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Jann-Boje Meinecke: Good morning, and welcome to our Q3 results presentation. My name is Jann-Boje, and I'm heading Investor Relations at Vend. And as usual, our CEO, Christian; and our CFO, PC, are here also with me to present the performance and highlights for the quarter. Following the presentation, we will also have a Q&A session by Microsoft Teams where analysts can connect. Let me then show you the disclaimer slide before I hand over to Christian. Christian, please go ahead. Christian Halvorsen: Thank you, Jann-Boje, and good morning, everyone. Very happy to be here to present our Q3 results. This was a quarter that really showed our progress towards becoming a pure-play marketplace company. We advanced monetization across our verticals. We executed with discipline when it came to cost, and we also took further steps to simplify our company. And financially, group revenues ended at NOK 1,595 million, and this represents a 1% year-on-year decline. Underneath the surface, however, the revenue development was positive for our verticals, driven by a solid ARPA growth. So this overall decline is then a result of several factors, reduction in the other HQ segment, the strategic decision to discontinue certain revenue streams in Recommerce and Jobs as well as a continued soft advertising area. Group EBITDA increased by 24% to NOK 640 million, and this was driven by reduced operating expenses across the group. And this is a reflection of lower personnel costs, also somewhat reduced marketing and lower costs related to the phaseout of TSA agreements with Schibsted Media. As I mentioned, we also continue to simplify the company. This is really to sharpen our execution. And during the quarter, we signed an agreement to sell Lendo, and we also started the sales process for delivery, together with also continued focus on exiting our venture portfolio. In parallel with all this, we are finalizing the removal of the dual share class. And also consistent with the capital allocation policy, the Board yesterday approved a new share buyback program that will start later this quarter. And here at the beginning, I also want to say that I'm very happy that we have appointed Yale Varty as our new Chief Commercial Officer for Vend. To me, this is an important step in strengthening our commercial leadership for the future for this company. So let's then move to the verticals, and let's begin with Mobility. And today, I'd like to -- before we go into the actual results, to spend a little bit time on the latest developments when it comes to dealer product packages and pricing. And one year ago, we announced new dealer packages in Norway, and these went live at the beginning of the year. And I would say that they have been a great success. Right now, around 70% of the volume from dealers is on the Pluss or Premium tiers of these packages. And that is also the reason why we are reporting now a 20% ARPA uplift in Q3. So to me, this model is really a proof that a more structured and a more transparent approach to the market creates value both for dealers and for us. It creates a better customer satisfaction and it improves performance at the same time. So we are now taking the next step. That means scaling this to Sweden, and we will launch dealer packages there in February of next year. And these packages will be very similar to the ones we had in Norway. And that means that they will also include features that really strengthen the value that we deliver to car dealers. And that, for example, includes things like integrated car valuation, buyer safety elements and also better dealer branding. Then there will be additional things that will come throughout the year. For example, Insight products will come later. And I also want to mention that with the Blocket launch on our Aurora platform that will happen a little bit later this quarter, dealers will also benefit from things like improved search, better filtering and also integration and traffic to their digital stores. So I would say, overall, this really marks another step in our path to harmonizing our offering across the Nordics. Now in addition to these changes that we're doing in Sweden, we're also harmonizing and changing the business model in Denmark, where we are moving to a pay per ad model. And we will obviously also continue to optimize the dealer packages that we have in Norway. So then let's move to the quarterly results. And here, we can see that the average revenue per ad or ARPA, which is our most important KPI, continues to grow well across all markets and all segments. And as we also saw in Q2, Sweden really leads the uplift here, and this is driven by both strong professional ARPA, and I would say, exceptional ARPA development in the private segment, and this is driven by upsell by value-based pricing and also new packages. Then in Norway, we also see a solid ARPA growth, and this is driven then by the package launches that I just mentioned that we came in the market with at the beginning of the year. And for Denmark, professional ARPA developed in line with the adjustments that we did at the year-end and also additional changes that we made in August of this year. Here, private ARPA was boosted by the introduction of listing fees for cars below DKK 50,000. However, these changes were reverted in mid-September to reboost listing volumes and to strengthen network effects by having more inventory. So if we then look at volumes. And here, we already announced the July and August numbers in our pre-silent newsletter that came on September 18. So most of this should already be known to you. But in Norway, we show a volume decline in Q3. This is mainly a result of a drop in subcategories. That means things like boat, caravans, motorcycles and so on. In these categories, we see a macroeconomic effect in this quarter. Cars, however, remained flat and even saw growth in the private area. For Sweden, Pro volume dropped, and this is due to the change in business model that we have mentioned before in sub-verticals in categories like heavy machinery. Cars remained flat in Sweden and private volume declined across categories. And in Denmark, I would say the overall market continues to perform very well. That means fast sell times. And unfortunately, for us, that means a decline in average daily listings for our Pro segment. And the drop that we see here in the private segment, that is something that we did expect. We have said it before, and this was driven by the introduction of the listing fees that I mentioned before. These are -- as I said, they have now been reverted and we see since the reversal growth week after week in this area. Moving then to the financials. And revenues in Mobility increased 8% overall in Q3. We had a couple of effects that had a negative effect, and that was the closing of Tori [ Autot ] with approximately NOK 8 million and the split from media with an additional NOK 5 million. If you take these factors into account, the underlying growth was 12%. On the back of the ARPA growth, classifieds revenues grew by 13%, while the transactional revenues grew by 18%. Advertising, however, was down 14% year-on-year. Then OpEx, excluding COGS, remained flat in Q3, and this is despite the continuous investments that we are making both in the transactional service as well as in core product and platform. And all in all, EBITDA increased by 16% compared to Q3 of last year, and this results in a margin of 57%. And if we were to exclude the transactional models, the margin was 64%, and this is up from 62% last year. Moving then to Real Estate. And let me also take a moment here to address some of the recent updates and announcement that we have made to product packages and pricing in Norway. I think these changes are quite important because they are strategic steps that we are making in aligning, let's say, the value that we deliver with the price that we charge to the market. And going into 2026, we are enhancing our large package. The purpose is to offer even greater value to the agents, but also to home sellers and to buyers. And one of the most important improvements is better agent promotion. This is something that we have designed to improve visibility and to really drive new sales mandates to agents on the large package. And just to give you an example of this, the launch of our home valuation tool that we call [indiscernible]. This is a feature that is exclusive to large agents. And it's a feature that, on one hand, helps home sellers get the valuation of their home. But on the other hand, also is a source for quality leads for agents. And it's only 2 months since we launched this service. And in that period, 40,000 homes have assessed their value using this tool, and we receive a lot of positive feedback from this tool. Now we're also narrowing the price gap between large and medium package from approximately 40% on average to now around 22% on average. And this is to more correctly reflect, let's say, the performance difference between the 2 package tiers. So overall, I would say that by offering more structure and by strengthening the platform tools, we really see that we benefit both agents, but also home buyers and sellers. And we see this as continued positive traction in the market where traffic continue to trend in a positive direction for real estate in Norway. Let's then move to the ARPA KPIs. And in Norway, Real Estate ARPA grew by 17%. The main driver here was residential for sale, where the ARPA growth was 18% year-on-year, and this is very much in line with what we have communicated previously. In Finland, we saw 19% year-over-year ARPA increase, and this is stronger than what we saw in the first half, driven partly by price increases, but also by changes in the product mix between for sale and for rent. We've also done better when it comes to upsell. Looking at