent, our unused capacity. Sandeep Deshpande: I mean, a follow-up to that essentially -- quickly on that would be, is the number of days in Q1 [Technical Difficulty] you have any new engaged programs with your customers, which will improve revenue significantly either in first half or into the second half, particularly? Lorenzo Grandi: No, I confirm, Sandeep, that in Q1, Q1 will be shorter in terms of number of days, than Q4, Q4 is longer in terms of days than normal 91. And the calendar next year, Q1 will be shorter than the normal 91. It's a little bit the same trend that we have seen this year, let's say, in terms of calendar. So yes, I confirm that there is a shorter calendar in Q1. Jean-Marc Chery: Well, first of all, okay, about next year 2026, Q1. With the current visibility, we have for the loading of the backlog we have seen in Q3 and we are seeing today. But we don't see a specific reason why we will not be at the usual seasonality of Q1 revenue versus Q4. This is generally speaking, really slightly above minus 10%. Well, then moving forward, of course, we will -- but it's depends on the market dynamic. But I would like to say that for 2026 Well, first of all, okay, in the second half, we will clearly see the normalization of inventory everywhere. We really expect that in H2 2026, we will have no other inventory, point number one. Point number two, next year compared to 2025, the silicon carbide will be a year of growth because 2025 is a year of transition where basically, okay, we have cumulative headwinds related to one specific customer, some program not going at the expected speed in Europe. And you know we are not specially still present in China. But next year will be a -- but then after we have our exposure to fast-growing segment. Clearly, that already give us a sign of growth like ADAS with our main customers that already provided some let's classify upside and MEMS as well. And definitively, one point is our increasing content in terms of value and silicon in our main customer. So all in all, we do believe that Q1, we have no sign that the seasonality will be impacted by other factors that we do not control. And in H2, we will be as well as the usual seasonality of growth H2 versus H1. Do we grow more like here because this year, we grow at 23% and the usual seasonality, 15% H2 versus H1. Well, here, we need to have a little bit more booking in Q1 and in Q2 to confirm. So my takeaway is, yes, we will have, let's say, idiosyncratic growth driver on top of the, let's say, up cycle of the market that we are seeing today even if this up-cycle market of automotive and industrial should be classified at this stage, soft, okay? And with subsegment pretty dynamic like the one related to infrastructure. Operator: The next question comes from the line of Janardan Menon from Jefferies. Janardan Menon: I just wanted to go back -- go to the Power & Discrete business where your margins are still very weak at minus 15% in the third quarter. So what can be the drivers to improve that? You talked about silicon carbide improving in Q3 -- I'm sorry, in 2026. But would that revenue come mainly from your Sanan JV to Chinese customers? And will that help your overall profitability given low utilizations in Europe? And do you need to take any further action to try and improve the profitability there Power & Discrete, given the kind of competitive environment in that industry? And then my follow-up is just a small clarification on a previous answer. Your 30 to 40 basis points of manufacturing inefficiency from the conversion and shutting down, et cetera, does that continue until you reach the end of that journey, which is when you fully close down your 200-millimeter transition to 300 millimeter? Or does that drop off before that? Jean-Marc Chery: So Lorenzo will comment about the improvement driver on Power & Discrete profitability. While Marco will comment on the dynamic of Power & Discrete revenue because as I have already anticipated, in my last answer, clearly, silicon carbide for us in '25 is a transition period. And Lorenzo, on Lorenzo Grandi: Yes, I can take it. Clearly, well, I will let Marco to explain what are the drivers. But at the end, let's say, clearly next year, we do expect a recovery in terms of the top line that is this year, we were impacted by a significant inefficiency in our manufacturing environment for the Power & Discrete in general and for the silicon carbide, in particular, due to the fact that we were working a very old level of saturation for these steps. Clearly, there are the following drivers that we expect to recover in term of profitability. Having a higher level of revenues clearly will help to better load our infrastructure. Then don't forget that silicon carbide, it will be the first to move, let's say, in the course of next year from the 6-inch to the 200-millimeter to the 8-inch, and this will bring clearly, let's say, some positive in the medium term in terms of profitability. Moving up in terms of revenues will improve significantly our expense to sales ratio that today clearly has been impacted by the fact that revenue are quite depressed. So at the end, these are the main drivers that we see together with the fact that we are improving, and we are moving to the next generation of silicon carbide that give also some benefit in terms of performance for what concerns, let's say, the profitability. Before to give the -- to pass to Marco, I just clarify the point of this extra 30 basis points on gross margin. Yes, this is mainly related to the duplication of mask related to the, let's say, qualification of processes. But this will continue, the amount will be more or less this range over, for sure, the next part of 2026 and probably also in the second part because we will continue with this program. This will be probably peaking in the first half 2026 then it will go down. But yes, this is something that we need to expect to have -- as we have this activity, let's say, to migrate our products from one fab that is going to be close to another fab. Marco Cassis: Okay. So we take on the dynamics. So we'll have basically 2 dynamics in 2026 that will help to start to grow. First of all, well, as Jean-Marc said, during the first half of 2026, we will keep reducing and will be clean in terms of inventory in Power & Discrete; here, speaking mainly about the noncedarbide portion. And this will allow the market dynamics next year to restart having year-over-year growth. Specifically, on season carbide as Jean-Marc has already anticipated, 2025 is a transition year, meaning is that we are experiencing lower volumes and inventory collection from our main customers. I would like to underline, this is happening while we still are maintaining stable our commercial contractual level of market share. This is happening since the beginning of 2025. And during 2025, we are -- this dynamic is not yet offset by Europe and China. So there is yet no strong contribution from the rectification programs in Europe and China. During the next year, we will start seeing growth in these 2 regions that will help the 2026 overall growth of the silicon carbide versus 2025. I hope that this answers your question. Jerome Ramel: Thank you, everyone. This is ending our call for this quarter. So thank you for being us today, and we remain here at your disposal should you need any follow-up questions. Sorry for the one that you don't have time to ask a question there. Thank you very much. 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.
Operator: Good morning, and welcome to Nexans' 9 Months 2025 Financial Information Conference Call. My name is Laura, and I will be your coordinator on today's event. [Operator Instructions] And now I'd like to hand the call over to Mr. Julien Hueber, Nexans' CEO. Please go ahead, sir. Julien Hueber: So good morning, everyone, and thank you for joining us today on the Nexans conference call. It's a special moment for me to be speaking with you for the first time as the CEO of Nexans. With me today, I have [ Christine Preolevi ], our Interim CFO; and Audrey Bourgeois, our VP, Investor Relations. I would like to begin by thanking the Board of Directors for their confidence. It's an honor to take this role and to lead a strong, high-performing company with a clear vision for the future. I also want to express my appreciation to Christopher Guerin for his leadership and the remarkable transformation he has led, a transformation I was proud to help drive as part of the Executive Committee. Chris leaves behind a strong company built on solid foundation that we will keep strengthening. I spent more than 2 decades at Nexans always close to operations and transformation. From my early years in manufacturing to leading our activities in China, South Korea or globally for the Industry & Solutions project, I've seen how performance is built on operational excellence, flawless execution and a deep understanding of our customers. As a member of the Executive Committee since 2018, I helped shape the group strategy on the capital markets road map. Leading our EUR 2.6 billion of PWR-Grid and Connect in Europe business reinforce my conviction that agility, execution and industrial excellence are the levers that will be key to Nexans's next chapter. Our strategy remains unchanged, and the megatrends behind it never been so strong. Electrification is accelerating and the need for secure, modern infrastructure keeps growing. These dynamics reinforce Nexans' positioning and long-term strategy. As a new CEO, I want to be very clear, we will continue to execute the road map presented at the last Capital Market Day, and we confirm our 2025 guidance and 2028 objective as well. The direction is right and the foundation are solid and all megatrends are continuing. The environment, however, has grown more complex since our last Capital Market Day, from geopolitics, supply chains disruption or shifting policy environment around energy and renewable. This makes one thing clear. It is the right time to make Nexans even stronger, stronger in execution, stronger in competitiveness and stronger in agility. I will continue to fuel our model of value creation that delivers results, combining our SHIFT program, complexity reduction, innovation deployment and vertical development. But building on that, I will also move forward and I will emphasize even more on the further complexity reduction of the organization, efficiency optimization of our industrial operations, both in terms of productivity and cost competitiveness, further mutualization of our industrial footprint and of course, keeping absolute discipline on cost and cash. All these priorities will further enhance the resilience of Nexans model. Our ambition is clear, to consolidate Nexans' competitiveness while amplifying selective profitable growth in Electrification, powered by digital acceleration and the smart use of new technologies and artificial intelligence. Nexans is entering this new phase from a position of real strength. We have a clear road map, robust financial foundations and teams that are talented, dedicated and united and proud of what we do. Together, we will deliver with strong discipline and focus, the long-term value creation for all our stakeholders. So after this introduction, let me now turn to the group's performance in Q3 on the first 9 months of 2025 on Page 4. In the third quarter, the group delivered a plus 7.7% organic growth, including a strong 12.6% in Electrification. Over the first 9 months of 2025, the group standard sales reached EUR 5.3 billion, representing a plus 5.8% organic growth compared to last year. Over the same period, Electrification, which remains the core of Nexans growth, recorded a plus 9.4% organic growth, confirming our disciplined execution across our 3 segments, which are Transmission, Grid and Connect. Our Transmission adjusted backlog reached EUR 7.9 billion at the end of September, providing for Nexans a strong visibility for the coming years. And no later than today, I am pleased to announce the acquisition of Electro Cables in Canada that will be reinforcing Nexans' position in PWR-Connect in a highly dynamic market and with approximately EUR 125 million current sales on a yearly basis. And I will come back on that on the next slide. In short, the first 9 months confirm the solid and disciplined growth of our Electrification businesses. This performance reflects our sharp focus on high added value solution and our selective approach to capture the strong underlying trends in Electrification. So before we move to our segment in details, I wanted to highlight something that is important to me. So I will move to Slide 5. Our Innovation Summit in Toronto that took place 2 weeks ago was a great platform for exchange with our platinum customers, our technology experts and our partners. Nexans becoming a pure player of Electrification. So I believe that our role is to bring together the key stakeholders of the electrification ecosystem to imagine and to build collectively the next level of electrification that is critical to our societies from powering homes and hospitals to supporting education and many other essential services. The choice of holding this event in Canada reflects our strong interest in North America. Canada is a powerful growth platform for Nexans, both for the Grid and the robustness of this construction industry in our Connect segment. So talking about Canada, I will now move to Page 6, where I will present the acquisition of Electro Cables that was signed today, this morning, in fact. Electro Cables is a Canadian player in low-voltage cable system, delivering a high performance and service-focused solution. This company represents a strong strategic complement to Nexans Canadian portfolio, offering an attractive growth perspective and a robust profitability profile. This acquisition also allows Nexans to further strengthen and complement its portfolio in Canada, enhancing its position in a very dynamic market while optimizing local supply chain efficiency. It also paves the way for valuable synergies driven by Nexans' expanded local presence and the rollout of its proven proprietary SHIFT program while enhancing innovation. This acquisition will be fully financed in cash, leveraging Nexans' strong balance sheet and is expected to be EPS accretive from day 1 and from year 1. Now moving to Page 7. Let me now comment the overall group performance over the first 9 months of 2025. Standard sales reached EUR 5.3 billion, representing a plus 5.8% of organic growth, confirming a solid trajectory for the group. The growth continues to be driven by Electrification business, which make up the core of Nexans strategy. It delivered a plus 9.4% organic growth over the period. Let me remind you that this is well above our Capital Market Day organic growth that we have announced last November of a CAGR between plus 3% and plus 5%. This performance reflects the disciplined execution in Transmission and in Grid as well as the recovery in Connect during this third quarter. Other Activities, mainly Metallurgy, a strategic segment for Nexans, posted a plus 4.1% organic growth over the first 9 months of this year. And as you know, we observed unusually high level of external sales in H1 that was driven by customer bringing forward orders ahead of the U.S. tariff. As expected, this overstocking subsequently led to correction in Q3 2025. The Non-electrification activity declined by minus 6% as expected, given the challenging automotive market. We remain very active to make this disposal of autoelectric, the last remaining activity to finalize our portfolio rotation. So overall, the group growth is at a high level and fueled by healthy growth drivers in Electrification, which remains our main engine of value creation. So let's now take a closer look at our different segments, starting with Transmission on Page 8. Performance was particularly strong over the first 9 months of 2025 with standard sales above EUR 1 billion, which is up by 25% organically versus last year and with a very strong Q3, up by 33%. This strong performance reflects solid execution, a favorable production mix and a more installation campaign carried out in Q3 compared with last year. Now regarding GSI projects, let me confirm once again that we keep working hand-in-hand with our customers. We have a very collaborative approach with them on this ongoing project that is on track as per schedule and milestones. Last but not least, Transmission pipeline of activity remained robust, supported by sustained demand for interconnection and offshore projects across our key markets. Our adjusted backlog stands at EUR 7.9 billion, which is up by 27% compared to last year, providing a strong visibility until 2028. So in short, the PWR-Transmission segment continues to deliver, thanks to the quality of the execution. I will now move to Page 9 on the following slide regarding PWR-Grid. So PWR-Grid sales reached EUR 989 million, which represents a plus 6.7% organic growth for the first 9 months, which also represents a plus 9% in Q3. This reflects solid structural trends coming from replacement of offset grids and the connection of renewables to the Grid, coming from Electrification needs in verticals such as electrical mobility and data center. And it also comes from the high development of our low carbon offers, and I will be able to comment or answer any of the questions regarding this element. Also, our Accessories business continued to be very well oriented over the period. Overall, projects in Europe and North America ramp up under the new frame agreements with major utilities. So now turning to our PWR-Connect business on Page 10. The net sales of the Connect amounted to EUR 1.7 billion for the first 9 months of 2025 compared to EUR 1.5 billion in the same period last year, representing a plus 1.4% organic growth. You know how contrasted is this segment. We have indeed some strong performing regions with a double-digit organic growth. It's the case for Canada, South America, Middle East and Africa. And so here again, our acquisition of today in Canada will further leverage on wind trend. We continue also to actively grow our tech product as fire safety product with sales growth progressions, which are higher than the market average. That was a key element that we communicated during our last Capital Market Day last year in November. In contrast, and as you know, some region remains more challenging. That's the case of Nordics in Europe or Asia Pacific, specifically Oceania in Australia, specifically on the residential market. Countries like France, Italy and Spain were quite resilient. And let me deep dive on Italy, where, as you know, we have started our SHIFT complexity reduction program on the new LTC business that we acquired last year. This SHIFT complexity program is completely part of the integration process. So we are currently exiting from low-margin products and low-margin market as per schedule. And I can tell you that the integration process of LTC is going very well. Moving on now to Page 11. And before we move to the Q&A, let me confirm our full year 2025 guidance, which was upgraded in July. We continue to execute with discipline and focus and remain on track to deliver an adjusted EBITDA between EUR 810 million and EUR 860 million, and a free cash flow between EUR 275 million and EUR 375 million. Let me remind you that this annual guidance upgraded in July is confirmed and does include only 6 months of Lynxeo. Now entering the final quarter of 2025, we look ahead with confidence. Electrification keeps powering the group performance and Nexans is well positioned to capture this growth with resilience, efficiency and focus. Also, I would like to thank all our teams in Nexans for their commitment and hard work. They are the driving force behind our success on the journey that lies ahead. I am now happy to take on the questions. Operator: [Operator Instructions] We will now take our first question from Daniela Costa of Goldman Sachs. Daniela Costa: I want to ask one sort of like more medium term and one a bit more shorter term. So I'll do them one at a time. But given the deal you've just done now in Canada, and I think in your commentary remarks on the press release, you're mentioning that you're moving from -- or Nexans moving from execution to expansion. Can you talk a little bit about how you view the balance sheet? What's an ideal positioning? Should we see this deal has sort of more of a start of a wave of deals in Electrification perhaps? And then I'll ask the second one. Julien Hueber: Okay. Thank you, Daniela. So clearly, the capital allocation is not changing. My priority will remain the same. I will focus and accelerate the M&A as per -- based on the same logic as in terms of thesis, basically, which is prioritizing M&As in countries where we are already located in order to reinforce our positions and in order to scale our innovations. And also second thesis is to focus on M&As in countries where we are not. So basically, we'll be looking for bigger acquisitions in these countries. And then the third thesis is also to grow in adjacent to cable, could be around Accessories or any other elements. Daniela Costa: And then just -- it sounded like in Q2 that the commentary was very strong regarding the outlook for 3Q on Connect. And I think sort of the market in general had interpreted that maybe more like high single digits or maybe above that, and you ended up with some growth, but relatively modest. Was it something in those countries that were weaker that deteriorated further? Or maybe people just got overexcited with the growth rates after the Q2 call? Sort of what's your interpretation of the deviation there? Julien Hueber: Yes, of course. So first of all, Connect is a very contrasted market. We have indeed meet the double-digit growth in South America, Canada, Middle East. That was completely in line with our expectation. For Europe, we were expecting a recovery in the Nordic part that did not happen. So what we have been doing is to accelerate the launch of innovation products. We are launching our more than 10 innovations both in Norway, in Finland and Sweden in order to compensate this. So we will not have any impact in terms of profitability in this area of Europe. On the rest of Europe, we start to see some -- in Q3, we started to see some signals of recovery, specifically in France, Belgium, Italy and Spain. Daniela Costa: But -- so it was as strong as you expected at the same dynamics you expected at Q2 or... Julien Hueber: So basically, you see the recovery in Q3 in Connect, it's a plus 3.6% compared to -- it's better, it's an improvement compared to Q2. And I expect that Q4 will be on the similar trend in Connect. Operator: And we'll now take our next question from Lucas Ferhani of Jefferies. Lucas Ferhani: I just wanted to have a bit more information on the North America business. So you said it's about 20% of group revenues. Can you say how much it is in Connect and Grid specifically? And also, do we still have that same split between kind of Canada versus the U.S.? And how would you characterize the EBITDA margins there? Would you say that they're higher kind of than group average? And the last point on that North America business, do you see any risk related to copper tariff in the U.S. that might redirect some volumes towards Canada? Julien Hueber: Thank you, Lucas, for this question. So I just want to remind that when we talk about North America, we are not in the U.S., we are in Canada. We are well positioned in Canada, and this acquisition will strengthen our position there. The split between Connect and Grid, it's mostly a Connect business, and we are in both, of course, markets, but it's mostly Connect business. And this Connect business in Canada is very accretive to the group. We have an extremely high level of first growth, but as well as profitability, hence, our choice to accelerate this M&A in Canada. Regarding -- sorry, your last part of the question, the copper tariff. We -- basically, we see that there is no impact for us in terms of copper tariff because we are our own brand in Canada, delivering the market in Canada. So we have no impact for that. on the H1 and the H2 will be as expected. So there will be no specific impact there in this part of the world for the tariff. Operator: And we'll now move on to our next question from Chris Leonard of UBS. Christopher Leonard: So maybe 2, if I can. And focusing on the Transmission business, obviously, a very good quarter in Q3. Can you update us on the contracts that you're still looking at in terms of the pipeline and saying that there's good growth potential here? Is there anything we should expect for 2025 so that you can reach that book-to-bill level of 1x? And within that, could you also help to give us some color on the U.K. National Grid contract again and just give us a flavor for why I believe you decided not to bid and move into the tender on those contracts. Because so far, the pricing looks very strong on those contracts for Prysmian and as a preferred supplier and NKT, it would be helpful to get any color there. And then a second follow-up question would be on your comments for GSI saying that the contract with IPTO is going well, very collaborative and on track with schedules and milestones. Is there anything more you can give on visibility of a plan B that you spoke to or your previous management team, I suppose, spoke to at first half results? That would be super helpful. Julien Hueber: Okay. Thank you for your questions. I will start and then I will hand over to Vincent Dessale, who is with me in the room today. So basically, indeed, you've seen this strong performance Transmission in Q3 and year-to-date as well. In terms of backlog, you have noticed that we are a book-to-bill of 1 in Q3, and we expect to have a similar approach during the year-end. We are active in terms of -- in the quotation at this moment. We are -- of course, I cannot disclose the number of projects, but we are quite active, and we are positive to do some quotation in Q3, hopefully, with some award in H1 next year. So that's basically the situation. And regarding the GSI project. As I said, the project is ongoing, extremely good relationship and collative work with IPTO, our customer. And for us, there is no plan B. There is only one plan A, which is keep going and working with our customers to deliver this project. And I will not -- leave Vincent to continue. Vincent Dessale: Yes. Maybe to give some color and to complement Julien answer regarding the backlog, indeed, we have a great improvement compared to last year, plus 27%. You know it. It has been mentioned with some press release, typically the award of the RTE frame agreement in March and more recently, the Malta-Sicily Project. The pipeline remains active. We have indeed -- and just to give an example because it's public recently this week, Terna has announced a new tender for a major interconnection in Italy. So it just gives an example of the robustness of the pipeline. And indeed, we are quite active on what I would call medium-sized projects and large projects, which are going to be awarded in the next 12 months. So quite active backlog and quite active pipeline in the coming months. Christopher Leonard: And is there any comment on the National Grid contracts that you guys weren't a part of? Vincent Dessale: Yes. Sorry, I forgot this point. I will answer to it, of course. But the story for Nexans has not changed. We are -- we have the SHIFT approach in the project, which means that we are very selective in the way we choose the project that we want to target. We have commented this in the past. It's a mix of technical fit, terms and condition fit, how it fits with the other projects that we have already in the backlog. And indeed, when we look at this frame agreement, it was not answering from our perspective to the different criteria. And as I said, we have other opportunity in the pipeline that we consider from our perspective, more interesting for Nexans. Operator: And we'll now take our next question from Jean-Francois Granjon of ODDO BHF. Jean-Francois Granjon: Yes. Two questions from my side. The first one concerns the acquisition of Electro Cables. Could you give us some more details regarding the current profitability of this company compared to the profit of the Connect division? And what do you expect? You mentioned an accretive impact, but could you give us some more details? And can you give us the EV and the multiple for the transaction? And the second question, I will come back on the GSI project. So you confirm the continue of the operations. Could you give us the contribution expected from GSI this year in 2025? And when do you expect next year? And I understood that probably there will ramp-up, and we expect a higher contribution in '26 compared to 2025. Could you give us some more color about that? Julien Hueber: Okay. So first question regarding the new acquisition, Electro Cables. So this is -- this business is relative to Nexans. It's on Canada for us as well. So both our business in Canada and as well as this Electro Cables is in the upper range of the -- above 20% of EBITDA. So it's extremely relative to Nexans. This business is extremely well positioned in market segments which are for us priorities and fully in line with our Capital Market Day. So the -- for example, the data center elements, the infrastructures, gigafactories and so on. So it's completely aligned with what we want to do. We also see some very interesting synergies from a supply chain standpoint between Nexans Canada and Electro Cables. So basically, that's why we decided to move on and to finalize this deal. So that's element -- first positive element. Regarding GSI, your second question. Well, you know that we have received EUR 250 million of payments the past months in different parts. So this year, we will do approximately EUR 150 million as part of the -- that was what we have communicated. So we will stay on this type of ratio. And maybe, Vincent, you want to comment for... Vincent Dessale: Yes. I think Jean-Francois, I think we will not comment in details, of course, the coming revenue for GSI. But as a matter of fact, this is -- you know the amount of this project is EUR 1.4 billion, basically. We have started in '23, so a smooth ramp-up. And after you can consider that you have a kind of linear activity in the first year and with a kind of acceleration in the last 2 years of the project, '28 and '29 due to the installation, which is usually compact in terms of activity versus the production, which is split basically during 5 years. So that's basically the profile of what you can expect in terms of activity. Jean-Francois Granjon: Okay. And just the additional question regarding that, you expect you confirm an improvement for the EBIT margin for the Transmission division next year compared to 2025? Julien Hueber: I think, yes, we will come back on you on this when we'll publish our results in February with a new guidance. But what I can tell you is that we are extremely satisfied with the execution of this -- of the different project ongoing and very proud of what the team is doing at this moment in this Transmission stream. Operator: And we'll now move on to our next question from Scott Humphreys of Berenberg. Scott Humphreys: I just have 2. The first is a very quick follow-up on the tariff topic. So one of your peers has been speaking recently about kind of increasing their purchases of scrap in the U.S. or in North America. From a kind of European perspective, has the reduction in the amount of scrap that China is importing from kind of North America. Is that having any impact on the cost of your scrap in Europe? Or was the Chinese buyer not as significant in Europe in the first place? So that's the first question. But I can -- carry on, please. Julien Hueber: No. So very clear here. So no impact at all in our scrap recycling activities in Europe, no incidents, nothing. Scott Humphreys: Okay. And the second one, just kind of a broader one on medium voltage. If you could maybe kind of remind us where you are in terms of the process of adding capacity in the medium voltage business in terms of, I guess, Morocco and then you mentioned briefly the low carbon production in France as well. So kind of how are you seeing that the level of capacity in medium voltage given how strong the Grid segment continues to be? And how does that kind of tie in with this additional layer of kind of a focus on production efficiency that you've talked about in addition to the CMD strategy? Julien Hueber: So thank you. This is a very interesting and important question. So you can imagine when we grow your business by 9% year-on-year, of course, it has an impact on manufacturing. So here, first of all, I want to remind you that what the job we have done in the past year was to increase the capacity because we anticipate this large increase in the Grid to come. I just want to remind you the acquisition we did in Reka, Finland 2 years ago with 2 civil lines, the announcement of the additional CapEx in Bourg-en-Bresse, an additional civil lines as well as the [ Safi ], which is Morocco new plant that is going to come. So in terms of capacity increase, I mean, we are completely in line with our plans to sustain this growth. Now regarding the existing footprint as well, we are -- and that's -- and you've seen in terms of communication that we have done in the past last week, basically, that in order to basically deliver our commitments and objective for 2028, industrial excellence will be key. And that's why we are really accelerating today, the efficiency, the productivity and as well as the competitiveness of our plant in Grid. So we have a full program on that, and that's extremely important to continue on this. And maybe one word because Grid is, of course, cable, but as well Accessories, and I will let Elyette to comment on the Accessories as well. Elyette Roux: Thank you, Julien. So what we can say is that we are accelerating even further away in Accessories. And indeed, as presented in our CMD, we mentioned that we had anticipated the investment in the plants with automation and robotization. So we are basically delivering at the scale that we announced in the CMD. Operator: And we'll now move on to our next question from Nabil Najeeb of Deutsche Bank. Nabil Najeeb: The first one is on GSI. I think you guys said -- you just said you had received EUR 250 million of cash for GSI so far, and that's the same amount as what you indicated at the H1 stage, which you said should keep you going until early September on GSI execution. So I'm just wondering if you have received any more cash recently? Or are you executing on GSI while waiting for a payment? And then the second question, given, Julien, you've been in charge of the Grid and Connect business for Europe, I was hoping to get your thoughts on how you see the margin potential for these 2 divisions. I think previously, your predecessor alluded to a longer-term range of around 15% to 16.5% for Grid. Is that a view you share? And what about for Connect? Julien Hueber: Okay. So I will start, of course, by the GSI. So indeed, you know the amount of cash we received, EUR 250 million. We have been completely transparent on this. Once again, what I can tell you is that we are working very closely with IPTO in a very, let's say, collaborative way. And we are in discussion at this moment in terms of the next steps of this project on the milestone and payment is part of it. So I cannot disclose anything, but that's, of course, as you can imagine, a part of our discussion. There's also ongoing discussion on political as well regarding the GSI. But on the cash payments, we are close discussion with IPTO on the -- and that's where we stand today. Now regarding your second question, indeed, the European business, there are 2 streams, Grid and Connect. So Grid, you are right with more than 15% EBITDA in terms of profitability. Here, you need to understand that in Grid, there is basically 3 parts, 3 elements. First one being the long-term agreement with utilities. And here, we are extremely satisfied with relationship with platinum customers that we're having. We have signed long-term agreement with them. In the past, it used to be 2 years contract agreement. Today, we are talking about 4, 5, 6 years contract. So we give us a very good visibility about the long term. The second part is project base of Grid, which are renewable solar or wind. Here, it's more, let's say, a project for a few months. And this business is extremely dynamic as well in Europe. I mean, Italy is one of them, Greece, or the other parts of the countries. Here, the profitability of this project are also at the right level of what we are looking for and what is in line with our Capital Market Day. And then you have the third activity, which is Accessories managed by Elyette, which is -- and we have communicated that a few times that is extremely lucrative as a business growing very fast because you know that the accessories part is, let's say, the critical element of the Grid. And our customers, platinum customers are replacing that regularly due to the climate change. And that's also giving us the reason why this business of accessories is growing even faster than the cable. So that's basically for the Grid part. Now talking about Connect. So Connect contrasted, as I said, businesses. The -- let's say, the profitability in Europe is around 13% EBITDA. And we will be growing this step by step with -- because we have growth patterns in our strategy where we will be growing in the sectors in the verticals for us, which matter the most, data center, critical building, injecting new technology of products, injecting new innovation of products. On that point, I think just for you to understand, we are -- in the past 2 months, we have launched Klaro, new innovation in Italy market with LTC. We are launching in September, ULTIMO innovations in Benelux, MOBIWAY in Norway. All these innovations are comforting the profitability of this business and are providing us also some resiliency because we try to avoid being too much exposed to residential and much more, let's say, focused to the market segments, which are going better. Vincent Dessale: And maybe to add on Julien's comment, just to remind that we have improved significantly over the last year, the performance of the Connect business, thanks exactly to what Julien comment, the SHIFT program deployment plus innovation, which are really the 2 pillars. And if you remember in the last call, we have not given any guidance on the percentage of EBITDA for Connect for very simple reason is that we have an ambition in terms of acquisition and the acquisitions that we do usually are slightly below the average of Nexans. And we have after the deployment of our integration program in order to bring them at least to the average and sometimes above the average. And indeed, we have -- we know that in the coming years, we'll continue to do this acquisition. So this is basically why we -- how we drive the evolution of the performance of Connect. But as mentioned by Julien, we are confident. Julien Hueber: And one more comment, I think what is very important to understand, in the Connect, you can grow very fast and you can take any type of business. But remember, the strategy of Nexans is to be selective. And for instance, in the Nordic in Q3, I asked the team to be extremely selective in the type of project because we don't want to consume cash for projects which are not accretive to our EBITDA. So we took always the decision to select the type of project and choose the one that really bring both cash and profitability to Nexans. Operator: And we'll now take our next question from Akash Gupta of JPMorgan. Akash Gupta: My first one is on outlook. So when you raised full year guidance in July, you were guiding double-digit growth in Grid and Connect in Q3, but we saw Grid growth in Q3 was slightly below double digit and Connect was not below double-digit level. And then we also saw some losing momentum in Metallurgy business, which was pretty strong in first half. So my question is that today, you are reiterating the guidance. But when we look at this guidance corridor and giving consensus is towards the bottom end of the range, where do you expect to end up in the year? Like how much confidence do you have in the midpoint? And how much confidence do you have on the upper end of the range? So that's the first one. Julien Hueber: Okay. Thank you, Akash, for your question. So basically, the Metallurgy tariff impact was none at the moment where we upgraded the guidance. So I think this one is -- there's no, let's say, negative impact whatsoever in terms of the guidance for the year-end 2025. Regarding the Grid and Connect, so our strategy is not always to go for volume. It's also to go for profitable growth. And typically, as I mentioned, for Connect parts, even though, as you say, the volume has been slightly below the expectation of the market. I can tell you that the quality of the growth of the 3.6% based on innovation we are doing, secure our guidance for the year-end. So I can tell you, that's why we will be securing our guidance by year-end. And I will not now comment where we'll be landing because we are still working on it. Of course, you can imagine. But the quality of the growth we have both in Grid and Connect secure our guidance. Akash Gupta: And my follow-up question is on Transmission growth. So when we look at the comps in absolute term, I think you will have a toughest comp in Q4. So maybe if you can comment about what sort of growth rates do we expect in Q4? And then when we move from '26 to '25, again, is there any unutilized capacity where utilization can be driver for growth? Or will the growth in 2026 will be mostly coming from project mix? Julien Hueber: Okay. So in Transmission growth, you have seen that -- so basically, we will be -- so you may have some spike from one quarter to another. You see a very strong Q3 numbers, 33%. I would say that our growth for the year-end will be first very well oriented and in line with the average of what we have announced in H1, this type of growth level. Now regarding the vision for 2026, maybe Vincent, you want to comment on this one? Vincent Dessale: Yes. Akash, Vincent speaking. I think you know the story very well. I mean the significant increase of this year is the result of our decision some years ago to make several investments in terms of manufacturing, testing and installation. So it's a kind of expected, I wouldn't say mechanic, but at least expected growth. Now we have a backlog, as mentioned by Julien before, for the next 4 years. So we will be in line in terms of volume with this year because now all the capacity that we have added over the last 3 years are now running and they are fully loaded for the next 4 years. So that's basically the profile of activity for the next 4 years. And as mentioned by Julien, depending on the different, I would say, planning of the execution, you can have from one quarter to another one, some differences in terms of volumes because you will have more installation, less installation. You know that we do more installation during summertime than during winter time, the usual approach of this business. Operator: And we'll now take our next question from Uma Samlin of Bank of America. Uma Samlin: So my first question is on -- a follow-up on GSI. I was wondering if you could help us -- how should we think about the progress of GSI so far in relation to your full year guidance? I think in the previous calls, you had mentioned that even if the project does not go ahead, the EUR 250 million that you have received so far would still contribute enough for the guidance to be hit in the mid-range of the guidance. Just wondering if you can confirm if that still is the case. My second question is on the PWR-Grid market. I guess we've seen a fair share of capacity expansion there. How should we think about pricing versus capacity expansion in PWR-Grid going forward? Julien Hueber: Okay. So GSI, I think I will repeat what I just explained. So basically, yes, indeed, when we -- when the guidance has been raised last July and confirmed today, we completely integrate the GSI elements of the milestone we have with customers. So having no change for that, I can [ contain ] this point. Now regarding the PWR-Grid, your second question. So it is also a very interesting question. So the growth is there. We demonstrated 9%. The capacity in Nexans -- manufacturing capacity in Nexans is also ready to sustain the growth. And we do not see any change, any pressure on price. Why? Because, first of all, we are -- we have launching low carbon innovations, which are extremely let's say, in line with the expectation of our customers, platinum customers that -- because you may know that the type of medium voltage low carbon offer that we are providing and selling to the market today, they are reducing by 50% the CO2 emission. So you can imagine the importance it has for our customer utilities. That's why we are able to differentiate from our competitors that are not offering the same thing. And as well as the strong, let's say, no pressure on price in Grid is also linked to the growth we are making in Accessories. Here again, I think you have seen last communication where we are launching innovations on new type of accessories, new joints that are also accelerating the installation phase from our electricians on the field. Operator: And we'll now take our next question from Miguel Borrega of BNP Paribas Exane. Miguel Nabeiro Ensinas Serra Borrega: Sorry to come back to GSI, which you say is on track, and there is no plan B. But it seems you're now more at risk than where you were in the first half. If the project is really canceled, what are the remedies? How can you replace the production reserves for next year? And do you think there are other projects out there with such a margin? I'm just trying to understand if the previous 17% margin for Transmission as a whole is still possible without GSI. Julien Hueber: Okay. So first of all, the project is not canceled. We are still working on it. They are extremely close discussion on relationship with our customers. There are ongoing discussion on the political side and supported by the European Commission. So I mean this is -- we do not see that as a risk. And we'll come back on that, of course, when we'll have some more, let's say, information to share. But this project is not canceled so far. Regarding now the -- we have enough pipeline of projects ongoing. Some of them already secured. Some of them are also under quotation. So here, we have so far -- we have no -- let's say, we don't forecast any problem for next year on this part. So basically, on -- maybe Vincent, if you want to add. Vincent Dessale: Yes, maybe to give you some color, I mean, just keep in mind that this project is what we call a mass impregnated project with deepwater installation. And let's be clear, on the previous projects with this type of technological content, we have been only 2 players to be qualified. So you don't have so many players able to deliver so far this technology. And basically, when you look to all the coming projects in Med Sea, for example, they will all request this type of activity. And today, both players are fully loaded for the next 4 years. So you can imagine that the other projects coming in the pipe are just waiting the available capacity. So as mentioned by Julien, there is no plan B. Today, we are working with our customers in very good collaboration. And we are already working with some potential projects after GSI, which will be '28, '29, basically. Miguel Nabeiro Ensinas Serra Borrega: Okay. And then just a high-level question as you were previously Head of PWR-Connect and Grid, what can you tell us about recent performance in terms of growth and profitability? And maybe some insights on what will be the #1 priority from here on? Is it accelerating top line growth? Is it continuing to expand margins or accelerate M&A? And then if I just can squeeze one more on Industry & Solutions. I think there's only Auto-harnesses left to be disposed. Is that still the plan? And do you see other areas potentially up for sale? Julien Hueber: Okay. So I will start by your last comment with autoelectric. So the answer is yes, it is -- there are still ongoing discussions with potential buyers. And this discussion are progressing. So that we will be able to come back to you as soon as something is a bit more concrete on that. But that's something that is part of our strategy to dispose and to become 100% electrical pure play electrification. Now regarding the -- you like, let's say, what would be the priorities. But basically, capital allocation is clear because we want to accelerate the M&A. That's really my objectives. I think the announcement of today for Canada can demonstrate it. And we have -- the team, M&A teams of Nexans is also very active with different pipeline. So we will review that very quickly to move on these elements. Growth, yes, but profitable growth, selective growth like we have demonstrated since several years. I think we will continue to do this. And also, we will be extremely -- and we explained that in the Capital Market Day in terms of innovations. We have a pipeline of innovations. There was recently a big event with one of our customers, platinum customers in France. We have seen a lot of electricians understand talking about innovation. There's a big appetite for innovations. And last but not least is the SHIFT and SHIFT AI that maybe we can also explain to you. That's one of our priority. We really want to grow in this segment. And I will give the floor here of Guillaume in charge of strategy and AI for Nexans that maybe can give some color on that. Guillaume Eymery: Thank you, Julien. Indeed, SHIFT AI is a hot topic for us. Basically, it's the platform from which we develop the Nexans AI solutions. And the choice we made is to amplify and accelerate the SHIFT program that has been very successful for Nexans. We focus on 4 axis: costing, complexity reduction, dynamic pricing, client advanced segmentation. And basically, the idea of SHIFT AI is that when a normal manager uses 5% of the data available, we moved to 20% with SHIFT. And with SHIFT AI, we will move to 90%. So at the moment, we are really in the topic of building up this platform, and we will tell you more in '26. Julien Hueber: And maybe just to finish on your question, maybe one of my other priorities, which is for me extremely important, is to work on the industrial excellence, generate mutualization of industrial footprints, both in Grid and Connect because we have here a room of improvement, productivity and competitiveness. So that will be also a key element of my priorities in the coming weeks with the team. Operator: And we'll now take our next question from Eric Lemarie of CIC. Eric Lemarié: I've got 2, the first one on GSI. I appreciate your various comments on this project, but could you confirm maybe that you're on time with the initial schedule on GSI and that the project has not been somewhat delayed as it is sometimes mentioned by the press? And could you maybe say when you expect to receive the final notice to proceed for GSI? And I