the volume. And here in Norway, we had an exceptionally strong first half year. And now in Q3, we saw a decline of 3% as we've expected. We pointed out this in our Q2 presentation that we expected a volume decline in the second half of the year because of the very strong start and when we see at the -- let's say, the historical full year trends. In Finland, residential for sale volumes declined by 8% year-on-year and total volumes declined by 10%. And this also reflects the ongoing transition of rental listings from the, let's say, traditional classifieds model to the transactional business model that we have with Qasa. So for Real Estate, classifieds revenues grew by 9% year-over-year. And this was, of course, then driven by the aforementioned ARPA growth in residential for sale in Norway. But our transactional models, Qasa and HomeQ, they have also developed very well in Sweden. I can also add that our launch in Norway is also showing very promising signs. And overall, this segment of the transactional business models, here, we saw revenue growth of 29% in the third quarter. OpEx, excluding COGS, increased 5% year-on-year in this quarter, and this was driven by the marketing efforts that we're doing in Finland. And overall, this results then in an EBITDA margin of 48% for the quarter. And again, here, if we adjust for the transactional business and only look at the more traditional classifieds business, the margin was around 53%. Then to Jobs. And here, we continue to deliver exceptional ARPA growth of 17%. This is driven by our segmented price model, also changes that we have made to discounts as well as improved performance in our distribution products. Volumes, however, continue to decline. This reflects the macroeconomic environment in Norway. And if we look at, let's say, the year-to-date trends and compare it with the numbers from statistics Norway, we see that they mirror each other and that this confirms that we are tracking with, let's say, the overall national averages on volume development. So Jobs delivered then 1% underlying revenue growth in Norway. Classifieds grew by 2%, driven by the ARPA growth, but of course, then counteracted by the volume decline that was around 13%. For Jobs, OpEx, excluding COGS, decreased by 25%, and this was primarily driven by the exits in Sweden and Finland as well as some reductions in FTEs in Norway. And EBITDA grew 11% year-on-year, and this resulted in an EBITDA margin for Jobs of 55%. And finally, Recommerce. Here, transacted gross merchandise value or GMV continued to grow across all our markets, while our take rates remained solid. And this underpins our belief in the strong demand and the scalability of the Recommerce transactional model. Overall, Recommerce revenues declined 2%. This is driven by softness in advertising as well as the phaseout of low-margin and noncore revenue streams, while we still have a strong transactional growth with a revenue increase of 20% year-on-year. And transactional gross margin improved significantly in the quarter, and this was driven by lower cost of goods sold. OpEx, excluding COGS, decreased 2% year-on-year, and this was driven by FTE reductions from the platform consolidation, among other things. And these cost reductions were slightly counteracted by increased marketing efforts in this quarter. So overall, EBITDA improved to NOK 44 million and -- minus NOK 44 million, and this was a 6 percentage points margin improvement for Recommerce. And with that, I'll hand it over to PC to go a little bit deeper into our financials. Thank you. Per Morland: Thank you, Christian, and good morning, everyone. Let me take you through the highlights of the financials for Q3. In total, revenues ended 1% below Q3 last year, primarily driven by the decline in other HQ, offset by continued improvement and underlying growth in Mobility, Real Estate and Jobs. Total EBITDA ended at NOK 640 million, up 24% from last year, driven by positive developments across all our verticals, but also other HQ. Christian has already covered the development in the verticals, but let me give you some color on the other HQ segment. The year-on-year decrease in other HQ was, as earlier quarters, mainly affected by a change in our allocation model and the revenue decline following the split from Schibsted Media. Revenues from Schibsted Media are declining a bit faster than expected due to earlier termination of certain TSA services. Other HQ had an EBITDA of minus NOK 8 million in the quarter compared to minus NOK 31 million in Q3 last year. So far, we've been able to reduce our cost faster than the reduction in the TSA revenues. Now let's move over to cost development in the quarter. This slide shows the development of OpEx, excluding COGS. The overall cost development and workforce reductions are progressing well. Earlier termination of certain TSA revenues, as I mentioned, has enabled an additional NOK 25 million in reduction in external costs. In total, OpEx, excluding COGS, declined by 14% in the quarter. Personnel costs were down 13% year-on-year, driven by significant FTE reduction, mainly from the downsizing process that we executed last year, but also from the process of exiting the Jobs business in Sweden and in Finland as well as ongoing FTE management throughout the year. Our total workforce continued to trend slightly downwards. And at the end of Q3, we are a little bit below 1,700 FTEs in the company. Total marketing costs were down 7% year-on-year, driven by the job exits in Sweden and in Finland, partly offset by higher marketing costs in Real Estate and in Recommerce. Other costs decreased 18%, driven by general cost reduction across, but also a positive effect from the termination of the TSA revenues -- or TSA services with Schibsted Media. So overall, this resulted in a 7 percentage point improvement in OpEx, excluding COGS over revenue from 58% in Q3 last year to 51% in Q3 this year. Let me move to the income statement. Our operating profit for the quarter increased to NOK 440 million, up from NOK 263 million last year. This is mainly due to the improved EBITDA, but also somewhat lower depreciation and amortization costs and also lower net other expenses. The fair value of our 14% ownership stake in Adevinta has decreased from NOK 20 billion in Q2 to NOK 18.9 billion now at the end of Q3. The decrease is due to a multiple contraction in the industry, partly offset by improved performance for Adevinta. And then based on the updated valuation, a loss of NOK 1.1 billion was recognized as a financial expense in Q3. Our valuation methodology is kept unchanged. In totality, net loss for the group ended at around NOK 650 million minus. Let's move to cash flow. Cash flow from operating activities for the continuing operations ended at NOK 442 million, driven by the strong EBITDA. Cash outflow from investment activities in Q3 ended at minus NOK 21 million, and this includes a CapEx of NOK 108 million, offset by proceeds from sales processes within the venture portfolio and also some additional proceeds from the Prisjakt transaction. And then finally, cash flow from financing activities ended at minus NOK 18 million, mainly due to lease payments in the quarter. On the financial position, net debt amounted to NOK 25 million at the end of Q3. There were no refinancing activities in the quarter. Due to the still strong cash balance, Vend has deposited a total of NOK 1.6 billion in short-term liquidity funds to achieve a slightly higher return than bank deposits. The Scope Ratings of BBB+ with a positive stable outlook confirms Vend as a solid investment-grade company. Then let me end my presentation with a reminder of the financial framework and some comments on the outlook. I want to again reiterate our strategy, our medium-term targets and also the capital allocation principles that we laid out at the Capital Markets Day in November last year. Our strategy execution is going well, and we are on track to deliver on our medium-term targets. Regarding portfolio simplification, we are on track, and we have, during the first 9 months of 2025, made multiple divestments. In addition to selling Prisjakt and Lendo, we have also divested several of our venture portfolio investments. The exit processes for our skilled trade marketplaces is progressing as planned. And also during the quarter, we have initiated a process to sell delivery. The collapse of the AMB share structure is currently ongoing and will be completed during November, well ahead of the end of year deadline. And once the share collapse is completed, we will, as announced last night, launch another NOK 2 billion share buyback program. A couple of messages related to outlook before we move to the Q&A. As we enter the final quarter of 2025, we expect continued solid ARPA momentum across all our verticals. Volume trends, though, remain difficult to predict. Our simplification agenda will continue to affect the results also in Q4, reflecting the final effects of the phaseout and the deconsolidation of revenue streams in Recommerce, but also the exit of our Jobs position in Finland and in Sweden. And following the separation from Schibsted Media, advertising revenue continued to be under pressure at least compared to the last year. Our cost agenda remains firmly on track. The cost base is expected to stay below last year's level, although we expect the rate of the decline to moderate a bit in Q4, as we start to analyze some of the big savings that we did last year. Looking beyond 2025, we have already launched and are in the midst of launching go-to-market activities in all our verticals aligned with our product and pricing strategy. These actions are expected to drive revenue growth across our verticals in line with our medium-term targets. Structural initiatives, including common platform consolidation, divestments and support function realignment will continue to deliver efficiencies over time. Revenues in other HQ will continue to be under significant pressure also going into 2026. And then this is driven by completing the TSA with Schibsted Media by the end of 2025, combined with effects from progressing on the other exit processes that I mentioned. Based on the current knowledge that we have, we expect a temporary EBITDA headwind of up to NOK 100 million in 2026 compared to 2025. And we expect to be able to mitigate this fully in 2027. Overall, we remain confident in our ability to deliver on the medium-term targets. And with that, I hand over to you, Jann-Boje, and go into the Q&A. Jann-Boje Meinecke: Thank you, PC. So looking at Microsoft Teams, a lot of questions already. I think first in line is Will from BNP Paribas. William Packer: Three for me, please. So as I'm sure you're aware, GenAI has become a more prominent investor concern for the classifieds in recent months, which has dragged some share prices, a whole host of concerns, be it weakening network effects as traffic leaks to GenAI search or disruption by Agentic AI. I wanted to hone in on a couple of specific areas. So firstly, do you think you can sufficiently invest in your tech stack and consumer offering in the context of these rapidly emerging developments within the envelope of the cost cutting and margin expansion as you outlined in your CMD? I think consensus has 1,000 basis points of margin expansion to 2027. Can you sufficiently invest in offerings such as prompt-based search or hiring new staff with GenAI expertise? Secondly, Zillow has integrated their inventory on to ChatGPT. The U.S. market is a special one with MLSs, high competitive intensity, buying agents. So the market context is obviously very different. But would you consider a similar move? And then finally, on a slightly different note, press reports from the FT suggest that Mobile.de is considering an IPO next year. In the event that it goes ahead, would you consider fully or partially monetizing your stake? Or would you prefer to hold for the long term? Christian Halvorsen: All right. I can answer the AI questions, and you can take the last question. So first of all, I would say that we remain very positive when it comes to the opportunities from AI. We think it plays to our strengths and that this provides significant opportunity both for productivity gains and for delivering better services to users and customers. Of course, there are some risks, as you point out, but I really think that we are in a great position to deliver on that. And it's really about combining world-class AI with this deep vertical knowledge. When it comes to investments, I would say that, yes, AI will require some investments. But at the same time, we also know that AI will have productivity gains and free up capacity. So I think within that, we believe that there is room to make the sufficient investments in AI within the financial guidance that we have given. Then to your question about Zillow, I think it's too early to comment on, let's say, the impact of an initiative like that. When you look at the -- it's very nascent. But when you look at that product today, it doesn't really provide any, let's say, new or very different user benefit. But of course, we're following this. We are testing and experimenting. But for right now, we don't have any plans to launch a similar app, but that may change as things evolve. Per Morland: And then on your third question related to Adevinta, we don't comment on rumors or speculations in the market related to Adevinta. But what I can say is -- just repeat what we have said before is, first of all, we're very happy with being a 14% owner of Adevinta, and we believe this is a good, let's say, case for our shareholders going forward, both operationally and also structurally. And also just reiterate our capital allocation principles in the case that there are any proceeds coming in. As you have seen before, we will follow those guidelines that we have communicated and stick to, and there's no change in that. Jann-Boje Meinecke: Thanks for the question, Will. Then we can move on to the next one, who is Yulia from UBS. Yulia Kazakovtseva: This is Yulia from UBS. I have 3, if I may. The first one is about go-to-market initiatives. Could you please share a little bit more details about what these initiatives are? And is there any particular angle with regards to verticals or maybe geographies? The second question would be about EBITDA loss in other HQ in Q3. That number was meaningfully smaller in Q3 as compared to 1Q and 2Q. Should we think about the Q3 number as a good proxy for Q4 number? And then also, as we think about 2026, should we -- how should we think about that? Should we take Q3 number, then add on top this NOK 100 million headwind and divide by 4, which would imply about NOK 33 million loss per quarter? And then finally, you spoke about scaling dealer packages in Sweden in February. You mentioned that about 70% in Norway of volumes is going through Pluss and Premium already. Do you think the -- like what's -- first of all, what's the Premium penetration? And then do you think this mix between Pluss and Premium is already where you wanted it to be? Or do you expect any further changes? Christian Halvorsen: All right. I'll answer the first and the last, and you can take the middle question, PC. So first question was around go-to-market. And when we talk about go-to-market, it's really all the work that goes into bringing new products, prices and so on to our customers. And that is a process that takes up quite a lot of time and capacity throughout the full year, everything from building products that we really know deliver value to the customers, packaging those in a good way and working with our sales force to train them in how to talk about the value we deliver to customers and so on and how to answer questions and concerns from the customers. So this is something that we have professionalized substantially over recent years and that we're quite happy with how it works recently. And it's particularly important in Jobs, Real Estate and Mobility. Then when it comes to packages in Norway and the distribution among different tiers, I don't think we will comment more on, let's say, the details of how it's divided between Pluss and Premium. But I can say that when it comes to Norway, it is, of course, still an area that we will continue to optimize and work on both when it comes to the pricing and kind of the distribution of products for customers. Per Morland: And then your question on the losses in other HQ. So let me take a step back. So this is where we see the effects, both positive and negative related to the massive sort of transformation we are going through. When we met at the Capital Market Day last year, we had a sort of a last 12 months deficit of NOK 316 million. And at that point, we said that we need to be prepared that this could be NOK 100 million to NOK 200 million worse before it's coming down. If we then look at where we are as of now, over the last 12 months, similar number, we are a bit lower than NOK 300 million in deficit last 4 quarters. And then what we are saying is we've been able to reduce cost faster than the revenue has declined so far. That's not necessarily going to continue going forward. So there's 2 effects that you see going into '26. Both is that you get the sort of -- a bit sort of front-loading the EBITDA effect in '25 and also we're not able to fully address all the effects at the same time as the revenue fall off going into next year. So I'm not going to give you sort of a concrete, let's say, outlook either for Q4 or '26, but I think then you have some parameters to work for. Jann-Boje Meinecke: Thanks, Yulia. Then we can move over to Fredrik from Handelsbanken. Fredrik, can you hear us? Fredrik Lithell: Yes. Christian, when you describe the various verticals, you talk a lot about the effects on ARPA and sort of the volume declines. Are you sure that all the volume declines are just from the backdrop of weak macro? Is it so that you are too aggressive in certain instances when it comes to price increases, for example, as you described in Denmark on the private side. So are there any other areas where you are evaluating any other sort of moves when it comes to pricing going forward would be interesting to hear. Christian Halvorsen: Yes. Great question. Of course, we follow the development between price and volume very closely. And as you mentioned, we saw that the volume decline in Denmark on the private side was too high. So we kind of reverted that initiative. I would say, if you look at this topic more broadly, we are quite confident that the volume declines that we see are driven by macro or other market dynamics, but not that we are losing market share. I mean it could be -- let's say, for example, in Mobility, we see that sub-verticals are doing quite poorly in Norway. That's clearly driven by macro. In Sweden for sub-verticals, it's driven by the business model change that we're doing. and so on and so forth. So we remain confident in the approach that we have made to pricing and packaging in -- yes, broadly, I would say. Fredrik Lithell: Okay. And I have a follow-up, if I may, on Recommerce. It's still loss-making. You sound optimistic about sort of the model you have and the progress going forward. Do you have a plan B? I mean, what's your thinking in terms of how long would you let it be sort of the loss-making in the way it is would be interesting. Christian Halvorsen: We remain confident in the progress and in the potential of Recommerce. So that's what we are aiming for, and we don't have a plan B as such. Jann-Boje Meinecke: Thanks, Fredrik. Then I think we go back to Oslo. So Markus from SEB is next in line. Markus Heiberg: So first one is just to go back on the TSAs. And maybe you can break down into 2026 and in the revenues and cost is