got a second question on the backlog. The backlog on Transmission is flattish, is up year-on-year. I can see that, but it's flattish sequentially this year, around EUR 8 billion. Could you perhaps remind us your strategy here? Is it to properly execute and renew the backlog in good condition? Or is it more to expand the backlog to make it grow further? Julien Hueber: Thank you for your question. Maybe, Vincent, you want to comment? Vincent Dessale: Yes. I can take the backlog, if you wish, Julien. I think what we must have in mind, you have to take a kind of step back, I think. Why the backlog has increased significantly is that, if you remember, in '23, there has been this big move on the market with the Tenet frame agreement, which was basically the largest award of the history of the subsea business, which has basically catch a big part of the capacity on the market. And as a consequence of this major move from Tenet, you have seen plenty of other players placing their tender in order also to avoid a lack of capacity on the market. So '23 was indeed a peak of order intake. So I think now we are more in a normal process because basically, all the key players, we have 4 to 6 years of backlog. So it's quite logical, I will say, that you have a lower activity of tender right now, even if, as we say, it's still very active and very robust. You have the different players have announced award around this year. But if you follow my logic, you should expect potentially a new peak of order when there will be much more free capacity, which means basically probably more in '27 or '28. And that's why we have said previously that we think that the book-to-bill will be around 1 this year and probably next year due to this -- not due to us, but due to the cycle of the business. So we are focusing to answer to your question to 2 points. First, to execute properly the backlog because we have a good backlog to execute. And indeed, we are looking to the pipeline in order to on time, prepare the next generation of order, which will start basically from '29 onwards. And this means probably, as usual in this business, tendering 2 years in advance before the available capacity. Julien Hueber: And just -- thank you, Vincent. Just to answer your first question regarding GSI, yes, I do confirm we are in time with initial schedule, and we are in close discussion with our customers about the next steps. And so that's where we are standing today. Operator: And we'll now take our next question from Xin Wang of Barclays. Xin Wang: A quick follow-up on GSI, given we can't see your financial statements. Can you confirm for the volumes produced since September, are these sitting as contract assets or trade receivables on your balance sheet, please? Vincent Dessale: Just maybe a clarification because you speak a lot about the production. And I think just as a reminder, a project is not only production. I will not give you in details the detail of the scheduling of the project. But when we -- all what we have done since the beginning of this project is, of course, engineering, testing, production and so on. So when we say that we are on track, as mentioned by Julien, it means that we are on track not only with manufacturing, but also with jointing activities, with testing activities, with engineering activities, and this is basically what we are doing. So we have produced, I think, probably around 240 kilometers more or less. And indeed, we are continuing with both production and jointing and testing. That's the normal life of a project from a pure -- to give some color on the -- what does it mean from an operational perspective. It's not only production. If not, the project will not progress as planned. Xin Wang: Okay. I think my question was more on for the work you did since September, are you able to invoice them? Julien Hueber: So yes, we have been -- of course, we have been invoicing the customer as per normal, as per the ongoing project as per the milestone. So -- but that's nothing exceptional to report as usual, yes. Unknown Executive: [indiscernible] is limited so far. Xin Wang: Sorry, I didn't quite get the last bit. Julien Hueber: So it's Christine, our interim CFO, which was saying that our exposure is completely aligned with -- there's nothing special to report yet. Xin Wang: Okay. Great. And then my second one is, do you think there is a temporary regional oversupply in Canada since the introduction of U.S. tariffs? Because in H1, it was very obvious that you were exporting a lot more copper to the U.S., which was reflected in very high other activity numbers as you also commented in Q3, this was negative 6.3% year-on-year. Julien Hueber: So I don't think so for Canada. We have a very strong growth in Canada, close to 20% growth year-on-year, extremely dynamic. You know that we have 2 type of business, Grid and Connect. The Grid, it's fueled by long-term projects, long-term agreement with customers, utilities. So here, we are very well secured on the visibility. And in terms of Connect, we are -- what the team is doing is to really focus the activity on the specific verticals, data center, critical buildings. And here, again, there is no -- we don't see any specific additional competition from outside the Canada or from any other country. So basically, we are very well secured in this market, very dynamic with very long capability to grow in terms of construction infrastructure. Xin Wang: Okay. Good to know. And then final one, is the 9% Grid growth margin diluting? Because I think previously, management commented on sensitivity table between organic growth and margin. Is there a shift on how you think about the market? Julien Hueber: I can tell you that it's not diluted. This Grid business is extremely profitable. And so no dilution at all. It's -- we are completely aligned. Once again, we are aligned with the target we have communicated in Capital Market Day, both in terms of profitability and in terms of growth. Operator: Thank you. There are no further questions in queue. I will now hand it back to Julien for final remarks. Julien Hueber: So thank you, operator. So let me just finish by saying that I believe the solid performance delivered in our trading update today confirm the robustness of Nexans model and discipline with which we execute it. Now we enter into a final quarter with confidence, and we reiterate you have seen and you understood today our 2025 guidance. I'm very pleased to go now on the roadshows and to meet investors in the coming weeks. Thank you again for joining today. Operator: Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to World Acceptance Corporation's Second Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]. Before we begin, the corporation has requested that I make the following announcement. The comments made during this conference call may contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Statements other than those of historical fact as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will and should or any variation of the foregoing insular expressions are forward-looking statements. Additional information regarding forward-looking statements and any factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements in today's earnings press release and in the Risk Factors section of the corporation's most recent Form 10-K for the fiscal year ended March 31, 2025, and subsequent reports filed with or furnished to the SEC from time to time. The corporation does not undertake any obligation to update any forward-looking statements it makes. At this time, it is my pleasure to turn the floor over to your host, Chad Prashad, President and Chief Executive Officer. Chad Prashad: Good morning, and thank you for joining our fiscal '26 second quarter earnings call. There are a lot of great things to report in the portfolio. But before I get into those, I want to spend some time discussing a few unusual and one-off events that impacted this quarter, and then we'll open up to any questions you have. First, we had a $3.7 million onetime expense from the early redemption of our bonds. This is approximately a $0.57 earnings per share impact after tax within the quarter. Second, even though we discontinued and disposed of our Mexico operation years ago, we had a $1.3 million discrete tax-related expense this quarter. There are no additional items related to our prior Mexico operations that we expect to impact any future business or financials. But this $1.3 million expense represents approximately $0.26 per share after tax this quarter. We had the most new customer growth in the last 4 years this quarter, and this growth primarily in new customers, which are our riskiest customer segment, resulted in a new customer portfolio at the end of Q2 that is 35% larger year-over-year. This marginal increase in provision is solely due to the increased new customer base is approximately $5 million, solely due to new customers in the portfolio at the end of the second quarter. This represents approximately $0.78 per share after tax. These 3 unusual events in this quarter have a total impact of around $1.61 per share after tax on the quarter. Additionally, our long-term incentive comp changes make for year-over-year comparisons rather difficult. Last year, we reversed around $18.1 million in long-term comp from a prior plan, which benefited that quarter. Conversely, this quarter, we expensed around $5.8 million of long-term comp plan, which is about a $23.9 million net increase in our long-term incentive comp expenses when you're comparing year-over-year quarters. As you think about future quarters, the long-term incentive expense is front-loaded and will remain around $5.8 million for the third quarter before reducing by around $2 million in the fourth quarter and the following 2 quarters before reducing further. All right. That covers the major one-off and unique impacts within the second quarter. Now turning to the portfolio. Our new customer origination volume is up around 40% year-over-year at the end of the second quarter. Year-to-date, our new customer origination volume is up 35% and back to pre-COVID levels, actually in line with the first half of both fiscal year 2019 and 2020. This is a remarkable feat given the last few years of shrinking reduced growth. Additionally, the first pay default rate, slow file or delinquency rate of these new originations are in line with our fiscal 2019 and 2020, new bar originations. We're very grateful for all of the hard work by so many folks within our teams and very pleased with these results. They are able to return to healthy growth with good credit quality, maintain low first payment default rates while also increasing our portfolio yield by over 130 basis points year-over-year. When we include our returning former customers and look at all non-refinance originations, originations increased 15% year-over-year in the second quarter, making it the highest volume second quarter on record with the exception of fiscal year 2020 -- 2022. Year-to-date, the first half of the fiscal year had 14% higher loan volume than last year. Again, the highest volume on record for the first half of the fiscal year with the exception of fiscal year 2022. This is especially important for our portfolio of health as our repeat customers are lower credit risk, have a lower cost of acquisition and servicing and help with overall retention, yield and lower delinquency. All of this has helped us grow the portfolio nominally by 5.5% more this year relative to last year. We ended the second quarter with our portfolio up 1.5% year-over-year, compared to a starting position of being down 4% at beginning of the year on April 1 year-over-year. Other great improvements to our capital position include, as we previously mentioned, this quarter, we repurchased and canceled the remaining $170 million of our bonds and stood up a $175 million warehouse facility. Also in the quarter, we completed a new credit agreement, increasing commitments to $640 million and allowing for stock repurchases of up to 100% of net income which is an increase from 50% of net income in our prior agreement, and an additional $100 million of upfront repurchase allowance in addition to the 100% of net income, which begins January 1, 2025. For that repurchase potential, we've already repurchased 9.1% of our shares so far year-to-date, which is around $80 million, with additional capacity repurchased another $77 million this year, or approximately 8.6% of outstanding shares at yesterday's price for a total potential repurchase of around 17.7% of outstanding shares, again at yesterday's share price. We're excited about the current portfolio and this trajectory, which includes substantial customer base expansion, strong loan growth, improved loan approval rates while maintaining credit quality, stable and improving delinquency, lower cost of acquisition, improving yields, declining share count and ultimately returning enhanced value to our shareholders through strong EPS growth. At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would like to open up to any questions you may have. Operator: [Operator Instruction]. And your first question comes from John Rowan with Janney. John Rowan: My apologies, the phone broke up -- my phone broke up a little bit when you were talking about the 3 discrete items, I got into $0.26 from Mexico, but what were the other 2 to get to the $1.61? Chad Prashad: Yes. So we had $0.26 in Mexico. We had $0.57 due to the $3.7 million early redemption of our bonds and approximately 78% -- or $0.78 EPS impact from around right at $5 million increase in our provision solely due to more new customer growth this second quarter than last second quarter. John Rowan: Okay. So I just want to make sure I understand a little bit more about the -- some of your operating expenses going forward. So you had $25 million, an increase of $25.4 million in personnel expense because of the grants, right? But I'm assuming that that's up $25 million versus the $18.5 million reversal last year. So is it safe to assume that there's like $6.9 million, the net difference of that in personnel expense this year -- this quarter, going down to $5.8 million next quarter and then down to $3.8 million a quarter, for that $1.8 million a quarter after that. Does that sound correct? Chad Prashad: Yes. Sounds good. John Rowan: Okay. And then kind of 1 last housekeeping question. So obviously, you had a GAAP loss for the quarter. I'm assuming the diluted share count is just the basic share count. Can you tell me what the -- but the period end diluted share count was? Or the period end share count and then what the dilution is, we can maybe get an idea of what the diluted share count is with positive earnings? Chad Prashad: Yes. So the quarter ending share count is up $4.8 million. And the dilution usually runs in the 100,000, 200,000 shares, depending on obviously where the share prices and other factors. Operator: Your next question comes from Kyle Joseph with Stephens. Go ahead. Kyle Joseph: Just want to get your sense for the health of the underlying consumer and kind of any changes since the last time we talked. Obviously, there's been a lot of headlines, primarily in the auto space and concerns about the consumer. And I recognize you guys have some portfolio mix shift going on. But just stepping back and talking about the health of the underlying consumer and how that's impacting both demand and credit? Chad Prashad: Yes, it's a great question. So we do track how our consumer is performing on other loans. And yes, we have seen the same sort of weakness that you're reading about the papers, especially in the auto loans. However, for us, we haven't seen any major signs of weakness. We have proactively tightened our credit box for new customers multiple times so far this fiscal year, very marginal tightening typically on the very low end. Nothing really substantial in terms of overall approval volumes. But in terms of performance, we haven't seen anything major that would impact the portfolio today. Kyle Joseph: Got it. And then you guys talked about originations growth and new customers and just kind of want to get an update on marketing efforts that have been driving that and where you guys have been having success in kind of an update on the competitive environment as well. Chad Prashad: Yes. So on the marketing side, we've done a number of things that have, I think, been very successful. We are very much a test-and-learn sort of environment. We have brought some modeling in-house on the -- for solicitation models, propensity to respond and couple those with overall performance expectations. We have a couple of very successful tests this past quarter that have dramatically reduced our cost of acquisition for pre-approval campaigns, primarily new customers. This fiscal year, we have made some substantial changes to the way that we market to our former customers in order to increase our repeat business. We've seen substantial reductions in overall cost of acquisition here as well. Now with that being said, we haven't anticipated returning back to the $20 million-plus sort of marketing budget that we used to have in marketing. We're, for now, looking to aim for modest growth, somewhere in the mid to low single digits on the portfolio side, which is mid to high single digits on the customer base side. So all that is kind of tailwinds in terms of growth, but we're still maintaining sort of smaller budgets on the marketing front. We are seeing increased demand and sort of increased application volume from customers in general. So maybe that's also helping to fuel our lower cost of acquisition. Kyle Joseph: Got it. Very helpful. Thanks for taking my questions. Operator: There are no further questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks. Chad Prashad: In closing, I want to thank our absolutely amazing team across the country as well as those here in Greenville. I'm very grateful for their commitment to their customers and to our team members every day. They are helping our customers to establish and rebuild credit while meeting their immediate financial needs. Thank you for taking time to join us today. This concludes the second quarter earnings call for World Acceptance Corporation. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Bank earnings conference call third quarter 2025. [Operator Instructions] I would now like to turn the call over to Patrick Ryan, President and CEO. Please go ahead. Patrick Ryan: Thank you, Kate. I'd like to welcome everyone today to First Bank's Third Quarter 2025 Earnings Conference Call. I am joined by Andrew Hibshman, our Chief Financial Officer; Darleen Gillespie, our Chief Retail Banking Officer; and Peter Cahill, our Chief Lending Officer. Before we begin, Andrew will read the safe harbor statement. Andrew Hibshman: The following discussion may contain forward-looking statements concerning the financial condition, results of operations and business of First Bank. We caution that such statements are subject to a number of uncertainties, and actual results could differ materially, and therefore, you should not place undue reliance on any forward-looking statements we make. We may not update any forward-looking statements we make today for future events or developments. Information about risks and uncertainties are described under Item 1A Risk Factors in our annual report on Form 10-K for the year ended December 31, 2024, filed with the FDIC. Pat, back to you. Patrick Ryan: Thanks, Andrew. I'll hit on a couple of the high-level points from the quarter and then turn it over to the team to provide some of the details. In the third quarter, we saw a nice increase in net interest income, thanks to continued loan and deposit growth, coupled with net interest margin expansion. Our net interest income was up $1.5 million compared to the second quarter and up $5 million compared to a year ago. Our margin was up 6 basis points linked quarter and was up 23 basis points compared to a year ago. And the pre-provision net revenue number increased to 1.81% from 1.65% in the prior quarter. So all nice positive movements upward in terms of our overall revenue and margin. That strong revenue growth, coupled with expense control, drove continued improved profitability -- our net income was up $3.5 million or 43% compared to Q3 of 2024. Our return on average assets improved 28 basis points to 1.16% compared to 0.88% in the third quarter of last year. Our earnings per share improved to $0.47 in the third quarter, a 46% increase compared to Q3 a year ago, and our return on tangible common equity came in at 12.35%. We did see continued loan portfolio diversification within the quarter. Our investor commercial real estate to capital ratio came down to 370% from a high of 430% after we closed the Malvern acquisition. Our specialized lending groups now make up 16% of total loans, but within that broader category of specialized lending, no niche makes up more than 5% of total loans. Overall, credit quality seems to be holding up with the exception of some softness we saw in the small business segment, specifically companies with revenues under $1 million. Our NPAs in our nonperforming loans did decline during the quarter, and our allowance coverage ratio to nonperformers increased to 2.93%. Charge-offs were elevated but remain very manageable. Third quarter results also included 2 months of "extra sub debt expense" as we did not pay off the old sub debt until September 1 of this year. And during the quarter, we bought back almost 120,000 shares at an average price of $14.91. In summary, the core operating trends look good, and they're improving. The economic outlook remains uncertain, but we're well positioned for whatever rate environment may emerge. And obviously, we're keeping a close eye on the overall level of economic activity and what that might mean for credit quality going forward. I'll turn it over now to Andrew Hibshman, our CFO, to give you a little more detail on the financial results. Andrew? Andrew Hibshman: Thanks, Pat. For the 3 months ended September 30, 2025, we recorded net income of $11.7 million or $0.47 per diluted share and a 1.16% return on average assets. We saw another quarter of solid loan growth, however, down from the first and second quarter as we continue to prioritize relationships and profitability over volume. Loans were up $47 million for the second quarter or 5.6% annualized. Over the last 12 months, loans have grown $286 million or over 9% with our core areas of focus leading the way. C&I grew $194 million and owner-occupied commercial real estate loans grew $40 million. Our evolution into a middle market commercial bank can be seen in our loan mix shift over the past 12 months. C&I and owner-occupied commercial real estate are now a combined 42.2% of loans compared to 40% of loans at September 30, 2024. And our investor commercial real estate loans, which includes multifamily and construction and development, are now 49.8%, down from almost 53% 1 year ago. Growth was also solid again on the deposit side. Balances were up over $55 million during the quarter or an annualized 7% as we continue to execute on adding and maintaining profitable relationships. The growth primarily came with time deposits, along with some interest-bearing demand deposit growth. Darleen will expand on this, but we saw a strong response to promotional campaigns in markets around our new branches. We also utilized some brokered CDs to help reduce FHLB advances by $25 million during the quarter. I'll highlight that our deposit growth occurred even as our average cost of deposits declined 3 basis points to 2.69% for the quarter. Net interest income increased $1.5 million compared to the second quarter, primarily due to margin expansion on a growing balance sheet. Our net interest margin grew 6 basis points to 3.71% in the third quarter despite increased costs on our subordinated debt. We carried sub debt totaling $65 million from June 18, 2025, through September 1, which is the date we redeemed $30 million of outstanding debt. This carry resulted in about $486,000 in additional interest for the third quarter. Looking ahead, we continue to manage a well-balanced asset and liability position, which should result in continued strong net interest income generation. We will benefit from lower sub debt interest costs. However, we expect the immediate impact of Fed rate cuts to be slightly negative as it takes longer to move deposit costs lower compared to the immediate impact of rates moving lower on our variable rate assets. We also continue to expect a larger decline in our acquisition accounting accretion over the next several quarters. Overall, we expect our margin to remain relatively stable as we continue efforts to push deposit costs lower and replace the runoff of lower-yielding assets with higher-yielding loans. Our asset quality metrics at September 30 continue to be strong. NPAs to total assets declined to 36 basis points compared to 40 basis points at June 30 and 47 basis points 1 year ago. The linked quarter decline reflects a decrease of $1.6 million in nonperforming loans. Our allowance for credit losses to total loans increased slightly to 1.25% at September 30 from 1.23% at June 30. We recorded $1.7 million in net charge-offs during the quarter compared to $796,000 for the second quarter and $15,000 in net recoveries in the first quarter. Year-to-date charge-offs are almost exclusively in our small business portfolio. We continue to value this business for the sticky deposit relationships it generates, its impact on improving our community presence and brand loyalty, and it builds a pipeline of future middle market commercial customers. Pat summarized our credit outlook, and Peter will discuss it further in his comments. Noninterest income totaled $2.4 million in the third quarter of 2025 compared to $2.7 million in Q2. The decrease reflects lower swap fees, loan swap fees as well as $397,000 gain on the sale of a corporate facility that occurred in the second quarter. Noninterest expenses were $19.7 million for the third quarter compared to $20.9 million in Q2. Recall that Q2 expenses included $863,000 in onetime executive severance payments. Additional declines in other line items reflect efficiency initiatives as the bank continues to prioritize effective expense management. Darleen will expand on this in her remarks, but we have some new branch openings that will drive costs slightly higher, but we also have an offsetting branch closure in process and other cost mitigation initiatives in place that should help to minimize cost increases. Tax expense totaled $3.6 million for the third quarter with an effective tax rate of 23.4%. This compares to an effective tax rate of 22.9% in Q2. We anticipate our effective tax rate going forward will be relatively stable. Our efficiency ratio improved to 52% and remained below 60% for the 25th consecutive quarter. We also continued to expand our tangible book value per share, which grew $0.46 during the quarter to $15.33. We continue to be pleased with our earnings momentum and our progress in executing our strategy to evolve into a middle-market commercial bank. Our capital ratios remain strong, allowing for capital flexibility. This affords us the opportunity to further drive shareholder value through ongoing investment in the franchise and technology, a stable cash dividend and share buybacks as applicable over time. At this time, I'll turn it over to Darleen Gillespie, our Chief Retail Banking Officer, for her remarks. Darleen? Darleen Gillespie: Thanks, Andrew, and good morning, everyone. As Pat and Andrew noted, we experienced solid deposit growth in the third quarter with balances up $55 million or 7% annualized from Q2. This reflects increased business development activities by our sales teams and the success of targeted promotions, which we were -- which were implemented to drive engagement with our newly opened branch locations. While at a higher cost, promotional campaigns tend to generate strong relationship deposits and have proven successful as part of our branch network optimization efforts. We also saw growth from some CD promotions implemented to strategically onboard funding in support of our strong loan growth. But we're not only growing high-cost deposits. The point-in-time balance sheet hides an important success that I'd like to highlight. Our average noninterest-bearing deposits grew by $21 million during the quarter and by $52 million year-to-date, reflecting strong relationships that provide critical interest-free funding. During the third quarter, our average cost of interest-bearing deposits declined by 2 basis points to 3.27% and our overall cost of deposits declined by 3 basis points to 2.69%. This occurred despite growth coming from higher cost promotional campaigns and some brokered funding to support our loan growth. It reflects our bankers' outstanding success in executing their dual mandate to both maintain deep customer relationships and lower funding costs. The initiatives and banker incentives we have in place to support these goals continue to be effective. Similarly, what's also hiding in our net growth is our continued success in managing out some higher cost balances over the past few quarters. If you look at the first 9 months of 2025, our average money market deposits grew by about $25.1 million or 2.4% over the same period of 2024, but the average cost declined by 61 basis points, lowering the overall interest expense on these deposits by $4.1 million compared to the year-to-date period. And I do not believe we have fully realized the benefit of the Fed's September rate cut yet, but we have made solid progress lowering our pricing and managing interest expense through the first 3 quarters. Now I'll talk a little bit about our branch strategy, which has always been aimed at supporting engagement in our current markets and opportunistic expansion into adjacent markets. We opened a de novo branch in the Fort Monmouth section of Ocean Port, New Jersey, extending our footprint into Monmouth County and increasing our New Jersey footprint to 10 counties. We also completed the relocation of our Palm Beach branch to Wellington, Florida, still in Palm Beach County. This location was part of our Malvern Bank acquisition and was originally in a small office suite. We now have a full-service branch in a more convenient and accessible location to better serve our customers. We also officially closed our limited-service Morristown office in August and transferred those relationships and deposits to our nearby Denville branch. In line with our strategy to operate efficiently, we made the decision to close our Coventry, Pennsylvania branch in December of this year and transferred those deposits and relationships to our nearby Lionville branch. This decision allows us to better leverage our resources while continuing to provide high-quality service across our footprint. Needless to say, it's been a busy year for us with branch -- with several branch openings and consolidations. We've focused on aligning our branch footprint with customer demand and growth opportunities. By year-end, these efforts will result in a net increase of 1 branch in our network. I'll finish up with a note on rates and pricing. We've been very proactive in moving rates with the Fed cuts and expect to continue to do so. Now this does take time and a measured approach. We've been able to grow deposits in many rate environments, and we aim to continue doing this provided the desired profitability levels can be achieved. At this point in our evolution, growth for the sake of growth is not our end goal. We will focus on growing our deposit portfolio through disciplined relationship-driven strategies while remaining competitive in our pricing. Our goal is to continue to offer fair, market-aligned pricing, supported by strong customer relationships and exceptional service. Our focus is on serving our customers -- or growing our customers and serving our customers well and profitably. And also, our team is doing an outstanding job toward this end. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter? Peter Cahill: Thanks, Darleen. Well, Pat and Andrew have already commented on the loan growth. We've experienced in the past quarter as well as year-to-date, an annualized growth rate of 9%, I think, compares favorably to our peers. The third quarter was right in line with budgeted loan growth. And after 2 quarters of growth that were well ahead of plan, I think we're positioned to report good overall growth in earnings at the end of the year. For the past couple of years, I've reported on our goal to do more C&I business, which includes owner-occupied real estate, while maintaining a healthy level of investor real estate and consumer lending. And I'm happy to report that the trend of growing C&I business has continued. New loans closed and funded for the 9 months ending 9/30/25 were comprised 65% by C&I loans and 18% by investor real estate, the remainder consisting mainly of consumer loans. That's an increase in C&I lending from 2024 when C&I loans represented 64% of all new loans. The regional commercial banking teams continue to generate most of the loan growth for us. They represented 39% of new loans generated in Q3, followed by investor real estate at 28%, private equity at 18% and small business banking at 9%. Our specialty areas, which also includes asset-based lending, are all at or very close to their growth plans for the year. Regarding investor real estate, we closed a number of new loans in the third quarter, but similar to previous periods, new loans were offset by payoffs. You'll see a bump up in investor real estate if you look at the schedules in the earnings release, but that was due mainly to a reclassification of a loan from owner-occupied to investor. Our goal over time is to moderate growth in investor real estate and manage more of that business in its own investor real estate team, focusing on relationships and loan concentrations, and that continues to go very well. A focus of most community banks is the ratio of investor real estate loans to total capital, as Pat mentioned, we hit a high point at 430% of capital after the Malvern acquisition, but got to 390% in March of 2025 and finished Q3 at 370%, which is about where we want to be. The lending pipeline at the end of the third quarter stood at $283 million of probable fundings, down 6% from the level of probable fundings at June 30. The number of deals in the pipeline, however, is up 5% from the end of Q2. If one breaks down the components of the pipeline at quarter end, C&I loans made up 68% of the overall pipeline, exactly where we were at June 30 and up from 63% at March 31. Overall, I'm happy with where the new business pipeline stands. We are anticipating a higher level of loan payoffs in Q4 than what we've experienced on average over each of the first 3 quarters, which is why despite a strong start to the year from the standpoint of overall loan growth, our target has remained in the 6% to 7% growth range. On the topic of asset quality, Andrew provided a good outline on where we are. I think things continue to be in good shape. The loan portfolio continues to be well diversified. Andrew mentioned some softness in the small business loan portfolio. We've made some adjustments there, and we anticipate a return to the quality we've experienced previously. Overall, it's a modest piece of the overall loan portfolio. I should probably also comment on what's been out there in the banking news about the fear of deteriorating credit quality and the "one-offs" cited by a handful of banks. I can only say that we don't do any lending into deals like what you read about publicly around First Brands, Tricolor, factoring and borrowers not providing financial information. That's not what we do. We have very -- and we have very limited exposure to NBFIs and none to private lenders. In summary, I think we had a good third quarter. Loan growth was in line with budget, and we expect to meet our loan growth goals for the year. That pretty much concludes my remarks. So I'll turn things back to Pat for any final comments. Patrick Ryan: Great. Thank you, Peter. Appreciate all the additional comments. And at this point, I think we'd like to open it up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Justin Crowley with Piper Sandler. Justin Crowley: Just want to start on expenses. You've talked about tighter cost control before. So nice to see the core base now down 2 quarters in a row. How would you describe some of the efficiency actions taken, what they involve, what, if anything, is left to do? And where does that leave you on the thinking around run rate here over the next several quarters, more specifically, just factoring in your comments as well about some actions like new branches that could add to costs? Patrick Ryan: Yes. No, absolutely. Justin, we always are focused on costs. But at the same time, we don't want to miss out on important investment opportunities. I think you've seen over the last couple of years, we've invested in some new teams in terms of some of the specialty lending niches, we've invested in some additional branch locations in new markets for us, and we've invested in some technology, whether that be the online loan application platform or salesforce, things like that. But I think in terms of big investments, we're at a point right now where we're just kind of digesting the moves we made. We're letting those new business units scale up. And so I don't see a lot of big new costs on the horizon. We are a year away from needing to make a decision on our core and how much we want to keep kind of with our current provider versus spreading it out amongst other kind of best-in-class operators. So always a little bit of a question mark on tech when you're doing a big core contract renewal. But again, I don't suspect there's going to be anything too outlandish there in terms of technology spend increases. And we've been very focused internally on just making sure we can get our noninterest expense to average asset ratio down to that 2% range and below since that's where we've been able to operate historically. So that's a little bit of big picture on expenses, and I'll let Andrew jump in and talk a little bit about some of the initiatives and kind of where he sees the line item moving forward. Andrew Hibshman: Yes. Thanks, Pat. I'd just add, I think Pat talked about this in previous calls where kind of you do a big acquisition and you get cost saves and then you kind of recalibrate and now we're just kind of recalibrating a little bit more and fine-tuning. We haven't done anything drastic to save money, like things like professional fees, a lot of that was kind of elevated because of some of the big projects we had going, implementation of salesforce. We have consultants helping us with that. We had some other projects going on. And so I think really, the cost mitigation has been really just kind of settling to where we're at, finding some excess spending where we could. I don't think there's any major initiatives that are going to significantly reduce costs from where we're at now. We will -- obviously, like we mentioned, we will see a little bit of a creep for some of the couple of small -- the branches we've done, new branches. But I think we can minimize expenses, keep them relatively flat, maybe again, like some slight increases, always kind of heading into a new year, there's standard cost of living adjustments on things like rent and salaries and things. So we'll continue to see that. But no major new costs that I'm aware of or any major new cost-cutting initiatives, but we're going to just keeping a tight eye on things. We think we can continue to grow without adding meaningfully to the expense base and to the payroll. So again, I think we're going to be able to maintain the total expenses at a relatively flat level. Justin Crowley: Okay. And then just, I guess, in terms of like very near-term run rate, like next quarter, even if we do see a little bit of an increase given the new branches, it's going to be modest. It's not going to be anything too eye-popping. Andrew Hibshman: Yes, I think that's right. Justin Crowley: Okay. And then on the margin and some of the inputs, obviously, the latest Fed cut came late in the quarter. But following that and what should be, I guess, some further reductions looking out here, and Darleen touched on it, but can you folks talk a little bit more on how aggressive or active you think you can get on lowering deposit costs? Patrick Ryan: I'll start and then I'll let Darleen provide a little more color there. But at the end of the day, when the Fed moves, we move, as Andrew pointed out, it takes a little bit of time to kind of to go through it. We have certain rack rates we can move down and we obviously are taking a look to see are there areas where we can move more than what the Fed did. And so we try to be selective in certain product categories to see if we can even move things a little bit further. But at the end of the day, our goal is to try to make enough adjustments on the deposit cost side to offset what we know is coming in terms of floating rate asset yields so that after a month or so, it should be a relatively neutral event from a margin perspective. And then separate from that, there's just kind of the work we do every day to drive core low-cost noninterest-bearing deposits and move promotional customers into rack rate so that if we can make the impact of the Fed move neutral, then some of the mix improvements and some of the other changes we make can hopefully continue to drive costs lower. So I don't know, Darleen, anything you want to add there? Darleen Gillespie: I think, Pat, you touched on it. I would just add that we talked a lot about this over the past year and even early -- I'm sorry, late 2024, in which we've really been focused on lowering our cost of deposits, looking at specific portfolios and determining where we can make an adjustment without negatively impacting our customer base. One of the benefits that we have is our government portfolio, a good portion of that is tied to the effective funds rate. So as the Fed makes adjustments, we can make adjustments immediately. But I think everyone within the organization understands the message of competitive pricing but not going overboard and not necessarily winning based on rate. So overall, I think that we do a really good job in managing our cost, and I anticipate us continuing to be able to do that as the Fed continues to make adjustments over the next couple of months. Justin Crowley: You mentioned the government portfolio of funding. How much do you have in deposits that are like that, that are indexed directly to Fed funds? Darleen Gillespie: Our government portfolio is approximately 12% to 13% of our total deposit base. And I would say 75% of that portfolio is tied to the effective funds rate. So we look to onboard full customer relationships when we look at deposit opportunities on the government side. And generally, when we bid on that business, the request is to tie it to an index. So we've been successful in winning business in that world by bidding based off of an index rate. And so I think, again, as we look at additional cuts down the road, we'll be able to make adjustments in that portfolio. Justin Crowley: Okay. Got it. And then just one last one. You continue to be active on the buyback and seems like that should continue to some degree. Obviously, with the stock right around tangible book makes it attractive. But what are other considerations like, for example, on capital levels? What levels are you comfortable at? Or what do you think could serve as a good floor for you guys? Patrick Ryan: Well, we always look at internally the total risk-based capital ratio, and we have a soft limit around 11.5% that we try not to dip below if we don't need to. And then after that, it's just sort of looking at different uses for capital, and we're happy to see that based on -- despite the strong growth based on the strong earnings, we've been able to see that level creep up over the last couple of quarters. So I think we're in a position right now where based on organic growth alone, we're growing capital, which gives us flexibility. And what we choose to do with that " additional capital" that we're creating will be a function of the opportunities in the market. Obviously, M&A could be one consideration, but we continue to be very selective there. Our dividend is relatively low, so we could take a look at that. And then depending on where the stock trades, we think we've got room to look at capital deployment in the form of the buyback. So we're at a level where we think capital ratios are growing nicely, and that gives us flexibility to kind of pull the levers that we think will generate the best returns. Operator: [Operator Instructions] I would now like to turn the call over to Patrick Ryan. Please go ahead. Patrick Ryan: Thank you very much. I just want to conclude the call by thanking everybody for calling in. We appreciate your interest in First Bank, and we look forward to reconnecting with you after year-end results. Thanks, everybody. Have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the ARMOUR Residential 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 Scott Ulm, Chief Executive Officer. Please go ahead. Scott Ulm: Good morning, and welcome to ARMOUR Residential REIT's Third Quarter 2025 Conference Call. This morning, I'm joined by our Chief Financial Officer, Gordon Harper, as well as our Co-Chief Investment Officer, Sergey Losyev and Desmond Macauley. I'll now turn the call over to Gordon to run through the financial results. Gordon? Gordon Harper: Thank you, Scott. By now, everyone has access to ARMOUR's earnings release, which can be found on ARMOUR's website, www.armourreit.com. This conference call includes forward-looking statements, which are intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. The Risk Factors section of ARMOUR's periodic reports filed with the Securities and Exchange Commission describe certain factors beyond ARMOUR's control could that cause actual results to differ materially from those expressed in or implied by these forward-looking statements. Those periodic filings can be found on the SEC's website at www.sec.gov. All of today's forward-looking statements are subject to change without notice. We disclaim any obligation to update them unless required by law. Also, today's discussion refers to certain non-GAAP measures. These measures are reconciled with comparable GAAP measures in our earnings release. An online replay of this conference call will be available on ARMOUR's website shortly and will continue for 1 year. ARMOUR's Q3 GAAP net income available to common stockholders was $156.3 million or $1.49 per common share. Net interest income was $38.5 million. Distributable earnings available to common stockholders was $75.3 million or $0.72 per common share. This non-GAAP measure is defined as net interest income plus TBA drop income adjusted for interest income or expense on our interest rate swaps and futures contracts minus net operating expenses. Total economic return for the quarter was 7.75%. Quarter end book value was $17.49 per common share, up 3.5% from June 30 and up 2.8% from August 8, the last date which we have reported book value. Our most recent current available estimate of book value is as of Tuesday, October 21, and was $17.50 per common share, which reflects the accrual of the October common dividend of $0.24 per share payable on October 30. During Q3, ARMOUR raised approximately $99.5 million of capital by issuing approximately 6 million shares of common stock through an after the market offering program. In August, we completed the sale of 18.5 million shares of common stock for proceeds of approximately $298.6 million, net of underwriting discounts and commissions. And in September, we repurchased 700,000 shares of common stock through our common stock repurchase program. ARMOUR paid monthly common stock dividends per share of $0.24 per common share per month for a total of $0.72 for the quarter. We aim to pay an attractive dividend that is appropriate in context and stable over the medium term. On October 30, a cash dividend of $0.24 per outstanding common share will be paid to the holders of record on October 15. We have also declared a cash dividend of $0.24 per outstanding common share payable November 28, to holders of record on November 17, 2025. I'll now turn the call over to Scott Ulm to discuss ARMOUR's portfolio and current strategy. Scott Ulm: Thank you, Gordon. The third quarter unfolded against the backdrop of shifting macroeconomic currents. Downward revisions to employment data confirmed that the U.S. labor market had been softer than earlier reports suggested. In response, the Federal Reserve resumed its easing cycle, implementing a 25 basis point cut in September. Chair Powell described the move as a risk management cut, reflecting growing caution around labor conditions. Updated projections now signal 2 additional cuts by year-end, setting the stage for a constructive environment for Agency MBS as financing conditions continue to improve. Markets responded positively to the Fed's pivot. Treasury yields declined, Agency MBS spreads tightened by roughly 20 basis points and volatility fell to its lowest level since 2022. These dynamics produced a total economic return of 7.75% for the quarter, as previously mentioned by Gordon. Following this strong performance, MBS spreads are now near the tightest levels of the year. Near-term consolidation is possible valuations remain compelling on a medium-term horizon. As we entered the fourth quarter, macro and political visibility became more clouded. The federal government shutdown that began on October 1, delayed key data releases and introduced incremental uncertainty to growth forecast. Even so, the market continues to expect an easing bias through year-end that's likely to redirect liquidity from the short end of the rates curve into Agency MBS. Chair Powell's recent comments also indicated that quantitative tightening may conclude in the coming months. Although details are still evolving, the Fed's MBS runoff is likely to continue with paydowns from MBS and treasuries expected to be reinvested in the treasury market. Together with a broader push toward banking deregulation, these shifts are aimed to ease balance sheet constraints and reinforce demand for treasuries and Agency MBS. Notably, SOFR treasury spreads have turned more positive in recent weeks, strengthening the effectiveness of pay fixed SOFR swaps as portfolio hedges. On the policy front, reports suggest that major banks are positioning to lead potential IPOs for Fannie Mae and Freddie Mac, collectively estimated around $30 billion. Although the process has been delayed by the U.S. government shutdown and the absence of a formal road map for privatization, administration officials have reiterated support for retaining an implicit government guarantee, an outcome that could transform GSE reform from a potential headwind into a tailwind for MBS investors. An additional and somewhat unexpected source of demand could come from GSEs themselves. After years of balance sheet contraction under conservatorship, Fannie