up to NOK 100 million, how much is cost and how much is revenues? And then secondly, on the TSAs, it seems in Q3 that HQ costs are coming down due to external expenses rather than headcount. So maybe also you can elaborate when and how you expect to reduce the headcount on HQ and maybe also how that will trickle down to the allocated HQ expenses into the vertical. So maybe you can elaborate a bit more there. And then the second one I have is on the car volumes. New car sales have picked up in the Nordics, and it seems like dealer inventories are improving into Q4. How do you see the Mobility volumes now into 2026? Per Morland: Shall I start... Christian Halvorsen: Yes. Per Morland: The first 2 ones. Yes, on TSAs, maybe give a bit more color on the TSA revenue related to Schibsted Media. Again, bring us back to the Capital Markets Day last year at that point and also entering this year, we said that we had around NOK 300 million in annual TSA revenues. That -- in the first half, that was only slightly going down. And then as I mentioned earlier today, we have seen an acceleration of those revenues going down. And we expect for the year to end around NOK 200 million for 2025. For 2026, that will be 0. So that shows the development on the revenue side. And then the cost side, I'm not going to give you a specific number, but that's included in the perspectives that we then share with you on the development on HQ/Other, both for this year and next year. I think maybe I wasn't totally clear when I talked about Q3. So when I talked about reduction in external spend, that was the additional cost reduction, which is linked to the faster ramp down of the CSA services. And those have specific external components, license costs, cloud-related costs. And that's why they were able to drop down at the same pace as the revenue fall down. In HQ/Other, we have a significant FTE reduction in the already numbers for this year, and we will continue to reduce that also going into next year. So you see a reduction across all cost items in the support functions. Christian Halvorsen: Yes. So when it comes to volumes, I first want to say and reiterate what we have said, it remains hard to predict volume development also going forward. So we will not give you any hard statements as such. But also repeat what we said about the Mobility volumes that it is actually better if you look at cars than it is if you look at the sub-verticals. So that's a general trend. Also, you mentioned some, let's say, more positive signs externally. There is good new car sales in our markets, and that usually translates also to good used car sales. There are also some changes in regulations, for example, that they're changing the VAT for electric vehicles in Norway, where that is being reduced going into '26 and also in '27, and that is likely to increase new car sales for electric vehicles in Norway even further. So let's see what this ends up with. It's hard to predict, but there are at least some promising signs. Jann-Boje Meinecke: Thanks, Markus. Then next up is Petter from ABG. Petter Nystrøm: So 2 questions for me. One is on cost. At the Capital Markets Day, you set a medium-term target of OpEx target of 40% of sales by '27. How should we think about the phasing into '26 and '27 on that? Will this happen gradually? Or should we expect a more significant step down primarily in 2027? The second question is on Mobility in Sweden and the new package structure. I totally understand that this won't go live before February. But have you received any feedback so far on the structure? Per Morland: Yes. On OpEx, excluding COGS over revenue, so as I said earlier, we are on the last 12 months, a year ago, at 65% and communicated a clear target to go towards 40% level. And as you have seen already this year, we are taking steps towards that. We still have some way to go. And that will be a combination of continuing the underlying revenue growth in the verticals that, of course, will help us out, at the same time, manage our cost development. So I think you will see those 2 effects continue to improve on that relative measure towards 2027. And there's not like at one point, suddenly, there's going to be a massive drop. So I'm not going to give you any more color on that specifically for 2026. Christian Halvorsen: Yes. On the car packages for Pro's in Sweden, first, I want to just say that the first step is to launch Blocket on the Aurora platform, and that will happen a little bit later in this quarter. And it's on that new platform that we will launch these new packages in February. So we have actually been out in the market discussing with the largest dealers, both kind of the new platform and how that looks as well as the packages. And I would say that the feedback so far is positive and promising, I would say. Jann-Boje Meinecke: Thanks, Petter. Next one up is Silvia from Deutsche Bank. Silvia Cuneo: Just one question left from my side on the 2026 outlook. I know it's still early, but given the message you provided in the release and earlier in the call that you expect to drive revenue growth across the verticals in line with the medium-term targets for 2026, that implies an improvement sequentially. And I just wanted to ask about your expectations within that for volumes since you said it's hard to predict. How can you be confident to increase revenue towards the medium-term targets without clear visibility on the volumes at this stage? So what are you expecting? And perhaps also related to that, what are your expectations on the macro impacts on advertising now that those phasing effects will be pretty much in the base from the removal of the Schibsted Media assets? Per Morland: Yes, I'll try to give some color on that. So yes, you're right, we have confirmed that our pricing and packaging monetization measures that we have already or are in the midst of introducing help us to deliver on revenue growth in line with our medium-term targets set by each vertical. In general, given that volumes is hard to predict, we assume a quite flattish development of volumes across our verticals. And then it becomes -- if that's significantly different, then we will have to look at that -- what is possible to do. On advertising, if you look at the development this year, it's very much driven by the separation from Schibsted Media. It's not really market driven, and we see no sort of big changes in that. So our base assumption is also that advertising will be okay from a macro perspective and the stabilization and potential sort of improvement over time is coming more from our action of developing advertising products relevant for our customers. Jann-Boje Meinecke: Thanks, Silvia. I can't see any more hands up currently. I'm also checking my Inbox if anyone written a question there, but it seems like we covered it for today. So thank you for tuning in, and I'm sure we stay in touch.
Operator: Hello, everyone, and thank you for joining the CTS Corporation Third Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Kieran O'Sullivan to begin. Please go ahead. Kieran O'Sullivan: Good morning, and thanks for joining us today. We delivered a quarter of strong double-digit growth in our diversified end markets, with sales up 22% versus the prior year period. Diversified sales for the quarter were 59% of overall company revenue. We also expanded gross margin by 66 basis points and had solid operating cash flow. Secondly, our SyQwest team was awarded a sole-source naval defense contract with an initial value of $5 million and the potential to add additional platform awards within the next 12 months. Finally, in transportation, we had a strong quarter with wins of $130 million and added a new braking sensor application. Ashish will take us through the safe harbor statement, Ashish. Ashish Agrawal: I would like to remind our listeners that this conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in the press release issued today, and more information can be found in the company's SEC filings. To the extent that today's discussion refers to any non-GAAP measures under Regulation G, the required explanations and reconciliations are available with today's earnings press release and supplemental slide presentation, which can be found in the Investors section of the CTS website. I will now turn the discussion over to our CEO, Kieran O'Sullivan. Kieran O'Sullivan: Thank you, Ashish. We finished the third quarter with sales of $143 million, up 8% from $132 million in the third quarter of 2024. For the quarter, diversified end market sales, including sales to medical, aerospace and defense and industrial end markets were up 22%. Transportation sales were down 7% from the same period last year. Diversified end market sales were 59% of overall company revenue in the quarter, up from 52% in the third quarter of last year. Our book-to-bill ratio for the third quarter was slightly above 1 in comparison to the third quarter of 2024, where we're marginally below 1. Bookings for our diversified end markets were up double digits in industrial and defense, and an increase in the high single digits in medical on a year-over-year basis. We expect stronger medical bookings in the last quarter, especially for therapeutic products. Third quarter adjusted diluted earnings were $0.60 per share, down from $0.61 in the third quarter of 2024, primarily due to an unfavorable impact from the recent U.S. tax legislation. Ashish will add further color on this and on our financial performance later in today's call. In the medical end market, third quarter sales were up 22% compared to the same period in 2024. Bookings in the quarter were up 8% compared to the prior year period. We are excited about the prospects for growth in minimally invasive applications, where our products help deliver enhanced ultrasound images and make it easier for medical professionals to detect artery restrictions. Our teams are engaged on next-generation product development to further enhance diagnostic capability with our customers. We are proud to highlight that our products support solutions that help save lives. Additionally, our products enable medication delivery for treatment of infected areas, aid blood analysis and flow, cancer treatments and are incorporated in pacemakers and cochlear implants. Our therapeutic products enhance skin aesthetics and in combination with other medical procedures, help improve skin tightness. During the third quarter, we had multiple wins for diagnostic ultrasound and had wins for therapeutics, pacemakers and a win for an ophthalmology application. We are also developing samples for Doppler ultrasound for a vascular flow application. In addition, we added 2 new customers for diagnostic ultrasound. Demand remains strong for therapeutic products, and we expect increased volumes in 2026. Over time, we expect the volume increases in portable ultrasound diagnostics and therapeutics will continue to enhance our growth profile as well as expansion into new applications. Aerospace and defense sales in the third quarter were up 23% from the third quarter of 2024. SyQwest revenues in the third quarter increased to $8.8 million, and we expect to maintain this momentum through the balance of this year. Bookings in the third quarter were up 29% from the prior year period, as we maintain a healthy backlog, and we expect solid bookings in the last quarter of this year. Our strategy is focused on moving from a component supplier to a supplier of sensors, transducers and subsystems and is further validated by our recent naval award. We received multiple orders in the quarter for sonar applications. The order mentioned in my opening comments for the SyQwest business is for a naval munition application, and we expect additional platform awards as we move forward. SyQwest continues to drive a strong pipeline of opportunities. In the industrial market, we continue to see a steady recovery with OEMs as well as a stronger recovery with distribution customers. Sales in the third quarter were up 9% sequentially and up 21% compared to the prior year period, underscoring our expectation of a continued recovery. Bookings in the quarter were up 29% from the same period last year. We were successful with multiple wins in the quarter for industrial printing, EMC, temperature sensing wins for pool and spa and the win for an industrial heat pump application. We added one new customer in the quarter for position sensing. Demand across industrial end market is expected to remain healthy for the balance of 2025. The megatrends of automation, connectivity and efficiency enhance our longer-term growth prospects. Transportation sales were $58.5 million in the third quarter, down approximately 7% from the same period last year due to softness for commercial vehicle products. In the third quarter, we had awards across various product groups, including accelerator module wins with OEMs in Europe, South America and China. Total booked business was approximately $1 billion at the end of the quarter. We had various wins for passive safety and chassis ride height sensors across several regions. We added a new product to the portfolio for brake sensing, securing a business award with a North American OEM. This further strengthens our long-term capability to expand our footwall presence. We also had a large win in commercial vehicle for smart actuators with an existing customer. Additionally, during the quarter, we released our COBROS technology, a new platform for electric motor control. This technology eliminates the need for 3 discrete current sensors and the position sensor, allowing for a simplified design, weight reduction and more precise control. The near-term growth rates for ICE versus EVs and hybrids are less of a concern for us given our light vehicle products are mostly agnostic to the drivetrain technology. The trend towards increasing demand for hybrids with extended range capabilities remains robust. Interest in our e-brake product, offering weight and cost advantages continues across OEMs at a slower pace as certain OEMs recalibrate EV investments and launch dates. We remain confident in the longer-term growth prospects for our e-brake and other footwall products. These, along with existing and new sensor applications will increase our ability to grow content. For our diversified end markets, subject to the uncertain tariff environment, demand in the medical market is expected to remain mixed with strength in therapeutics and softness in diagnostic ultrasound. In aerospace and defense, revenue is expected to grow given the timing of orders and momentum from the SyQwest acquisition. Industrial and distribution sales are expected to improve. Longer term, we expect our material formulations supported by 3 leading technologies and their derivatives to continue to drive our growth in key high-quality end markets in line with our diversification strategy. Across transportation markets, production volumes are expected to remain soft given the tariff impact and demand from customers. The North American light vehicle market is expected to be in the 15 million unit range. European production is forecasted in the 16 million unit range. China volumes are expected to be in the 30 million unit range. We are carefully monitoring for any potential impact from supply chain issues related to rare earth, aluminum and semiconductors, although we are not seeing any immediate impact. Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve. There was a notable demand increase for EVs in September with the elimination of the vehicle subsidy for the North American market. We anticipate general softness in commercial vehicle demand in the fourth quarter. Shipments of our new commercial vehicle actuator continue to ramp as we prepare for 2026, where we will implement further product enhancements. As I mentioned in previous calls, revenue from the SyQwest acquisition will introduce some seasonality where the timing of revenue may be influenced by the approval of funding by the U.S. government. As reported, we saw an increase in revenue for SyQwest in the third quarter and expect to maintain this positive momentum through the end of this year. We continue to closely monitor and evaluate the tariff and geopolitical environment, while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers. Assuming the continuation of current market conditions, we are narrowing our guidance for sales in the range of $535 million to $545 million and adjusted diluted EPS to be in the range of $2.20 to $2.25. Now I'll turn it over to Ashish, who will walk us through our financial results in more detail. Ashish? Ashish Agrawal: Thank you, Kieran. Sales in the third quarter were $143 million, up 6% sequentially and up 8% from last year. Sales to diversified end markets increased 22% year-over-year. SyQwest sales were $8.8 million during the quarter. As Kieran has highlighted, we expect the momentum to continue for sales from SyQwest in the fourth quarter. Sales to transportation customers were down 7% from the third quarter of last year due to the softness in sales related to commercial vehicle products. Foreign currency changes had a favorable impact on sales of approximately $1 million. Our adjusted gross margin was 38.9% in the third quarter, up 66 basis points compared to the third quarter of 2024, and up 12 basis points compared to the second quarter of 2025. Our global teams continue to focus on operational execution to deliver margin improvements. Tariffs had a minimal impact on profitability in the third quarter, and we continue to work closely with customers and suppliers to manage the impact. Adjusted EBITDA was 23.8% in the quarter. This is an improvement of 86 basis points sequentially and a reduction of 55 basis points compared to the third quarter of 2024. Earnings were $0.46 per diluted share for the third quarter. The third quarter results include a $4.2 million increase in reserve related to EPA's cost reimbursement claim for a prior environmental matter. Adjusted earnings were $0.60 per diluted share compared to $0.57 in the second quarter of 2025 and $0.61 in the third quarter of 2024. We had an unfavorable impact on our tax rate from changes in the mix of earnings. And in addition, the recent U.S. tax legislation changes had an adverse impact of approximately $0.03 on adjusted earnings per diluted share for the third quarter. Moving to cash generation and the balance sheet. We generated $29 million in operating cash flow in the third quarter compared to $35 million in the third quarter of 2024. Year-to-date, we have generated $73 million in operating cash flow. Our balance sheet remains strong with a cash balance of $110 million at the end of the quarter. Our long-term debt balance was $91 million, leaving us good liquidity to support strategic acquisitions. During the quarter, we repurchased 400,000 shares of CTS stock for approximately $17 million. In total, we returned $44 million to shareholders through dividends and share buybacks in the 3 quarters of 2025. We have $21 million remaining under our current share repurchase program. Our focus remains on strong cash generation and appropriate capital allocation, and we continue to support organic growth, strategic acquisitions and returning cash to shareholders. This concludes our prepared comments. We would like to open the line for questions at this time. Operator: [Operator Instructions] Our first question comes from John Franzreb from Sidoti Company. John Franzreb: I'd like to start with the guidance. It seems to me that you raised the midpoint on your revenue guidance, but lowered the midpoint on the EPS guidance. Now I recognize that you've been suggesting it would be the low end of that EPS. But I guess I'm surprised the dynamic of raising the revenue