Mae and Freddie Mac now have roughly $250 billion of combined capacity to invest in mortgage loans and MBS should it align with GSE's earnings and valuation objectives. While no formal plan has been announced, recent disclosures point to greater flexibility within their investment mandates, hinting at a more dynamic approach to managing their portfolios than in the prior cycles. I'll now turn it over to Sergey for more detail on our portfolio. Sergey? Sergey Losyev: Thank you, Scott, and good morning. ARMOUR's most recent net duration and implied leverage were 0.2 years and 8.1x, respectively, a balance stance with a bias towards further Fed easing. Roughly 87% of our hedges are in OIS and SOFR pay fixed swaps with the balance in treasury futures. Our liquidity remains robust at approximately 55% of total capital. The portfolio is invested entirely in Agency MBS, Agency CMBS and U.S. treasuries. Our recent activity has centered on par to slight premium coupon mortgages where levered and hedge ROEs range from 16% to 18%. Higher premium pools continue to offer up to 19% returns, though with greater sensitivity to prepayment risk. Diversification across 30-year coupon stack, Ginnie Mae and DUS securities whose positive convexity and shorter duration provide relative value remain a key advantage. During the second half of the year, 30-year mortgage rate briefly reached 6.15%, lowest level of this year. While rates remain just above 2024 lows, refinancing activity has already exceeded last year's pace, elevating prepayment concerns for TBA and generic premium MBS. This reinforces our long-standing focus on specified pools, which represent over 92% of the portfolio. Aggregate portfolio prepayment rates rose to 9.6 CPR in October compared with the third quarter average of 8.1 CPR, a 19% increase and consistent with our expectations. We anticipate a similar uptick in November before prepayments stabilize towards the year-end as refinance volumes moderate. Should mortgage rates move down below 6%, levels we've not seen since early 2022. The MBS coupon stack offers a deep market of lower-priced coupons as a hedge against higher prepayments. Roughly 40% of our assets are already positioned in prepayment of protected Agency CMBS pools and discount MBS. As usual, we financed 40% to 60% of the MBS portfolio through BUCKLER Securities, distributing the balance across 15 to 20 additional repo counterparties. Average gross haircuts stand near 2.75%. Repo market liquidity remains healthy with only a modest 2 to 3 basis points increase in repo SOFR spreads versus Q3 average. More meaningfully, the spread between SOFR and Fed funds widened from 3 basis points in Q3 to roughly 10 basis points through October, muting the transmission of the Fed's recent cut to funding markets and by extension to broader economy. An increase in treasury bill issuance and a gradual decline in banking reserves means banks can lend cash at higher prices. This makes repo funding a key area of focus heading into year-end, yet despite a recent bump in SOFR rates, we view funding conditions as stable with standing repo facility to supply liquidity if needed. Looking ahead, we expect structural demand for Agency MBS to continue to strengthen. Regulatory clarity around banking reform and resumed easing cycle have historically been a powerful catalyst for high-quality liquid assets like MBS. While spreads have compressed, underlying fundamentals and market dynamics remain favorable. Back to you, Scott. Scott Ulm: Thanks, Sergey. We executed a $300 million overnight underwritten bought deal in August, first one we've done this decade. While it was somewhat more expensive than our ATM execution, it allowed us to put a significant amount of capital to work at attractive spread levels. In fact, we estimate that the spread tightening from the newly purchased assets alone contributed about 0.6% to our increase in book value this quarter, along with a meaningful reduction in operating expenses per share. We saw some weakness in our stock in mid-August. And as in the past, we repurchased some shares in the open market. We will continue to look at both sides, selling and buying in our equity account. As you know, we determined our dividend based on a medium-term outlook. We view our current dividend as appropriate for this environment and the returns available. ARMOUR's approach remains unchanged, grow and deploy capital thoughtfully during spread dislocations, maintain robust liquidity and dynamically adjust hedges for disciplined risk management. We are confident in our positioning strategy and ability to deliver value for shareholders. Thank you for joining today's call and your interest in ARMOUR. We're happy to now answer your questions. Please open the line for some questions, please. Operator: [Operator Instructions] Our first question comes from Doug Harter with UBS. Douglas Harter: Hoping you could talk a little bit about where you see current returns on incremental investments and kind of the importance of the hedge choice you make in that and how that factors into your view of the attractiveness of the market today? Desmond Macauley: Yes. Doug. So expected ROEs, hedged ROEs are in the 16% to 18% range. Obviously, a touch lower than where they were at the end of June, given the tightness in mortgage spreads. So over a short-term basis here, you can assume 8 tons of leverage and hedge to swaps. So that's also picking up the swap income. Now we are still constructive medium term, given the resumption of the normalization cycle and also because of spreads, while local types are still attractive over a longer time horizon. So if we see another 10 basis points of tightening, that could add about 4% in return on equity to that base case of 16% to 18% range for production coupon. Douglas Harter: I guess how do you think about what the outlook is for swap spreads? And then how do you think about the attractiveness if you looked at mortgage spreads on like an OIS basis? Sergey Losyev: Doug, this is Sergey. Yes. So swap spreads have also had a big move since September meeting. We think swap spreads will continue to normalize. If you look at some of the average prior to Liberation Day, we see 10-year swaps somewhere in the mid-30s, currently trading around 44%. So we've gone a long way from minus 60 earlier in Q2, and we feel like this is going to continue to be a tailwind for the portfolio as effect of more effective hedges to hedge MBS. Currently, we have about 87% notional allocated to SOFR and OIS swaps. So that's a good positioning. We will probably tailor it if we do get back to those averages, but a lot of things have been lining up to see balance sheet expansion as well as potentially the Fed looking at changing the target policy rate from the Fed funds to SOFR or another repo measure, and that will provide lower volatility to funding rates and potentially wider SOFR spreads as well. So a lot of tailwinds are lining up there. Operator: And the next question comes from Jason Weaver with Jones Trading. Jason Weaver: Scott, along with your prepared remarks, if the administration is actively looking for ways to reduce borrower rates via GSE deregulation, do you have any thoughts on what the actual implementation looks like, whether that's GP manipulation, changes in LLPAs, underwriting guidelines? Scott Ulm: There are a lot of levers they could pull. And what knows we get a lot of levers pulled these days that we may or may not expect. So I think -- and I think that probably fits somewhere on their agenda. So the broad answer is yes. I think we could see a lot of things move around here. And particularly, if -- but particularly, I think you have to put it through the lens if they are thinking about a capital raise here for the GSEs. They're going to want to configure the GSEs to be as attractive a proposition as they can. So that may put the brakes on a couple of things as well. So there's a balance there I have no further insight into it other than just note that there are 2 competing things going there. One is undoubtedly, they'd like to see lower mortgage rates, but they also want to see the GSEs as an attractive investment proposition. Jason Weaver: Agree. That's helpful. And then noticing the hedge ratio ticked down quite a bit from Q2. Is that more of a timing issue? Or just along with the greater confidence in the pace of easing activity, you can be a bit more directional here? Scott Ulm: There are a lot of things going on in that. Sergey, Desmond, maybe you want to give a little more color on that, but there's a lot that goes into the way that, that ratio in itself works. Sergey, Desmond, do you want to give a little more color on that? Desmond Macauley: Yes, Jason. So I mean, the way we kind of look at hedges, it's really to hedge our duration across the entire curve, right? So as we said earlier, our duration of 0.2, we are taking a balanced view with a bias towards more Fed easing. So our goal is to -- most of that 0.2 duration is actually in the front end of the curve, whereas in the back end, we aim to stay flat. And ultimately, we move our hedges around to accomplish our duration targets across the curve. Operator: And the next question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: All right. There was a pretty significant drop in interest rate volatility in the third quarter, which had a carryover impact to MBS, obviously. Can you guys share your thoughts on kind of how you think volatility evolves going forward? And since it's being priced significantly lower today, how that factors into your -- the potential to maybe add some swaptions or options into the hedge portfolio? Desmond Macauley: Yes. Trevor. So in terms of volatility hedging, you can think of 2 approaches to it. One, obviously, is you can use swaptions. We have used swaptions in the past. We continue to look at hedges even those that are not in our balance sheet. But the other approach is actually through asset selection, right? So you can pick assets that have low optionality. About 40% of our book, as we said in our prepared remarks, is in shorter -- lower coupons and also DUS securities. And these actually have very low optionality and another benefit of these securities is that their convexity in some cases, is even positive. So they act as a good offset to the negative convexity that you see in our production coupons. Now one more point on volatility is that, yes, volatility has come down a lot so far this year. But if you expand the time scale if you go back and look at other periods that are similar to this one, you can pick 2019. That was a period when the Fed had resumed normalization. They had started [indiscernible] back -- not buying mortgage-backed securities. That period of time, volatility was actually lower than where they are right now. If you take, for example, obviously, it's an entire volatility surface, but if you look at the swaptions for 1 year by 10-year, today is about 82 basis points. The average over that period was about 64 basis points. So still we are still about 18 basis points higher. If the Fed continues normalization, we can expect that the tail risks around rates will become compressed. And for that reason, we can see volatility in the medium term continue to decline, right? Now that's not going to prevent short-term bouts of volatility. But over the medium term, we can see volatility decline. And if you are long options, then the valuation of options would decline if volatility declines. So yes, I mean, we always -- it's a very dynamic position. We're always looking at our hedges. But for now, we think just keeping low optionality assets is the better approach. Operator: And the next question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Just one for me. Regarding economic net interest margin, it seems like it widened about 1 basis point quarter-over-quarter. Looking forward to year-end and maybe to halfway through 2026, what would we need to see for this trend to kind of continue and if not pick up pace? Gordon Harper: Well, I guess you're going to -- it really depends on our portfolio and where continued cuts in the Fed rate, and that will imply how it impacts on our financing costs. And we think we've constructed a very good portfolio. And I think the returns that we're generating, I think, are reasonable under the circumstances. I don't know, Sergey and Desmond have other things to add to that what they think on the horizon, but we don't normally give too much forward-looking statements on where we think earnings are going to be in the future, but it's really going to be dependent on how fast the rates cut and also how the market reacts to that. But we think we've constructed a very good portfolio for the future. Desmond Macauley: Yes. Yes. So just on that to continue God's comment there. Yes, so we kind of typically just look at forward ROEs as well, another way to look at the same way of looking at things. So 16% to 18% in production coupons. Our dividend yield, weighted average dividend yield, both preferred and common plus operational expenses all in is about 18%. So that could be sort of as a hurdle rate. We already have assets we are buying that are at 18%. There are others that are slightly lower than that. But as we said, we're still constructive medium term here. So just a few more basis points of tightening and those assets would meet or exceed our hurdle rate. Operator: [Operator Instructions] Our next question comes from Eric Hagen with BTIG. Eric Hagen: Maybe following up on some of this conversation here. I mean what do you think is priced into MBS spreads with respect to the Fed cutting rates? Like right now, it looks like there's 125 basis points of cuts priced into the forward curve through the end of next year. Do you feel like spreads would widen if those expectations got walked back for any reason? And do you feel like spreads would actually have room to tighten once they actually deliver those cuts? Sergey Losyev: Eric, this is Sergey. Yes, to both. Definitely, a pause in the easing cycle or something that would cause them to walk back their projections would be a potential source of volatility in the market. But in terms of delivering cuts to the market, I think a lot of the bank demand will get unlocked there. If you look at the current coupon mortgages versus yields on money markets or T-bills, it's compressed again over the course of the year, closer to 100 basis points. So I think as we get closer to 152% on the spread of mortgage yields versus cash you start to see more and more engagement from other players in the market that we've seen -- we haven't seen as much demand as expected earlier this year. So I think that kind of answers yes to both scenarios. And we note in our prepared remarks that spreads have tightened significantly over the course of the quarter. We do see upside, but I think it's overall macro picture, the lack of government economic data coming through that's given us a little bit of pause here. But over a medium-term horizon, that's a clear positive for -- to have lower Fed funds rates. Eric Hagen: Yes. Got you. That's good color. The move to raise capital and buy back stock in the quarter, can you kind of share the rough level of your stock valuation when you did those transactions? And like what's the best way to compare the value from having done each of those deals, transactions? Scott Ulm: Yes. So Gordon will maybe give me the -- if you can pull up the level where we bought back. But look, we're committed to being on both sides. And when we get a dislocation, we'll buy back some stock. And when we see good valuations, we'll sell stock. Stock buybacks are always fraught because they happen when a bunch of other things are going on, and it's always expensive to get the stock back out there as well. But we had a pretty good spread between where we executed both of those. Gordon, do you have those numbers to hand? Gordon Harper: Yes, I know offhand, we -- when we did the buybacks, it was about a couple of cents accretive on the days, and it was in the 14 -- just get you the right number. Got it. We were buying it back at -- yes, it was in the [ $14.40 ] handle around that on the days that averaged out. So you can see we've bounced back since those days and we bought back the stock. Scott Ulm: Is that useful? Eric Hagen: Yes, that was helpful. I appreciate you guys. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Scott Ulm for any closing remarks. Scott Ulm: Thanks for joining the call today. We appreciate it. Any further questions occur to you, give a ring at the office, and we'll be back to you as soon as we can. Very good. Thank you, and have a nice day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Leszek Iwaszko: Good morning. Thank you for standing by and let me welcome you to Orange Polska Q3 2025 Results Conference Call. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. The format of the call will be a presentation by the management team followed by a Q&A session. Unfortunately, our CEO, Liudmila Climoc, couldn't join us today due to urgent private matters. So, the sole speaker will be Jacek Kunicki, CFO. So, I'm passing now the floor to Jacek. Jacek Kunicki: Good morning. I'm pleased to say that the third quarter was very successful for Orange Polska. The success is rooted in our strong operating performance. We've achieved very good commercial growth, especially on the consumer market, where both the customer bases and the ARPOs have increased at a healthy pace. Our wholesale line of business has delivered more revenues and more margins. This comes as a result of new business, that is, monetizing our fiber infrastructure. It will generate more value over the course of the next few years, allowing us to compensate some large wholesale contracts that are due to end in 2026. This should remind us that wholesale is our strategic asset, complementing our retail operations and reducing our risk profile. Successful commercial activity is the anchor of the Lead the Future strategy and our value creation. After 9 months of 2025, we are pleased with the developments in this area as they lay a solid foundation for the strategy going forward. This performance has translated into strong financial results, and let's take a look at that -- these on the next slide. I'm pleased with the financial results of Q3. We have increased revenues, profit and cash generation. Revenues were up by a steep 9.3% year-over-year, including a spike in IT&IS sales and also a strong consistent contribution from the core telecom services business. This solid expansion of the core business, combined with cost discipline, drove the Q3 EBITDA almost 3% up year-over-year despite a demanding comparable base. We're really happy with this result. Our eCapEx has amounted to just over PLN 1.1 billion year-to-date. It is at a comparable level to the same period of last year, and it is in line with our full year plans. This quarterly evolution reflects different timing of CapEx between the 2 years. Following a stronger Q3, the year-to-date level of organic cash flows is also stable year-over-year. This reflects higher cash from operating activities, driven by the EBITDA expansion, which compensated for less proceeds from real estate disposal. My takeaway from this is that robust Q3 results give solid support to our full year prospects. After 9 months of the year, we're confident to deliver on our 2025 objectives and to create further value for shareholders. Let's now look -- take a look at the commercial activity in more detail on the next slide. It came very solid across all core telecom services. What particularly stands out this quarter is Mobile. The net customer additions have exceeded 100,000 and were at the highest in more than 4 years. As you may recall, our B2C strategy is focused on reaching new households not yet using Orange Polska services, in order to unlock the growth potential for the future. We're pleased that it is bearing fruit, and we are enlarging our customer footprint. The robust growth of the customer base was coupled with an increase of the Mobile ARPO, a slight improvement versus the trend observed a quarter ago. This comes due to a strong ARPO development in the main consumer brand, partly diluted by an increasing share of the B-brand customers in the overall customer base. Growth in convergence and fiber was solid, consistent with previous quarters and in line with our strategy. It was a combination of 5% and 13% growth of the respective customer bases and a solid 3% to 4% uplift of the average revenue per offer. In spite of fierce competition in fiber, we are successfully competing in the local battles and growing well by addressing our customers' need for higher speeds and for more content. Commercial growth is essential for future value creation, and these results demonstrate that we have the right commercial strategy to prevail in the core telecom offering. Let's now take a look at how these translated into revenues. Our Q3 top line dynamic was exceptional, above 9% growth year-over-year. It reflects 3 main developments: first, an exceptional hike of the IT&IS sales; second, a consistent growth of the core telecom services revenues. And 3 -- third, the accelerated dynamics of wholesale. Let's now review them one by one in a little bit more detail. The IT&IS revenues went up by an extraordinary 47% in quarter 3. The key driver of this performance was resale of software licenses. It is a tool to create future upsell potential. Hence, despite the large top line, its immediate contribution to profits was negligible. Nonetheless, looking at this development and also at other wins in our pipeline, we are now more optimistic about the future prospects for the growth in IT&IS revenues and profits. What is most important in our top line performance this quarter is that revenues from core telecom services grew by 6.5% year-over-year, repeating their strong and consistent dynamics. You've seen the drivers of this growth: robust increase of our customer bases and solid ARPO development. Finally, the third factor, wholesale. Its growth has accelerated on the back of fast revenues coming from the new fiber optics backhaul business that I mentioned earlier on. It is a multiyear business development, and it gives us a solid baseline also for 2026 and beyond. We anticipate to further grow the value of our wholesale line of business activity in the future. To sum up on revenues, after 9 months of the year, the top line growth exceeds 4%. Revenues from core telecom services are delivering a rock-solid performance this year, supported by robust net customer additions and ARPOs. And three, the new business in wholesale significantly boosts its future prospects, once again demonstrating the value-add of this activity to Orange Polska. Obviously, the profitable revenue growth is the main driver of the higher EBITDA. Let's look at the latter on Slide 7. EBITDA for Q3 has increased by almost 3% year-over-year. It benefited both from growth of the direct margin and from less indirect costs. Direct margin grew by PLN 21 million year-over-year and its underlying increase was even greater. Please note that last year's results included a positive one-off related to capitalization of PLN 53 million customer connectivity costs. Obviously, excluding this one-off, our direct margin for Q3 would have grown by 4% year-over-year. This outstanding growth was driven by high margin from core telecom services and by an increased contribution from wholesale. Indirect costs were PLN 4 million lower versus the third quarter of last year. We benefited from increased efficiency of network operations, including savings in field maintenance. The transformation of the network activity is an important part of our strategy, and we're pleased that we can already report its first tangible results. Q3 indirect costs have also reflected lower growth of labor costs and less advertising expenses versus the previous quarters. To sum up on EBITDA, we are very happy with its growth in quarter 3. It stems from a healthy combination of high margin from core business and cost discipline. And obviously, this is our main recipe to deliver consistent and sustainable EBITDA growth throughout the Lead the Future strategy period. With 3.4% growth for the 9 months of this year, for the year-to-date, we are obviously well on track to deliver on the full year objective in this area. Let's now turn to cash flow on Slide 8. Year-to-date, we generated nearly PLN 670 million of organic cash flow. This is almost exactly the same level as last year, helped by a very solid quarter 3. The OCF benefited primarily from a very healthy growth of cash from operating activity. It increased by almost PLN 200 million year-over-year due to a higher EBITDA and also due to less -- lower working capital requirement. It was offset by higher cash CapEx and also by PLN 80 million less proceeds from real estate disposal than in the comparable period of last year. We're satisfied with cash generation so far and with robust sources of growth coming from the operating activity. We plan for a peak of property sales in Q4, and we anticipate a solid organic cash flow in the last quarter of the year. Our leverage has increased very slightly following the acquisition of the 5G spectrum license and a payment of the dividend in July. However, our balance sheet structure remains very sound. Let's now summarize Q3 on the next slide. So, for us, the underlying message is our commercial and financial results in Q3 were very solid. We're pleased with the performance to date and in particular, with the commercial developments. We have a well-performing core telecom services business. The prospects for wholesale operations have improved substantially, and we see initial signs of recovery on the business market. These demonstrate our strong fundamentals. We're confident to achieve our 2025 objectives and also to create further shareholder value by implementing the Lead the Future strategy in subsequent years. That's all for me and we are now ready for your questions. Leszek Iwaszko: [Operator Instructions] First question is coming from the line of Marcin Nowak. Marcin Nowak: Three questions on -- rather, issues for me. The first one, regarding this new wholesale deal, could you provide more details regarding how much it contributed in the first quarter to both the top line and EBITDA, for how many years this contract is signed, and if you believe that there are similar deals possible in the future with other parties? The second issue, could you provide maybe an update on those provisions for significant risk that Orange has created last quarter? And the third issue, could you provide more detailed plans about the marketing spending and how -- by how it has been lower than in previous quarters? And what are the plans for the following quarters, especially with this lower spending, the commercial performance has been quite good. Jacek Kunicki: Thank you very much, Marcin. I guess I will start with your last question. For the marketing or for the advertising and promotion spend that we were mentioning. When I look at quarter 3, the spending was roughly PLN 8 million lower than in the quarter 3 of the – of last year. And that is -- well, it is much different if we compare to the second quarter where advertising and promotional expenses have actually grown by PLN 12 million year-over-year. So, the difference to the Q1 was not that great. But obviously, quarter 3 was with a different timing of advertising campaigns and spendings versus last year. So that is regarding the costs. On the efficiency of those marketing spendings, I think it's fair to say we're very happy with those. Looking at the level of our net additions, both in postpaid and prepaid as well as in the convergence and fiber, we are very happy with the direction of the -- both advertising and overall the efficiency of the commercial period that we had for the back-to-school activity. And that is -- that has really delivered on our plans. So, we're now focusing definitely on the peak commercial season of Q4 and especially the second part of November and December to make sure that we are able to replicate a successful commercial activity. Then regarding your second question, well, I will not be able to help you much. We have created a provision for risks, claims and litigations of PLN 45 million in the second quarter of this year. And obviously, we've described as much as we can in the notes to the financial statements, but we are unable to provide you with the exact detail as this is commercially sensitive. We do not want to prejudice the outcome of any activities that are covered by the provision. And then regarding wholesale, well, it is a multiyear deal. Again, I will not be mentioning the specific commercial conditions because that is commercially sensitive. But definitely, we did see a much greater contribution of wholesale to the margin creation this quarter versus what we've seen in the previous quarters. I would say it's fair to say some of it was already -- so that was more than PLN 20 million better than in the previous quarters. Some of it was helped by the particular development that I have mentioned, and part was simply due to other business reasons because we do need to remind ourselves that wholesale is an important part of our activity, and it's not driven just by this one deal. And this is something that -- well, we've tried flagging for quite a long time. It enables us to monetize our infrastructure by selling data transmission, by selling FTTH access, by being an active player on all the interconnect market in Poland. It also enables us to decrease the risk profile of our retail activities because we are able to grasp some of the profits on the wholesale market. Getting back to this particular business development, it's obviously a long-term business development that we have, such as they usually are in wholesale. I would guess that the peak of the value will be the next 4 years. And I think we will see a more visible contribution of wholesale or of this business development already in quarter 4. And what I mentioned is when we take a look at 2026, we were aware, and we are aware that some important wholesale contracts are coming to an end and this particular business development should help us to offset the impact of those contracts ending. So, we're back to the state where we expect the contribution of wholesale towards our [ EBIT ] to actually be able to grow year after year. I think that is what I would mention regarding this particular activity. Thanks. Leszek Iwaszko: Our next question is coming from the line of Nora Nagy from Erste Bank. Nora Nagy: Two questions from my side, please. Firstly, could you give us, please, more update on the B2B segment? And what is your outlook for the coming period? And secondly, approximately when shall we expect the next Social Plan to be released? Jacek Kunicki: Thank you very much, Nora. Very relevant questions. So, on the B2B line of business, I think it's fair to say that while this line of business has been extremely successful for us in the past, and the success of the previous strategy was -- B2B was a significant contributor towards that success, we did see the B2B under a greater pressure this year, both from the connectivity business and also from the slowdown on the IT&IS market. Some of it results from a very high comparable base of last year, where we benefited from some specific activity on the wholesale SMSs. Some of it results basically from a slower -- a softer IT market. I think it's fair to say that while we are not back to robust growth yet, so, the B2B trends, I would say, remain relatively fragile. If I'm comparing what we're seeing right now in terms of the amount of deals that we are able to win and the profit margins on the deals that we're able to win, we're getting, I would say, the first signals that could lead us to believe that we could be going back to growth in the next 2 or 3 quarters. That would be my outlook for the B2B. And that is something that we really need. You know that the Lead the Future strategy and generally, the value creation in Orange Polska, it starts with the top line and with a profitable top line, so with a direct margin. And we need the 3 engines of commercial activity to be delivering results. We see the B2C engine really going ahead full steam. We do see an acceleration in wholesale and improved prospects versus the ending contracts of 2026. So, between the last quarter and this quarter, we are more confident about the level of wholesale activity next year. And then I think the next step is we need B2B to get back to solid, consistent growth as it used to deliver in the past. And this is when we will be really happy with our ability to grow the EBITDA, to grow the cash flows on the back of a profitable expansion in the commercial activity. And then getting to your second question, before the year-end I would expect we will close the discussions with the social partners for the next round of Social Plan, which I anticipate it will cover 2026, 2027, and we should come back to you before the year-end with a current report whenever we do finalize it. And then probably this current report will also include some early estimate of the provisions that you would see in the income statement for the fourth quarter. Obviously, the final ones might be -- will be reported when we will report the quarter 4, but stay tuned for the next few months, and I'm sure that we will get back to you with the news on the Social Plan before the year-end. Leszek Iwaszko: Thank you. We have no more voice questions. Two questions that came online. First question, they cover topics we've already discussed, but maybe in a slightly different angle. So, a question from Pawel Puchalski from Santander. Wholesale segment, are you pleased with Q3 2025 Wholesale segment growth pace? And should we expect its further acceleration in coming quarters, years? What are wholesale margins? What is wholesale’s cash conversion? May we consider Q3 '25 wholesale pickup to represent likely driver of 2026 DPS increase? Jacek Kunicki: So, thank you, Pawel, for your questions. And you've rightly spotted wholesale as a point of focus. I think it's very relevant. Yes, we are pleased with the wholesale acceleration in Q3, definitely pleased. I do expect that we will have good value contribution from wholesale also in quarter 4. So that is something that will help us before the year-end, and it makes us even more confident in our ability to post a nice EBITDA growth this year. I think that is definitely a big help. When it comes to the next years, well, you are aware that we were previously anticipating that due to some contracts ending in 2026, wholesale might be under pressure in that year. I think that situation is much easier now, and we would be looking at ourselves actually getting a positive contribution from wholesale year-over-year because of this new business development. So that is definitely improving the prospects for wholesale going forward. And then in terms of margin and cash conversion, what I would say, it really depends on the level -- the margins really depend on the level of -- on the revenue line of wholesale because if you take some interconnect, the margin might be thin when we are looking at the interconnect coming in and going out, like some transit activities. But overall, the relation of revenues to margin is extremely high on those services where we are monetizing the existing infrastructure. And likewise, when we look at the cash conversion ratio, because we are treating wholesale as a way to monetize mostly existing infrastructure, then yes, the conversion of revenues to cash is extremely high, much, much higher than on the retail activity. It is because we are using and monetizing whatever infrastructure already exists. So obviously, wholesale has its limit when it comes to the size because by nature, it is filling up the needs of our competitors in this area. But the -- our ability to extract margin and cash from whatever revenues we get is extremely high. And that's why wholesale is a very important contributor to our results. On the DPS, I think it's -- stay tuned and we will talk about that in February because that is the moment that we make the decisions, and we are in a position to make some recommendations. What I keep on repeating throughout this year is that our primary focus with all the months except February, is to create conditions to allow us to be generating more profits and to be in a position to share more value creation with our stockholders, shareholders. And so, I do believe that the growth of profit and cash generation in quarter 3 is an important step in the direction of further value creation for the shareholders of Orange Polska. Leszek Iwaszko: We have another voice question coming from the line of Dawid Górzynski from PKO BP. Dawid Gorzynski: I have 2 questions actually. First on net customer additions in Mobile segment. It was particularly strong in the third quarter. And I wonder if there were some particular large clients that entered the base this quarter or it was like just a successful marketing activity from your side? So, this is the first question. And the second question is about organic cash flow outlook. Right now, we are flat after 9 months of the year, we are flattish, like organic cash flow is flat year-on-year. Last year was particularly strong. And I think that the expectation was that this year, CapEx -- sorry, organic cash flow should be lower. I wonder if you still think this is the true or maybe you see some upside potential? And you think that like exceeding PLN 1.1 billion of organic cash flow this year is at hand? Jacek Kunicki: Thank you very much for your questions. I think starting from the net additions, yes, we did have a support of 2 large accounts in the Q3 numbers. And so, this was -- this is something that we are quite happy about. You could have read in the press that we took over 15,000 sim cards from the Polish Post. But this -- even if you were to take out those larger deals, it's still the best quarterly result in the last 3 years. So, I think -- I'm looking at the data right now for B2B, for B2C, for all the brands of both B2B and B2C, and it's -- across the board, we are very, very happy with all the results. If I take a look at the main Orange brands, the best results in a few years, new brands, new mobile, very good results, flex brands, very good results. It's across the board, good performance. And I would say both in postpaid and prepaid. So, this is particularly strengthening. And it reflects a good offering that we've had. It was supported by the family offer that we launched. It was supported by, I think, quite good advertising and a straightforward messaging for this commercial period. So, I know that my colleagues in marketing were happy with the results. And also, throughout this year, we do see simultaneously a good increase of the prepaid base. And when we take a look at, again, at the actions of this, it's about the quality of the promotions and the advertising. It is about us strengthening the position in some of the key distribution channels that we have had. And it enabled us to have a volume growth despite the fact that we've significantly increased the ARPO in prepaid and that we've gained a substantial amount of revenues and margin from prepaid as a result of that. So generally, mobile activity, very good in quarter 3, and I would not say it's a one-off driven activity. Obviously, everyone is now focused on the key period of November, December, where we need to be smart about the level of retentions that we make. But equally, we want to get as much as we can from the market when the availability comes in. So that is on the net additions. For the organic cash flow, I believe the PLN 1.1 billion that you mentioned was 2023. And last year was PLN 980-something million. I do agree this was quite a strong comparable base, which is something that we had mentioned. We are stable after 3 quarters. We are heading into quarter 3 with quite good operating performance dynamics, quite good from the perspective of the EBITDA and the ability to convert the EBITDA on to operating cash flow. So that is definitely supporting quarter 4. I think the main unknown today is how much real estate will we sell in Q4. Obviously, we're planning for a peak of real estate sales. That is directly helping our cash position. And so that remains, I think, the main uncertainty. But we are relatively confident about posting a good result, both in Q4 and for the full year. Leszek Iwaszko: And we have one more text question from Piotr Raciborski from Wood & Co. Congratulations on strong Q3 2024 results. Could you please again comment on strong ICT sales growth? Do you expect similar growth trends in the upcoming quarters? Do you see an increased demand on IT services from public institutions? Jacek Kunicki: Okay. Thanks a lot. Well, we don't expect that 47% year-over-year in quarter 4. It was quite an exceptional event. And I did mention it's -- it was driven by resale of licenses with a small margin. But it is important that we conduct these deals for the sake of the future upsell that we are able to do on the back of these deals. So, I would really not disregard the resale of licenses and our ability to then monetize on them over the next 4, 5 or 6 quarters. That is definitely worth doing, and we will continue doing that. Then regarding the future prospects, I think for us, it's not only a matter of Q4, but it's a matter of getting the right momentum to grow the revenues and margins from IT&IS or from ICT over the next years. I think when we take a look at the long-term potential, we are very optimistic. There is growth that is there to be had over the next years, both for revenues and for margin creation. And that is definitely the case. When it comes to IT, yes, it includes IT. I think that the IT market, while it was relatively soft this year, I do believe that it has still a lot of growth potential. And so, we definitely count on ICT revenues and margin growth in the next periods to come to help us to increase the EBITDA, increase cash generation and deliver value for shareholders. Leszek Iwaszko: Thank you. It appears we have no further questions. Thank you very much for participation. Please let us know if you'd like to meet us and then talk to you in February. Thank you. Jacek Kunicki: Thank you very much. Bye-bye.
Operator: Greetings, and welcome to the Veris Residential, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Taryn Fielder. Please go ahead. Taryn Fielder: Good morning, everyone, and welcome to Veris Residential's Third Quarter 2025 Earnings Conference Call. I would like to remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to the company's press release and annual and quarterly reports filed with the SEC for risk factors that impacts the company. With that, I would like to hand the call over to Mahbod Nia, Veris Residential's Chief Executive Officer, who is joined by Anna Malhari, Chief Operating Officer; and Amanda Lombard, Chief Financial Officer. Mahbod? Mahbod Nia: Thank you, Taryn, and good morning, everyone. We're delighted to report another quarter of exceptionally strong operational performance, including blended net rental growth of 3.9%, significantly outperforming the national market and core FFO per share of $0.20. Despite challenging transaction markets, we made considerable progress on our corporate plan to monetize select non-strategic assets, using sales proceeds to further delever as we seek to continue unlocking the value embedded within the company. To date, we've sold or entered contracts of $542 million of non-strategic assets, including Harborside 8/9, exceeding the upper end of our initial $300 million to $500 million target, which we are now raising to $650 million. These sales and subsequent debt repayments continue to drive outsized earnings growth relative to our peers, while strengthening our balance sheet as we have proactively reduced net debt-to-EBITDA by 15% since the beginning of the year to 10x. Harborside 8/9 is expected to close early next year, albeit closing is subject to factors outside of our control. and the resulting proceeds are anticipated to generate $0.04 of run rate earnings while further decreasing net debt-to-EBITDA to approximately 9x with the potential to delever to below 8x by the end of 2026, as we continue divesting non-strategic assets, in accordance with the revised $650 million target. We anticipate that this will significantly enhance optionality for the company and allows to explore a wider range of financing strategies, including alternatives that were previously unavailable to us, with the potential to further reduce our cost of capital over time, positioning Veris for continued outperformance next year relative to peers. We also realized several one-time tax appeal refunds during the quarter, which Amanda will discuss in more detail. As a result of these adjustments, core FFO per share for the quarter increased to $0.20, which is reflected in our decision to raise guidance for the second consecutive quarter to $0.67 to $0.68, 12.5% above 2024. Before discussing our recent sales in further detail, I'd like to say a few words regarding the broader multifamily market as well as current dynamics in our key markets. While the national multifamily market remains structurally undersupplied, demand has recently weakened in select markets, driven by an influx of new supply, which is expected to be absorbed over time. Rents slowed significantly in September, growing by only 30 basis points year-over-year, with asking rents decreasing in the largest 1-month drop since November '22. Looking ahead, softening labor markets, declining consumer sentiment and more stringent immigration policies could present headwinds to the sector overall. In contrast with the national market, the Northeast continues to perform encouragingly well, supported by favorable supply/demand dynamics and resilient urban migration trends. In September, New York City led the nation in rental growth of 4.8%, reflecting continued strength in demand and extremely limited supply. Between 2020 and 2024, New York City's multifamily supply grew by only 6%, approximately half the national average, driving robust demand to neighboring submarkets with strong transit links, including Jersey City and Port Imperial, where the majority of our properties are located. Over the past 2 quarters, the neighborhood surrounding Manhattan have largely absorbed more than 8,700 units of new supply, including nearly 5,000 units in the third quarter alone, the highest quarterly total in 5 years, with deliveries expected to taper beginning in 2026. Despite this regional supply influx, Manhattan alternatives continue to outperform with the broader New York metro area averaging rental growth of 2.3%. Among these submarkets, the Jersey City Waterfront has been particularly resilient, maintaining low vacancy levels and rental growth of almost 3%, reflecting robust, sustained demand and an ongoing lack of new supply. The Waterfront has not seen any meaningful deliveries since mid-2022 with new supply well below its historical annual average of 600 units, which have been consistently absorbed over the past 15 years. Currently, approximately 4,500 Class A units are under construction on the waterfront with 2,500 units expected to be delivered over the next 24 months across 4 projects. While not directly competing with the Waterfront, nearby submarket Journal Square saw 2,800 units of new supply delivered and absorbed in the last year, further testament to the ability of the broader Jersey City market to absorb new supply across various price points. We expect the New York City demand/supply imbalance to continue fueling sustained demand for housing in alternative submarkets such as Jersey City that are expected to see population growth well in excess of projected unit deliveries for the foreseeable future. Turning to the investment market. While transactions remain challenging, particularly for larger sales, with core capital largely remaining on the sidelines, there are early signs of renewed engagement from Core-Plus capital with interest concentrated in gateway cities. As I mentioned in my opening remarks, we've exceeded our target for non-strategic asset sales with $542 million of sales closed or under contract this year. During the quarter, we closed on the sale of 4 smaller non-strategic multifamily assets for a combined $387 million, reflecting an average cap rate of 5.1%. In addition to Signature Place and 145 Front Street, which closed in early July, as previously announced, we sold The James, a 240-unit property in New Jersey for $117 million; and Quarry Place, a 108-unit property in New York for $63 million. We also continued rightsizing our land bank during the quarter, disposing of Port Imperial South for $19 million and entering a $75 million contract for the sale of Harborside 8/9. The Harborside transaction is anticipated to reduce net debt to EBITDA to around 9x and contribute $0.04 to core FFO on an annualized basis. Following these sales, our remaining land bank is valued at approximately $35 million with parcels primarily located in Massachusetts. Before Anna walks through our operational performance, I wanted to share our recent results from the Global Real Estate Sustainability Benchmark, or GRESB. Year-over-year, our GRESB score improved by 1 point to 90, maintaining our 5-star rating and Green Star and earning us the #1 rank in our peer group as well as designations as a regional listed sector leader and top performer for residential companies in the Americas. Last but not least, I'd like to thank our team whose dedication and execution have been instrumental in establishing Veris as a high-growth, rapidly deleveraging company. With that, I'll hand it over to Anna to discuss our operational performance for the quarter. Anna Malhari: Thank you, Mahbod. Despite a broader market slowdown, our portfolio continues to outperform with the same store blended net rental growth rate of 3.9% for the quarter, comprising 3.6% growth in new leases and 4.3% in renewals; in line with our expectations as we entered the slower leasing season. For the first 9 months of the year, our portfolio's same store blended net rental growth rate was 3.5%, comprising 2.3% in new leases and 4.2% in renewals. Our portfolio's continued rental growth, coupled with our strategic exit from select suburban markets has increased our average revenue per home to $4,255 and over 40% premium compared to peers. Turning to occupancy. Excluding Liberty Towers, where we continue to undergo unit renovations, occupancy was 95.8% as of September 30. Including Liberty Towers, which is now over 85% occupied, overall occupancy was 94.7%, with retention improving by over 570 basis points since last year to 61% across the entire portfolio. Our New Jersey properties continue to benefit from strong fundamentals, including our assets' strategic locations, adjacent to New York City and sustained interest from prospects moving to the broader metro area who are compelled by the relative value proposition of our generally newer, larger units and the wider range of amenities they offer compared to those in Manhattan. During the third quarter, approximately 55% of new