in light of that. Can you just walk us through what's going on there? Kieran O'Sullivan: Yes, John. So from a top line perspective, we feel good about the direction we're going there. As I mentioned in the prepared comments, the fourth quarter has some headwinds on CV. But overall, we've got good progress in industrial, nice momentum in aerospace and defense, strength in therapeutics and then some things we're monitoring on the diagnostics side. So that's it on the top line. And then on the bottom line, primarily, as Ashish mentioned in his prepared comments, there's the tax impact. And Ashish, you probably want to comment on that. Ashish Agrawal: Yes. So John, there are a couple of things that are having an adverse impact on our tax rate. Number one, the mix of earnings. And then the second piece, which is more pronounced is the tax legislation, given the mix of earnings we have, it actually has an adverse impact on our overall tax rate. So you saw that impacting our Q3 earnings in a meaningful way. And then that impact is expected to continue, obviously smaller into Q4 as well. John Franzreb: Okay. Understood. And Kieran, you just mentioned the CV market. So that begs the question. What are your transportation customers signaling about the 2026 production rates? Kieran O'Sullivan: John, for 2026, it's kind of a bit of a mixed market out there. You hear some OEMs, especially on the light vehicle side, talking more positive, some talking a little bit negative. So it's a very mixed story. What I would tell you is on the light vehicle side in this quarter, excluding Cummins, our large customer in CV, we saw an incremental -- small incremental increase in low single digits. And we had solid bookings in the quarter. So we feel really good about the bookings and where we're going. So the market is going to be a bit mixed still next year from everything we hear on transportation, but feel very good about what we're doing in medical, aerospace and defense and industrial. John Franzreb: Agreed. Can I just maybe touch on the end markets as a whole because the gross margin improvement was nice to see. And I'm actually kind of curious and maybe you could help me frame this better. But if you kind of rank your end markets on the gross margin contribution or should we be thinking about it on the operating margin contribution? How would you -- I know you're not going to give the actual margin profile, but how would you rank them so as we can see the change on a go-forward basis, we can think about the impact to profitability? Ashish Agrawal: So John, we earned good margins on our diversified end markets pretty obviously. I don't know if I would split the margins by end markets in terms of profile. They are pretty decent on the diversified side. Medical, industrial, aerospace and defense, we are doing reasonably good margins on all of those. Transportation is obviously behind in terms of comparison, but we earn good margins on the transportation side as well. John Franzreb: Okay. Kieran O'Sullivan: And John, the other thing I would comment on is you can see the -- you talked about the improvement in gross margin. Our diversification percentage is going up quarter-on-quarter as well. So I think that's what you're going to see is positive momentum there. Yes. John Franzreb: Yes. I was just -- I guess I'm kind of curious as how much, I don't know, medical has more of an impact versus, say, aerospace and defense. I would guess that industrial will be third in that ranking, but that would be me just guessing. Ashish Agrawal: So John, it's a little bit more, I would say, split by product line. The margin profile on different product lines has a different level in pretty much all the end markets. So for example, when you look at our piezo product lines, we have single crystal in there, tape cast and bulk and the margin profile varies. So single crystal would be slightly higher margins than the other 2. In frequency, we'll have a different level of margin, which is higher. And then -- so that -- it's not so much where we are seeing distribution by end market as we are seeing distribution by product lines. John Franzreb: I appreciate that clarity. Kieran O'Sullivan: Okay. Thanks, John. Operator: Our next question comes from Hendi Susanto from Gabelli Funds. Hendi Susanto: First question is for Ashish. The tax impact, the adverse tax impact, will it go away in 2026? Ashish Agrawal: So Hendi, we'll obviously be looking at areas that we can drive improvements. The specific change from the tax legislation that will continue to have a slight adverse impact, but we'll continue looking at other areas of opportunity in terms of tax efficiency as we have always done. So I would expect at this point, 2026 to be similar tax rate as 2025, but we'll continue working on it. Hendi Susanto: I see. And then Ashish, would you be able to spell out what tax rate estimate we should use for our -- like [indiscernible] model? Ashish Agrawal: Yes. So we are in the low 20% range right now, Hendi. We are talking about 21% to 23% type of ballpark on a go-forward basis. Hendi Susanto: Yes. And then this question is for Kieran. Kieran, this morning, NXP Semiconductor reported its September quarter. I know that it's an apple and orange comparison. They do say that Tier 1 inventory burn is getting closer and closer to be completed. How should we view the expectation that inventories in your channel for transportation is close -- is somewhat close to representing the end market demand. And then at some point, they will need to build more inventories internally. How should we view that notion? Kieran O'Sullivan: Yes. I didn't see the NXP data. But what I would look at, Hendi, is if you look at the days of supply on hand, it's probably trending on the light vehicle side around 50 days, which seems pretty normal. I wouldn't be concerned about it at all. There is obviously some further softness in the commercial vehicle market, and that's one we're watching more closely, but not on the light vehicle side. Hendi Susanto: I see. And then looking at SyQwest acquisitions and then your expectation, given we have insight into the quarterly revenue run rate for the last 5 quarters, would you be able to give some puts and takes and whether or not the company's revenue contribution meets or exceeds your target for this year? Kieran O'Sullivan: Yes. So Hendi, if I look at it quarter-by-quarter, we've always said the first half is going to have some seasonality, whether it's heavier in the second half, and that's what we're seeing now. So we've seen a step-up in revenues from Q2 to Q3, and we expect that step-up to continue. We will see some seasonality next year as well, first half, second half due to government funding. And we're very pleased with the pipeline of opportunities. And we called out an award today in the comments, sole-sourced for a new platform with the first $5 million, and we expect other awards in the next 12 months and over the next several years as well. So we feel really good about that, and we want to build on that momentum. Hendi Susanto: Got it. And then one last question for Ashish. The operating expense line. The SG&A is somewhat meaningfully larger this quarter. I know that you mentioned that's a $4.2 million increase in reserve. Is that the main reason of the increase in OpEx? Ashish Agrawal: Yes. So Hendi, that is by far the largest. We also have a year-over-year increase in equity-based compensation as going through the year, sometimes you have to make adjustments based on expected performance. And last year's number had a relatively larger reduction. So that is also causing the year-over-year comparison to look a little bit unfavorable in Q3 of 2025. Operator: We now have a follow-up question from John Franzreb. John Franzreb: Yes. Kieran, I'm kind of curious about your comments on the industrial end markets. It seems like -- to me, it seems like you're more positive than you've been in quite some time. Is that the case, or am I just reading too much into it? Kieran O'Sullivan: No, John. I think when we look at all the diversified end markets, we feel pretty good. And if I start with industrial, which you mentioned, we've seen a 9% sequential improvement over 20% year-on-year. We've seen a strong increase in distribution-related sales. So we feel very good about the trend there. And then I also mentioned on medical, we expect bookings to increase in the fourth quarter and the very same on aerospace and defense. So across the diversified markets with industrial right up there, I feel very good. John Franzreb: And just on the medical, do you think bookings will increase, do you think the diagnostics side of the business will be coming back, or do you think that will remain weak on a go-forward basis? Kieran O'Sullivan: The diagnostics side is a little weaker, but it's still solid overall, and we expect it will improve probably more so next year. But we've got strong momentum on therapeutics, and we feel that's going to continue not just in the fourth quarter, but into next year as well, John. John Franzreb: Got it. And can you kind of walk me through how you're successfully navigating tariffs. A lot of companies I cover anticipate a delay in being able to recover pricing from the customer base. You seem to be doing extremely well. Can you just talk about what's going on there? Ashish Agrawal: So John, we've talked about this in the past where a lot of what we do in Asia stays in Asia. what we do in Europe stays in Europe and what we do in North America stays in North America. It's not 100% that way, but largely, it is that way. And that helps us mitigate cross-border flows, which is where you see the impact of tariff. That's a big portion of it. The other is where we do have tariff impact, we are working very closely with suppliers, with our customers to find ways to mitigate, but then also pass the cost on to our customers as we work through the impact. And so far, we've been able to manage well. We have talked about USMCA. That's where our exposure would increase if USMCA were to go away and it doesn't get replaced with something suitable. But other than that, we've been able to manage pretty well. John Franzreb: Very good. I guess one last question. The fire at the Ford aluminum supplier, does that have any impact on your company at all? Kieran O'Sullivan: John, Novelis, that's the aluminum supplier, and then there's Nexperia the chips. We haven't seen any direct impact, but it's something we're monitoring as we go through the fourth quarter. So nothing to report at this point. John Franzreb: Okay. Keep up the good work. Kieran O'Sullivan: All right. Thank you. Operator: [Operator Instructions] We currently have no further questions. So I'll hand back to Kieran for any closing remarks. Kieran O'Sullivan: Thank you, Claire, and thank you all for your time today. Despite the challenges of tariffs, geopolitical and economic pressures, diversification remains a strategic priority to drive growth and margin expansion. In addition, we are expanding in vehicle powertrain agnostic solutions. We look forward to updating you on our full year 2025 performance in February of 2026. Thank you again. This concludes our call. Operator: This concludes today's call. Thank you for joining. You may now all disconnect your lines.
Operator: Good day, and welcome to the Q3 2025 Materialise Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Harriet Fried with Alliance Advisors. Harriet Fried: Thank you, everyone, for joining us today for Materialise's quarterly conference call. With us on the call are Brigitte de Vet, Chief Executive Officer; and Koen Berges, Chief Financial Officer. Today's call and webcast are being accompanied by a slide presentation that reviews Materialise's strategic, financial and operational performance for the third quarter of 2025. To access the slides, if you have not done so already, please go to the Investor Relations section of the company's website at www.materialise.com. The earnings release that was issued earlier today can also be found on that page. Before we begin, I'd like to remind you that management may make forward-looking statements regarding the company's plans, expectations and growth prospects, among other things. These forward-looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from the expectations expressed, including competitive dynamics and industry change. Any forward-looking statements, including those related to the company's future results and activities, represent management's estimates as of today and should not be relied upon as representing their estimates as of any subsequent date. Management disclaims any duty to update or revise any forward-looking statements to reflect future events or changes in expectations. A more detailed description of the risks and uncertainties and other factors that may impact the company's future business or financial results can be found in the company's most recent annual report on Form 20-F filed with the SEC. Finally, management will discuss certain non-IFRS measures on today's call. A reconciliation table is contained in the earnings release and at the end of the slide presentation. With that introduction, I'd like to turn the call over to Brigitte de Vet. Go ahead, please, Brigitte. Brigitte de Vet-Veithen: Good morning and good afternoon and thank you all for joining us today. You can find the agenda for our call on Slide 3. First, I will summarize the business highlights for the third quarter of 2025. Then I will pass the floor to Koen, who will take you through the third quarter financials. Finally, I will come back and explain what we expect for the remaining months of 2025. When we've completed our prepared remarks, we'll be happy to respond to questions. Moving to Slide 4 for the highlights of the third quarter 2025. While our overall revenue remained under pressure, I am very pleased with the continued strong growth of our medical unit, where we achieved double-digit growth again on the back of an exceptionally strong third quarter last year. Today, I would like to highlight the progress that we are making in the cardiac segment, one of our newer markets. In 2025, we acquired FEops, a company specializing in AI-driven simulation technology for structural heart interventions. FEops' predictive simulation technology complemented our Mimics Planner, adding advanced simulations to its anatomical measurements. We have now taken 2 important steps in this market. First, we recently released the next version of FEops' heart guide for transcatheter aortic valve replacement, adding important features to the planner. In addition to giving physicians insights into the right size and position of the device in the aortic route, this release helps them to manage the lifetime of the patient. Specifically, this new release includes a predictive simulation of the potential ways to treat the patient should he or she come back for reintervention a couple of years down the line. Secondly, we generated additional clinical evidence to underline the benefits of our cardiac planners. As an example, in a prospective study with 126 patients, a leading cardiac center demonstrated time savings of up to 91% for patients undergoing transcatheter aortic valve replacement. This important time saving came with high accuracy combined -- compared to standard planning tools. Also, the fact that the cardiac planner is a cloud-based system that can be accessed from anywhere by the heart team, which typically consists of several specialties, facilitated the discussions in the preparation of the intervention. This evidence shows that our AI-enabled automatic case planning could play a role in generating efficiencies in this type of procedures, thus potentially enabling the treatment of more patients with a personalized approach in the future. The improved features of our planners and the additional evidence will strengthen our position in this market and provide a great foundation to treat more patients in the cardiac space. I would also like to highlight the progress we made in our existing markets. As an example, we released a new version of our Mimics Enlight CMF planner. You might remember that this software was one of the finalists for the TCT award in the healthcare category earlier this year. In this new version, customers can now benefit from a range of AI algorithms that enable them to plan cases faster and more efficiently. And this is particularly important, for example, for trauma cases. Trauma patients come to the hospital after accidents, sometimes with complicated fractures and multiple fragments of the jaw that the surgeon needs to puzzle together. The trauma planner of Mimics Enlight CMF now gives the surgeons the ability to efficiently plan the procedures and piece those fragments together. This planning also helps to gain time during the procedures because the surgeon knows how to treat the patient. In addition, the surgeon knows what type of device to use in the procedure. And in a world where more and more devices come in a sterile package, it saves a lot of cost if you only open what you need rather than trying multiple products and then having to resterilize and repackage or in some cases throw away what you don't need. So in summary, this new release of Mimics Enlight CMF enables us to target the trauma segment, which is a significant part of the market and first feedback from customers is encouraging. Turning now to our Materialise Software segment. We continue to make progress to establish CO-AM as the ecosystem for all AM operations. In the last 12 months, we launched our Magics SDKs and the next generation of our build processors. As a reminder, our Magics SDKs allow users to create custom preprint workflows by tapping into more than 800 algorithms built over 35 years. These SDKs enable customers to scale AM operations efficiently and print complex, high-performance geometries while avoiding field builds and improving part quality, all of this while protecting the intellectual property behind component designs. Similarly, the advanced algorithms of the next-generation build processors significantly improve build time and quality, thanks to, for example, its advanced strategies for multi-lasers. And they enable a variety of collaboration models, including the possibility for customers to build their own build processors, thanks to the availability of our SDKs. We are now going a step further by launching a low-code enabling technology on CO-AM, making these SDKs more accessible for customers without a deep engineering background. This facilitates new product introductions of our customers and enable easy workflow automation for large-scale applications. The new capabilities, therefore, have the potential to drive efficiencies and optimize the cost of additive parts. We are currently preparing for next month's Formnext, where you will hear more about this and our other capabilities on the CO-AM ecosystem. Finally, in our Materialise Manufacturing segment, we continue to execute on our strategy while facing continued headwinds in some market segments, including the automotive sector. Specifically, at ACTech, we continue to invest in the huge and heavy segment by adding machines able to produce giga castings and other large and complex parts, often at a significant weight. As a reminder, in the third quarter 2024, we celebrated the opening of our second ACTech plant and shipped first parts in the fourth quarter 2024. In segments beyond automotive, such as aquaculture, mining, maritime or energy, parts are typically not only larger and heavier, but also more complex, for example, to achieve better thermodynamic cycles in the large engines with maximum fuel efficiency. The combination of high-precision sand printing, casting