move-ins came from out of state and 25% from the metro area. While some portfolios have been impacted by declining international student enrollment, our exposure has been extremely limited as only 2% of our units are occupied by students. Our properties continue to primarily attract affluent, young, urban professionals with an average household income of over $480,000, providing a strong foundation for sustained future rent growth. Notably, our Jersey City Waterfront portfolio has significantly outperformed with new lease net blended rental growth of 6% during the quarter. In September, new lease rental growth across our Waterfront assets was 4.6%, well above the submarket's average of 2.9%, a testament to the quality of our assets, the strength of our markets and platform, and the unwavering commitment and hard work of our teams. We continue to elevate our customer experience and operational efficiency by investing in innovative technologies through PRISM, our strategic approach to technology implementation, which recently earned us recognition as a finalist for the ThinkAdvisor Luminaries Award. These efforts are reflected in year-to-date controllable expenses growth of just 1.9%, well below inflation. With that, I'm going to hand it over to Amanda, who will discuss our financial performance and provide an update on guidance. Amanda Lombard: Thank you, Anna. For the third quarter of 2025, net income available to common shareholders was $0.80 per fully diluted share, reflecting substantial gains from sales during the quarter versus a loss of $0.10 for the prior year. Core FFO per share was $0.20 for the third quarter, up $0.03 from the second quarter due to the recognition of $0.04 of successful tax appeals on sold assets, which was offset by $0.01 from the finalization of Jersey City property taxes in the third quarter. Year-to-date, core FFO is $0.52 per share versus $0.49 at this time last year. Before we dive into same-store, please note that the same-store pool has been adjusted to remove the 4 multifamily properties sold during the quarter, with this recalibration impacting some of the growth rates. Same-store NOI growth was 1.6% on a year-to-date basis and off 2.7% for the quarter compared to last year. This was largely due to the company lapping the extremely favorable resolution of non-controllable expenses in 2024, combined with an approximately 4.5% increase in Jersey City tax rates this year. On the revenue front, same-store revenue increased by 2.2%, both for the quarter and year-to-date. Overall, our revenue growth remains robust, aligning with typical seasonal patterns. In fact, when revenue growth is adjusted to remove the impact of Liberty Tower's occupancy and non-recurring income from last year, growth would have been 3.1% for the quarter and 4.6% year-to-date. As Anna mentioned, technology investments and portfolio optimization have continued to generate cost efficiencies on the expense front. However, a slight rise in R&M and utility expenditures this quarter led to a 5.7% increase in controllable expenses for the period. Combining the impact of technology investments in R&M this quarter with the considerable savings recorded earlier this year, year-to-date controllable expenses have grown by a modest 1.9%. Diving deeper into non-controllable expenses. While our property insurance renewal delivered savings of nearly 20%, this was largely offset by increases in other insurance premiums and the rebalancing of the same-store pool. Jersey City also announced its final tax rates for 2025 during the quarter, as I previously mentioned, which together with other finalized taxes, resulted in a $1.1 million increase. Despite these various factors, year-to-date overall expenses increased by only 3.4%. On the overhead front, core G&A after adjustments for severance payments was $8 million, broadly in line with last quarter as expected and reflecting savings in compensation due to further organizational simplification. For the full year, we anticipate realizing G&A savings in excess of $1 million relative to last year, although fourth quarter G&A is expected to increase sequentially. Last quarter, we took a significant step in strengthening our financial position by modifying our revolving credit facility. This amendment introduced a leverage grid and resulted in a substantially-lower borrowing spread, enhancing our ability to continue reducing financing costs as we delever further. In addition, sales completed during the quarter reduced debt by $394 million, including the early repayment of our most expensive coupon debt, a $56 million 2026 maturity. Furthermore, the buyer of Quarry Place assumed the $41 million in-place mortgage resolving the 2027 maturity. As a result of these transactions, as of September 30, our net debt-to-EBITDA on an adjusted basis has further decreased to 10x, as mentioned by Mahbod, representing a reduction of 14.5% since the beginning of the year. We ended the third quarter in a stronger position than the second, with our weighted average coupon decreasing 32 basis points to 4.8% and weighted-average years to maturity of 2.6 years and liquidity of $274 million. Turning to our outlook. We are raising core FFO guidance for the second consecutive quarter to $0.67 to $0.68 per share annually compared to our previous guidance of $0.63 to $0.64 per share. This enhancement reflects $0.04 from one-time tax appeal benefits associated with previously sold office properties. While we are realizing approximately $0.01 in overhead savings this year, this is largely offset by the increase in real estate taxes in the third quarter. Our raised guidance range represents robust year-over-year core FFO growth of 12% to 13%, underscoring the strength of our markets and portfolio and the effectiveness of our deleveraging strategy. Not only does this approach reinforce the strength of our balance sheet, but it also drives meaningful earnings expansion and increases free cash flow. We are affirming our same-store NOI guidance of 2% to 2.8%, reflecting our solid performance year-to-date and strong visibility into rental revenue through the end of the year as well as realized savings from our technology and operational initiatives and a resolution of non-controllable expenses within expectations. These results are a testament to our commitment to maximizing value for our shareholders while maintaining disciplined financial management and operational excellence, resulting in sustained earnings growth and accelerated deleveraging. With that, operator, please open the line for questions. Operator: [Operator Instructions] And our first question comes from Jana Galan with Bank of America. Jana Galan: Maybe just following up on the same-store guidance ranges that were maintained. The 9 months to-date, they're trending a little bit at the low end. And so, can you let us know any timing-relating items that may impact 4Q that can get you back to kind of the middle of the range? Amanda Lombard: So, look, I think, first off, Q3 same-store NOI growth is an anomaly due to the resetting of non-controllable expenses for this year as well as last year. Last year, we had a very good result, so the expense base is very low. And then this year, we had a slight increase in real estate taxes, which pushes it up. I think looking to the fourth quarter; right now, we don't see any major one-time items, which would impact the numbers. And so, I think you need to really look back at Q1 and Q2, where we have very low expense growth. In fact, I think in Q2, we actually had a reduction in our expenses and expect that, that trend will continue into the fourth quarter. So, I think, those factors combined with the fact that in the fourth quarter, a very small percentage of our revenue is still open is what gives us confidence that we will be within the range of our same-store NOI guidance. Jana Galan: Great. And then on the visibility into the rental revenue into year-end, can you let us know kind of where you're setting out the rental rate increases now? And I guess, kind of the percent of expirations in 4Q, typically, I'm assuming is lower than earlier in other quarters in the year. Anna Malhari: Yes, as you mentioned, we do have our expiration metrics following the seasonal trend in a way that we have limited exposure in Q4. We also have strong visibility into renewals already and only about 0.5% of our NOI is outstanding to renew at this point. In terms of the renewal rates, we continue to send out renewals just touch below kind of mid-single digits around the 4% to 5% range, something maybe slightly below that. But we are in a very good shape from an occupancy perspective since the end of the quarter with 95.8%, excluding Liberty Towers and feel confident about the revenue range that Amanda mentioned earlier. Operator: And we'll go next to Steve Sakwa with Evercore ISI. Sanketkumar Agrawal: This is Sanket on for Steve. We had a question around, like your leverage target of 8x through year-end '26. What does the path forward look like from there on in terms of, will you still focus on selling more non-core assets after that or move to more operational initiatives? Mahbod Nia: Thank you for the question. I think at this point, I would say the focus is on executing on the extended plan that we've announced, and in parallel, continuing to push the operational side of things, which as you've seen, is continuing to perform very well, and we expect that to continue into next year. And that should set us on this path delever in this accelerated fashion down to that 8x or even potentially below 8x, as we've said, next year. As for what comes next, there may be from time-to-time, and in the past, you've seen at the beginning of the year, we set out the plan for the year and communicate that to you. So, there may be further amendments or changes to this plan, which we'll announce in due course. But at this time, I think the focus really is to execute on this plan, see where that gets us while in parallel working with the Board and the SRC to evaluate a wide range of options available to the company as we always do in pursuit of the creation of value on behalf of our shareholders. Sanketkumar Agrawal: Makes sense. And the other question was like you guys were very active on the transactional front, like disposing a couple of assets, land. So, I just wanted to know like, how was the buyer pool like? Was there a wide area of people who are out there buying assets? Or it was just some specific types of people who are out there looking at this asset? Mahbod Nia: Sorry, you're a little faint, but I think I got the question, about the buyer pool out there for assets. Yes, look, I would say consistent with our expectations when we set out on this plan at the beginning of the year, there is a somewhat broader or deeper buyer pool for smaller assets today. I think once you get into sort of what would be regarded as large today, which is not that large, a couple of hundred million dollars, $200 million, $250 million and above, the buyer pool does spin out and the nature of the buyer does tend to become more of a value-add opportunistic type of a buyer. But look, there's also some encouraging signs in transaction activity that particularly with the low end of the curve coming in, obviously, the 10-year has come in and now it's around 4% or touch below 4%, and that's helpful. But with the front end of the curve, rates having come in and expected to continue coming in; in the near-term, we think that that actually is creating more interest in the transaction market from prospective buyers. Operator: And our next question comes from Eric Wolfe with Citibank. Eric Wolfe: Can you talk about how you came up with the high end of the disposition guidance at $650 million and what assets you're considering selling for the remaining $100 million? Mahbod Nia: Thanks for the question, Eric. So, I think the way we came up with that number is, it's really reflective of, again, what we're seeing in the market. You have a Board, a Strategic Review Committee and management team that's highly focused on the creation and crystallization of value for shareholders. And so, when we set out on this plan at the beginning of the year, our best estimate of how much value we could crystallize through asset sales, values that were at or close to intrinsic value, our best estimate was that range. It's been a very challenging transaction market and still is today, which is why it was the range. Thankfully, we've been able to make progress ahead of expectation. That wasn't guaranteed, far from guaranteed. And as we've done that, and I mentioned earlier, we're constantly reviewing, working with the Board and the SRC, a wide range of ways to be able to continue creating and unlocking value for shareholders. And so, I think this extension is really reflective of that dialogue, staying close to the market and what we believe really represents the best interest of our shareholders today, given the restrictive parameters that are placed on us through the current state of the transaction markets. Eric Wolfe: Got it. That's helpful. And I guess on a similar line, the $100 million of stock repurchases, is there sort of a certain price you have in mind? Or is it really about getting the balance sheet to a certain leverage level before you even consider using the repurchases? Just trying to understand the framework from which you'll decide to use repurchases or not? Mahbod Nia: No, it's a great question. Look, it's a very useful tool to have. To be clear, we believe there is significant value in the company over and above the current share price. And so, as an investment, as a capital allocation decision, we have strong conviction that share buybacks would make a lot of sense. Having said that, we have to balance the limited capital that we have as we're recycling capital through asset sales. And the determination we've made at this time is to prioritize deleveraging. And to some extent, notwithstanding the whole sector is trading at a discount to NAV at the moment; to some extent, that leverage is, for us, probably causing some of that discount that we're seeing. And so, it's a little bit circular. But when you take into consideration the potential accretive impact of even that full buyback program, $100 million buyback program relative to the impact on leverage from using those proceeds to delever, to us, it makes more sense at this time to prioritize deleveraging. Operator: And moving on to Tom Catherwood with BTIG. William Catherwood: Just wanted to circle back on Eric's disposition question there. For the $542 million of transactions closed or under contract, did prices come in stronger on the original pool of non-core assets that you had identified back in February? Or did you end up selling more assets than were initially planned in that original pool? Mahbod Nia: Tom, I think it's a great question. I think when we set out in February, the markets were still quite challenging, but we felt like for smaller assets, we'd be able to make some progress. The truth is, it wasn't clear to us how quickly we'd be able to make progress. We felt like conditions could improve during the year, and they did improve during the year, and they're continuing to improve now. But as I said earlier, we could have been in a very different situation here with far fewer asset sales. As for price and the two obviously are related, we ended up pretty much exactly where we expected. As I said, we were looking to crystallize pockets of NAV or sell assets where we could release pockets of value at levels that are in line or very close to NAV, and that really pointed mostly to smaller assets. And the overall cap rate and actually even the individual cap rates, which are pretty much all in line with the blended cap rate at which we sold those assets was right on top of what we expected and hoped for when we announced that plan. So, we sold at a low 5s, around a 5.1% cap rate across that pool and that's stripping out the land. And that's exactly where we thought we'd be or hope it would be. William Catherwood: Got it. Got it. Okay. So, the follow-up on that then is, if you ended up where you thought you'd be on pricing or hoped you'd be on pricing, that would suggest the $150 million increase to sales guidance would be the addition of other assets than were initially planned. If that's the case, are those assets that the market has recovered to the point where now you think you can sell them? Or is that just as you went through the sales faster than you expected, you reevaluated and transferred more into that non-core strategic sales bucket? Mahbod Nia: It's a little bit of both. As I said, we still -- for larger assets, I think there is still illiquidity discount at this moment in time, given capital flows. It feels like things are improving and that discount may over time, reduce or potentially even fully be eliminated. But I think it's a little bit of both. I think it's a little bit of market conditions improving over the past several months and continuing to improve today and us constantly evaluating alternatives that could make sense for shareholders and determining that it could make sense to slightly increase that target to $650 million. William Catherwood: Got it. Got it. And then last one for me, and this kind of follows up on your comment about transaction markets improving. But Mahbod, in your prepared remarks, you noted early signs of renewed interest from Core-Plus capital. I assume that's both commercial real estate and specifically multifamily. Can you provide some more thoughts around that and kind of what was driving those comments? Mahbod Nia: Yes, it's no secret that for the past few years, particularly with rates having climbed at the pace that they have, the more core, Core-Plus capital that was active previously in the market has reverted more to credit strategies, given the relative risk return profile that credit strategies have offered over the last few years. But with rates coming in a little bit recently plus the realization that with credit investments, you don't necessarily get the multiple that you get with equity investments, we understand that potentially the gates are opening somewhat, particularly on the Core-Plus side at this point. In terms of the core, if you look at what's happening there, the Odyssey funds are still seeing net redemptions, that redemption queues come down a little bit, which could be an encouraging early sign, too soon to say. But on the Core-Plus side, there are certainly a few groups out there that are becoming more active, both in terms of capital raising and fund structures and single-managed accounts and starting to look at more Core-Plus type opportunities. Why is that relevant? Because while those 2 groups of capital really have been otherwise focused on credit opportunities, the active capital, the dominant active capital in the market for the last few years has really been value-add and opportunistic capital, which obviously has a much higher cost, a much higher return expectation associated with it. And so that commands a certain risk profile to the assets that those investors are acquiring or it just requires a certain return regardless of the risk profile, which has implications for core asset valuations to the extent that those buyers are involved. And so, it's an encouraging early sign that things may be finally turning. We know that by their very existence, opportunity funds came to be to provide liquidity at times when more traditional sources of capital were unavailable. And so that's been the case for the last few years, but these are temporary capital flow dynamics that ultimately revert back to some normality over time. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Mahbod Nia for closing comments. Mahbod Nia: Well, thank you, everyone, for joining us today. I'd like to thank the team for the hard efforts that have allowed us to post another quarter of extremely strong operational results and meaningful strategic process. We look forward to updating you again next quarter. 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: Good day, and welcome to the Blackstone Third Quarter 2025 Investor Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Weston Tucker, Head of Shareholder Relations. Please go ahead. Weston Tucker: Thanks, Katie, and good morning, and welcome to Blackstone's third quarter conference call. Joining today are Steve Schwarzman, Chairman and CEO; Jon Gray, President and Chief Operating Officer; and Michael Chae, Vice Chairman and Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation, which are available on our website. We expect to file our 10-Q report in a few weeks. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and may differ from actual results materially. We do not undertake any duty to update these statements. For a discussion of some of the factors that could affect results, please see the Risk Factors section of our 10-K. We'll also refer to non-GAAP measures, and you'll find reconciliations in the press release on the Shareholders page of our website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blackstone fund. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent. Quickly on results. We reported GAAP net income for the quarter of $1.2 billion. Distributable earnings were $1.9 billion or $1.52 per common share, and we declared a dividend of $1.29 per share, which will be paid to holders of record as of November 3. With that, I'll turn the call over to Steve. Stephen Schwarzman: Good morning, and thank you for joining our call. Before we begin, I want to take a moment to acknowledge the horrific shooting that occurred at our New York City offices on July 28. The random attack resulted in multiple deaths, including our beloved colleague, Wesley Lepatner. Wesley was a wife and mother and a dear friend and mentor to many within and outside of our firm. We will greatly miss Wesley. Will continue to honor her legacy. We're also grateful for the bravery of our building security team, along with the New York Police Department who responded that day and who put themselves in harm's way every day to protect others. Turning to our results. Blackstone reported an outstanding third quarter. Distributable earnings increased nearly 50% year-on-year to $1.9 billion, as Weston mentioned, underpinned by a 26% growth in fee-related earnings and a more than doubling of net realizations. Inflows reached $54 billion, the fourth consecutive quarter in excess of $50 billion and totaled $225 billion for the last 12 months. Our fundraising success lifted assets under management to a new industry record of $1.24 trillion. And looking forward, I believe our prospects for growth are strong today is at any point in the firm's history. The structural tailwinds driving the alternative sector are accelerating with Blackstone as the reference firm. More investors are being introduced to the benefits of private market solutions than ever before, with growing adoption across the vast private wealth and insurance channels. And following the U.S. administration's recent executive order, we expect the defined contribution market to open to alternatives over time as well. In these areas, the powerful advantages of our brand, scale and breadth of capabilities are even more pronounced. At the same time, institutional limited partners are increasing their allocations to alternatives in multiple areas, and they're consolidating relationships with the best performing managers who can provide comprehensive multi-asset solutions. Meanwhile, in terms of deployment, the scope of where we invest continues to expand significantly as we scale our platforms in digital and energy infrastructure, private credit, Asia, the secondaries market for alternatives and other key growth areas. We are in the early innings of penetrating markets of enormous size and potential. In addition to these secular forces, we're also now seeing the deal cycle turn, creating another significant tailwind for the firm, the combination of a resilient economy, declining cost of capital and equity markets at all-time highs is leading to a resurgence in capital markets activity, including global IPO issuance, which more than doubled year-over-year in the third quarter. Notwithstanding the current government's shutdown, more conducive capital markets should lead to greater realizations for Blackstone, which, in turn, support fundraising and deployment. In the last 3 months, we executed 3 successful IPOs. And our IPO pipeline for the next 12 months, if converted, would translate to one of the largest years of issuance in our history. Despite all these positive developments, over the past several weeks, there's been a significant external focus on the implications of certain credit defaults in the market. These events have been erroneously linked to the traditional private credit market as a result of misunderstandings and misinformation. Importantly, the defaults and focus resulted from bank-led and bank syndicated credits, not private credit. Moreover, these situations are widely believed to involve the fraudulent pledging of the same collateral to multiple parties. The traditional private credit model is characterized by direct origination in the context of a long-term hold strategy, with due diligence performed by sophisticated institutional managers and rigorously negotiated documentation. For Blackstone, our $150 billion-plus direct lending platform is comprised of over 95% senior secured debt, with low loan-to-value ratios of less than 50% on average, meaning there is significant borrower capital subordinate to our positions in nearly all cases from companies backed by financial sponsors or public companies. And in the private investment-grade area, we've concentrated our activities in multitrillion-dollar markets where Blackstone is often a leading player, including data centers, energy infrastructure and real estate, with our loans secured by underlying assets of excellent quality. Our long-term, highly disciplined approach to investing in credit is the foundation of the strong results we've produced in this area as with every business at the firm. Our non-investment grade private credit strategies have generated 10% returns annually, net of all fees since inception, nearly 20 years ago. In direct lending specifically, we've experienced annual realized losses of only 1/10 of 1%, including through the global financial crisis. And our investment-grade focused private credit platform in BXCI has experienced zero realized losses to date. Of course, as the cycle progresses, it's reasonable to assume we'll see some increases in defaults. But we believe our structural advantages will continue to produce superior results. Performance has powered our growth in private credit. And we believe it will continue to power our growth in the future. Stepping back, this month, we celebrate Blackstone's 40th anniversary. It's been, I can assure you, an extraordinary journey. The firm has grown from a start-up in 1985 to the largest alternative asset manager in the world today and one of the 50 largest public companies in the United States. Importantly, we achieved almost all of this growth organically, which is quite distinctive among large firms in our industry. We are business builders at Blackstone, not business buyers. And while it's harder to build a business than buy it, over the past 40 years, we methodically planted seeds that would grow into major market-leading platforms in nearly every area in which we operate. What we've achieved over the past 4 decades would not have been possible without the efforts of three extraordinary individuals, who worked alongside me to either start the firm or to take it to the next level. Pete Peterson, my co-founder, gave us the necessary credibility that provided the launchpad for our growth. He was joined in 2002 by Tony James, who helped professionalize the organization and led us into many new business areas. Jon Gray took over in 2018 and has done a remarkable job managing the firm and pioneering a plethora of new business lines and products. Jon also redefined our investment approach to emphasize thematic positioning, resulting in our concentration today in data centers, where we're the largest in the world; energy and power, logistics, private credit and India, among other winning areas. Jon as did Tony and Pete during their time at Blackstone, demonstrates an unstoppable work ethic and profound care for the firm, its reputation and its people. Each of them changed the destiny of the firm and have been the best partners for me that I could have imagined. I owe them all an enormous debt of gratitude. Looking forward, what's been built at Blackstone is ideally designed for the environment we see before us and to capture the generational shifts underway in the global economy and markets. In terms of where we raise capital, we believe Blackstone is the partner of choice to bring the best of private markets to a rapidly expanding universe of investors. In terms of where we invest, the future requires massive capital solutions across all forms of equity and debt capital to power the AI revolution, to develop the infrastructure needed to meet the rising global demand for energy, to fund the extraordinary advancements in drug development in the life sciences area, to partner with large investment-grade-rated corporates, who are increasingly looking to private credit to meet their objectives; to help India meet its incredible growth potential and to drive forward other transformative megatrends that will define the investment landscape for decades to come. Alternatives will play a vital role in this future. And we see Blackstone leading the way with the largest and broadest platform and the deepest investment capabilities, underpinned by the power of our brand. The firm has achieved much in the past 40 years. But I strongly believe the best is ahead. Thank you to our shareholders for joining us on this adventure. The adventure continues. With that, I'll turn it over to Jon. Jonathan Gray: Thank you, Steve, and good morning, everyone. What Steve has done to both create and continue to drive this firm for 40 years is the stuff of legend. I'd also like to emphasize what Steve said about Wesley. She was an extraordinary woman, colleague and dear friend, simply the best of the best. We will miss her a ton. Moving to the quarter, this is an exciting time for the firm and our investors. The deal dam is finally breaking, and we have a bunch of secular tailwinds driving us forward as well. I'm going to focus my remarks specifically on the growing sources of capital inflows at the firm. In corporate and real estate credit, we crossed the $500 billion milestone, up a remarkable 18% year-over-year. In private wealth, our AUM in the channel grew 15% year-over-year to nearly $290 billion. And in our institutional business, we're seeing strong momentum across numerous areas in our drawdown and open-ended vehicles. Diving into credit, private credit markets are expanding from their origins in noninvestment-grade corporate credit and direct lending to become a key mechanism for financing the real economy, including commercial finance, consumer and residential finance, fund finance and of course, infrastructure. Blackstone is tremendously well positioned to lead this evolution as the largest third-party investment manager in credit globally, alongside our continuous innovation. Notably, our infrastructure and asset-based credit business grew 29% year-over-year to $107 billion, one of the fastest-growing areas at the firm. Our scale gives us access to what we believe is the broadest set of opportunities across the risk spectrum, which we can offer holistically to clients. As a result, we're seeing robust demand for multi-asset credit solutions across our 3 I's, institutions, insurance companies and individual investors. Another important development underway in credit market -- markets is the rising opportunity to partner with large investment-grade rated corporates, which we've discussed previously. Fortune 500 companies with substantial funding needs are increasingly looking to private credit for customized long-duration capital solutions, which are difficult to replicate in public markets. Scale and reputation are key. And Blackstone has established ourselves as a partner of choice, following our landmark transactions with EQT Corp and Rogers Communications. In the third quarter, we executed another major partnership, a $7 billion investment we are leading in a venture with energy infrastructure company Sempra, to support construction of a liquefied natural gas project on the Gulf Coast. These corporate partnerships provide our clients with access to high-quality, directly originated investments in a sector where we have high conviction, as always, without taking on balance sheet risk. Meanwhile, in the insurance channel, our AUM grew 19% year-over-year to $264 billion across IG private credit, liquid credit and other strategies. Our open architecture, multi-client approach is a major advantage. Our platform now includes 33 strategic and SMA relationships, and we continue to add more. Importantly, in the past 12 months, nearly 2/3 of our clients have expanded their relationship with us, the strongest testament to the value we deliver for them. In our IG focused area overall, we generated over 170 basis points of incremental spread year-to-date versus comparably rated liquid credit. Our farm-to-table model, which brings clients directly to borrowers, is designed to produce a structural premium to liquid markets, particularly vital in an environment where spreads and interest rates are tightening. Turning to private wealth, where our platform has grown to nearly $290 billion, as I mentioned, up threefold in the past 5 years. To put our scale in perspective, a recent Goldman Sachs research report highlighted that Blackstone has an estimated 50% share of all private wealth revenue among 9 major alternative firms. To put our momentum in perspective, we raised over $11 billion in the channel in the third quarter, more than double year-over-year, to the highest level in over 3 years. BCRED led the way, raising $3.6 billion and is on pace for a strong Q4. BXP raised $2.1 billion in the third quarter, bringing its NAV to $15 billion in only 7 quarters. BREIT generated healthy sales of roughly $800 million in the third quarter, while repurchases continued on their downward trajectory to the lowest level in 3.5 years. Finally, BXINFRA raised over $600 million in Q3 with its NAV exceeding $3 billion only 3 quarters after launch. In private wealth, as with every business at Blackstone, it all comes back to investment performance. BCRED has achieved 10% net returns annually since inception nearly 5 years ago. BREIT has generated 9% net returns for its largest share class for nearly 9 years, a 60% premium to public real estate markets, including approximately 5% net for the first 3 quarters of the year. BREIT's exposure to data centers, now almost 20% continues to be extremely helpful in driving its results. And BXP has delivered a 16% annualized net return for its largest share class since inception. Our investment performance powers our fundraising along with our ability to innovate. Looking forward, we expect 2026 to be our busiest year yet in terms of product launches with a significant focus on multi-asset opportunities. We're also broadening distribution in several major markets around the world and moving deeper into key subchannels, including the RIA channel. With these developments alongside our strategic alliance with Wellington and Vanguard, our partnership with L&G and the U.K. wealth and retirement markets and the massive potential in the U.S. defined contribution channel over time, the opportunity in private wealth continues to expand for Blackstone. Moving to our institutional business, which has grown by 64% over the last 5 years and has strong momentum across multiple areas. In infrastructure, our dedicated platform grew 32% year-over-year to $69 billion, including over $3 billion raised in the third quarter. The commingled BIP strategy has generated remarkable 17% net returns annually since inception. Our multi-asset investing business, BXMA, grew 12% year-over-year to a record $93 billion, again driven by performance. Q3 represented the 22nd consecutive quarter of positive composite returns for BXMA's largest strategy. Investors are responding favorably, with BXMA generating year-to-date net inflows of over $5 billion, the highest in nearly 15 years. In our drawdown fund area, it was another quarter of fundraising. We held additional closings for our new private equity Asia flagship, bringing it to over $9 billion as of quarter end, already significantly larger than the prior $6 billion vintage, and we expect to meaningfully exceed our original $10 billion target. We also raised additional capital for our next life sciences flagship, bringing it to $3.3 billion already more than 2/3 the size of the prior $5 billion -- I'm sorry, already more than 2/3 the size of the prior $5 billion vintage. In credit, we held an initial close of $1.6 billion for our new high-yield asset-based finance strategy, targeting $4 billion. In secondaries, we finished raising the largest ever infrastructure vehicle at $5.5 billion, and we're now raising our next PE secondary flagship, targeting at least the size of the prior $22 billion vintage, with the first major close expected in the fourth quarter. Also in Q4, we expect to launch fundraising for the fifth vintage of our private equity energy transition strategy with a prior vintage already approximately 70% committed only 16 months after starting the investment period. Other drawdown strategies we are raising include opportunistic credit, tactical opportunities and GP stakes. Overall, we believe investor confidence in Blackstone is as high today as ever, which, as you've heard, is translating to growing capital commitments across many areas. In real estate specifically, investor sentiment is starting to improve following the downturn. We remain firm believers in the sector's recovery and that flows ultimately follow performance. Commercial real estate values bottomed in December 2023 and since then, have been slowly improving. We think they're now approaching a steeper point in that recovery curve. The cost and availability of capital have been steadily strengthening and transaction activity has been increasing, including by 25% year-over-year in logistics, U.S. logistics in the last 12 months. In a market driven by supply and demand, the dramatic decline in new construction starts, including to the lowest level in over a decade in U.S. logistics and apartments, our largest sectors in real estate; should be very positive for values over time. As we stated before, we believe Blackstone is the best positioned firm in the world to benefit from the recovery underway in real estate markets. In closing, the firm is in outstanding shape by any measure, a cyclical resurgence in transaction activity alongside multiple secular growth engines should be very positive for our shareholders. And with that, I will turn things over to Michael. Michael Chae: Thanks, Jon, and good morning, everyone. Over the past several quarters, we've highlighted how the scaling of the firm's platforms in key growth channels is driving robust momentum in fundraising, assets under management and FRE. In addition, we've outlined a path of accelerating net realizations over time as capital markets strengthen. The third quarter was an excellent illustration of these dynamics of work and reinforces a favorable multiyear picture for the firm. Starting with results, AUM continued to advance to new record levels. Total AUM rose 12% year-over-year to $1.242 trillion, while fee earning AUM grew 10% to $906 billion. Management fees increased 14% year-over-year to a record $2 billion, underpinned by continued double-digit growth in base management fees, including 23% growth in base management fees for the private equity segment, 18% for credit insurance and 15% for BXMA. At the same time, transaction and advisory fees for the firm nearly doubled year-over-year to $156 million, with our Capital Markets business reporting one of its 2 best quarters in history, following a record Q2. While we expect a lower baseline of these revenues in the fourth quarter, the expanding scope of the firm's investment activity is widening the aperture of activity in our capital markets business. Fee-related performance revenues grew 72% and year-over-year to $453 million in the third quarter, generated by 9 different perpetual strategies, including BCRED and multiple other vehicles across the credit complex, BREIT and real estate BXP and private equity and BIP and infrastructure. Overall, total fee revenues for the firm grew 22% year-over-year to $2.5 billion in the third quarter. Fee-related earnings increased 26% year-over-year to $1.5 billion or $1.20 per share, one of the three best quarters of FRE in our history, driven by the growth in fee revenues along with healthy margin expansion. With respect to margins, as we stated before, it's most informative to look over multiple quarters given intra-year movements. On a year-to-date basis, FRE margin was 58.6%, reflecting expansion of over 100 basis points versus the prior year comparable period. While we expect FRE margin in the fourth quarter to be sequentially lower due to seasonal expense factors, for the full year 2025, we are tracking favorably against the initial view of margins we provided in January. Distributable earnings increased 48% year-over-year to $1.9 billion in the third quarter or $1.52 per share, powered by the strong double-digit growth in FRE alongside a significant acceleration in net realizations. We generated $505 million of net realizations in the quarter, more than double the prior-year period and up 55% sequentially in Q2. The largest single realization in the third quarter was the sale of an interest in the GP stakes portfolio within our secondaries platform at the end of September. We also completed the full exit of Hotwire, sales of certain U.S. energy assets and a number of other realizations across the private and public portfolios. Looking forward, in terms of fund dispositions, we have a robust pipeline of processes underway amid the improving transaction backdrop, and we believe we're moving toward acceleration in 2026, the concentrated in private equity with expanding contribution from real estate over time. And the firm's underlying realization potential is significant. The net accrued performance revenue on our balance sheet, our store value, stood at $6.5 billion at quarter end or $5.30 per share, while performance revenue eligible AUM in the ground has reached a record $611 billion. Turning to investment performance, our funds delivered healthy returns overall in the third quarter. Infrastructure led the way with 5.2% appreciation in the quarter and 19% for the last 12 months, reflected of broad-based gains across digital infrastructure, including continued notable strength in our data center platform, along with gains in our power and transportation-related holdings. The corporate private equity funds appreciated 2.5% in the quarter and 14% for the LTM period. Revenue growth at our operating company strengthened to 9% year-over-year in the third quarter, while margins have remained resilient, supported by labor market conditions that are in balance and continuing to moderate. In credit, our noninvestment-grade private credit strategy reported a gross return of 2.6% in the quarter and 12% for the LTM period, reflecting healthy underlying credit performance. Default rates across our noninvestment-grade holdings overall ticked up slightly but remained minimal. In our direct lending portfolio specifically, realized losses were only 12 basis points over the last 12 months. BXMA reported a 2.9% gross return for the absolute return composite in Q3 and 13% for the last 12 months. Notably, BXMA has delivered positive composite returns due to the past 30 months, which is leading to strong inflows in the segment's fourth consecutive quarter of double-digit AUM growth in Q3. In real estate, values were stable overall in the third quarter. The core+ funds appreciated modestly, driven by the third straight quarter of positive performance by BREIT. The opportunistic funds declined slightly in the quarter with positive overall appreciation in the underlying real estate offset by the negative impact of foreign currency movement. In total, our real estate platform remains well positioned, 3 of our highest conviction sectors, which are supported by very positive long-term fundamentals, data centers, logistics and rental housing; comprise approximately 75% of the global equity portfolio and nearly 90% of BREIT. Overall, our investors have continued to benefit significantly from the firm's position with leading platforms to address many of the most important market opportunities globally, including the largest data center business, leading energy infrastructure platform, the largest third-party focused private credit business, one of the largest private market secondaries platforms, a leading life sciences business and what we believe is the largest alternative business in India. These platforms have powered our investment performance and our growth, and we expect will continue to do so in the future. In closing, Blackstone is exceptionally well positioned, supported by both cyclical and secular tailwinds. The breadth and diversity of our global portfolio is a source of strength, while the firm's culture of innovation continues to drive us forward, leading to outstanding financial performance for shareholders. With that, we thank you for joining the call. We'd like to open it up now for questions. Operator: [Operator Instructions] We'll take our first question from Dan Fannon with Jefferies. Daniel Fannon: I wanted to follow up just on the private credit market given all the headlines and uncertainty. Can you just discuss in more detail any changes in credit quality across your portfolio? And then potentially also just in terms of what you maybe have done differently here, given some of the news and the recent bankruptcies we've seen in recent weeks? Jonathan Gray: Well, I would go back to the idea that this really isn't private credit story that what occurred here were bank-led, bank originated, bank syndicated credits. It also was a bit idiosyncratic as it appears that there was at least according to the reporting fraud involved. So I don't think there's much look through to private credit per se. None of these are what happens -- these are not directly related to the private credit market. And given the idiosyncratic nature, I don't think it really speaks to credit overall. I'm not sure anything really changes in our model. Steve spoke about the way we underwrite in private credit, which is doing deep due diligence, underwriting, what we're doing to hold. In terms of defaults today, they remain minimal realized losses date still almost nonexistent at these levels. You would expect as you get deeper in the cycle, you could see a little more over time. But when we look in aggregate at our business and what we think we'll deliver to our investors, we think it will continue to be quite strong. So I would say, given the underlying strength of the economy, what we've seen with margins we just don't see a lot of credit issues out there. Operator: We'll take our next question from Craig Siegenthaler with Bank of America. Craig Siegenthaler: Hope everyone is doing well, and congrats on the 40-year anniversary. This is the first quarter following President Trump's executive order for privates and 401(k)s. And just last week, I saw that you launched your defined contribution business. So I wanted to ask an open-end question. What are your plans? And do you do this alone? Or can you leverage your partnership with Vanguard and Wellington? Jonathan Gray: Well, we're obviously starting to move. I think the announcement was important. We were already heading in that direction, building up our capabilities, but we thought it was important to have a dedicated group of senior people focused on it. And between Heather, Tom, Paul, the individuals we announced, we've got a great lineup of people. I think this is an area where we will work with others. It's a broad market. You've got a lot of constituents involved. Certainly, there are large corporate plan sponsors where we already have deep relationships. Some of this will be done through some of the large financial institutions, who have platforms. There's going to be a range of partnerships here. Yes, we would intend to work with some of our existing partners. But it's still early. Obviously, this has been announced by the administration. There needs to be the rule making, Of course, with the government shutdown, that's been slowed. But I think everyone's expectation is that individuals and retirement who are in defined contribution plans, should have the opportunity to invest in alternatives just like their counterparts and defined benefit plans have. And we continue to believe, given the scale of our offerings and the breadth of our offerings, we can really provide holistic solutions. So I would say it's an area we're going to spend a lot of time on. Obviously, it will take some time to build. But again, the benefits of returns and diversifications, I think will really resonate with plan sponsors with consultants once the right legal frameworks in place, we will do this. And yes, I think we'll work with others along the way. Operator: We'll take our next question from Michael Cyprys with Morgan Stanley. Michael Cyprys: Wanted to ask about your brand strategy and how that's evolving as you extend further into the private wealth channel. Globally, understand you had, I believe, your first TV advertisement in Japan. So I was hoping if you could talk about your approach to marketing, advertising, brand, how that's evolving as you pursue opportunities from 401(k) to private wealth globally? And might we see a Blackstone stadium anytime soon? Jonathan Gray: I don't expect a Blackstone stadium anytime soon. What we do is fairly targeted, of course, we did do a launch in Japan, which we think is a very important market. I think it's the country in the world with the second most in savings. And the leadership there has done, I think, a really terrific job of pivoting just their citizenry from being savers to being investors, and they've opened up alternatives, both offshore and onshore and that's really important. Because Steve, going back 40 years, has thought about Japan as a key market. We've got a really strong brand there, made a big difference. He was recently there. There's a lot of enthusiasm, I believe, for Blackstone and our products. And making it more top of mind does make sense. Doing advertising, I think, for us, will be targeted. Obviously, we're pretty focused on who we're talking to in private wealth, financial advisers and customers who these products are appropriate for. So I think you will see us with a broader footprint over time. It makes sense as we grow to hundreds of thousands of customers. But at the same time, I think we'll do it in a targeted way in markets and in sectors where we think we can have a real impact. What's promising is just the growth in the private wealth area. The fact that we had this doubling in fundraising in the third quarter year-over-year and that the number of products we have, where we're going to expand to is very promising. So when we look out, we love our positioning in this space. And yes, we're going to do it on a global basis. And yes, it will involve a little more advertising versus what we've done historically. Operator: We'll take our next question from Bill Katz with TD Cowen. William Katz: Okay. Thank you very much. I apologize for the hoarse voice here this morning and our condolences for you loss as well, tragic. Just thinking about -- maybe Michael, a question for you. As you think about the interplay between the margin outlook ahead and also what seems to be a pretty healthy pipeline for realizations. Any thoughts on how we should think about the comp within the FRE versus the comp on gross realizations? Michael Cyprys: Bill, thank you, and thank you for your remarks. No, I think in terms of what the overall FRE margin dynamics, obviously, they continue to be healthy, Bill, and I think the bottomline is, over time, we'll continue to see operating leverage. We're obviously pleased with our year-to-date performance. With performance revenue fee margins, especially it relates to carry, as you know, those comp ratios can vary quarter-to-quarter based on sort of the mix of realizations, vintages of realizations. And overall, in terms of the relationship between the two, I think we've said before that, that we're happy with our basic approach. We have the ability and some control on a year-to-year basis to allocate compensation between the two in a way that we talked about before. But so while we have that lever, I think the overall approach is one, we're going to stick with. Operator: We'll take our next question from Brian McKenna with Citizens. Brian Mckenna: So I had a question on wealth. Retail investors today, they have access to a number of different strategies within private markets. But there are some parts of the market where the risk rewards are better than others. So for example, lower base rates and spreads are a bit of a headwind for direct lending. Returns are likely moving lower there, but it's generally a positive for private equity and real estate and performance should be accelerating there, all else equal. So I'm curious, how much time is being spent with your counterparts on education, just in terms of what you view as the proper allocations within private market portfolios through the cycle? Jonathan Gray: Well, we spend a lot of time at the home offices and in the field and then large-scale Zoom calls talking about how we see the markets. What we try to remind our wealth clients is that they should think about this similar to institutional investors. And it shouldn't be, "Hey, I'm going to just flip from here to there." If you went to a large state pension fund or a sovereign wealth fund, they would have allocations to real estate to private equity, to credit to infrastructure. They may modulate them a bit, but they take long-term approaches. And we think that is very prudent. Yes, there are moments in time where certain asset classes outperform relative to others. But we think all of the areas today actually look pretty good. You mentioned private credit. Yes, we have seen -- we're in an environment where base rates are coming down, but the premium relative to liquid credit, that endures, that is a real value to investors when they think about incremental return, so valuable, the farm-to-table model. And yes, in our equity-oriented strategies, there's a benefit lower rates, no question in real estate, in private equity, in infrastructure. But I think the biggest message to our investors is take a long-term approach, have a balanced portfolio so that you get the benefit of diversification and then the long-term compounding from each of these asset classes. Operator: We'll take our next question from Ben Budish with Barclays. Benjamin Budish: One of the questions we get a lot on your investing strategy around data centers is how do we know we're not in the bubble. So just curious your response to that question. And then maybe you could help us understand a little bit, what are the key drivers of returns for that strategy? Is there a cash flow component? Is it valuations? I know you talk a lot about supply and demand dynamics. To what extent might cap rates matter? So that would be helpful just to get a sense of what is sort of driving the excellent returns we've been seeing there. Jonathan Gray: Yes. Well, I think the key thing for us in our data center business is how we do the business. The vast majority of our investing and the vast majority of return comes from building, developing, leasing these data centers. We do it now in the U.S. We do it in Asia. We do it in Europe. We have leading platforms around the globe. And the key to what we do from a risk standpoint is we make sure we have an investment-grade counterparty. Today, I would say, in general, the largest companies in the world with roughly $1 trillion to $4 trillion market cap, and we get lease terms of 15 to 20 years. And that's when you start to deploy capital at real scale. And to us, that seems like a very prudent way to do this. The returns come from the differential between the cost of doing those projects and then what their worth is stabilized assets. So when you have a high investment-grade company and a long-term leased asset, that is quite valuable. So I think this -- when you think about what's happening in AI, the demand for compute, I think this is a very good sector to be in. I think it's also worth noting that the demand for data center space continues to grow. In fact, in our portfolio, in Q3, we saw a doubling in our leasing pipeline globally versus Q2, to give you a sense of the acceleration we're seeing. Obviously, some people may be concerned about that, but compute power and compute needs are going up. The key for us on behalf of our investors, primarily in real estate and infrastructure where this exposure sits; is to make sure we do this in a prudent way, long-term leases, credit tenants, we continue to do it that way. And by the way, similarly, we're doing this at scale on our credit business. There, we're also lending to entities where there's equity, plus they have these long-term leases as well. And so this is a huge need. It's one of the reasons why private equity and alternatives as a segment are growing so much this reindustrialization, the AI infrastructure requires large-scale capital, and we as a firm who does this on the debt and equity side with real expertise has a big competitive advantage. So I think this will continue to grow, but we'll keep doing it in a very disciplined way. Operator: We'll take our next question from Alex Blostein with Goldman Sachs. Alexander Blostein: Jon, I wanted to go back to the wealth discussion for a second, and I apologize for the two-parter, I guess, on this. So on credit, totally hear your point around the relative premium to liquid markets. But how important is the sort of 10-ish percent gross return to the retail channel? So does the point you make, does that resonate or it's really viewed as an absolute product? And any sort of color you can give us on the ground today, what the response in either gross sales or redemptions has been to BCRED's dividend cut from a couple of weeks ago? And then zooming out, I was intrigued by the multi-asset comment you guys made around launches for next year. Could you maybe just expand on that, what that could look like, what parts of the market you're trying to attract with these vehicles? Jonathan Gray: Sure. So I think, Alex, the key, of course, is relative returns. When we launch BCRED now, I guess, 5-plus years ago, we were targeting, I think, 8-plus percent returns given where base rates were and the product has done very well. As we go from a 5.5% short rates to now low 4s, probably a year from now low 3s. I think what investors will be looking at is how does that size up relative to what I can get in other forms of fixed income, particularly liquid fixed income. It could have some impact. But I think generally, the key will be this relative premium. To date, we've continued to see healthy gross sales. This quarter to date on pace in BCRED in a good way. We have not as of yet seen any sort of elevated redemptions, we haven't seen material changes. And I think the key is we continue to deliver for customers, deliver that relative premium, have a healthy portfolio from a credit standpoint. I think if you do that for investors, that's what matters. And by the way, it's not just in the wealth channel. Think about our growth in insurance. There actually, as rates come down, there's some spread compression, the need for private assets, comparable risk, investment-grade comparable risk, but with higher returns becomes even more important in that context. So I think the key for us is to deliver premium returns over base rates, be they long rates or short rates. If we do that, I think our private credit business will grow a lot. Michael just about multi-asset credit. Let me just quickly hit that. Our multi-asset I would say what's happening in the wealth channel is we have a scale now where we can do some interesting things. We obviously have the collaboration with Wellington and Vanguard. And if we do something there, it would be not surprising that involve potentially multiple of our products. We have the ability, we have some of our partners who are seeking things with different mixes of products based on incoming growth. And so creating those offerings is something that's pretty unique to Blackstone because we're not just in private equity or infrastructure credit or real estate. We can offer I think, unique combinations, unique solutions to investors. And as this industry matures, those kind of comprehensive offerings, I think, will be more attractive. Sorry, next question. Operator: We'll take our next question from Brennan Hawken with Bank of Montreal. Brennan Hawken: I wanted to circle back on Alex's question. So totally get, Jon, that this is not a private credit issue that we've seen public markets have a tendency to overreact and certainly, we've seen that. But curious about, you guys just recently had a dividend cut in BCRED. What I'm really curious about is what is the feedback you're hearing from the wealth management channel, given the big reaction in the public markets around some of this? Are you seeing -- are you hearing similar things from the ground within your wealth management counterparts and partners? And what can you tell us about the flows since October began and how they're looking in the credit vehicles? Is there any sort of pullback with the dividend cuts and maybe some apprehension around credit, albeit misplaced? Jonathan Gray: Well, we expect strong flows in BCRED in November. So that's all we know as of today. I would say the reaction in the wealth channel is a realization that these products and credit are 97% floating rate. So by definition, when rates come down, that impacts yield, and they want us to be responsible managers in terms of where we set the dividend level. So I just think that's the reality of the world we live in today. And again, the key is a relative premium over what you can get in liquid credit, and that continues to be enduring. And so I think the conflation of declining short-term rates with credit issues supposedly from these three nonprivate credit-related situations is odd. And I think investors understand that with floating rate products as floating rates come down, that has an impact, but you're still getting that meaningful premium I keep talking about. Operator: We'll take our next question from Glenn Schorr with Evercore ISI. Glenn Schorr: So the big banks and brokers are all giving very supportive cover for you on the forward M&A and IPO calendar that's upon us, you were able to replace whatever you monetize with some more accrued carry. So $6.5 billion, as you mentioned, I think 80% of it is across private equity and secondaries. So I guess my question is, if the deal calendar comes to fruition over the next handful of quarters the way just about everybody is saying it's going to be, how does the maturation of your assets fit? Meaning, should we see an incremental pickup in line with overall volumes? Is it more IPO dependent? Because it's pretty spread across all your products. Jonathan Gray: I don't know if -- we certainly don't want to get in the business of forward projections here, but I would say, Glenn, just directionally that as M&A markets pick up and as IPO markets pick up, our ability to monetize a crude net carry goes up. And you certainly saw some of that this quarter, you would expect as you move into '26, you'll see more of that. So directionally healthier markets, more liquid markets, better credit markets, better IPO markets; that's healthier for realizations, and it does accelerate the time frame. That being said, it takes time to get IPO it's done, it takes time to get sales processes done. But the overall outlook, which you keep hearing from us is getting better. This deal dam is breaking, and it should lead to more realizations over time. Operator: We'll take our next question from Brian Bedell with Deutsche Bank. Brian Bedell: Great. Great. You answered a lot on the private credit, but maybe just -- Jon, but maybe just one more area. And that would be like just the competition that you're seeing with banks or seeing banks. Are you seeing banks become more competitive in the direct lending business, how is that impacting spreads? And then related to that, obviously, credit insurance has been a huge growth driver from a fundraising perspective, accounting for more than half of your fundraising over the past 2 years. Do you see that dynamic continuing? And then if I could just squeeze in one more to Michael, and that's just the outlook for base fee growth for 4Q on a year-over-year basis, just wanted to -- I think you may have talked about that earlier, but just wanted to reaffirm that. Jonathan Gray: You got a lot in there, Brian. So on banks, the banks I think, are feeling healthy. They are in the marketplace. There is this sort of constant set of choices, should you do a bank-led deal or direct lending deal. That's been going on for a long time. And even for us on the private equity side, each deal is a little bit different. So to me, that dynamic is a little more of a constant. I would point out one of the benefits of the market is getting better as deal volume goes up. So you need, I think, both the private credit and the bank market because I do expect that volumes, certainly next year in the deal business, will go up, which creates a healthier supply-demand balance for capital. On the insurance front, there, it's pretty limited in terms of the number of people with an open architecture model not competing in the insurance space and who can do this at real scale. And that, I think, has been very beneficial for us. I think that's why you continue to see our rapid growth. I would say the momentum we have in our insurance business is pretty exceptional today. Clients are recognizing that this is a favorable risk, return trade-off that they have long-duration balance sheets and getting an average of 170-plus basis points of incremental return on investment-grade credit makes a ton of sense in doing with us, with our scale and our brand and our open architecture model really works. So that is an area where I think you will continue to see a lot of growth. Michael Chae: And Brian, on the management fee outlook, I mean, I would just step back and reiterate that we've been talking for some time about how the launching and scaling of our platforms in these for key growth areas is leading to an expansion of firm's earnings power. And you certainly saw that in the results this quarter and third consecutive quarter of double-digit base management growth. As it relates to Q4, we'd expect continued top line momentum, That would note, we expect slower year-over-year base management fee growth in Q4 versus Q3, primarily given multiple private equity flagship step-ups in the prior-year period and some sequential slowing in real estate. But in terms of that and the outlook for 2026, we're very positive. Operator: We'll take our next question from Steven Chubak with Wolf Research. Steven Chubak: So I wanted to ask on the real estate outlook. The performance indicators admittedly have been a bit mixed. On the positive side, monetization revenues tripled sequentially. Performance has also improved, but the pace of fundraising has moderated and the absolute return still remains tepid despite the interest rate tailwinds. So I was hoping you could speak to the performance outlook, both for opportunistic and core+ in 4Q and looking ahead to next year And just thoughts on the timing of an inflection in real estate fundraising and what would inform that expectation. Jonathan Gray: Well, we've been pretty consistent. We said at the beginning of '24, we thought real estate was bottoming. We said it would be a slow non-V shaped recovery. That has certainly been the case. It's hard to say exactly when things turn, but a number of the tumblers are falling into place for real estate. First off, we've seen cost of capital come down pretty meaningfully. The 10-year back down here at 4%. Spreads have come down quite a bit. That is very helpful for the sector. The CMBS market, volumes they are picking up. I think they're up about 25% year-to-date. We're also seeing this very constructive decline in new supply, which you heard about in our prepared remarks, which starts to set a foundation for cash flow growth as you look out over time. I would tell you, qualitatively, we are seeing some good signs in the sense that in the last couple of weeks, we announced 2 large transactions, big office building here in New York City, and then that we were selling and then we sold some logistics in the U.K. to a public company. These sort of transactions were very hard to get done 12 months ago. And I would note that during one of a recent transaction we've been involved in, I got multiple calls from buyers asking if they could be positioned to win. And I joked internally that was the first time in 3.5 years, that has happened. So I think we're at a point here, the combination of a capital markets recovery and a sharp downturn in construction sets the groundwork for getting closer to that inflection point. And I think when you see that, obviously, it will be very helpful to our business given the exposure we have. And that's why you see us trying to deploy capital at scale to capture this before people start to feel more comfortable. I will also say the sentiment amongst global investors. I was in Europe, in Asia in the last couple of weeks; is definitely moving to a better spot. But in general, investors want to see a little more positive performance, and that will make a difference. Now in BREIT, we've had 9 months of positive performance. I think that will begin to have an impact there on flows. So it will take some time. But at some point, I think investors will recognize, "Wow, this is a sector that's been out of favor." It's not going away. People are still going to live in apartments. They're going to order logistics. These things are long-term asset classes, and I can invest in them at discounts to replacement costs at attractive prices. I think that will start to make a difference. And I definitely think we're getting closer to that point. Operator: We'll take our next question from Ken Worthington with JPMorgan. Kenneth Worthington: You talked about a greater focus on the RIA channel for wealth. Maybe to help level set us, what is -- or how much of your wealth AUM is RIA sold at this point versus the broker wirehouse channel. And is this focus about adding more in different sales personnel? Or does the product need to be adjusted as well in terms of fees and structure? Jonathan Gray: So Ken, I don't know -- I don't think we disclose or have certainly not the information here now, about where the different forms of distribution. But I would say the RIA channel is very large, but it's harder to access, as you know. I mean, at the bigger wirehouses, you can work at the top of the house, it can get distributed out. One of the advantages we have as a firm is having 300-plus people on the ground, and that enables us to go out there and talk to people. And I think for us, we recently put -- brought in a new senior person to run that area for us. And we're really trying to do a concentrated outreach. Obviously, the marketing, the advertising, those things matter when you're going to a more distributed market. But the underlying pricing of the product, that doesn't really change, but it requires a lot of effort. I will say we did create an interval product in multi-asset credit, which was our first rail interval product, which we launched in the RIA channel specifically. So I think for us, it's about going after it. It's a little bit like foreign markets, where you have to put a concentrated effort, if it's Japan or Australia or Canada, Asia, it's the same sort of thing here. And again, given the track record of our products, the performance we've delivered, the strength of our brand, if we put the right resources on the ground, I think we can build big relationships and large AUM in the RIA channel. So I think that's an area of major opportunity for us. Operator: We'll take our next question from Patrick Davitt with Autonomous Research. Patrick Davitt: A different angle on Brian's question. Maybe it's a bit too early to know, but had some wobbles in the bank loan market, to your points earlier, seen some deals pulled and/or reprice which I think you could argue was actually good for direct lending dynamics. So curious if you're seeing any signs of the banks are rethinking how aggressive they've been in that channel potentially getting less competitive because of what's happened and/or any sign new origination spreads could get a little bit wider on the back of those bank loan blow-ups. Jonathan Gray: The bank market obviously has to be sensitive because they're in the distribution business. So when you see what happened in the last couple of weeks, not a surprise, you could see a little bit of hesitancy. But I think market participants have concluded that this was pretty isolated and it is not a sign of something bigger. And as a result, I don't think we would say today, we're really seeing any sort of pullback from the banks. Operator: We'll take our next question from Crispin Love with Piper Sandler. We'll take our final question then from Arnaud Giblat with BNP. Arnaud Giblat: In credit and insurance, your dry powder has close to doubled in the last 12 months. I was wondering if that was the case as well in direct lending, private debt, given how tight the spreads have become and lose the covenants or with the competition with both in the syndicated loan market? And specifically, if I could just follow on that specific point into BCRED, how do you see capacity developing? I mean is it -- if conditions remain really hot and tight, do you start worrying perhaps a bit about capacity and the speed at which you're deploying capital, assuming that flows remain strong? Jonathan Gray: Well, I'll just comment -- Michael can comment on where the dry powder sits in credit. But I think there's a bit of mischaracterization here as to how hot the markets are overheated. Loan-to-value that we originated in our direct lending in Q3 was at 38% loan to value. That's probably half the level it was if you went back to '06, '07. So -- and spreads are sort of in line with historic levels. So yes, it's a business that has grown a lot, but it's taken a significant amount of share. And we just haven't seen sort of the erosion of credit standards. And we actually have had a very strong deployment year. I think we've had a record year this year, first 9 months in terms of deployment. So we feel good about the business. In terms of... Michael Chae: And Arnaud, I just want to point out, dry powder, as you probably know, is largely about drawdown funds. And our direct lending capital obviously sits in a lot of different vehicles, including perpetual ones. So direct lending, just sort of structurally, is a smaller fraction of our dry powder. Operator: Thank you. With no additional questions in queue. At this time, I'd like to turn the call back over to Weston Tucker for any additional or closing remarks. Weston Tucker: Great. Thank you, everyone, for joining us today and look forward to following up after the call.
Operator: Welcome to Vitrolife Q3 2025 Earnings Call. [Operator Instructions] Now I will hand the conference over to CEO, Bronwyn Brophy, and Par Ihrskog. Please go ahead. Bronwyn Brophy: Good morning, everyone. I would like to welcome you to the Vitrolife Group Q3 2025 Earnings Report. My name is Bronwyn O'Connor, and I'm joined this morning by our new CFO, Par Ihrskog. So I will now move you on to the first slide with our Q3 2025 highlights. I would like to start by highlighting three key achievements during the quarter. The first highlight is that we delivered 5% organic growth in local currencies, excluding discontinued business, despite the fact that the reproductive health industry as a whole has continued to face substantial macroeconomic and geopolitical challenges during the quarter. The second highlight I would like to bring to your attention is our growth in Americas. Sales increased by 11% in local currencies with strong growth across the entire portfolio and in all markets in the regions. And finally, we delivered strong operating cash flow of SEK 255 million related to positive contributions from our net working capital. I'll now move to the key financial highlights. So starting with the market. Conditions remain challenging in some of the key markets in the IVF industry. However, we did see some small and early signs of recovery in Americas. In EMEA, Western Europe is performing well. However, the market in the Middle East remains impacted by the geopolitical situation. APAC also shows some signs of recovery with the exception of China. Cycle growth in APAC overall remains below the other regions. Sales. So sales in the quarter amounted to SEK 835 million, an increase of 5% in local currencies, excluding discontinued business and minus 4% in SEK, impacted by minus 7% due to currency effects. Gross margin, stable, in fact, slightly positive at 58.9% and EBITDA was SEK 253 million in the quarter, an EBITDA margin of 30.3%. This was also impacted by a negative currency impact. And then strong operating cash flow of SEK 255 million from our net working capital, as I mentioned previously. We will now move on and take a look at our sales and growth per geographic segment. We're very pleased, in fact, with our sales performance in Americas, delivering 11% growth. And even more pleasingly is we saw growth across the entire portfolio and in all markets. So just bear in mind, Americas is the U.S., North America, and also South America. IVF cycle growth is showing early signs of recovery in the U.S. However, share gains drove our growth rates above the market growth rates. Growth in EMEA was 4%, excluding discontinued business. Once again, we delivered strong growth in consumables as a result of share gains in key markets in Western Europe. The geopolitical situation in the Middle East has impacted the region overall, but all other markets in EMEA remained strong for the Vitrolife Group. Sales in APAC increased by 1%, the first positive quarter for the Vitrolife Group year-to-date. We delivered strong growth across all markets in the APAC region with the exception of China, where cycles remain depressed despite improved reimbursement. And then another point that I think is critical to point out is the healthy regional revenue contribution of our company. This has been instrumental in helping us navigate the challenging economic environment. So if you look at our share of total sales, we now have 33% coming from Americas, 37% coming from EMEA, and 30% coming from APAC. Okay. We'll now move into markets region EMEA and take a closer look. So EMEA remains our largest region, delivering sales of SEK 309 million in the quarter and an organic growth of 4% in local currencies. Again, this quarter, sales in consumables were strong, plus 7% in local currencies, excluding discontinued business due to share gains in key focus markets in media and disposable devices. Sales in technologies, plus 6% in local currencies, driven mainly by customer wins for our lab control solutions, which is really nice to see. We are seeing demand steadily increase for our witnessing solution, and customers also really like the integrated EmbryoScope and eWitness solution. Genetics performance was negatively impacted by the Middle East. However, a strong performance by our Genetics business in Western Europe. Okay. We'll now move on to market region Americas. A very strong quarter in our Americas region despite the fact that cycles have not fully recovered in the United States. With an organic growth of 11% and strong growth across the entire portfolio in all markets in the region, we believe we are fully leveraging our relevance to our customers. The strategic investments that we have made in sales and marketing in the U.S. resulted in us delivering our strongest quarter in 11 quarters, with share gains in key parts of the portfolio. Strong growth in technologies driven by increased adoption of EmbryoScope across the region, which is great to see. This has been a key focus area for us, as many of you will know. And we are also starting to build a healthy pipeline of customers seeking to install our witnessing solution. So the combined offering of EmbryoScope and witnessing is also starting to gain traction in North America, as we are experiencing in this quarter in EMEA. Okay. And then our market region, APAC. APAC, the first positive quarter of the year-to-date. So APAC delivered an organic growth of 1%, with strong growth in all markets across APAC, with one exception, that exception being China. We delivered share gains in disposable devices, and our media market position remains very strong across the region. Coming back then to China, despite the increasing reimbursement, we don't yet see an uplift in cycles. Consumer confidence, we expect, is also impacting the timing of patients presenting for IVF. I do want to point out that we are focusing on other key markets in the region where the Vitrolife Group holds strong positions and cycle growth is increasing. I will now hand over to Par, and he will take you through our geographical segments. Par Ihrskog: Thank you, Bronwyn. We are now on Page 9, where I will provide some more details of the geographical segments, America, EMEA, and APAC. On Americas, sales amounted to SEK 276 million, reflecting an 11% organic growth in local currencies and 1% growth in SEK, negatively impacted by currencies. The strong growth can be seen across the portfolio. Gross income amounted to SEK 149 million with a gross margin of 54%. This compares to the last year's gross income of SEK 144 million and a margin of 52.7%, an improvement of 1.3% points compared to previous quarter, mainly driven by product mix. Selling expenses for the quarter rose from SEK 69 million to SEK 77 million, reflecting ongoing investments in sales and marketing in the U.S. as previously announced. The market contribution margin for the quarter was 26.0% compared to 27.5% last year, impacted by the increased investment into sales and marketing capabilities in Americas. Moving to EMEA. Sales declined by 2% in local currencies and by 6% in SEK, totaling to SEK 309 million. The sales were negative, impacted by currency of minus 4%. Sales declined by 2% in local currencies and by 6% in SEK, totaling to SEK 309 million. The sales were negative, impacted by currency of minus 4%. Excluding the discontinued business, sales increased by 7% in local currencies. Gross income was SEK 192 million with a gross margin of 62.0%, compared to SEK 198 million and a margin of 60.4% last year, also here mainly driven by the product mix. The selling expenses decreased from SEK 73 million to SEK 68 million. The market contribution margin for the quarter was 39.9% compared to 38.1%, explained by an improved gross margin and lower selling expenses. In APAC, sales amounted to SEK 250 million, reflecting an increase by 1% organic growth in local currencies, but a 6% decrease in SEK, negatively impacted by currency. Gross income was SEK 151 million with a gross margin of 60.4%, which is lower than previous year's gross income of SEK 167 million and a gross margin of 62.8%, a decline of 2.4 percentage points compared to previous quarter, negatively impacted by currency and negative product and market mix within APAC. Selling expenses decreased from SEK 48 million to SEK 46 million. The market contribution for the quarter was SEK 42.1 million, down from SEK 44.7 million last year. Let's move to the next slide. So then, Q3 financial highlights. As earlier mentioned, the sales amounted to SEK 835 million compared to previous year with a sales of SEK 867 million, corresponding to 3% growth in local currencies and a 4% decrease in SEK and 5% increase in local currency, excluding discontinued business. The gross income amounted to SEK 492 million compared to SEK 508 million previous year, corresponding to a gross margin of 58.9%, margin up from 58.6% previous year. The margin improved from a positive product mix despite the negative impact from the currencies. In the third quarter, the increase in operating expenses was mainly driven by investment in capabilities, especially within IT and digitalization. All-in-all, that gives us an EBITDA of SEK 253 million compared to SEK 289 million previous year, which gives us an EBITDA margin of 30.3% compared to 33.4%. The decrease in margin is mainly impacted by currency fluctuation as well as an increase in investment in capabilities, especially within IT and digitalization. Let's move on to the next slide. Some comments about the operating expenses. In Q3, our operating expenses were SEK 20 million lower than Q2 this year, but compared to Q3 last year, OpEx was SEK 40 million higher, though last year's Q3 was lower than normal levels. Overall, Q3 aligns well with our average OpEx level over the past seven quarters, reflecting a consistent and stable cost trend. On the selling expenses, we had higher selling expenses in the U.S. due to the investment in sales and marketing, but it was offset by lower costs in the other regions, so it stayed stable. On administrative expenses, it was increased by the strategic investment in IT and digitalization. Our R&D expenses slightly decreased year-over-year, mainly due to timing. And then on other operating expenses, this is mainly related to currency fluctuations. Next slide, please. And then finally, I will look -- we will comment upon the year-to-date numbers. Sales for the first 9 months amounted to SEK 2.5 billion, corresponding to 1% growth in local currencies, a 4% decrease in SEK, and a positive 4% growth increase in local currencies, excluding discontinued business. The gross margin decreased from 58.6% to 58.1% mainly due to currency fluctuations. The EBITDA amounted to SEK 253 million compared to SEK 888 million, corresponding to an EBITDA margin of 29.5% versus 33.5% previous year. The decrease in margin is heavily impacted by currency effects driven by a strengthened SEK against other currencies. The margin was also negatively affected by the increased selling expenses of SEK 577 million in the U.S., but also negatively by the product and market mix. Net income amounted to SEK 301 million compared to SEK 375 million previous year, heavily impacted by currency fluctuations, which gives earnings per share of SEK 2.23 compared to SEK 2.76 previous year. Our operating cash flow amounted to SEK 475 million for the first 9 months compared to SEK 640 million previous years, whereof SEK 255 million came from Q3. Changes in working capital had a negative effect of SEK 97 million this year compared to SEK 97 million last year. Our leverage, net debt to EBITDA, improved to 0.7 compared to 0.8 previous year by the end of the quarter. And by that, I will now hand over to you again, Bronwyn. Bronwyn Brophy: Thank you, Par. So you will have seen me present this slide several times. And what I would like to highlight is that we are delivering on our commitments and doing what we say we will do. So this slide I have presented, I think this is my third time to present it. It highlights what the focus areas were for 2025 and beyond: growth, innovation, and operational excellence. So just if we take a look at growth, continue to drive share gain in key markets, leveraging the full breadth of the portfolio. This is exactly what we are doing in Americas, as an example. So we're doing what we say we will do: accelerate the penetration of our combined EmbryoScope and lab control solutions. This is what we're doing in EMEA. You can see it in the quarterly results. When it comes to innovation, if I could highlight strengthen market access capabilities to bring new products to market faster. We have launched Ultra RapidWarm Blast. We received regulatory approval for EmbryoCath in Europe and the United States this quarter. So again, here, we are doing what we say we will do. On the operational piece, automated manufacturing to increase capacity of key growth drivers. We have significantly increased capacity at one of our sites in the United States due to automation. And then the macroeconomic environment. Well, I think we would all agree, it's been a challenging year for the med tech industry as a whole. It's been a particularly challenging year for the reproductive health industry. We continue to assess multiple parameters, not least of which is the impact of the U.S. presidential IVF announcement, the most recent one on the 16th of October 2025. And of course, we continue to monitor the development of the situation in the Middle East and the impact that the recent peace agreement may have on IVF cycles in the region. Before we open up for questions, I would like to thank the exceptional team at the Vitrolife Group for all of your hard work and dedication. I would also like to thank our shareholders for your support and your belief in the Vitrolife Group. Thanks, Micah, thank you very much, and we will now open up for Q&A. Operator: [Operator Instructions] The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: I have kind of broad-based questions regarding consumables in the different geographies. So just looking at consumables in Americas, what continues to drive your market share gains? And the same question goes for EMEA. And I guess for EMEA, it's more on the case of one of your competitors at being in a restructuring phase. Just trying to figure out how long this sort of gains could last for? And as for APAC, I hear all what you're saying in terms of demographical challenges, once policy having its effect. But don't you believe that this is more of a consumer confidence kind of issue? I guess sort of the demographic changes in APAC has not really changed since the 2019 or pre-pandemic, while the sort of general economic health of China has. That would be my first question, please. Bronwyn Brophy: Okay. Thank you for your question, Ulrik. Yes. So the performance of the consumables in all our regions, as you -- well, it's positive. It's positive everywhere. I would say that in 2024, we took a lot of media share. We are now leveraging that even stronger media position to take share across the rest of the portfolio. I can't tell you who we're taking share from because we have one competitor who reports externally, but we don't get a breakdown, and the other large competitor, as you know, is privately held. But what we do know is that our growth is significantly up versus the cycle growth that our customers tell us across the various regions that they are experiencing. So I can't say who we're taking share from, but we are firmly of the belief that we're taking share with the growth rates that we experience in the different regions. And what we see from our own numbers is it's across the entire consumables portfolio now, Ulrik. Then your question on APAC, we think it's a combination. So yes, obviously, we have the endemic issues in APAC in terms of desire to have children and low fertility rates. But we do believe that the macroeconomic conditions in China are exacerbating the situation. As we know, reimbursement has improved in the country, but we haven't yet seen an uptick in cycles. So it's likely multifactorial. I think what's interesting to note, and you'll see that in my CEO comments, is we do see growth across the rest of the region. So China is becoming an outlier in APAC in terms of the growth that we can deliver for our company. So hopefully, that helps to answer your questions, Ulrik. Ulrik Trattner: Yes. And a follow-up, like a year ago, a year and a half ago, a lot of talk about the Indian market. So the Indian underlying market growing at a very rapid pace, you tagging along with that market. And it's been quite silent sort of ever sort of in the last few quarters. Can you provide us with some type of update on what's happening in India? Bronwyn Brophy: Yes. So that's intentional. It's intentional because this market has become increasingly competitive, and everybody wants to know where the growth and profitability is. So that's why we don't break down our APAC numbers; so we don't give additional detail. I'm sure we would have some very interested competitors probably listening in this morning, wondering what the India breakdown is. India is a very large market, of course, with a lot of potential. Usually, in medical devices, it's also a low-priced market. So while it may have high growth potential, it doesn't always have high growth that's profitable or at least profitable to the levels that we would need at the Vitrolife Group. But it is clearly a driver. It does form part of our APAC region, but it's not the largest market in APAC for us. So that's probably about as much detail as I would like to give on India for obvious reasons. Operator: The next question comes from Suzanna Queckborner from Handelsbanken. Suzanna Queckbörner: I have a more broad question. I'd like to get your opinion on how or where you see Vitrolife going with future M&A agenda and whether your stance has changed regarding this recently? Bronwyn Brophy: Yes. Great question. Thank you, Suzanna. So I guess, like all companies in the space, we are monitoring potential acquisitions. I think with the consolidation that has happened in more recent times, a lot of the larger-scale acquisitions are off the table now. And for us, I think as we've always said, we have a very clear strategy in terms of building an end-to-end platform. So any of the targets that we are looking at would need to be synergistic with that strategy. They would also need to be able preferably to deliver accretive growth. And then the profitability needs to be broadly in line with our profitability levels, which are typically significantly higher than most of the other players. So I'm not saying there's nothing for us to buy. They clearly are. But of course, those targets need to satisfy our key M&A criteria, and they also need to be available at the right price. Multiples have come down a lot in MedTech. So yes, I guess, from an industry perspective, it's probably a good moment to buy, but still, it has to be the right company at the right price with the right fit for the Vitrolife Group. So that's probably as much as I can say right now, Suzanna. Suzanna Queckbörner: And just to quickly follow up on that. Are there any areas that you're particularly interested in more than others? Bronwyn Brophy: Yes. I would say there are one and two areas which I'm not going to divulge, which would be of more interest. I mean we have a broad portfolio now. We have a lot of differentiation. It's really -- a lot of it is about bolstering the position that we have and staying ahead technologically. But there are a couple of -- yes, I guess, what I would call tuck-ins, potential tuck-ins from a portfolio standpoint. Suzanna Queckbörner: And then as a second question, with regard to your strategy in the U.S., we now see that you have 11% organic growth. You've made some investments in sales and marketing. How should we think about that going forward? Bronwyn Brophy: Yes. So from an expense perspective, I think sales and marketing line for Americas will be stable. We are -- sorry to use an American phrase, but we're kind of fully loaded for now. The investments that we made are -- they're driving the growth that we saw in the quarter. So we probably don't need to do anything additional for now. Obviously, we have to very closely monitor the effect of the announcement on the 16th of October and see what that means as we head into 2026. But for now, I think it's sort of steady as she goes on the sales and marketing investments in North America. Operator: The next question comes from Johan Unnerus from SB1 Markets. Johan Unnerus: Could you provide perhaps a bit further insight into the gross margin? It's pretty impressive or strong given the circumstances, FX headwinds, different product solution mix, and presumably some tariffs as well. Bronwyn Brophy: Yes. So Johan, thank you for the question. Yes, there are multiple factors in there. So it's mix for sure. So product mix and regional mix. I think our team has done a really excellent job in terms of managing the tariff impact. So we did mention during our previous earnings that we did have to increase our prices to help mitigate against that tariff impact. And the team in North America, in particular, did a superb job there. So that largely helped to insulate us from that. And then I guess we're being more strategic in terms of where we're doubling down from a portfolio standpoint. So all of these factors are playing a role there. I don't know, Par, if there's anything that I've missed. Par Ihrskog: No. But on the currency part there, we see on top line negative 7%. It's very much driven by the strength of SEK towards U.S. and euro, but of course, all currencies. And that, of course, flows through the whole income statement down to the bottom line, the impact of the currency. Johan Unnerus: And yes, a follow-up on the U.S. side. It's pretty healthy your performance in the U.S. this quarter. Of course, there are quarterly variations, but also you're putting in effort to go-to-market investment in OpEx. What is the dynamic here? How much is sort of natural variations, your early traction from your early traction from improved go-to-market strategy or something else? Bronwyn Brophy: Yes. So I think it's a couple of things. First of all, thank you for the question. I think it's a couple of things. I think it's the increased investment. I think it's the adjustments that we've made to our go-to-market model. We've ramped up our marketing, which has increased our awareness. We've sharpened our branding. I mean the Vitrolife Group is synonymous with quality and service. And Americans like high quality, and they like best-in-class service, and that is synonymous with our company. So I think it's a combination. I think it's the investments, the go-to-market, the high-quality products, the really good service, all of these things are leading to share gains and wins in key accounts across the United States and Canada, it has to be said as well. And in fact, well, I should also call out -- I mean, Americas, it's Canada, as I said, U.S., and LatAm. We have growth across all of the markets and all of the portfolio. So big brother is U.S., but the other markets are also performing nicely for the company. Johan Unnerus: Excellent. And congratulations, a pretty good quarter given the circumstances. Bronwyn Brophy: Thank you, Johan. We won't get ahead of ourselves, but it's a good quarter, yes. Thank you. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: I also have a question on the U.S. and Americas. And my question is, do you expect that the strong market share gains you're currently seeing that they are sort of on a similar level as recent quarters? Or are they accelerating? And also if you think that this momentum will continue into next year, also considering that you mentioned that you expect to invest less in the U.S. commercially here going forward? Bronwyn Brophy: Yes. So thank you for the question, Jakob. I think they're accelerating because, obviously, we see the breakdown by product. We don't report that externally. So we can see in some of our key product groups, if we look at the rolling 12, that it's actually accelerating. And we think this is a return on the investments that we've made there. How sustainable is that going forward? Well, I mean, if you look at our five-year strategy, our #1 double-down focus market is the United States. If we are going to win and deliver on our mission of becoming the leading global player here, we're going to need to keep this type of momentum up in North America. I'm sure our competitors will have something to say about that, but we're not going to have it all our own way. Nobody does. But we are -- certainly, our ambition is to keep this momentum up. Where can it accelerate, and where are we going to become increasingly challenged? Technologies, EmbryoScope with witnessing, that's a key differentiator for our company. And I think we should be able to gain increasing traction there. On the consumable side, continuing to take this level of share, we're going to have a battle on our hands, but we have to be ready for that, and we have to back ourselves. So I mean, this is the plan. What you're seeing in this quarter is -- what you're starting to see, again, I don't want us to get too ahead of ourselves. It's very important not to be complacent, especially in America. But what you're seeing in this quarter is a return on the investments that we've made, staying focused on our strategy despite the fact that we had to navigate some fairly bumpy quarters as an industry. And then I think the team, the team that we have on the ground there, we've recruited top industry talent and complemented it with a lot of in-house experience that had been built up in the company over many years. So it's a lot of different factors, Jakob. But I think the key thing here is not to be complacent. It's a good quarter. We need to keep up the momentum. We need to stay focused, don't get distracted, and stay the course. That's the plan. Jakob Lembke: Okay. And then just a follow-up also on the U.S. genetics business. I mean it seems to be developing quite nicely. Would you say that you have finally now turned that around and that you're confident that you can also take market share there going into next year and increase profitability? Bronwyn Brophy: Yes. So Genetics had actually had an excellent quarter in North America, Genetic Services. So obviously, in Genetic Services, we have the services business and we have the kits. The services part is doing extremely well. Can we continue this momentum in North America into next year? Yes, we should be able to because we have some large network wins there. So we have some good tailwinds. Yes, what I would say is that the Genetics business has been impacted in the Middle East. So you can see that in our EMEA numbers. We do have -- not very large, but a sizable genetic services business in the Middle East. That has been impacted. But broadly, services -- the genetic services side is -- yes, it's pretty steady and holding up a lot better than it has in previous quarters. I never like to get ahead of myself and say we're going to shoot out the lights, but it's certainly looking a lot more stable than it has certainly in the couple of years that I've been the CEO of the company. So yes, hopefully, that answers your question, Jakob. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So continuing on the U.S. and Americas. So you highlighted that cycle growth like recovered late in Q3 at the second part of the Q3. So then I assume the exit rate was a bit higher than the average or total growth rate in the quarter. So just to set some reasonable expectations here for market development heading into Q4 and '26. Are you able to share how much difference we have seen throughout the quarter in cycle growth? Bronwyn Brophy: Yes. So first of all, thank you for your question. I can't share exact percentages, but we did start to see a pickup. It was really just in the last month of the quarter, to be honest, the first two months of the quarter, we didn't see a pickup, but there is also a seasonal effect there, which can impact that. Despite the fact that we saw a pickup, we still don't believe that cycles have fully recovered in the U.S. So it remains to be seen what the impact of the announcement on the 16th of October will be. But it was more a case of a slow, steady increase in the last month of the quarter. There was no explosion of pent-up demand or anything like that. I mean it wasn't -- we're not talking about a very sizable jump, more slow, steady flow of IVF patients coming back to the clinics. Ludvig Lundgren: Okay. Understood. So, a slight improvement, then I suppose in Q4. But then just a follow-up on the IVF announcement last week. So do you expect this to yield any significant change in either cycles or like IVF insurance coverage maybe into '26 or yes ahead? Bronwyn Brophy: Yes. So I have the White House statement here in front of me. You can actually print it -- you can print it off, anybody can access it. Look, this is good news for the IVF industry. It's not brilliant news, okay? But it is good news. So if you remove a lot of the hype and you get down into the facts, what does this actually mean? What it actually means is a reduction in the price of the drugs, of the fertility drugs for patients. If you look at the White House fact sheet, there's talk of estimates, women, and I quote, women can save up to $2,200 per cycle of fertility drugs. In the United States, nobody pays list price for drugs. So I think that's the maximum amount that a patient would expect to save. Nonetheless, it is a saving. So it's a saving. It's not huge, but it is a saving. So that's a good thing. The insurance piece is more complicated, but it is positive. So essentially, what happens with the way the insurance piece is now designed is you have -- typically in the United States, you have healthcare coverage. And then usually, people will have additional or supplemental things like dental, it can be dental, can be hearing. And now there will be the opportunity to have supplemental fertility coverage. That is also a good thing, but that's going to take time. It will take time for that to come through the system. So what we are expecting, our interpretation, okay, and there can be various interpretations, is, yes, it's positive. Are we going to see an explosion in pent-up demand and suddenly, employers all over the U.S. will grant coverage, fertility coverage to their employees? No. It's more likely to be a slow, steady improvement in terms of fertility coverage for employees. So good news, more likely to lead to slow, steady improvement as opposed to a very significant pickup. I guess my own personal assessment is at least we now have clarity because what we had in quarter two and in -- yes, for most of quarter three was uncertainty. Are we getting an announcement? Are we not getting an announcement? What is it going to entail? What is it not going to entail? The really good thing to come out of all of this from the 16th of October is patients now have clarity and they can decide how they want to time their IVF treatment. So personally, I see this as the biggest advantage of all. So yes, hopefully, that helps to answer your question a little bit. There's a lot to unpeel in that announcement. If you separate the hype from the facts and the 2,320% reduction, this is essentially what it means. Yes. Ludvig Lundgren: And then I just wanted to squeeze in one more for Par on operating expenses, up 4% year-over-year. And I think it's mainly explained by these IT investments in admin. So just if you could give some flavor on these investments, like is it up from Q2? And how should we expect this to develop in Q4 and into '26? Par Ihrskog: Yes. As I explained, it's the investment in IT and digitalization across the company in various functions in manufacturing in admin, and so on. We have invested in the last couple of quarters somewhat more on IT and digitalization, and the increase compared to last quarter -- the quarter last year is not only IT digitalization, but it's a big part of that increase. But compared to Q2 and Q1, it's more or less in line, slightly higher perhaps, but more or less in line. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A little bit different angle here, sentiment for genetics and predominantly PGT-A. I note from a lot of focus on STRA and ASRM on workflow protocols, how to manage sort of PGT-A workflows. So where is sort of the customer sentiment, and where are we at in terms of your commercial traction in -- both in EMEA and in the U.S. I know that you're saying that you're having a bit of struggle in the Middle Eastern part, but good traction in the Western Europe and U.S. is obviously doing quite well. So where are we at segment-wise? Bronwyn Brophy: Yes. So thank you for the question, Ulrik. PGT-A, it's accelerating for our company. We're doing very well. And when I say PGT-A, you know this, Ulrik, I mean the PGT-A family of family of test, PGT-A and PGT-M. The growth is more than robust. It's very strong in North America, and it's also strong in EMEA and in Western Europe. I do agree with you on the workflow piece in terms of guidelines and bringing more consistency and standardization to that workflow. But we see that as a positive thing. Standardization is good. Guidelines are good. We welcome that, and it tends to positively impact us as opposed to negatively. So yes, I mean, the PGT-A family of test is a key growth driver. And for us in our key markets, it's very healthy. Ulrik Trattner: And how about the Embrace test and essentially your entire noninvasive family of tests? How are those received, and how is that looking? Bronwyn Brophy: So also very well received, high growth, albeit from a much lower base, very strong growth for Embrace, actually. So yes, it's -- noninvasive is, I suppose, in many ways, the future. But a lot of people like the standard tests as well. But if you look at our portfolio, the noninvasive piece in general, the growth rates from lower base are significantly above the growth rates across the rest of the genetics portfolio. So you're selling on there. Ulrik Trattner: Yes. And would you say that customers have overcome sort of the issues with potential maternal cell contamination of noninvasive PGT-A? Or has that been lesser of an issue in reality versus what was implied technically? Bronwyn Brophy: Yes. I think it's less of an issue because there's much more education around that now. So we -- I mean, initially, clinics would put push back, Ulrik, on the contamination piece because they didn't understand it. Now I think with increased education and understanding, they appreciate the benefits of the contamination factor now. So it isn't -- it's not so much an issue anymore at all, really. Yes. Ulrik Trattner: And an additional follow-up on that because this leads into potentially sort of the million-dollar question on your end. When can we expect a combination of a noninvasive PGT-A test and error test, and time lapse or your EmbryoScope on the U.S. market? Bronwyn Brophy: Well, that's a million-dollar question or a billion-dollar question, which I could never reveal because it's such a source of strategic and competitive advantage to our company. But we have our R&D programs, and we're working on them steadily. And most of them are on track or slightly ahead of schedule. And that's about as much as I would like to say on that topic. Ulrik Trattner: And last question on my end. And since we have Par on board, I need to -- looking at the balance sheet and potentially another direction beyond M&A, I guess you're happy with your current portfolio, could add a few product X, Cryo, Genetics, but I guess platform acquisitions are out of the picture. How about not just exploiting the option of doing buybacks? Par Ihrskog: Yes. Thank you. That's a good question. Yes, we are looking into different alternatives, what to do with the excess cash. And we will, of course, have our view and recommendation to the Board. But ultimately, this is, of course, a Board decision. Ulrik Trattner: But you have suggested Board of Directors. Par Ihrskog: I have not suggested anything yet. I'm only three weeks in here. But we are looking into that. And down the road, we will suggest our proposals to the Board. But ultimately, that is a Board decision. Operator: The next question comes from Suzanna Queckbörner from Handelsbanken. Suzanna Queckbörner: Just one more question relating to the U.S. share gains. So you said that you've been taking share gains across the entire portfolio. I was wondering if, within Genetics, there's been the long-term ambition to sell more high-margin tests versus low-margin tests. Can you maybe talk a bit about this dynamic in terms of the lab testing companies, and yes, whether you've been able to make that transition? Bronwyn Brophy: Yes. Fantastic question. Thank you, Suzanna. So within our PGT-A family of tests, we do have levels of differentiation. So obviously, I mean, you know this very well with your background. We have PGT-A. We have PGT-A+. And some of those tests, I won't reveal which, but some of those tests have a higher margin profile. So what we are doing is obviously focusing our efforts on the more differentiated, higher-margin tests in order to improve the profitability. Essentially, we're doing exactly what you're asking in your question. How do we go about that? It's doubling down on the differentiated areas where we can command a premium price because of the level of differentiation that could be that can be slow, it can be feed, the various different elements in there. Does that answer your question, Suzanna? Suzanna Queckbörner: Yes, I think it does. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: I have two further questions. Firstly, on APAC, I mean, 1% growth here in the quarter, and you say that regions outside of China going well. So I guess we could almost infer them that China is declining. So given this, could you maybe break down your expectations for APAC growth next year, sort of what you see in China and outside of China? Bronwyn Brophy: Yes. Thank you for the question, Jakob. So yes, I mean, China has -- the entire IVF industry in China is impacted, as we know. And obviously, we have a lot of conversations with our colleagues in the drug company. So they're seeing the same dynamic. But what's interesting is the rest of APAC is performing pretty robustly, at least it is for us. So the key question for everyone is, when does China start to improve? When do the improved reimbursement, when or do the improved reimbursement conditions start to kick in? I think to one of the earlier questions, how much of this is linked to macroeconomic sentiment, there is an element of that. So it's complicated, Jakob, to sort of assess when does China turn. I think what's key for us is that we hold our very strong position in China, like we have market leadership positions in certain key categories, very strategic and important ones. So making sure that we continue to hold very firmly there, and we are. And then accelerating our growth across the rest of the region, and we're also doing that. I mean, as I'm speaking to you, I can see our growth rates in the other markets across the region. So it's really a case of holding our position firmly and strongly in China, as hopefully, market conditions improve there and then accelerating our growth across the rest of the region and reducing our reliance on China. And that's how we've been able to turn APAC positive this quarter. Hopefully, that answers your question, Jakob. I need to be rather circumspect in terms of the level of detail I give on APAC. Jakob Lembke: Yes, I understand. That's fine. My second question is sort of a follow-up to the admin costs, which has been surprisingly high this year, both here in Q3, you mentioned IT investments, and they were also quite high in Q2. So just if you can give any thoughts on admin costs for 2026, if they will continue to expand or sort of normalize, or yes, maybe decline. Yes. Par Ihrskog: Yes. No, as I said, the Q3 operating expense aligned well with our average OpEx level over the past seven quarters. So we see it as a consistent and stable cost trend, and we don't have any plans to increase that from this level. Of course, we are exposed to inflation and stuff like that, that we will have to handle, but we don't have any major plans to increase. But of course, our strategic investments in IT and digitalization is important for us, and we will continue to further develop our capabilities in that area. Yes. Bronwyn Brophy: Yes. If I would add, I think the OpEx, to Par's point, has been very stable for seven quarters. What has changed is the mix. So obviously, we've been trying and have very tight cost control measures throughout the year. And so we do see some areas coming down, but other areas where we're strategically investing in a very premeditated way, and IT and digitalization is key there. So yes, hopefully, that helps to answer your question, Jakob. Jakob Lembke: Yes. And maybe if I can take a short final question just on technologies, it was a very strong quarter Q4 last year, and what you see there for Q4 this year. Bronwyn Brophy: Yes, it was. It was a huge quarter. Typically, it is our largest quarter of the year. The comps will be challenging. So there's kind of pros and cons on this one. Challenging comps, that's a headwind. But typically, Q4 is the strongest quarter. So that's a tailwind. We do have a very good pipeline, very robust pipeline. And as I mentioned earlier, the combined EmbryoScope and eWitness is starting to gain traction. So that's a tailwind. But throughout this year, I think across the entire med tech industry, capital purchases have been delayed and postponed. We ourselves see that the selling time of EmbryoScope has lengthened. We do very tight funnel management using Salesforce across all of our regions on EmbryoScope. So we can see the metrics, and we know it takes longer for the deals to come in. But we don't see cancellations of orders, and we don't see needs dropping out of that funnel. So yes, I think there are pros and cons going into quarter four. The team are very focused on driving that. Yes, I guess that's about as much as we can say for now. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So just a very quick question, a follow-up to Jakob's question there. So yes, quite stable OpEx year-over-year, but you also should have some headwinds on the OpEx side from FX. Like looking at OpEx to sales, you're up a bit year-over-year, right? So then I just wondered like, yes, for us modeling, is it possible to share an organic like OpEx increase year-over-year, and how that has developed here in Q3 specifically? Par Ihrskog: Sorry, can you clarify that question again, please? Ludvig Lundgren: Yes. So basically, what I'm requesting is if you have an organic like operating expense increase because we saw a 4% increase reported, but you probably have some tailwind on the cost side from FX. Bronwyn Brophy: Yes. Par Ihrskog: Yes, we have, of course, that as well. So yes, and we have an organic increase partly offset with the currency impact, of course. Ludvig Lundgren: Okay. So is the organic number closer to 10% or like just to get a sense of how much costs are growing here into Q4? Par Ihrskog: Yes. We don't disclose that number exactly, but it's, of course, is higher than 4% and closer to 10%. That's a good estimate. Bronwyn Brophy: But you are correct, Ludvig. There is obviously a currency element in there. There's currency element everywhere. It's flowing through all of the financials, as you can see. Okay. I think we need to finish up there. Thank you all for your time, your attention, your engagement, and your questions.
Operator: Good morning, and welcome to the Q3 2025 Annaly Capital Management Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sean Kensil, Director of Investor Relations. Please go ahead. Sean Kensil: Good morning, and welcome to the Third Quarter 2025 Earnings Call for Annaly Capital Management. Any forward-looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in the Risk Factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the disclaimer in our earnings release in addition to our quarterly and annual filings. Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date hereof. We do not undertake and specifically disclaim any obligation to update or revise this information. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings release. Content referenced in today's call can be found in our third quarter 2025 investor presentation and third quarter 2025 financial supplement, both found under the Presentations section of our website. Please also note, this event is being recorded. Participants on this morning's call include David Finkelstein, Chief Executive Officer and Co-Chief Investment Officer; Serena Wolfe, Chief Financial Officer; Mike Fania, Co-Chief Investment Officer and Head of Residential Credit; V.S. Srinivasan, Head of Agency and Ken Adler, Head of Mortgage Servicing Rights. And with that, I'll turn the call over to David. David Finkelstein: Thank you, Sean. Good morning, everyone, and thank you all for joining us for our third quarter earnings call. Today, as usual, I'll briefly review the macro and market environment as well as our performance for the quarter, then I'll provide an update on each of our 3 businesses, ending with our outlook. Serena will then discuss our financials before opening up the call to Q&A. Now starting with the macro landscape. The U.S. economy remained resilient in the third quarter, with GDP likely to be on pace with that of Q2. Growth was supported by healthier consumer spending as well as AI-driven business investment despite lingering uncertainty around tariffs and the immigration. Inflation remained elevated near 3% during the quarter, though the anticipated uptick in goods inflation resulting from higher tariffs has been more muted than expected thus far. Labor market conditions did weaken with hiring slowing to a mere 30,000 jobs per month over the past 3 months, while sentiment around future hiring deteriorated. Although the unemployment rate has moved only slightly higher, the Fed's 25 basis point cut in September and forward guidance was supported by an outlook that suggests growing downside risks to its employment mandate. Yields fell modestly during the quarter, and the curve steepened given the market's expectation for modestly lower policy rates going forward. The treasury market also benefited from a shift in issuance towards the front end of the yield curve and strong tariff revenue, the combination of which helped ease concerns about long-term debt issuance. This led to lower term premium quarter-over-quarter and a 6 to 9 basis point widening in swap spreads relative to their forward implied levels, which benefited our returns. The precipitous decline in interest rate volatility during the quarter also provided meaningful support to our portfolio by lowering convexity costs and fueling much of the Agency spread tightening that occurred. We generated an economic return of 8.1% for the third quarter and 11.5% year-to-date, notably recording a positive economic return for 8 consecutive quarters, exhibiting the benefits of Annaly's diversified housing finance strategy. Our portfolio's earnings power remains strong with EAD of $0.73 per share, out-earning our dividend each quarter since we increased it at the outset of the year. Also to note, we raised $1.1 billion of accretive equity in Q3, including $800 million through our ATM program. We also reopened the mortgage REIT preferred market with Annaly's first preferred issuance since 2019 and the first residential mREIT issuance in multiple years. Now turning to our investment strategies and beginning with Agency. Our portfolio ended the quarter at just over $87 billion in market value, up 10% quarter-over-quarter, as the majority of the capital raise was deployed in Agency MBS considerate of attractive relative returns. Total growth of our Agency portfolio was $7.8 billion in market value with about 15% of that increase coming from Agency CMBS and a similar share coming from market value appreciation. While the primary driver of Agency performance was lower interest rate volatility, also noteworthy is that the supply and demand dynamics in the Agency MBS market continue to improve. Specifically, fixed income fund inflows were more than 50% higher than the average over the past few quarters and an additional indication of favorable technicals is that CMO demand has been heavy with production running at over $30 billion per month, which has helped distribute MBS supply to a wider audience of investors. Overall Agency spreads tightened by 8 to 12 basis points to treasury in the quarter with intermediate and lower coupons outperforming higher coupons. Early in the quarter, we added Agency in line with our capital raise across coupons. And ultimately, as higher coupons began to look more attractive given cheapening into lower mortgage rates. We shifted purchases to specified pools in 5.5% and 6%. Our holdings and higher coupons have been methodically constructed over the past few years to mitigate prepayment risk, which gives us flexibility to add in areas that provide the best expected return. And on the hedging side, we had less need to intervene this past quarter, as realized volatility was somewhat muted but we did maintain our disciplined approach to rate risk management, as we added hedges alongside new asset purchases with a bias towards swaps in the front end of the yield curve. And as we mentioned previously relative value and the superior carry of swap hedges has informed our overweight and swaps, which added meaningfully to our economic return this past quarter. Shifting to Residential Credit, our portfolio increased to $6.9 billion in economic market value, representing $2.5 billion of the firm's capital. Investment-grade Residential Credit assets tightened during the quarter with new origination, non-QM AAA spreads ending Q3, 15 basis points tighter, providing a supportive backdrop for securitization issuance. Non-Agency gross securitizations have totaled $160 billion year-to-date, which is already the second largest annual gross issuance since 2008, and will end up being second only to the 2021 vintage. Our Onslow Bay platform closed 8 transactions for $3.9 billion in the quarter, generating $473 million of high-yielding OBX retained securities for Annaly and our joint venture. Year-to-date, we've now priced 24 transactions, representing $12.4 billion of UPB, solidifying Annaly as not only the largest nonbank issuer in the residential credit market but a top 10 issuer worldwide of asset-backed and mortgage-backed securities. We also redeemed OBX 2022-NQM8 during the quarter, exercising the transaction's 3-year call feature and we expect there to be significant embedded value in our late '22 and '23 vintage NQM issues, given current mortgage rates and securitization economics. With respect to our correspondent channel, we achieved record-setting quarterly volumes across both locks and fundings while remaining disciplined in our approach to credit. The channel locked $6.2 billion in whole loans and funded $4 billion in the third quarter with our quarter-end lock pipeline representing a 765 weighted average FICO, 68% LTV and over 96% first lien. Now with respect to the underlying housing market, as we foreshadowed on previous calls, the market is now experiencing relatively flat year-over-year HPA nationally, as consistently elevated mortgage rates weigh on affordability. There is potential for further depreciation in the winter seasonals as available-for-sale inventory has increased, although we do expect cumulative depreciation to be modest given the longer-term positive fundamentals of the housing market. Nonetheless, in light of softer housing, we remain focused on maintaining a high credit quality portfolio with a continued emphasis on manufacturing our own proprietary assets through our market-leading correspondent channel. And approximately 75% of our Residential Credit exposure is now comprised of OBX securities and residential whole loans, providing full control over both the acquisition and management of the assets. Now moving to MSR. Our portfolio increased by $215 million in market value to $3.5 billion, comprising $2.9 billion of the firm's capital. We purchased $17 billion in UPB across 3 bulk packages in our flow network during the quarter as well as committing to purchase an additional package for $9 billion in UPB subsequent to quarter end. Our MSR valuation multiple decreased very modestly quarter-over-quarter, driven largely by lower mortgage rates. Our portfolio remains well insulated as the aggregate borrower is approximately 300 basis points out of the money and the portfolio continues to exhibit highly stable cash flows as it pays sub-5 CPR over the past 3 months. The fundamentals associated with conventional MSR remain positive as evidenced by our portfolio of serious delinquencies being unchanged at 50 basis points. The competition for deposits remaining strong, resulting in better-than-expected float income and subservicing costs decreasing given increased technology investments across our servicing partners. Also to note, we announced a new partnership with PennyMac Financial Services subsequent to quarter end, adding another industry-leading mortgage originator and servicer to our existing set of best-in-class subservicing and recapture partners. As part of this new relationship, we purchased $12 billion of low note rate MSR whereby PennyMac will handle all subservicing and recapture responsibilities for the portfolio sold. Now shifting to our outlook. Our investment strategies are well positioned for the balance of the year given declining macro volatility, additional Fed cuts expected and healthy fixed income demand. While Agency spreads are tighter, the sector remains compelling as spread compression has been achieved through lower volatility and a steeper yield curve, thus improving the fundamentals of the asset class. Furthermore, a more accommodated monetary policy should continue to support a strong technical backdrop for Agency MBS, not to mention the likelihood of regulatory reform and the potential for greater bank demand for the sector into 2026. Our Residential Credit business should further benefit from the growing private label market with our Onslow Bay correspondent channel and OBX securitization platform being clear market leaders. And our MSR portfolio stands out as the lowest note rate portfolio out of the top 20 largest conventional portfolios in the market, providing highly predictable, durable cash flows with limited negative convexity. Lower note rate MSR remains our preferred positioning, as investors are compensated more for selling convexity and Agency MBS. We also expect MSR supply to remain healthy as we maintain ample excess capacity to opportunistically grow our portfolio. Now this diversified housing finance model has delivered proven results, having generated a 13% annualized economic return over the past 3 years since scaling each business. And while we maintain our positive outlook, we've carefully built our portfolio to guard against uncertainty, and we remain flexible in the current investing climate with historically low leverage and significant liquidity. Now with that, I'll turn it over to Serena to discuss the financials. Serena Wolfe: Thank you, David. Today, I will provide a brief overview of the financial highlights for the quarter ended September 30, 2025. Consistent with prior quarters, while our earnings release discloses GAAP and non-GAAP earnings metrics, my comments will focus on our non-GAAP EAD and related key performance metrics, which exclude PAA. As of September 30, 2025, our book value per share increased 4.3% from $18.45 in the prior quarter to $19.25. After accounting for our dividend of $0.70, we achieved an economic return of 8.1% for Q3. This brings our year-to-date economic return to 11.5%. We generated positive economic returns for the quarter across all of our businesses. Our performance was driven by strong results in our Agency business, which benefited from spread tightening, leading to gains across the investment portfolio. These gains were partially offset by losses on our hedge positions in light of marginally lower interest rates on the quarter. Earnings available for distribution per share for the quarter were consistent with Q2 at $0.73 per share and again exceeded our dividend for the quarter. We maintained our EAD levels by generating average yields of 5.46% compared to 5.41% in the prior quarter, and our average repo rate improved by 3 basis points to 4.5%. Our Resi Credit business contributed to increased yields this quarter, driven by record securitization and loan purchases with average yields rising to 6.29%. Net interest spread ex-PAA increased again this quarter to 1.5% and net interest margin ex-PAA is comparable with the prior quarter at 1.7%. Turning to our financing. In conjunction with deploying the proceeds from our capital raised during the quarter, we added approximately $8.6 billion of repo principal at attractive spreads. As a result, our Q3 reported weighted average repo days maintained a healthy position of 49 days, comparable to the prior quarter and a modest economic leverage ratio of 5.7x, one tick lower than at the end of the second quarter. As of September 30, 2025, our total facility capacity for the Resi Credit business was $4.3 billion across 10 counterparties with a utilization rate of 40%. Our MSR total available committed warehouse capacity is $2.1 billion across 4 counterparties as of September 30, 2025, with a utilization rate of 50%. We continue to explore additional funding relationships as we invest in our credit businesses and add new facilities in anticipation of future business growth. Annaly's financial strength is further demonstrated by our $7.4 billion in unencumbered assets at the end of the quarter. This includes cash and unencumbered Agency MBS of $5.9 billion. In addition, we have roughly $1.5 billion in fair value of MSR pledged to committed warehouse facilities that can be quickly converted to cash subject to market advance rates. Combined, we have approximately $8.8 billion in assets available for financing, which is up $1.4 billion compared to the second quarter, in line with our asset growth and represents 59% of our total capital base. Finally, touching on OpEx. Our efficiency ratios improved significantly during Q3, decreasing by 10 basis points to 1.41% for the quarter and now standing at 1.46% for the year-to-date period. Using period end equity as of September 30, our OpEx-to-equity ratio was 1.34% for the quarter, highlighting the efficiency and scale of our diversified model. This ratio is one of the lowest in the mortgage REIT sector despite having 3 complementary businesses on the balance sheet. Now that concludes our prepared remarks, and we will now open the line for questions. Thank you, operator. Operator: [Operator Instructions] The first question comes from the line of Bose George with KBW. Bose George: First, just in terms of returns, the Agency returns took down a couple of points just with tighter spreads. Can you talk about how that compares now with -- like in terms of your preferred area for investment, is it more parity now with agencies and some of the other areas? David Finkelstein: Sure. From a capital allocation perspective, as we came into the third quarter, we obviously felt like Agency warranted an overweight, and that certainly came to fruition. As spreads have come in, Agency still looks very attractive, particularly because, as I mentioned in the prepared remarks, both fundamentally and technically, the sector has healed quite well from 2022 and 2023. Fundamentally, we have lower volatility. Fed cuts are going to continue, and we have slope to the curve. And also, equally as important from a technical perspective, the demand base has broadened quite a bit. Money managers are adding. Obviously, a lot of money is coming into fixed income, as I talked about. REITs are adding. And we haven't had banks in overseas as strong of a participation. But as the Fed does continue to cut and potentially bank deregulation occurs, we do expect more demand to come from that sector. So we feel good about the market. Spreads are tighter. We're still overweight Agency, even more overweight, which benefited us. We'd like to get our Resi and MSR weightings back up to a combined 40%. We're patient to do so. And we feel good about how the portfolio is positioned. But nonetheless, we would like to increase those 2 sectors from a near-term capital allocation perspective. Bose George: Okay. Great. And then actually, just following up on that. The MSR, you guys noted the bulk supply is up, I think, 50%. Where is that coming from? How is the pricing looking? And could we see the MSR increase as a result of that? Ken Adler: Yes. Thanks, Bose. This is Ken. Yes, the bulk supply has been coming from large participants. Several of them have not previously been sellers. So that is encouraging for future bulk supply. Pricing has been relatively stable throughout the year. So we're pretty much encouraged by that like the return profile. And we opportunistically added through the quarter, as you can see. David Finkelstein: And subsequent to quarter end, Bose. Operator: The next question comes from the line of Doug Harter with UBS. Douglas Harter: As you look at the Agency returns, can you help break down kind of how you see like OAS returns versus how much of it is coming from the swap spread and how that makes you think about the risk of the position? V.S. Srinivasan: Sure. I mean, the spread to swaps versus treasuries is running around 35 to 40 basis points. So if you're fully 100% hedged to swap, spreads are about 35 to 40 basis points wider than what they would be hedged to treasuries. And let's say, 35.5% we see to our hedge ratio, we're using about 35% swaps -- 65% swaps and 35% treasuries to our mix of hedges we see a blended yield of about 160 basis points, which is just shy of a 17% ROE. Now finally if I don't have a fair amount of option costs. I would put the option cost somewhere in the 60 to 65 basis point range. But depending on what kind of specified pool you buy and what -- how much you allow your duration to drift, you can substantially decrease the hedging cost. What has really helped over the last quarter is how low realized volatility has been. Realized volatility has been running below implied volatility. And that has really helped with hedging costs. And we think we are in an environment where volatility will remain subdued at least relative to what we saw in 2023 and 2024. Does that help? Douglas Harter: That's very helpful. And then if you could just provide an update on how book value is faring quarter-to-date? David Finkelstein: Doug, as of last night, book pre-dividend accrual was up in upwards of 1%. And if you add the dividend accrual, 1.5% to 2% economic return. Operator: The next question comes from the line of Harsh Hemnani with Green Street. Harsh Hemnani: So this quarter, it seems like you rotated up in coupon continued that rotation, but focused primarily on specified pools. Could you sort of talk through the puts and takes of how you're thinking about, given the rate backdrop we're in right now, weighing those higher coupon specified pools versus perhaps rotating into lower coupon to get some of that prepayment protection in that way? V.S. Srinivasan: Harsh, so we are constantly looking at what is the better way to get prepayment protection, either move down in coupon or kind of buy specified pools. What happened in the last quarter is as rates rallied to the lowest level in over a year, prepayment expectations on generic higher coupons went up materially, and this caused the duration to shrink and negatively impacted their carry profile. So not surprisingly, there was a big shift in demand to lower and intermediate coupons. And by our metrics, it looked like lower and intermediate coupons got rich relative to where higher coupons were trading. So this gave us -- so when you look at specified pools, the pay up to a cheap asset made the pay-ups are actually quite strong, but it's just that the TBA had underperformed materially. And so that made the specified pools look cheaper. The big advantage of specified pools are these are options that we own for a very long time. It's not like these options expire in 6 months or 9 months. Once you buy a loan balance paper, it doesn't matter how long it takes for rates to rally. Eventually, when they do, you still have the option in place. So the length of the option is what makes specified pools so much more attractive than going down in coupon or buying general collateral and trying to hedge the convexity. Harsh Hemnani: Got it. That's helpful. And then maybe one on the MSRs. So it seems like the purchase this quarter was fairly low coupon perhaps inline with your existing portfolio. But given the increase in supply we've seen perhaps over the last quarter, how is that sort of breaking down between the lower coupon MSRs and close to production coupons. Ken Adler: Yes. Thank you very much for the question. And just a follow-up to what Srini said, we have the opportunity to look at OAS valuations in both MBS and MSR. So when we price convexity and opportunities, we're taking convexity on the MSR side by purchasing the lower note rates. And when we do the valuations, we see more opportunity there and to participate in the higher note rates in the form of Agency MBS. So that's a big part of our strategy. And as a follow-up to the other point about the increase in bulk supply, what's going on is rates have come down and mortgage origination is at a much higher level. And as mentioned previously, the industry just can't afford to retain all the MSR that's created in a high-volume environment. David Finkelstein: And Harsh, just to jump in here, Ken brings up a very important point in terms of we'd rather take negative convexity risk in MBS and pass-throughs and the TBA market than in the MSR market because it's cheaper there. Now your question to both Srini and Ken, from a big picture perspective in terms of how we manage convexity in both, we have a fair amount of options, and we look at everything on a portfolio basis. So first of all, diversification outside of Agency MBS in the form of Resi Credit and MSR is the biggest, most powerful way to reduce our negative convexity. In fact, in the Resi market, every time we do a securitization, we're buying an option essentially with the call option for a down rate type scenario. So we're buying both from that standpoint. And again, we pick up a better convexity profile by buying low no rate MSR, which has very little negative convexity exposure to it. And then within the agency market, obviously, Srini talked about pools and how for years, we've built what we think is a very durable portfolio from a convexity profile, but also Agency CMBS, which we added over $1 billion this past quarter, which has virtually no negative convexity. So the point being is that there's a lot of options for us to mitigate our convexity risk. And I think we look at everything on a total portfolio basis and come up with the most efficient way to do it. Operator: The next question comes from the line of Jason Weaver with Jones Trading. Jason Weaver: With your outlook you put out, with mortgage spreads now back at the tight, would you expect for the pace of lock volume and securitization issuance sort of towards and into year-end remains elevated despite the usual seasonal pressure? Michael Fania: Jason, this is Mike. Thanks for the question. In terms of where we're at in mortgage spreads, we've actually been tighter. In the beginning of the year, AAA spreads were 115 to 120 over the curve. Right now, I think that just given the supply that we've seen over the last 2 to 3 weeks and to your point, broader supply within the market, we're probably closer to that 135 area for generic issuance. What I will say, though, is that non-QM continues to make progress in terms of market penetration. There's market share that's being created. If you look at Optimal Blue, in the month of July, they said 8% of all outstanding locks were non-QM and DSCR, which is the highest percentage that we've ever seen. If you went back 2 to 3 years, I think that number is probably closer to 2% to 3%. So I think in terms of mortgage spreads, the fact that they've been in a range, mortgage spreads, AAA spreads, they've been in the kind of the 130 to 145 range. So maybe they're slightly wider than the beginning of the year. But the fact that they've been stable has allowed us to be very active. It's allowed the market to continue to grow. And I think that when you look at the last half of the year, at this point, we've done $60 billion of non-QM issuance last year in 2024. The entire year was $47 billion, $48 billion. I think we'll end up, call it, $65 billion to $70 billion. And from our perspective, we actually had our most active month in September. We did $2.3 billion of locks within non-QM and DSCR, we did over $6 billion on the quarter. So I think that securitization may be a little bit slower than what we just did within Q2 and Q3. A lot of that is what you're mentioning. It's seasonal. It's the holidays. But I think that just the market penetration of non-QM continues to grow, and we do think it could be close to 10% of the market. So over long periods of time, we think it will continue to increase. Jason Weaver: Got it. That's helpful. And then maybe more on the agency side. There's some talk that Governor (sic) [ President ] Logan is proposing shifting the Fed's primary policy tool to target tri-party repo away from Fed funds. Any sense on the likelihood there and if or how that might ultimately influence MBS repo? David Finkelstein: Well, it's President Logan, not Governor Logan. But to answer the question, so in a speech, she did discuss that tri-party GC was a better indicator in terms of short-term rates relative to Fed funds. And the fact of the matter is the Fed has to evolve as the market evolves. And the Fed funds market is just not as good of a barometer of financing rates as repo is, and that's simply a reflection of that. I wouldn't read anything more into it than the Fed thinking about rates that are most impactful to markets and making sure that they have all the best information to evaluate financing markets and conduct policy. That's simply how I would read it. Operator: The next question comes from the line of Eric Hagen with BTIG. Eric Hagen: This is kind of a big picture question. There's a point at which mortgage REITs, including Annaly applied more duration to their portfolio. And then the taper tantrum in 2013, disrupted some of that since then, the mortgage rates have basically hedged out all the duration in their portfolio including yourselves. I mean, do you envision ever getting back to a point where a duration gap is part of the conversation again? Like how do you weigh the effect of like raising leverage versus letting your duration drift out a little bit more in order to create alpha? David Finkelstein: Sure. So obviously, we have 3 risks, primary risks that we take, spread basis risk in Agency, credit risk and duration risk and we evaluate those risks based on the most attractive and place our bets where we think it has the highest risk risk-adjusted return. Now as far as a duration gap, it's absolutely the case. We've been running at close to a 0 duration gap for the recent past. And I think it's justified by virtue of the amount of uncertainty currently in the rates market. Look, I can give you arguments for lower rates, and I can give you arguments for higher rates. In terms of the catalyst for lower rates, obviously, the Fed is cutting rates, and we'll likely continue to do so. The deficit prognosis is better, so less long-term issuance than we might have just thought QT is coming to an end. There's very strong demand for fixed income in the market, and that could accelerate with lower cash yields, deregulation for banks could add demand for fixed income and the labor market is weakening, certainly. And all of these would suggest lower rates. However, on the other side of the equation, rates do look full currently, 5-year real rates right around 120, 10 years around 170, nominal rates, inflation breakevens. They look a little snug in the low to mid-2s. And globally, rates in the U.S. are a little bit low relative to the rest of the G7 and inside of 90 basis points on that average. So the market doesn't look cheap. And inflation hasn't gone away. We'll get some more data this week, fortunately. The Fed will cut next week. But beyond that, it is uncertain. You had 8 committee members -- actually 9, I believe. 9 committee members that said 1 or 2 cuts to come this year, and there's some hawks on that committee. So the market's been priced pretty aggressively in terms of cuts. We're through neutral by the end of next year in the eyes of the market, and the Fed is 50 basis points above that. So to us, we get the fundamentals and what's going on that could lead to lower rates, but there's also the potential for higher rates. And the way we want to play it is something could break either way and the best approach for us right now is to not take a lot of risk in the rates market. And fortunately, volatility has been low and we've been able to manage our duration with minimal cost to the portfolio. And until we get a better sense of where things are going, we'll probably remain that way. Now relative to the longer-term business model REITs taking duration risk and levered maturity transformation. There is, at times, carry in taking rate risk. When the yield curve is quite steep, you are paid in carry -- near-term carry for taking rate risk at 52 basis points on 2s, 10s, it's positive, but it's not all that attractive. And so at some point, I'm sure we'll take a longer duration approach. But right now, we feel being very close to home is where we want to be. Eric Hagen: Yes. Got you. That's really helpful. I mean there's lots of speculation right now around the GSEs being buyers of Agency MBS again, certainly in a more meaningful way. I mean how much of that potential catalyst do you think is priced in to spreads right now? And more generally, I mean, do you think their presence in the market would have an impact on the MSR market or valuations in any sort of way? David Finkelstein: Well, a couple of points to note. There has been a lot of talk about the GSEs having entered into the market, but that's been very limited, and I wouldn't read too much into it. The market does have some expectations that they could be more active buyers as we're talking about this privatization potential and the fact that they do have capacity and the portfolios are relatively low. So there is a little bit priced into the market. But the demand for MBS has been broad and it's been strong. REITs have obviously been buyers of MBS. And again, the money flowing into fixed income funds and 1/3 of that money on average goes to mortgages. That's been the real driver. And speculation around the GSEs is not something that we want to bank on but it could materialize. And does it warrant consideration from a policy perspective? It certainly could. Back pre-financial crisis, the GSEs were very powerful stabilizers of spreads and that lowered spread volatility. And as a consequence of that, you ended up at a lower baseline spread. So from a policy perspective, if the government does have this desire to get spreads tighter, giving the GSEs some capacity and acting somewhat as guardrails so long as it's very well regulated and they don't get out over their skis or anything like that, it could have some benefit, but it's very difficult to navigate that path and it could be a slippery slope. So it has to be looked at very carefully. But nonetheless, as stabilizers, they could be beneficial. Operator: The next question comes from the line of Rick Shane with JPMorgan. Richard Shane: And there have been a lot of thoughtful questions and answers on this. So just one quick one. When we look at the NII adjusted for PAA. It's been really stable over the last 4 quarters. You guys have done a good job managing asset yields and funding costs. I'm curious at this point, how confident you are that it will remain stable over the next couple of quarters? And how do you sort of manage that given the uncertainty? David Finkelstein: So the question you're asking, I'll start from a big picture standpoint, and then Serena can get into the accounting. But look, at the end of the day, the portfolio has been very stable from the standpoint of low leverage, and we haven't had a lot of volatility associated with the hedged returns from an EAD perspective. It's been $0.72, $0.73. And that's how we feel about this quarter. We expect to earn EAD consistent with where we were this past quarter. Another point to note that I think helps the stability is the swap portfolio. So in terms of runoff, we have about $1.25 billion running off in the first quarter of next year. Then we don't have any runoff until Q4 of 2026. So the swap portfolio should stay relatively stable. And the Agency portfolio, the average price of the portfolio is very close to par. And so the runoff doesn't have too much -- add too much volatility to the overall accounting aspect of it. So we'll see. We can't forecast too far out. But this quarter, we feel good about out earning the dividend and overall, the portfolio is in a stable place. Anything to add, Serena? Serena Wolfe: No, I think David covered it. Look, obviously, we have been doing really well at increasing yields as we are deploying additional capital, and that is showing up in the NII. From an accounting perspective, obviously, we lock in those yields. And so we should expect to continue to benefit from those. And obviously, as David mentioned, we do expect future Fed cuts. So we will benefit on the cost of fund side of things. So I think that all things equal, I don't have a crystal ball, we should continue to see some good levels of NII going forward. Richard Shane: Got it. Yes. The point about increasing yields, but not increasing premium is really the big takeaway for me on that comment. David Finkelstein: You bet. Thanks Rick. Operator: The next question comes from the line of Kenneth Lee with RBC Capital Markets. Kenneth Lee: And this is just a follow-up from a previous one. Fair to say that the risk appetite has been tempered down a bit. Just looking at the spread and rate sensitivity, they both declined a bit quarter-over-quarter. So I just wanted to check to see if that's reflective of Annaly taking a little bit less risk there. David Finkelstein: Yes, it's a good question, Ken. So on the rate side, there's a little bit more negative convexity in the portfolio with current coupon spreads, I think, 28 basis points lower. And so that does lead to what looks like a more deleterious outlook on both sides of the equation and the duration is hovering close to flat. And to the earlier question, we're not looking to take a lot of rate risk right here. In terms of spread exposure, also that decline in mortgage rate does reduce the spread duration of the portfolio. And so that's kind of occurred organically. And we were a little bit lighter coming into the quarter on MBS. We do have a little bit of dry powder. I'd say our risk posture is not overly conservative. But we -- to the extent we see an opportunity, we could add to the Agency portfolio or an MSR or Resi package over the near term locally. So our risk view is not more negative at all by any stretch. We do just have a little bit more dry powder. Kenneth Lee: Great. And just one follow-up. I think you touched upon this, EAD looking around consistent to the third quarter's levels. Any updated thoughts around dividend coverage, especially just given the current macro rate outlook? David Finkelstein: Sure. So again, this quarter, we have line of sight into and we'll see what happens into 2026, but we feel very good about the dividend. It's at a healthy level. It's a little over 13% yield, close to 15% yield on book. And it feels perfectly ample, and we feel like good place. And we also feel like when we look at the forwards and also the Fed doesn't cut as much as the market, we still feel like the dividend is safe. Our hedge ratio is 92%. So there's a lot of protection around the income stream, and we're perfectly comfortable with where things are at, and we'll see what happens into 2026. Operator: The next question comes from the line of Trevor Cranston with Citizens JMP. Trevor Cranston: Question on the non-Agency portfolio and I guess, particularly the OBX securitizations. Can you comment on kind of what you guys are seeing there in terms of refi responsiveness as mortgage rates have come down recently? And more generally, if you could also just comment on kind of what the return sensitivity is on the subordinate positions if we do indeed see faster prepay speeds within that portfolio? Michael Fania: Sure. Thanks, Trevor. This is Mike. In terms of prepay protection and what we have been seeing within the OBX portfolio, 2023 vintage, the majority of those deals that are outstanding, they're between, call it, 8% and 8.5% gross WAC. Those deals are paying in the low 30s CPR, which I will say is a decent amount slower than we would have anticipated. Non-QM rates as we sit here today for the type of credit that we're underwriting, call it, 6 and 7, 8. So 100 to 150 basis points in the money, and it's only paying modestly above where we would where we would put at the money loans and where the market convention is, which is 25 CPR. So I think we've been pleasantly surprised by the convexity profile of the underlying. Part of that is driven by prepayment penalties that we see within our investor loans. Investor loans are about 50% of the loans that we buy and about 3/4 of investor loans have prepayment penalties. So the S-curves associated with those assets are significantly flatter than what you would see within the Agency conforming market. It's also significantly flatter than what you would see within the jumbo market as well. So I think the portfolio and the broader market has been in pretty good shape in terms of prepay speed.. Regarding the level of variability within our returns, as you see within the presentation, we've kind of been in this 13% to 16% ROE range. That is referencing OBX retained securities. That's forecasting what I'll say, a base speed of, call it, 20 to 25 CPR for at-the-money loans. So I will say that the actual return profile has been higher within our retained transactions because speeds have been slower than anticipated. But yes, there is a lot of embedded IO that we are taking once we securitize these assets, given that we are retaining the excess. But I will say at this point, it's actually been a large positive as we've outearned our forecasted assumptions. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Finkelstein for any closing remarks. Thank you. David Finkelstein: Thank you Costas, and thank you, everybody, for joining us today. Enjoy the fall, and we'll talk to you real soon. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the conference call on MTU Aero Engines AG Q3 2025 Results. For your information, the management presentation, including the Q&A session, will be audio taped and streamed live or made available on demand on the Internet. By attending in the conference call, you grant permission for audio recordings intended for publication on the Internet to be taken. The speakers of today's conference call are Mr. Johannes Bussmann, Chief Executive Officer; and Mrs. Katja Garcia Vila, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words. Thomas Franz: Thank you, Sarah. Good morning, and welcome to MTU's 9 Months 2025 Results Call. We'll begin today's session with our new CEO, Dr. Johannes Bussmann, who would like to introduce himself and share his first impressions. Following that, Katja will highlight the most important developments of the quarter and walk you through the financials, providing a detailed overview of our segment performance and underlying drivers. To close the presentation, Katja will summarize the key takeaways before we open the floor for your questions in the Q&A session. With that, it's my pleasure to hand over to Johannes. Johannes Bussmann: Thank you, Thomas. Good morning to everyone, and welcome to our earnings call. I have been on the Board now since mid of July, so quite over 2 months already, and it was a great pleasure to meet already some of you in person. For those who don't know me yet, let me introduce myself briefly. I've spent nearly my entire career in aviation and hold a degree in aerospace engineering. And furthermore, I was part of Lufthansa Technik for over 20 years. During my first weeks at MTU, I was working closely and intensively with my predecessor, Lars Wagner, to ensure a smooth and collaborative handover and transition. Having been in my role as the new CEO of MTU, it has been really great to dive deeper into the company, our programs and find an inspiring set of people that is well positioned to capitalize on market opportunities. It actually feels like much more than 2 months. I guess the reason is that I worked with MTU for many years as a business partner already and was previously a Supervisory Board member of MTU. My priority is now to get to know MTU really in depth. That is my current visits and journey from the production sites and of course, the shops and different products and people. And I'm truly inspired by the passion the entire MTU team shows on these visits. And you can feel that everyone is really innovative driving and has a great passion for shaping the future of this company. I will be happy to share my insights and key priorities moving forward with you at the full year's release. But today, I also have the pleasure to welcome Dr. Ottmar Pfänder in the team, who will replace Michael Schreyögg as 1st of January 2026. And I would like to thank Michael for his great contribution for over 35 years with MTU, and he did a great piece of work here. Ottmar will take over his responsibilities as Chief Program Officer and has also more than 25 years of experience in the industry and with MTU. As the new Executive Board team, we will continue MTU's growth and transformation course, and I look forward to shaping MTU's future with my team from Katja, Silke and Ottmar and how we are progressing for the first month -- 9 month of this year, Katja will explain to you now. Thanks. Katja Garcia Vila: Thank you very much, Johannes, and a warm welcome also from my side. Let's briefly review our key financials before I move on to the business highlights of the quarter. Group revenues increased strongly by 19%, reaching nearly EUR 6.3 billion, in line with our full year 2025 target. Adjusted EBIT rose over proportionately by 34% to EUR 995 million, resulting in a strong EBIT margin of 15.9%. This performance was driven by a continued favorable mix in the commercial OEM segment and robust profitability in MRO. Free cash flow came in at EUR 279 million, representing a better-than-expected cash conversion rate of 39%, a strong development despite ongoing headwinds from the GTF fleet management program. Additionally, we saw strong cash contribution in the MRO segment and effects from conscious cash flow management. Based on the strong 9-month performance, we expect to achieve 2025 sales guidance in all subsegments and raise our EBIT and free cash flow guidance. I'll walk you through the details in a few minutes. Let us now move on to Page 5. The positive market trends remain intact. We see significant opportunities outweighing existing challenges. Passenger traffic rose by 5% year-to-date in August, reflecting sustained demand across global markets. Cargo traffic also showed a robust performance with a growth of 3.3% year-to-date. For the full year, YATA projects a 5.8% increase in passenger volume, a return to more normalized growth levels following the post-pandemic recovery surge. Over the mid-to-long term, global passenger traffic is expected to grow steadily by 3% to 4%, driving sustained demand for new aircraft and aftermarket services. While the supply chain continues to recover, it still remains below pre-COVID stability. That is why the production ramp-up is slower than needed to meet rising market demand. Consequently, airlines are extending the service life of mature aircraft and engines, which in turn drives strong MRO demand and results in more extensive shop visits. This also keeps demand for spare and lease engines at elevated levels with prices remaining very attractive. Global defense budgets are rising. For MTU, momentum in the Eurofighter program remains strong with new orders from core nations and international customers. Germany confirmed the procurement of 20 Eurofighter, 52 engines for deliveries between 2031 and 2034. In the U.S., demand for the CH-53K helicopter is rising. The Marines have ordered 99 units for delivery between 2029 and 2034. MTU contributes the power turbine to the T408 engine and holds an 18% program share. Recent news flows around aircraft has been somewhat sovereign. Nevertheless, we remain optimistic that governments will find a solution to ensure the program continues, given its strategic importance for future European sovereignty. Additionally, the weaker U.S. dollar-euro exchange rate poses a challenge, particularly for European aerospace and defense companies. We are mitigating this effect through our active hedging activities. In this dynamic environment, MTU remains well positioned to capture growth opportunities across both commercial and military segments. Our diversified portfolio, strong customer relationships and continued investments in technology and capacity enable us to navigate current challenges while driving long-term value creation. Let's now move on to another topic, an update on the current tariff situation. Since our last update on the topic, there has been progress between affected countries and an agreement has been reached. This agreement follows the spirit of previous arrangements in our industry and reinstates a general exception from tariffs for aviation products. This exception does not include other products such as industrial gas turbines. Furthermore, detailed rules for the application of the agreements are still in alignment between the EU and the United States. Beyond that, we are still waiting for tariff clarification for machineries, engine stands and other items. To sum that up, significant progress has been made on the topic. To mitigate these challenges, we are continuously adapting our internal processes to meet all requirements. We analyze on an ongoing basis on how to optimize our part streams to reduce any impact. In addition to that, we are also working on contractual agreements to further reduce our exposure. With that, I will now move on to our key milestones of the third quarter. Moving on to Page 7. Let me now share the key milestones of the quarter. To start with, as mentioned earlier, Germany has now confirmed the procurement of 20 additional Eurofighter aircraft. Including existing orders from the core partner nation, this brings the total firm order book to 160 new Eurofighter engines, which are scheduled for delivery over the coming years. Let's continue with the GTF fleet management plan. We made great progress in the ongoing execution of this program. Essential aspects include the improvement of parts availability, expanded MRO capacity and better turnaround times, all of which are progressing. Additionally, we support customers and airlines by providing spare and lease engines. To summarize, we are on track. Further good news for the GTF program came just last week. In October 2025, the GTF Advantage received the EASA certification. This success is the next step in the process to allow deliveries to airline customers and an entry into service next year. Recent customer orders reflect continued strength in our commercial OEM business. LATAM Airlines and [ Avelo Airlines ] have placed orders for a total of 174 Embraer E195-E2 jets, including options. These aircraft are exclusively powered by the GTF engine, underscoring continued market confidence in our advanced propulsion technology. And our partnership with GE, we also see new opportunities. Together, we are strengthening our industrial gas turbine portfolio with focus on naval propulsion, especially the LM2500 and LM6000. The LM2500 is set to play a central role in powering German Navy's next-generation F127 frigates with growing interest also from other European nations. Maintenance will be carried out at our MTU facility in Berlin, where we're currently investing in a new production center. Over the coming years, we aim to grow our MRO services for industrial gas turbines by around 30%. A key milestone for MTU Maintenance Berlin-Brandenburg was receiving the EASA certification for full MRO services on PW800 engines, which power premium business jets such as the Gulfstream G500, G600 and Dassault Falcon 6X. This makes the site in Berlin the second certified MRO provider for PW800 engines worldwide. As part of Pratt & Whitney Canada's global service network, we are strengthening our position in the fast-growing business jet segment. MTU Maintenance Lease Services has opened a new parts supply warehouse in Zhuhai, China, complementing existing facilities in the Netherlands and the U.S. This expansion strengthens our global logistics footprint and ensures rapid access to serviceable material for CF6-80, CFM56, G90 and V2500 engines across the Asia Pacific region. Now let's move on to the financial overview. Let's take a closer look at our financial performance for the first 9 months of the year. As expected, Q3 could not fully keep up with the extraordinary strong performance from the first half of the year. However, MTU reported record results for the first 9 months ahead of the expectations. Group revenues rose by 19% to EUR 6.3 billion, driven by strong growth in both commercial OEM and commercial MRO segments. In U.S. dollar, total group revenues were up 22%. Commercial OEM was supported by strong spare lease engine sales. Adjusted group EBIT rose over proportionately by 34% to EUR 995 million, delivering a strong 15.9% margin above guidance and above our own expectations. Growth was driven by a higher share of spare and lease engines in commercial OEM and solid spare part sales. Commercial MRO also contributed significantly despite higher GTF MRO share and ramp-up costs at MTU Fort Worth. Net income adjusted grew in line with adjusted EBIT and reached EUR 720 million. Free cash flow came in at EUR 279 million, an improvement of 31% compared to 2024. This figure was impacted by compensation payments related to the GTF fleet management plan. These were partially offset by higher cash contribution from our MRO business and effects from conscious cash flow management. All in all, a great set of results. Let's now take a closer look at our business segments, starting with the OEM business on Page 9. Total OEM revenues rose by 15% to EUR 2 billion, impacted by a weaker U.S. dollar. While commercial OEM revenues grew 20% to EUR 1.6 billion, military revenues declined by 2%, mainly due to delayed deliveries in new engines as well as back-end loaded repair activities. However, Q3 2025 saw a 3% increase. We expect a strong fourth quarter in revenues to achieve our full year guidance on growth in our military business. Adjusted EBIT increased over proportionally by 44% to EUR 640 million with a strong margin of 31.1%. This is higher than initially anticipated, driven by a favorable product mix in new engines and robust spare parts growth. Let me now share with you the organic commercial growth rates. Organic commercial OE revenues in U.S. dollars increased by a high single-digit percentage, driven by GTF and GEnx engines with a strong share of spare and lease engines. Q3 2025 showed similar growth compared to the first quarter of the year, but with a higher share of installed engines. In Q4 2025, we expect a higher output of new engines supporting our full year guidance. Organic spare parts revenues rose by low teens, supported by narrow-body engines and mature platforms. In Q3 2025, growth was up mid-to-high teens, in line with expectations and our full year guidance. Let's move on to the commercial MRO segment. Reported MRO revenues increased by 20% year-over-year to EUR 4.3 billion, while U.S. dollar revenues were up 24%. Major revenue drivers were narrowbody engine programs, mature widebody platforms and our MLS leasing and asset management business. The GTF MRO share reached 40%, in line with our full year expectations. In Q3 2025, we observed an increase in shop visits and higher material content, resulting in a GTF MRO share of 48% for the quarter. Adjusted EBIT increased by 18% to EUR 355 million with a stable margin of 8.3%. The margin was supported by a favorable independent business mix and strong contribution from equity accounted joint ventures and impacted by the higher GTF MRO share and ramp-up costs by MTU Maintenance Fort Worth. So before heading to the guidance, let me share an update on our current hedge book. As you can see, we were quite active in the past quarter, further expanding our currency protection for the coming years. For 2025, we are now basically fully hedged, protecting our results from currency impacts. Also, looking at the following years, we have made progress in managing our exposure in line with our hedging policy. Looking ahead, we are following the targeted hedge coverage rates as set in our hedge policy. In addition to that, we are currently updating our exposure assumptions to have the latest developments incorporated into our hedging strategy. After that, we are now coming to the outlook for the year 2025. We are upgrading our outlook based on the strong performance of the first 9 months. The Q3 results and the strong outlook for the current quarter allow us to lift our EBIT adjusted guidance. Coming from an estimate for EBIT adjusted growth in the low to mid-20 percentage range, we are now able to lift that to a mid-20s percentage number. Adjusted net income is expected to grow in line with EBIT. This substantial upgrade in EBIT also translates into a stronger cash flow. We now expect the free cash flow to reach a range between EUR 350 million and EUR 400 million, up from the previous range of EUR 300 million to EUR 350 million. We can reaffirm our revenue outlook with expected group sales between EUR 8.6 billion and EUR 8.8 billion based on an average U.S. dollar exchange rate of USD 1.13 per [ Euro ]. Within this, we anticipate growth in our military business in the mid- to high single-digit percentage range. Commercial OE is projected to grow in the mid-teens. Within that, the share of spare and lease engines is higher than initially anticipated. Aftermarket demand remains in line with our latest expectations, resulting in a revenue growth outlook of up low to mid-teens. Lately, we also reaffirm commercial MRO revenue growth outlook to mid- to high teens, supported by heavier shop visits and rising demand for GE90 engines. The GTF MRO share should remain at around 40% of the segment revenues. This upgrade again highlights the strong underlying business and our ability to generate highly attractive margins as well as our progress in generating free cash flow. Let me summarize our achievements in the third quarter 2025. The excellent first 9 months performance leads us to upgrade our guidance again. Revenues are expected to reach the previously communicated levels even in a weaker U.S. dollar environment. At the same time, we see profits and free cash flow generation well ahead of our previous expectations. The market environment for our industry and MTU remains very supportive and underpins our positive outlook. The impact of the tariff environment has been limited as described earlier, and we continue to adapt to the remaining challenges. Great business in a great industry. And finally, already as a heads-up for next year. We are planning to release our first guidance for 2026 with our preliminary full year results in February 2026. With a couple of market decisions happening towards the end of the year, like the political discussions on FCAS as one example, it will take slightly longer than in previous years before sharing our view on the year in line with most of our competitors. Now this concludes our presentation. We are now happy to take your questions. Operator: [Operator Instructions] Will go ahead with our first question. This is from Chloe Lemarie from Jefferies. Chloe Lemarie: The first one would be on the OEM performance in Q3. So Katja, you mentioned that the OE mix has started to normalize in the quarter. But could you add further color on this? Like how much of the way are we towards a normalized OE mix in Q3? Second part of that question is we've obviously seen record margin in the division this quarter. So could you help us understand the key moving parts driving that? And in particular, because it looks like spare parts accelerated, but probably not enough to explain the 450 bps of sequential increase in margin. Second -- sorry, last question for me would be on the GTF compensation payment. Could you quantify how much was paid in the quarter? Katja Garcia Vila: Thank you, Chloe, for your questions. I will try to answer them exactly as you've posted them. First of all, as elaborated in the Q3, we saw an elevated level of installed engines coming in. We don't quantify exactly the numbers, how much spare and how much installed. Anyway, what I can also state is that we have still seen a reasonable share of spare and lease engines also in the quarter, and we expect that also to move on further. What we have, in addition, seen definitely during the course of this quarter is a strong increase in our spare parts business, and this has also helped and supported the guidance expansion, not the guidance, the revenue expansion and the returns expansion. On the GTF, I can share the figure that we have paid this quarter. It was around USD 100 million for MTU, which has post, so to say, the headwind to our free cash flow generation, but which is in line with expectations. If you remember, we expect for this year in total, a compensation payment quite similar to what we have paid in 2024. That was around USD 390 million. In the first 2 quarters of the year, in total, we had paid EUR 150 million. So overall, we stand at USD 250 million right now, expecting further payments to take place in the first -- in the fourth quarter. Chloe Lemarie: Can I actually follow up on this because on the payment last year, it was all in Q4. So you have a very easy comparison based on Q4 free cash flow. So how should we think of the conservatism based in the upgraded free cash flow guidance? Because on my math, you should be having a pretty significant year-on-year tailwind in that free cash flow performance? Katja Garcia Vila: So we also had some payments during the course of the third quarter last year. I would not consider that to be now a conservative approach. As I said, we will still need -- or we still expect around USD 140 million more or less to be paid in the fourth quarter. And this is what we have also baked in when we provided the upgrade of the guidance. Operator: We will now take the next question. This is from David Perry from JPMorgan. David Perry: Yes. I guess my question was the same as Chloe, so I haven't thought of another one. But I think it is worth just repeating it. As Chloe said, the margin is just exceptional in OEM in Q3. And you seem to have said unlike in Q2, it's not because of the spare engines, but it's because of the spare parts, which is great. But just maybe if you have a bit of color about why the margin on the spares, the spare parts is just so strong in Q3? Or is there anything else at all that would explain the really good performance? Katja Garcia Vila: Thank you very much, David. And as you have stated correctly, the big driver of the margin in the third quarter are not over proportional spare and lease engines, but rather the strong performance on the spare parts. And driving the spare parts compared also to the first half of the year. In the first half of the year, we were at a high single-digit rate, growth rate, now that rate has definitely significantly expanded to a mid- to high double-digit range, which also means then strong impact on the margins. And in addition to that, we also saw pricing effects kicking into place now also in the third quarter. David Perry: I guess if I can just have one follow-up. The obvious question is, do we or don't we extrapolate this forward? I mean, is there some kind of -- is it about maturity of the mix? Is it you're taking more margin on GTF or something? Because clearly, we've never had a margin this high. I don't think you've ever had one that high in a quarter. Katja Garcia Vila: So if you're referring to the overall margin of the OEM segment, I would still not say that this is exactly the new normal that you should anticipate. You remember what we gave as guidance at the Paris Air Show, which is a little below what you've experienced now in the third quarter of this year. So the maturity definitely plays a role with regards to the mix on the spare parts. And what we will also see in the fourth quarter then on the OEM margin overall is that we will continue to see strong new deliveries. Operator: Next question is from Ian Douglas-Pennant with UBS. Ian Douglas-Pennant: I've got a few, but let me prioritize. So about your OEM EBIT guidance, by my math, it implies something like a mid-single-digit growth rate implied for Q4. Can you help us understand any kind of seasonality patterns that we should be looking for in Q4 to explain why the growth rate is going to slow down? Secondly, Pratt & Whitney on Tuesday gave a comments on the call that they revised down their expectation for how many GTF deliveries they're going to make this year. Can you help us understand why then your series growth guidance for this year is unchanged. I've got a few more, but I'll respect the 2-question rule. Katja Garcia Vila: Yes. So far, looking at the sales guidance that we have out, I cannot 100% record how you come to a limited growth guidance now on the OEM program. I think our expectation is that we will have on the OEM segment also a strong sales performance in the fourth quarter, supporting us in our full year's guidance expectations. Looking at the GTF, I think for the GTF itself, we do see better supply chain helping us also to ramp up further new output on new engines. And I think there, we are also making progress supporting also the ramp down of the situation in the market with regards to the GTFs. And also keep in mind, we do provide more than just the GTF engines in the OEM segment. We also have widebody engines where we do see good business moving forward. Ian Douglas-Pennant: I'll jump back in the queue and follow up with IR on the first question. Maybe I made a mistake somehow. Operator: We'll take the next question. Next question is from Robert Stallard, Vertical Research. Robert Stallard: I've got a couple for you. First of all, on engine leasing. This has clearly been doing very well at the moment, but these are particularly unusual circumstances. The market is very tight, very strong. How are you looking to manage this risk going forward when we do see a conditions returning to normal, particularly with regard to residual values? And then secondly, on the defense side of the business, you mentioned the strength in Eurofighter orders and backlog. How do you expect Eurofighter sales to progress and ramp from here? Thomas Franz: Rob, it's Thomas. I'm taking these 2. So engine leasing on the one hand side, yes, the market is very strong at the moment. But as you know, we have not a remarketing risk like other companies in the place that we are having a direct correlation between our leasing business and our MRO business, where we can always move things back and forth supporting the one to the other. So we feel pretty good with the outlook we gave at the Paris Air Show as well as the current situation we're in. On the Eurofighter, that's a little bit of difficult question. Yes, the order momentum is accelerating. We see a high level of interest, and we also hear and discuss with our partners and also with the OEMs, the ramp-up of manufacturing. But at the end of the day, there are some lead times in the programs, and we need to see how we can -- we can develop there further. So this is nothing that accelerates significantly in the next 1, 2 years on a revenue perspective. So we need to see how that plays out in the years thereafter. Operator: We'll take the next question. This is from Ross Law, Morgan Stanley. Ross Law: So first, just coming back on the OEM margin. The implied Q4 step down is quite material. On my math, it's something around the high teens, which would probably be the lowest Q4 margin in OEM for about 5 years. So assuming spare parts don't fall off a cliff in the fourth quarter, is this implied sequential change all driven by this variance in mix? That's the first question. And then secondly, just on FCAS, if this does get canceled, what would be the potential impact to your 2030 guidance? Katja Garcia Vila: Okay. Let me first take the margin question on Q4. As we had said already during our H1 call, we do expect not an as strong spare in these engines business moving forward in the second half of the year. And if you do the pure math there, we do expect some impact also due to the fact that the installed engines are increasing. Now, so that is the reason for the lower expectation on the margin for the Q4. With regards to FCAS, I think we are very confident that there will be a solution found to move on with the program. The politicians at the moment are in talks. So maybe, Johannes, you've been to Berlin a couple of times. Maybe you want to say something about FCAS? Johannes Bussmann: Yes. I think we are in phase IB, which is still lasting until September, so third quarter next year. And that's what we still need to work on and deliver. And that's what we also will do together with our partners in the Engine segment. And the decision time line that we hear from the political side in Berlin right now is still the end of the year. And that's, of course, something we are looking forward. And we as MTU and also with our partners, Safran and ITP are fully committed to extend and continue the program. And if the time line by the end of the year is met, we are in fine shape, and we are concentrating at the moment on delivering on the first parts that we are still working on. Ross Law: Okay. Just a very quick follow-up. Can I just check in your 2030 guidance, is there a contribution from FCAS included in that? Katja Garcia Vila: Yes, there is a contribution of FCAS included in our 2030 guidance. Operator: We'll now take the next question. This is from Sam Burgess, Goldman Sachs. Samuel Burgess: Firstly, just on the stable margin in commercial MRO. There's clearly been a shift to more GTF MRO. But can you just help us disaggregate the drivers there of that stable margin? What was work scope versus pricing versus the MLS contribution? Any color there would be really helpful. And the second one, just on the OEM side, you mentioned the pricing effects impacting in Q3, Katja. Can you just remind us in terms of in 2024, whether those pricing effects impacted at the same point? Katja Garcia Vila: Okay. Let's start with your question on the MRO business and the MRO margin. So as we have elaborated already, in the third quarter, we had really a significantly higher share of GTF MRO works compared to the first half of the year. We were short, so to say, with regards to MRO throughput in the first half of the year also due to missing parts. The supply chain has now stabilized on the GTF materials, and this is why we were able to ramp up the share of work in our shop, which then also will help to drive down the AOG situation during the course of the next coming months. With regards to pricing effect, pricing effect kicked in a little later last year in 2024. So some of the pricing was a little pre-pulled this year into the third quarter. Samuel Burgess: My question actually on commercial MRO was more about how you've maintained a stable margin given GTF is a significantly bigger share. Can you just help us think through what's been really strong there? Is it just more material intensity on widebody? Any color there would be very helpful. Katja Garcia Vila: Okay. Yes. Sorry, I didn't get that point with my first answer. Yes. So overall, what we do see is that the work scopes on the mature engines are increasing. That is one definite driver for margin expansion in our MRO shops. You know that the airplanes are flown longer. So we have more shop visits and with higher contents in the time. And on the MLS side, you know that we've provided a guidance moving forward to achieve EUR 1 billion in sales until 2030. And this business is continuously expanding also supporting our margin expansion on the MRO segment. Operator: Next question is from Christophe Menard from Deutsche Bank. Christophe Menard: I had two as well. Trying to understand the very strong OE margin in Q3 as well. The question is, is IGT also part of the strong performance? I mean you highlighted this in your presentation. So I was wondering whether that was a contributor to this. And the second question is on GTF Advantage. I mean, you will start delivering by the end of this year, if my memory is right. Has it any impact on the OE margin business first? And the side question is, there is also an upgrade program around GTF Advantage. Are you seeing some customer acceptance of this or interest? And when could it have an impact on your MRO revenues and profitability? Katja Garcia Vila: Okay. Let me take the first part. Let me take the IGT topic. IGT is part of the spare parts revenues. So there, we also do see a good business moving forward. And as I said, we will expand the business going forward in our facility, the MRO work going forward in our facility in Berlin-Brandenburg. With regards to the GTF Advantage, you want to take it Johannes? Johannes Bussmann: Sure Katja. No problem. Entry into services next year, so 2026. We're, of course, happy that we have all the approvals now under our belt and the production is now expanded and entry into service, I mentioned next year and then ramping up over time to the full load that we think is required. And of course, there is interest from a customer side for a better performance and longer on wing time for the engines. So we are quite confident that we achieve the targets and the entry to service level then is increasing, of course, over the time. Operator: Next question is from George Mcwhirter from Berenberg. George Mcwhirter: I've got two, please. The first one is just following up from Sam's question on pricing. How do you expect pricing of spare and lease engines to trend in 2026? And the second question is on the industrial gas turbines business. You mentioned that you plan to grow this business in the coming years. Can you just remind us of how big this business is in revenue terms, please? Katja Garcia Vila: Thank you, George, for your question. So the first question on the pricing, I'm sorry to say that we don't give guidance on these detailed levels and also not for 2026 now. So far, we've seen supportive pricing in the market, which has also helped us this year on the margin expansion. Depending on how the market overall will develop, pricing will be determined. With regards to the IGT, I don't -- I'm not fully aware of a share that was ever to communicated. So this is a business that we find very attractive, and this is also the reason why we are investing in our Berlin-Brandenburg facility to expand our IGT business now going forward. Operator: We'll now take the next question. This is from Rory Smith from Oxcap Analytics. Rory Smith: It's Rory from Oxcap. I wanted to follow up on Sam's question on MRO profitability as well, please, but maybe asking it in a slightly different way, given that you've talked about USD 10 billion to USD 11 billion in MRO revenues to 2030 and then that doubling of the MLS to about EUR 1 billion to 2030. Maybe if you could help point us in the direction of the split in commercial MRO profits in 2030 or thereabouts between those buckets that you've called out today, the narrowbodies, the mature widebodies and the MLS, just to give a sense of direction of travel stepping back from the sort of the particulars of the quarterly movements, that would be really helpful. Katja Garcia Vila: Yes, Rory, thank you very much for the question. So I'm sorry to say that we don't break down individual profitabilities of subsegments like this. What I can say is that we do expect a positive development in all areas of our business. So with the GE90 and also the contracts that we have moving forward, also the GEnx, I think on the widebody side that we do see continuous demand for MRO services. The same accounts for the narrowbody fleet, which still continues to grow and will continue to grow during the course of the next couple of years. And we have provided you at least with an outlook on the revenue side for the MLS business saying that it doubles its contribution to our 2030 sales figures. Rory Smith: And just a follow-up on near term, the ramp-up impact of MTU Fort Worth. Apologies if you've given this already, but have you given a sort of guidance on the dollar impact of that and when that rolls off? Katja Garcia Vila: What we have provided you with was an outlook on the expected investments in PPE that we do see connected to this ramp-up, which was USD 120 million over the course of the next coming years. MTU Fort Worth will have a first induction of an engine by the end of next year. And this will be the LEAP engine where we've invested into the license. There will be another program starting by the end of the decade. But you need to take into consideration that this will not be a material impact, for example, in the near term for 2026 with regards to sales. Operator: Next question is a follow-up from Ian Douglas-Pennant from UBS. Ian Douglas-Pennant: I have a couple of follow-ons, please. So we saw some headlines in the press, I think, from a call that you may have done earlier in the day saying that tariff costs are ahead of your initial expectations. Could you update us on what you think the number is that tariffs will cost you and whether that number has changed since earlier in the year? And my second question is, so this year so far, we've seen 13 A320neos, at least with GTF engines and at least one A220 being retired. And obviously, they're being retired very young. How do we explain that it's A320s with GTF engines and not with LEAPs that are being retired? And secondly, how do we expect -- how do we explain that those aircraft are being retired quite so young at this point. Does this put a ceiling on your ability to increase price at some point? Katja Garcia Vila: Okay. Let me start with the tariff question first. I think this must be a misunderstanding. When we started to talk about tariffs, our original assessment was that we expected the gross impact of tariffs in the high double-digit million range. That was prior to any mitigation measures, which we said we would elaborate on. When we had our H1 call, we spoke about high single to low double-digits impact that we do expect on our EBIT after mitigations. And this is also the figure that we still confirm. So the low double-digit million impact on tariffs this year is what we have currently foreseen. So there is no change in our assumptions with regards to tariff implications. With regards to the retirement rates in general, I would say that we still see very low retirement rates overall in the market. And what we also have is that we do have a very strong order book on the GTF still moving forward, which was also pointed out with the order wins that we had at the Paris Air Show. So I cannot give you a detailed explanation on specific aircraft, I have to admit. But overall, our order book on the GTF remains very healthy, also due to the fact that this engine really performs well with regards to, for example, fuel consumption, which is a significant improvement compared to prior generations. Operator: We will now take the next question. This is from Olivier Brochet from Rothschild. Olivier Brochet: I have a couple of questions, please, for you. RTX indicates that on the GTF the shop visits are heavier in -- as we get closer to the year-end. Am I right in thinking that with the 18% share that you have on the A320 engine, it helps sales, but also profit rate in OE? The second question is on FCAS. Do you have any assets that are at risk if the program is dropped? And then the follow-up on the comment you made, Katja, on the new program in Texas by the end of the decade. Do you expect a material fee to be paid at some point between now and then on that, please? Katja Garcia Vila: Okay. Let me start with the RTX shop visits or heavier shop visits. You're totally right. Our share in the program is 18%. So there might be some impact coming from more heavy shop visits, but that is also what was expected in general during the course of the program that after a certain time, shop visits will become more heavy as we've also moved away now with better material availability from quick turns, which we had to do for a certain period of time now moving to more heavy shop visits with respective impact. Assets with regards to the FCAS program. So what we have done so far in the FCAS program as we're -- and we are still doing as we deliver on the phase IB, which was ordered by the government. And this is what we're currently following on until late Q3 next year, waiting for clarification on the program to move on in the next -- in the next phase by the end of this year. And with regards to fee, Ian, what we have paid was, so to say, the entry fee into the program that was around USD 100 million that was late last year. So that has already been paid. What we have also done is we have put additional payments when the program runs that we have to do into our net debt figure in the second quarter of this year. This was EUR 100 million, but these payments are not due in the near term. They will come when the program will ramp up to certain levels. There will be some more payments. Olivier Brochet: If I may follow-up on the FCAS topic. You don't have any assets that are on the balance sheet and that would be at risk if the program is [ drop? ] Katja Garcia Vila: No, there is no relevant asset on the balance sheet. Operator: We have no further questions at this time. So I will now hand back to the speakers for any closing remarks. Thomas Franz: Yes. Thank you, Johannes. Thank you, Katja. Thank you all for the participation in this call. As usual, the IR team is online for further clarifications or questions for the coming days and weeks. Thank you. Have a great day, and see you next time. Operator: Thank you. We want to thank Mr. Johannes Bussmann and Mrs. Katja Garcia Vila and all the participants of this conference. Goodbye.
Operator: Good morning, and welcome to the investor and analyst call for LSEG's Third Quarter 2025 Trading Update. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to David Schwimmer, CEO of LSEG, to open the presentation. Please go ahead. David Schwimmer: Good morning, everyone. Thanks for joining the call. I'm here with MAP and Peregrine as usual, and we are also joined by Daniel Maguire, our Head of Markets, to talk about the Post Trade transaction that we announced this morning. For this quarter, we're going to take a slightly different approach from a normal Q3 given the intense debate in recent months around our business and AI. I'll cover some key aspects of our AI strategy and the excitement we have about the current opportunities, before MAP goes through the Q3 numbers, and Dan covers the Post Trade transaction. Then, of course, we'll be happy to take your questions. It has been a really busy quarter with great progress on several fronts. Group organic growth continues to be very healthy at 6.4%, with D&A growing at 4.9%, similar to the first half. ASV growth came in at 5.6%, a little better than expected, and we anticipate it being better again in Q4. We're raising our margin guidance to the top of the original range at around 100 basis points of improvement, reflecting strong operating leverage and cost control. As you may have seen, we've launched a number of AI-related partnerships involving our data, which is valued and relied on by partners old and new as industry standard. We've announced an important transaction today that creates a strong partnership and aligned incentives for the adoption of Post Trade Solutions while also increasing our revenue share from SwapClear and extending the profit-sharing arrangement with our partner banks by 10 years. More on this in a few minutes. And on the share buyback that we announced at our half year results, the original intention was to complete that by mid-December, but we've taken advantage of a lower share price and accelerated the GBP 1 billion buyback to finish by the end of this month. And we're today announcing a further GBP 1 billion buyback to be completed by our full year results in February of next year. Our strong cash generation gives us the firepower and the flexibility to invest organically to make important strategic moves and to be active in returning cash to our shareholders. On the next slide, we have summarized our LSEG Everywhere AI strategy under 3 key pillars: trusted data, transformative products and intelligent enterprise. We'll talk more about those second 2 at the Innovation Forum in November. But let me take a minute or 2 to dive into our data and the critical and valuable role it plays now and will play in an AI-rich world. The easiest way to think about our data is that the content itself and access to it is effectively financial markets infrastructure, something we know a lot about. It is industry standard, deeply trusted, embedded in highly regulated customer workflows and supported by processes and infrastructure that are extremely hard to replicate. And we are and always have been open. We deliver data to wherever our customers want it, their screens, their servers, their cloud and, of course, through third-party providers. Let's unpack this over the next few slides. Data & Feeds accounts for a little over 1/5 of group revenues. On this slide, we've broken down these by data type. But before we get into that, I want to remind you of the scale of our data. It is the largest pool in the industry, both in terms of breadth and depth. We have over 33 petabytes of data. That is over 3x the so-called common crawl, the data set formed from the public Internet, which is used to train many LLMs. Let's begin with the 45% of our Data & Feeds revenue derived from real time. This is a business built on physics, not probability. We've built connections to 575 exchanges and execution venues globally with our own infrastructure. In the blink of an eye, we standardize and translate the exchange outputs into a single common language and deliver them directly into the world's financial institutions. Millions of hard facts per second, not probabilistic algorithms. In a nutshell, AI cannot replicate or replace our real-time data. Then we have 25% of our Data & Feeds revenue, which is specialized and enhanced by our own enrichment. By specialized, we mean proprietary. Think Tradeweb fixed income pricing or exclusive like the Reuters News agreement or contributed like our deals database. So an LLM could not access these data sets through public sources. And then on top of that, we are enriching this data with value-added enhancements and augmentation by our data experts. That is our additional value add. And then that all comes with the LSEG curation standards, accuracy, normalization and tagging. So think of this data as protected by 3 moats. It is either proprietary or exclusive. It is enriched by our own intellectual property, and it is curated, applying the LSEG standards, which have often become the industry standard. Let me give you an example to bring this to life. Our deals league tables are highly valuable to banks, advisers and law firms. These league tables are widely considered the industry standard with LSEG data obtained daily from thousands of sources co-mingled with data sourced from nearly 2,000 financial and legal advisers actively contributing their deal flow. We get up to 25,000 of these contributions per month. This input, which is from humans, is crucial to the quality, accuracy and completeness of this data. These contributions clarify and correct deal details that appear in the press. They also add additional information to public deals and supply information on other deals that are not reported anywhere. So a data set built solely on public disclosures would be both inaccurate and incomplete. We further enrich this data with our proprietary calculation of rank value, which sets the standard for deal comps, market share and pitchbooks around the world. We refine this methodology each year through roundtables with advisory firms. So in case anyone is missing the point, no LLM can gather this data from public sources, 3 moats, LSEG proprietary or exclusive data, enriched by LSEG IP and curated by LSEG, applying the LSEG standards. Let's move on to the next bucket, representing 10% of Data & Feeds revenues. It is almost exactly identical to the previous bucket. It is specialized data, proprietary, exclusive or contributed, with LSEG standards applied. So not accessible by an LLM through public sources, our aftermarket research, for example. And to carry on the analogy with the moats, this is data protected by 2 powerful moats. Next is another 10% of revenue from data that is indeed public, but to which we apply our enrichment and analysis, similar to what I was talking about with customer contributions on the league tables. And we also applied the LSEG curation standards. Examples here would be earnings estimates and sentiment analytics applied to earnings calls and other sources. So can an LLM access it? Yes, but the data will be incomplete. Here, it is 2 moats applied on public data. So 90% of our revenue is from data that is nonreplicable by an LLM. That leaves us with the last 10% of Data & Feeds revenue, which represents the data derived from public sources for which we apply LSEG curation standards, data like company filings or economic metrics. This data is rarely sold on a stand-alone basis. Here, there is still one moat, a powerful and important one, and that is our standards, which I will cover on the next slide. Now that we've established that 90% of Data & Feeds revenue is from data that is simply out of reach or inaccessible to an AI model trawling for public data. Let me take a minute to explain very concretely what I mean by that third moat, the LSEG data curation standards. There are 5 major processes in the curation of LSEG's high-quality trusted data, which are simply nonnegotiable for our customers in regulated activities. These 5 processes are the foundations of what we call the LSEG standards. Let's look at them in a little bit more detail. We do not build our data sets on probabilistic models. We have constructed them from decades of hard data, much of which is no longer retrievable. We source them from our customer community with over 40,000 customers contributing regularly. And in many cases, our own analysts and experts generate them internally. So that is sourcing. We then extensively cleanse and validate this data to ensure quality, for example, verifying its accuracy and completeness. Publicly sourced data is not reliable without this step. The third step, normalizing and mastering means creating a single source of the truth, consistent from year-to-year and from security to security, factoring in corporate actions, for example, or restatements or perimeter changes. And then concordance and tagging, which is a critical and differentiated step. This is where the universal symbology of the RIC or Reuters Instrument Codes and our use of perm IDs to tag each piece of data are so powerful. They allow full interoperability across the data estate and create logical semantic relationships between related data, for example, between a company and its directors or a bond it has issued. And the fifth step, distribution. Irrespective of technology platform, data format or channel, the data we distribute to customers is consistent and authoritative. I'll talk more about our distribution strategy in a couple of minutes. So to summarize, for those who think AI models can scoop up so-called public data from the Internet and displace us, that just does not reflect how this industry works and fundamentally ignores the nonreplicable nature of the vast majority of our data. There's also been a lot of focus on our Workflows business. We have driven a lot of change here over the last 4 years and now have our customers on a modern, modular, customizable platform where we enhance functionality week in and week out, and we're doing more and more. As we said at H1, it is not AI or a desktop. It is AI in the desktop, fully embedded in financial markets workflow. Workspace is now integrated with Microsoft Teams. We'll be launching Open Directory in the coming weeks and the full Workspace AI platform in the first half of '26, with Agentic tools coming as well. You'll see all of this at the Innovation Forum in a couple of weeks. So let's look at our Workflows revenue, the same way we did for Data & Feeds. 50% of workflows revenue comes from traders who are deeply engaged with the platform to execute their roles. They need real-time data, a network community and integration with a range of pre- and post-trade tools. Further 20% of Workflows revenue comes from ancillary trading services, such as trade routing and order execution and management. Another 15% comes from investment banking, where we have specialized content across deals, corporate actions and research, as well as integrated productivity tools. That leaves 5% of Workflows revenue from wealth and 10% from investment management. These customers benefit from our unrivaled data, exclusive Reuters News and portfolio analytics. But in these groups, there are lighter users who are mainly doing desktop research and basic charting, perhaps like many people on this call. Whether someone is a power user deep in trading workflow or a lighter user, all Workspace users will benefit from the significant AI and collaboration enhancements coming over the next few months. They will have the full functionality of some of the newer applications out there, but embedded in their existing workflow and based on data they can trust. Now over the last couple of months, you can see the pace of execution on LSEG Everywhere, delivering our data to where our customers are working as the partner of choice for financial markets data. This is no change in strategy. We have long provided data to and distributed data through our customers -- I'm sorry, our competitors and partners. For example, we are the #1 data provider to Aladdin. The industry now has new entrants, building new applications and functionality, which we believe can expand our reach and drive additional consumption of our trusted high-quality data. The economics of these deals support our growth aspirations through data licensing, new channels and the potential for usage-based revenue over time. Rogo is a specialist provider of applications to investment banking and private equity. Customers with Workspace licenses can access certain LSEG data sets through Rogo. The construct with Databricks is similar. These are attractive new distribution channels for our data. Just last week, we took a major step forward in our partnership with Microsoft, introducing certain data sets into Copilot for any Copilot subscriber, and more valuable data sets, both into Copilot and Copilot Studio for LSEG licensees. This will allow customers to build their own agents working with our data. You should expect the list of partners to continue to grow as we look to distribute our data through other major channels. That's the fundamental premise of LSEG Everywhere. A key part of many of these partnerships has been our ongoing build-out of MCP servers as we make more and more data sets available over time. Before I hand over to MAP, it has also been a very busy quarter in other parts of our business. Just to highlight a couple of significant developments. With Microsoft, we have fully replatformed our trade routing network, Autex, in Azure with Autex now connecting 1,600 brokers and asset managers via the cloud. As a result, it's faster, has much greater capacity and is even more resilient. And we have executed the first transaction on our Digital Markets Infrastructure, which is positioned to become an important new capability for trading and settlement. We're preparing to launch our Private Securities Market. More on that at the Innovation Forum. And in Risk Intelligence, we have launched World-Check On Demand with all our critical data and insight now updated in real time. That takes me appropriately to our innovation forum in a couple of weeks. In the first part of the event, MAP and I will cover our unique positioning, our end markets and execution to date. Irfan Hussain, our CIO; and Emily Prince, our Head of AI, will cover our AI strategy and engineering transformation. And then Ron Lefferts and Gianluca Biagini will talk about product strategy and monetization in DNA. We'll then have specific product walk-throughs and demos across the group. We're looking forward to showing you both the present and the future. And just to be clear, this is not a traditional Capital Markets Day. Don't expect any new guidance or anything along those lines. So with that, let me hand it over to MAP to talk about our Q3 performance in more detail. Michel-Alain Proch: Thanks, David. So just a few words on our financial performance. We have delivered another quarter of strong growth across the group. Organic growth for the quarter was 6.4% with all divisions contributing well. We had a benefit of 30 bps from the ICD acquisition of last year and a headwind of 190 bps from FX, which together translates into our reported growth of 4.8%. Within D&A growth of 4.9%, Workflows and Data & Feeds saw very similar growth to Q2 with only a slight impact from the new UBS contract that I mentioned at the H1 results. Analytics continued to grow strongly. The competitive environment is stable, and we are excited about the product pipeline. Our expectation for pricing into 2026 is for the yield to be similar to the last 3 years in the 3.5% range. FTSE Russell, as I indicated at H1, saw slightly slower growth in subscriptions with fewer account reviews in the period. But on the other hand, asset-based fee growth was strong as we lap the loss of a contract last year. Risk Intelligence had another strong quarter, driven by both World-Check and Digital Identity & Fraud. So overall, the subscription businesses delivered 6.5% growth in Q3, ahead of our expectation of 6% for the second half of the year. ASV growth came in at 5.6%, a bit ahead of the 5.4% we had anticipated. Good sales momentum partially offset the expected impact of the final Credit Suisse impact wrapped into the new long-term partnership with UBS. As I have said before, I expect this to pick up again to 5.8% as we exit the year. The Markets business continued to grow well, though at a slightly slower pace than H1 as volatility was lower and comps got tougher. Looking at the 2 main lines, OTC derivative was up 9.2%, driven by continued strength in client clearing volumes in SwapClear, and fixed income was up 9.9% as Tradeweb continued to drive growth through its innovative trading protocols and an uncertain macroeconomic outlook. Elsewhere, we have seen the IPO pipeline pick up in the Equities business with more to come heading into 2026. And we are seeing the final headwinds to growth in Securities & Reporting from the Euronext exit. Moving now to our delivery against guidance. We are absolutely on track and in some respects, ahead of our original plan. Year-to-date organic growth is 7.3%, comfortably within our guidance range, and this remains unchanged. On margin, the natural operating leverage in our business gives us confidence to raise our margin guidance to the top of the range at around 100 bps improvement year-on-year. This is a big step-up for a GBP 9 billion revenue business, and it factors significant ongoing investment in AI and new products. We are very confident of hitting our 2026 guidance of 250 bps over 3 years, taking us to 50% plus, obviously, before the impact of the Post Trade transaction, which I will cover in a moment. On CapEx, we will invest at a rate of 10% of revenue this year as planned and expect that intensity to come down in future years. One or 2 in the market have asked whether we will need to invest more in an AI future. The answer is clearly no. We have been investing at a double-digit CapEx intensity for several years, and we are now switching the mix over time from technology debt payback towards more investment for growth, obviously, including AI. And finally, we have good visibility of hitting our free cash flow guidance of at least GBP 2.4 billion. And finally, let's look at how we are allocating this cash flow. Overall, we are deploying more this year than what we are generating. That reflects the opportunities we see in front of us. So we expect to spend around GBP 3.5 billion versus free cash flow of GBP 2.4 billion. We are financing the difference with new borrowings of GBP 1.1 billion. Total dividends for the year are just over GBP 700 million, representing a 35% payout of adjusted earnings. In addition, we are deploying GBP 700 million net on the Post Trade transaction announced today, where we expect returns to be very attractive. And finally, as David mentioned, you may have noticed that over recent weeks, we significantly accelerated the GBP 1 billion buyback announced with the H1 results, and we have nearly completed it. Given our strong cash generation, low leverage and the enhanced returns we believe we will generate at this share price level, we are today committing to a further GBP 1 billion. This will start shortly and complete by the full year result in February 2026. We plan to execute GBP 500 million of this GBP 1 billion in year. This is a further demonstration of the flexibility and optionality our strong cash flow generation gives us and our very active capital allocation decision-making. Taking all this together, our leverage at the end of this year should be around 1.9x EBITDA, so in the middle of our 1.5x to 2.5x net debt-to-EBITDA range. Let's now look at the rationale of the transaction in our Post Trade business that we announced this morning. First, a group of 11 leading global banks is taking a 20% stake in our Post Trade Solutions business. The perimeter of PTS includes the recent acquisition, Quantile and Acadia, plus businesses we have grown organically, mainly SwapAgent. This transaction deepens our partnership with institutions that can benefit significantly from PTS services and allows them to help share its future and share in its growth. Second, we have agreed to alter the terms of the revenue share paid to the partner banks from SwapClear. Historically and up to 2024, this sat at 30%, reflected in our cost of sales. We are taking this down to 15% for 2025, applied across the whole year and 10% for 2026 and beyond. And finally, we are extending it from 2035 to 2045. Again, this is strategically important, and it improves our economics at a fair valuation and extends the deep relationship with our partner banks into the long term. Daniel will cover the strategic value in more detail in a moment. But the financial effects of this transaction are very positive. The impact of reducing the revenue share from 30% to 15%, which again is retroactive across the whole of 2025, will add around 250 bps to the Markets' divisional EBITDA margin and 100 bps to the group margin this year. While obviously, there are some financing costs, overall, this transaction is 2% to 3% accretive to EPS this year onwards. But beyond these financials and even more importantly, we expect this transaction to accelerate the long-term growth in PTS. Let me hand over to Daniel to recap on the playbook that has been so successful. Daniel Maguire: Thank you, MAP. So I just want to take a couple of minutes now to highlight how and why SwapClear has grown over the last 15 years, and touch on the opportunity we see forward in Post Trade Solutions. So through partnership, both through the shareholdings a number of our key members have held in LCH and the revenue share in SwapClear that continues, we have built a deep and wide global network that delivers significant value to all of its constituents. The scale shift in 15 years is extraordinary. The number of members, i.e., the banks has increased by 3.5x and the number of clients, i.e., the buy-side firms has increased by 200-fold, clearly demonstrating the network effect. Notional value registered per annum is up 10x at nearly GBP 2,000 trillion. And we have become the global destination of choice for interest rate swaps in all currencies for clearing. And this is why we are now inviting our partners into Post Trade Solutions, because we believe we can do the same again, but for the uncleared market. We built a near GBP 1 billion annual revenue business based on cleared OTC instruments across SwapClear, ForexClear and CDSClear, all of which are leaders in their markets and all of which are built on the strong foundations and the model of industry partnership. The uncleared opportunity is basically the same size as the cleared space. Our members and our clients want to manage the whole book in one place, bringing efficiency to their capital, the margin requirements and materially simplifying and standardizing processes. We are uniquely placed to do that given the assets that we've built and brought together under one roof and with our proven track record of delivering real value through long-term partnership. Acadia and Quantile give us collateral and margin workflow tools and compression tools, respectively. And SwapAgent and TradeAgent, both developed in-house, complete the current suite of services we call Post Trade Solutions. And we've got very good momentum to build on. Revenue in PTS is growing at double-digit pace. Volumes are up 70%, and the network is expanding at pace. So bringing these 11 major partners closer and giving them a role in shaping the business as well as a share in its growth sets us up for long-term success. I'll now hand back to David. David Schwimmer: Thanks, Dan. So just to recap, we have had another strong quarter of growth with year-to-date organic growth at 7.3% and all of our businesses performing well. We're executing at pace on our AI strategy of LSEG Everywhere as the AI partner of choice for financial markets data. And we are allocating capital effectively and proactively with an attractive strategic deal in Post Trade and a further big step-up in our buyback program. And now MAP, Dan, and I are happy to take your questions. Peregrine? Peregrine Riviere: Thanks, David. [Operator Instructions] And with that, I'll hand over to Pauly to manage the queue. Operator: Thank you, Peregrine. [Operator Instructions] And your first question comes from the line of Arnaud Giblat of BNP Paribas. Arnaud Giblat: Could I start with the Post Trade Solutions? So banks are paying over 50x EBITDA, 9x sales for their stake. Clearly, as you said, that comes with a significant commitment to put more business through that division. I'm just wondering, I mean, you gave a bit of detail, but if you could flesh out a bit more what sort of commitments, the time frames, what specific milestones we should be looking at for that business to grow, and what perhaps give us an indication of the potential size of that business in the medium term, from a revenue perspective? And my follow-up would be on the distribution agreements with third-party providers. Quite a lot going on there. I'm just wondering how we should think about this? Because clearly, there is a bit of a usage model you've talked about. So probably this increases significant usage and therefore, gives revenue upside. At the same time, if clients are accessing your data through a third-party vendor, then how does pricing in the long term look like if you're being -- I mean, if it interfaces somebody else? David Schwimmer: Thanks, Arnaud. Let me turn it over to Dan to answer the aspects of your first question. We're not going to get into a lot of detail on what the revenue looks like over the medium or longer term, but you can talk a little bit about how we're thinking about the construct. And then I'm happy to talk about the distribution agreements. Daniel Maguire: Okay. Yes. Thanks, Arnaud. Look, we're very strong believers in the industry partnership model, as you know. We've been using that, building that for a number of years on different services, and I think you can see the outcomes of that. Ultimately, we build core critical infrastructure for our major customers here over a long-term basis and around the basis of trust. So we're very, very pleased that we've got our major partners around the table with us and aligned not just on economics, but also on the product road map, the governance and the product adoption, of which we have a pretty high rate of adoption for all the products we build because of this model. I can't really be drawn on revenues. What I can point to is when you look at the -- which we shared in the slide that the gross market values, which essentially is a proxy for the scale of market risk and derivatives, if you look at the -- these numbers come from the BIS independent annual surveys, the gross market value is about [ USD 17.6 trillion ] and just over half of that is in the cleared space, but over half of that is in the uncleared space. So if you think about the level of risk of derivatives being transacted and risk transferred, they are very similar size. So we see the size of this opportunity very similarly as a result of that. And then in terms of milestones, we've got, as you can see from the press release, 11 major firms and important people at those firms making clear commitments to work with us to build out and deliver and adopt those services. So I can't be drawn on specific road maps and revenues today, but very confident that we've got the right support from the right firms and the right people. And the network is much bigger than those 11, and we've already got very good momentum in that. So pretty confident on that. David Schwimmer: And then your question around these partnerships or distribution arrangements. And the first point to make is that we've been doing this for years. And we have been providing our data through partners, and in some cases, as I mentioned, competitors for many, many years. And it's key when we do that, and this is a practice that we will, of course, maintain is that we protect our own relationships with our customers. And so in these kinds of partnerships, basically, the way they work is that although the initial origination of the relationship might come through one of the partners, the customer is then directed to us to establish the direct customer relationship with us. And we do that in a number of different situations and circumstances. So that protects us from being disintermediated through these kinds of arrangements. The other really important aspect that we're very focused on in these kinds of partnerships and distribution arrangements is protecting our data and making sure that our rights, our IP are protected even through any of these distribution channels. So obviously, the AI world is a little bit different, but we're still in a position to protect our data. And let me just give you one specific, I'll say, technical example. When we're distributing our data through an MCP server, because of that construct, we can control and monitor the access to our data. So in that construct, we're not at risk of a customer downloading all of our data, training their models on our data and then not needing us anymore. This MCP server construct allows us to control that in a very successful manner. So maintaining the relationship, protecting our data and data integrity, these are the kinds of relationships that we have managed very successfully for a long time, and it's great to see these new entrants and these new ecosystems, because we think it will actually expand the market and the customer base that we will be able to access our data. So we're really looking forward to this and excited about it. Operator: Your next question comes from the line of Andrew Lowe at Citi. Andrew Lowe: Thanks very much for the color on the revenue split by product in Workflow and Feeds. My question is on the Data & Feeds business. Specifically, how much of the historical revenue growth has been driven by pricing versus volume? Could you please also comment on the historical pricing trends across these different groups? So for example, it would be great to know how pricing growth in real-time data compares to the other segments, including the 10% from public data sources. And it would be great if we could hear a bit more about how much visibility you have on future pricing? And I've got a follow-up, but I'll wait until you've answered. David Schwimmer: Yes. Thanks, Andrew. So I'm not going to break it down product by product. But as we've been pretty clear over the last few years, you've seen our pricing yield on an annual basis be in that sort of 3% to 3.5% zone. And then you've seen our Data & Feeds business grow usually more than twice that. So that gives you a sense of what's going on here in terms of pricing relative to just volume growth. And we've been doing a lot of innovation in this area as well in terms of new products, new distribution channels as well. But hopefully, that gives you a sense on that. Andrew Lowe: Great. Okay. And then as maybe a follow-up to that. So are you seeing a pickup in demand for your tick history now that you've got sort of LLMs which are cheaper and more widespread? And how important is that when you're sort of selling your forward-looking real-time pricing data? David Schwimmer: So interesting question. and tick history, for everyone's benefit, is a great data set that we have that goes back to the '90s and has tick-by-tick history for millions and millions of securities and no one else has it. It was all public data when it was released by the exchanges, but we are the only ones who have stored it, maintained it and made it easily consumable. I would say the technological changes make it easier to consume and access now than it has been over the last 20-plus years. And we certainly expect to continue to see it being a very valuable content set. Historically, it has been mostly used by quant shops back testing their algorithms. But your question is a good one in terms of recognizing that with these models, you could see a lot more potential users accessing this huge data set to look for historical correlations and help that inform their trading on a go-forward basis. Operator: Your next question is from the line of Russell Quelch of Rothschild. Russell Quelch: I'd also like to focus these questions on the Data & Feeds business. Thanks for the extra disclosure on the revenue breakdown. So you disclosed that 55% of the Data & Feeds revenues come from pricing and reference services. And I believe you've gone from #6 player there to #3 player in the last couple of years, just behind ICE and Bloomberg. So my questions are, firstly, number one, how have you done that? And what's your view on the main points of differentiation in your offering, which is helping you to take share? My second question is, do you believe you can be a #2 player here? And if so, how? And the third question is a bit of a follow-on from Arnaud's question, but asked in a bit more of a direct way. Can you talk to your expectations of the size and cadence of the growth uplift from the recent and future data distribution partnerships that you mentioned relating to LSEG Everywhere? David Schwimmer: Sorry, can you say the third part again? Russell Quelch: Yes. Sorry, a bit of a mouthful. So I was thinking about the data distribution partnerships relating to LSEG Everywhere, both the current ones you disclosed and then you said about future partnerships. So I was wondering how we should think about the size and the cadence of the growth uplift that comes from those partnerships, both the ones that have been announced and potential future ones. David Schwimmer: Got it. Okay. So your first question, how have we moved from #6 to #3. It is investing in our content and investing in our distribution. And you have seen us over the last few years do a number of, I would say, pretty significant steps in a number of different areas. So for example, when we took on the Refinitiv business several years ago, it was very clear to us that, for example, talking to customers, they made it clear, fixed income evaluated pricing was a weak area. Corporate actions was a weak area. We have invested meaningfully in both of those areas and addressed those gaps, and we're now highly competitive in those areas. And so that has helped us move up the ranks. We have added new content in terms of a number of different areas, ranging from -- I guess, a good example is our inclusion of Dow Jones content alongside our exclusive Reuters News alongside thousands of other news sources. So constantly investing in content in a number of different areas. And then on the distribution side, over the last few years, we have made our content available through a number of different distribution channels. And whether that's in different cloud providers, whether that is -- there are some of our data sets, for example, they were only available in the U.S. for technology reasons. And we have now made those available on a global basis. So it's a number of things like that. But really, if I boil it down, content and distribution. Could we be #2? Sure. And we aim not to stop there. We're continuing to invest in this business. We have great data, great content, adding to that content, expanding our distribution capabilities. And then in terms of -- I'm not in a position to give you any specific guidance on the growth uplift. What I can say is that we're not done yet in terms of the different partnership arrangements. We think this is a really exciting time in terms of new ecosystems, new AI functionality that will provide lots of distribution opportunities for us. And as I mentioned earlier, into customer segments that might not have otherwise accessed our data. And for those customers that have historically accessed our data, this AI functionality enables them to access it in a, I'll say, a much deeper way. I mentioned earlier the 33 petabytes of data that we have. Historically, our customers have really only scratched the surface of the data and the content that we have. And the AI functionality is much more powerful in really consuming substantial amounts of our data. And then as we shift further down this road, we've talked in the past about evolving our model more towards usage-based and consumption-based pricing. So you put all that together, we are excited about what this opportunity holds. Russell Quelch: Okay. And maybe just as a follow-up to that, you've just seen S&P buy With Intelligence. You've seen BlackRock buy Preqin. You've seen MSCI buy Burgiss. So just wondering how you're thinking about your competitive position in private markets data? And is this something you might look to add inorganically to the offering? David Schwimmer: Yes. So we already have a lot of private market data, and that includes what we have ingested organically. It includes what we provide from Dun & Bradstreet. The Dun & Bradstreet data, by the way, currently available on the Workspace platform, but soon will be available through a feed, which I think is unique in the industry. We have our partnership with StepStone, which is enabling us to create, again, unique private asset product in our index business. And maybe the last thing I would say is we are not done in this space, and there's more to come in terms of our ability to provide incremental value-add and, in some cases, unique private markets data. So I can comfortably say watch this space. Operator: Your next question is from the line of Ian White of Autonomous Research. Ian White: Well, there's been a lot of discussion around the accuracy of general intelligence LLMs in financial services applications. And I guess sort of what advantage can you derive here from your privileged access to your own data when it comes to the training and development of more accurate models? Or kind of put differently, is it realistic that general intelligence tool can match a model that has been trained on your specific data set when it comes to generating accurate results derived from your data? That's essentially my main question. And just as a follow-up, on the Workspace rollout, which is now complete, what's the latest evidence you have regarding levels of customer satisfaction with Workspace versus the legacy desktop products, please? David Schwimmer: Yes. Thanks, Ian. So on the accuracy question, there has been a lot of discussion in the industry about a bunch of the product that is out there really maybe having some nice user interface, but not being remotely close to what this industry demands in terms of accuracy. And so I think that's probably right at this point for a bunch of the products that are out there that we have seen. We expect them to get better over time. I think in terms of our own approach, the advantage that we have is that we have the data. We have the highest quality and broadest data set that allows us to do the necessary training. It is scrubbed data. We're not training our capabilities on the Internet. And so we avoid the garbage in, garbage out problem that you see with a lot of these other models. And this gets back to the point I was making earlier that through the MCP server construct, we are able to control the access to our data. So we sometimes get questions from people worried about the fact that our data will be made too available and others will be able to, without compensating us, train their models on our data. That's not the case in terms of the way that we make this data available for AI usage or AI consumption. In terms of the Workspace rollout, we are very pleased with the outcome there, and this was a big exercise over the past couple of years. So we are seeing really good views on the simplicity, on the kind of change in the user interface, on the speed. And there are some aspects in terms of making some of the charting even better. There are a few different things that we're continuing to work on, as I mentioned earlier, sort of week in, week out. And this is going to continue. And it's one of the advantages of this product and the technology stack that we have moved on to. We've talked about how we've implemented 500 or so changes in each of the last 2 years, and that pace is continuing. So even though we have basically completed the migration, we still have more releases coming. I think we have 2 more releases coming, big broad releases coming this year. Yes, more coming early next year. So it's a continuous improvement exercise, which I think is a great opportunity to continue serving our customers better and better and better. Ian White: Got it. If I could just sort of playback and make sure I understood the first point. If anybody wants to sort of train a model on your data, that's kind of a licensable activity that you can kind of control through MCP and a model that's not trained on your data specifically probably won't be very effective or will be less effective than something that's been specifically curated for that purpose. Is that a fair reflection? David Schwimmer: I think that's fair. I don't want to claim that we have exclusive financial sector -- in other words, I don't want to claim that in the financial markets, we're the only ones who have financial markets data. There is other data available out there. Ours is the broadest, the deepest, the highest quality. And so we are in an advantaged position. But you've seen companies train their models on public data coming off the Internet. That's on the other end of the spectrum in terms of quality and accuracy. And then there are other data sets out there that you can use. They're just not as extensive and high quality as ours. Operator: Your next question is from the line of Mike Werner of UBS. Michael Werner: And just 2 questions here, one main one and then one follow-up, please. I was just wondering, I mean, you talked a lot today and very helpfully about the new partnerships and LSEG Everywhere. Just stepping back and when we think about the partnership with Microsoft and OpenAI and what you guys are doing there, what's the level of that engagement today versus 12 months ago? I think you used to talk about the number of software engineers that were operating on site on LSEG's premises that came from Microsoft. I was just wondering if you can give us an update there. And then as a follow-on to a couple of my colleagues' questions. When we think about these partnerships, particularly with the new ones with the AI engines and AI partners, is there any delta or any difference in how you think about the pricing? I know you said you protect the IP, but when you're thinking about these new partnerships, is there any change in the way that users who want to consume that data, would they see any difference in pricing than your traditional customers? David Schwimmer: Yes. Got it. Thanks, Mike. So in terms of our partnership with Microsoft, if anything, the level of engagement is higher, and I would say meaningfully higher today relative to where we were a year ago. I know what you're referring to. We've talked in the past about having hundreds of our people embedded with their teams and vice versa. That continues and, if anything, higher level of engagement. And we talked today about a few other things that the market hasn't really focused on, but that we're building with Microsoft, our Autex Routing Network, our Digital Market Infrastructure. These are not the areas that the market has really focused on, but we are actively building them with Microsoft. And then, of course, our Data as a Service, our analytics, Workspace being embedded in Teams, all the interoperability with Excel and PowerPoint. We have lots of teams working across a lot of different areas with the Microsoft team. So couldn't be happier about the level of engagement there. And then just with respect to the pricing, in some cases, it's really simple. So for example, we talked about the partnership with Rogo. If you want to access our data in Rogo, you have a Workspace license. It's very straightforward. It can be a little less straightforward if we are providing our data sets, our Data & Feeds data sets through some of these channels, but we have standard pricing for a lot of these. There may always be some negotiations around particular data sets or things like that, but we have standard contractual arrangements for these and standardized pricing for these. Operator: [Operator Instructions] And your next question comes from the line of Hubert Lam from Bank of America. Hubert Lam: I've got a couple of questions. Firstly, on D&A, how should we think about revenue acceleration in the next year? So just given the upward momentum on ASV, should we think 6% or more could be achievable for revenue growth in D&A next year? Second question is, I guess, last results, there was concerns about intensifying pricing competition from a couple of your biggest competitors. Just wondering if you've seen any normalization in terms of pricing? Or was the competition we saw a few months ago a bit of a one-off? David Schwimmer: Sure. MAP, why don't you take the first question? I'm happy to take the second one. Michel-Alain Proch: Yes, sure. So on D&A, we indeed forecast a revenue acceleration next year. We haven't given precise numbers, but we have given one precise number, which is for our subscription business altogether, reaching 6.5% -- circa 6.5% next year. And obviously, D&A in this number is playing its part, and it will be accelerating '26 and '25. David Schwimmer: And then on your second question, Hubert, first, just to remind people, when we talked about some of the competition dynamics at the half year, that was a very small number of cases, a couple in each of the different business areas. And I would say where we are today, we're not seeing that kind of dynamic. It feels a very stable market environment at this point from a competition perspective. Operator: Your next question is from the line of Ben Bathurst of RBC Capital Markets. Benjamin Bathurst: My questions are on Post Trade. Firstly, could you help us better understand how interrelated the 2 transactions announced this morning are, if at all? For instance, how different is the list of the founding members of SwapClear from the investing banks in Post Trade Solutions? And then secondly, how significant is the decision to extend the revenue surplus share from 2035 to 2045? Was there always a presumption that, that would be extended? Or was that kind of an incremental sweetness in the deal? Daniel Maguire: Thank you. Yes. So in terms of the construct of the overall deal, there are 13 banks involved in the swap business today. And in the investment in PTS, there are 11 investing banks, just to be clear around that. Decisions to invest in the new business ventures very much down to sort of individual circumstances of each of the banks there. So not really appropriate to speak on behalf of those in the 13 that aren't in the 11. But what I'll say is super strong engagement across the industry, level of participation in this and interest is very material from all the material players there. So we're very, very happy with that. And in terms of the extension that you asked about, yes, I think may be different opinions on whether that would have been extended or not, but the fundamental point is this is something that's been in place since 2001. We're here in 2025. It was rolling to 2035. And as part of the overall structure, those 11 banks that are investing in PTS will be extended for a further 10 years to 2045. So a 44-year enduring partnership between the major players in the OTC derivatives space on the sell side with ourselves there. So I think it's part of the overall construct rather than breaking it down into the exact sort of elements of the negotiation. Benjamin Bathurst: Okay. Great. So if I understand it rightly, it's just those that are participating in Post Trade Solutions that will have the extension for 2035 to 2045? David Schwimmer: That's correct. Daniel Maguire: And just to be clear, '25 to '35 remains already existing 13. So existing 13 until the maturity of the existing arrangement and the extension of 10 years is to the 11 that are also investing in the Post Trade Solutions franchise business. Operator: Your next question is from the line of Julian Dobrovolschi of ABN AMRO. Julian Dobrovolschi: I have 2. Maybe the first one regarding the Microsoft product development such as Open Directory and Analytics API and some other things that you're trying to roll out together with Microsoft. Just wondering, are they offered broadly across all the tiers or restricted to premium users and as such as an upsell vector? And then the follow-up is on ASV growth. Just wondering how confident are you regarding the, let's say, reacceleration of this in the Q4? I think you've been hitting towards 5.8%. And can you please elaborate on the impact of the UBS multiyear contracts and the Credit Suisse revenue crystallization? And perhaps if you can see some leading indicators suggesting a bit of a rebound in ASV growth in the Q4. David Schwimmer: Thanks, Julian. So I'll take your first question, and MAP can touch on your question on ASV. So on each of these different products, some of them -- the different products that we have built in partnership with Microsoft, some of them are separate products that have separate pricing, separate licenses, separate arrangements. Some of them are embedded in existing products. And so if we talk about Open Directory and we talk about what's coming in Workspace, you'll see us charge for that over time really through price realization in the core product. I think then in some of the products that we have rolled out in analytics, the Analytics API, for example, that's a new product, and there's separate charging for that. And we've seen some of that in the uptick in the growth rates in analytics, for example. And let me just -- I'll mention one other example where you can see this very clearly. The arrangement that we announced with Microsoft 1.5 weeks, 2 weeks or so ago, where we are making our data -- we are making some of our data sets available to all users of Microsoft Copilot. So if you have a Copilot license, you can be outside the financial services sector, you have a Copilot license and you're doing something in Copilot, you will get access to certain of our data sets. And that's an arrangement that we have with Microsoft. And then we have other data sets that you can license directly with LSEG and then have access to them through Microsoft Copilot and Copilot Studio, if you are building, for example, agents using our data. So that gives you an example where some of them are embedded -- some of the pricing arrangements are embedded in existing products. Some of them are new, and we are charging incrementally for them. Let me turn it over to you, MAP. Michel-Alain Proch: Yes, sure. So first of all, before addressing your question, I'd like to point out that we have outperformed our previous guidance on ASV. And remember, in H1, we were expecting that the Q3 ASV would fall to 5.4% with 40 bps of impact of UBS. So excluding UBS 5.8%, so comparable to Q2, and we posted 5.8% in Q2, 5.4% was what we were expecting in Q3. We actually outperformed this to 5.6%. So ex UBS, 6%, an acceleration from the 5.8% we were at the end of Q2. And when I look forward for the end of this year, we're very confident into accelerating again to 5.8%. And here, it's the same thing. It's 5.8%, including of the 40 bps for UBS. So actually, excluding it, 6.2%. So 5.8%, 6%, 6.2%. That's basically the message today. Operator: Your next question is from the line of Enrico Bolzoni of JPMorgan. Enrico Bolzoni: I wanted to ask you, you now revised your EBITDA guidance a couple of times, even excluding the newly announced deal. So I just wanted to ask you, what are you doing particularly well or better than you expected that basically drove the consecutive revision in guidance? So that's my first question. And partially related to that, just some small clarification. So one, you are clearly now spending just over GBP 1 billion to in-source this additional revenue from SwapClear. Can you just clarify whether this will be capitalized and whether the amortization of that will be above or below the line? So that's one question. And another related question to numbers. You're clearly issuing some debt, you're guiding for EPS accretion in 2025. What about 2026? I know you talked about margin expansion for EBITDA in 2026. Can we say that we will also see a similar EPS uplift for next year? Michel-Alain Proch: All right. So I begin with EBITDA margin. So yes, just to remember for maybe those of you who didn't see it, we began with 50 to 100 bps of EBITDA margin guidance for this year, we then improved it to 75 to 100 bps. And finally, we are now confident to reach 100 bps. It's really an acceleration. So what we have implemented in the last 2 years at LSEG is a full cockpit of cost discipline, addressing all the different components of our cost base. So mostly people, we're talking a lot of people, obviously, but it's true for cloud costs, on-premise costs, travel expense and so forth and so on. And basically, this acceleration is coming from the fact that what we have put in place is more efficient and is producing more results and quicker, if you want, than what I expected at the beginning of the year. The second reason, which is maybe -- so that's an acceleration. Second reason which is more structural is -- and maybe you remember what I was telling you at the earnings of 2024, the different automation solution that we have put in place at different places in the company. So in QAS, meaning our customer service, in our content ingestion, we were putting it in place, and I was expecting to see the first materialization into savings next year. And actually, it's happening as early as this year. So that's the combination of the 2. Now to answer your second question about the GBP 1.15 billion, that represents the alteration of the SwapClear revenue share. So we're considering this as an acquisition. So we are creating an intangible asset exactly as we would do as a traditional acquisition. And we are going to amortize it over 10 years below the line as the rest of our acquisition. And then your final question, which is the accretion. So accretion of 2% to 3% in 2025, because I want to be clear on the fact -- I hope I was clear in my script that this revenue share alteration is retrospective to the 1st of January of '25, okay? So it means that we benefit from the full accretion in terms of EBITDA margin that I have mentioned of 100%. And in terms of EPS taking into account the financing cost. We said 2% to 3% in '25, and we'll have pretty much the same thing, 2% to 3% in '26. Operator: And your next question is from the line of Tom Mills of Jefferies. Thomas Mills: I think we've skirted around it a few times on the call. I just wanted to clarify that you are sort of reiterating you're expecting to deliver around 3.5% price increase on the 1st of January is kind of [indiscernible]. Michel-Alain Proch: Absolutely. Absolutely. We've just sent -- the price letter was sent in September. On the basis of the first reaction from this price letter and our experience, we are confident we will derive the same type of yield around 3.5% in '26 as the one we had this year in 2025. Operator: And your next question is from the line of Oliver Carruthers of Goldman Sachs. Oliver Carruthers: Oliver Carruthers from Goldman Sachs. Thanks for a lot of the incremental KPIs around D&A. I just have one quick modeling question on the FTSE Russell subscription revenues. I think you're calling out the more modest growth in subscription growth here in Q3 was to do with this mandate renewal cycle that you think is going to normalize next year. So just what's reasonable to assume in terms of the pickup in growth rate? I think you're running at around 5% on a constant currency basis year-over-year for Q3. And the reason I ask is if we go back to 2024 levels of around 10%, on my math, this adds something like 70 basis points to your ASV. So just any parameterizing of that would be very helpful. David Schwimmer: Yes. Thanks, Oliver. So you're right. This year, a much quieter period in terms of renewals during which we would typically see incremental revenue associated with either regular price rises or bigger, broader business relationships and broader engagement. I think hard to give you specific numbers as to what that's going to look like in '26 and beyond. You've seen how this business has performed in years past in that kind of higher than mid-single-digit zone. So I think I'm probably pretty comfortable, and MAP, feel free to weigh in here as well. I think we're pretty comfortable in that zone, but I don't want to be giving you any sort of specific guidance on what that looks like at this point. Operator: And there are no further questions on the conference line. I will now hand the presentation back to David Schwimmer, CEO of LSEG, for closing remarks. David Schwimmer: Great. Well, thank you all. Thanks for joining us today. As I said upfront, a little bit more substance in this one rather than a typical Q3 update. We hope you all have found it useful. And if you have any questions, you certainly know where we are. We'd be happy to take any further questions through Peregrine and the team. Thanks again.