and complex post-treatment that we can now offer at ACTech is ideal for these parts. Also, the machines installed in 2025 enable the automation required to produce these complex parts not only for prototypes, but also in small series. I would also like to highlight the progress we are making in the defense sector, where in light of the current geopolitical landscape and the breakdown of traditional global alliances, spending is increasing, in particular, in Europe in order to strengthen resilience and autonomy of the various regions. After the announcement of our broad engagement in this sector, we attended DSEI, one of the world's largest defense and security trade exhibitions and attended a series of other events, engaging with major primes and showcasing our capabilities. Additive manufacturing addresses the defense industry's challenges as additive manufacturing enables rapid, flexible and sustainable production of mission-critical components, reduces logistical constraints, fosters innovation and strengthens strategic autonomy in a complex and evolving security environment. The positive interactions with stakeholders in the industry confirmed that our additive production capabilities in Europe and our software capabilities globally are valuable assets to address the current challenges of the defense industry. I will now turn over to Koen, who will present the financial results. Koen Berges: Thank you, Brigitte. Good morning or good afternoon to all of you on this call. I'll begin with a brief overview of our key financial results, as shown on Slide 5. Our consolidated revenue grew by 2% compared to Q2 of this year, but ended with EUR 66.3 million, 3.5% lower than last year's strong third quarter. Our gross profit margin remained strong at 56.8% in the third quarter of this year, fully in line with the margin realized over the first 9 months of 2025. Adjusted EBIT for the third quarter of '25 amounted to EUR 2.9 million, representing an adjusted EBIT margin of 4.4% of revenue. Over the third quarter of this year, we generated a net profit of EUR 1.8 million. Driven by strong free cash flow in the third quarter of this year, we further increased our net cash position to EUR 67.7 million. In the following slides, I will elaborate further on these results. As a reminder, please note that unless stated otherwise, all comparisons are against our results for the third quarter of 2024. Turning now to Slide 6. You will see an overview of our consolidated revenue. In the third quarter of this year, Materialise Medical posted an all-time revenue record of EUR 33.3 million, growing by more than 10% compared to a particularly strong third quarter of last year. On the other hand, revenues from our Software and Manufacturing segments continue to be impacted by macroeconomic headwinds. As a result, revenue in both segments declined by 7% and 17%, respectively, leading to an overall decrease of 3.5% of our consolidated revenue compared to last year's period, while unfavorable ForEx effects, mainly due to a weaker U.S. dollar also impacted our top line this quarter. As you can see in the graph on the right side of the slide, Materialise Medical accounted for 50%, Materialise Software for 16% and Materialise Manufacturing for 34% of our total revenue over the third quarter of 2025. Our deferred revenue balance related to software maintenance and license fees coming from both our Medical and Software segments decreased in the third quarter of this year, which is fully in line with our seasonal pattern. Over the last 12 months, however, the balance increased by EUR 4.2 million, bringing the total amount carried on our balance sheet at the end of the third quarter of 2025 to EUR 45.3 million. On Slide 7, you will see our consolidated adjusted EBIT and EBITDA numbers for the third quarter of 2025. Consolidated adjusted EBIT totaled EUR 2.9 million compared to EUR 4.4 million for the same period of '24, representing an adjusted EBIT margin of 4.4%. Consolidated adjusted EBITDA for the third quarter amounted to EUR 8.4 million, decreasing from EUR 9.9 million in 2024, representing an adjusted EBITDA margin of 12.7%. Given current market volatility, we believe that it's important to also compare our operational performance on a quarter-over-quarter basis. In this context, both adjusted EBIT and EBITDA remained roughly stable compared to the second quarter of this year and are significantly up from the beginning of 2025 as a result of disciplined cost control and of targeted cost reduction measures, we have taken to safeguard operational profitability. Year-to-date, we generated now EUR 6.6 million of adjusted EBIT and EUR 22.9 million of adjusted EBITDA. Moving now to Slide 8. You will notice that the revenue in our Materialise Medical segment, as already mentioned, increased by 10% compared to the particularly strong third quarter of 2024. The growth was again generated by both medical software and by revenue from medical devices sales, which grew respectively, by 6% and 12%. Within our Medical Devices and Services activity, we saw continued growth in both our direct and our partner sales. In line with the top line growth, adjusted EBITDA grew further to EUR 10.2 million, resulting in an adjusted EBITDA margin of more than 30%. We further increased our R&D investments in Medical and will continue to do so in coming months in order to drive future growth. Year-to-date, our Medical segment realized revenue of EUR 97.2 million, up by 15% from last year, with an adjusted EBITDA of EUR 30 million, which represents a 31% adjusted EBITDA margin. Slide 9 summarizes the results of our Materialise Software segment. In the third quarter, software revenue decreased by 7% to EUR 10.3 million. This was partly due to unfavorable ForEx impacts, while macroeconomic and geopolitical uncertainty also continued to put pressure on our sales volumes, especially in the U.S. markets. During the third quarter, we continued our transition to cloud subscription-based business model. Over the quarter, around 83% of the software revenue was of a recurring nature versus 74% in the same quarter of last year, demonstrating the progress we keep making here. Despite the lower top line, effective cost management allowed us to keep the adjusted EBITDA margin stable at around 18% compared to the same period of last year, leading to an adjusted EBITDA of EUR 1.8 million. Year-to-date, our Software segment realized EUR 30 million of revenue and an adjusted EBITDA of EUR 3.8 million. Now let's turn to Slide 10 for an overview of the performance of our Materialise Manufacturing segment. In the third quarter of this year, the performance of manufacturing remained weak, with revenue declining by 17% compared to last year's third quarter and ended at EUR 22.7 million. Compared to Q2 of this year, however, revenue increased slightly. The macroeconomic headwinds we have been facing for some time continue to impact our operational results. Mainly as a result of the lower top line, the adjusted EBITDA of the Manufacturing segment ended negative this quarter at minus EUR 0.8 million, stable compared to this year's second quarter though. Year-to-date, our Manufacturing segment realized revenue of EUR 70.3 million with an adjusted EBITDA of minus EUR 2 million. Slide 11 provides the highlights of our consolidated income statement for the third quarter of this year. And over the period, our gross profit amounted to EUR 37.7 million, representing a stable gross profit margin of 56.8% compared to the previous quarters of this year, but slightly below the 57.2% realized in a strong Q3 of 2024. Our operating expenses in the quarter increased only by EUR 0.2 million or less than 1% in aggregate compared to the same period of last year, with R&D expenses increasing 4% year-over-year. During the quarter, we invested again over EUR 11 million in R&D, the majority of which was in our Medical segment. Sales and marketing remained flat year-over-year, while G&A expenses decreased by almost 3%, reflecting the impact of continued cost control. Net operating income in the quarter was EUR 0.9 million, remaining stable compared to prior year. As a result of all of these elements, the Group's operating result in the quarter was EUR 2.5 million. In Q3 2025, the net financial results amounted to a limited loss of EUR 0.1 million. Interest income on our cash reserves offset the interest expense on our financial debt and the negative impact from foreign exchange fluctuations. Last year's corresponding period, the net financial loss was minus EUR 1.1 million, mainly due to large unfavorable exchange rate effects at that time. Income tax expense in the quarter amounted to EUR 0.6 million compared to a tax expense of EUR 0.1 million in the corresponding period of last year. And as a result, we once again generated a positive net result in the third quarter of this year, amounting to EUR 1.8 million, representing EUR 0.03 per share. Now please turn to Slide 12 for a recap of balance sheet and cash flow highlights. And also for the third quarter of 2025, we can report a strong balance sheet. Our cash reserve further increased to EUR 132 million at the end of the quarter. At the same time, our gross debt also increased to EUR 64 million. Both changes were impacted by an additional EUR 50 million drawing we made during Q3 on an existing bank credit facility in line with contractually agreed drawing periods. In the next 12 months, we will be drawing the remaining EUR 50 million of this facility. The net cash position at the end of the quarter, which is not impacted by these additional drawings, amounted to EUR 67.7 million, up by almost EUR 7 million compared to the beginning of this year, mainly driven by strong free cash flow. Trade receivables, inventory and trade payable positions on our balance sheet all decreased compared to the position at the end of last year. The total deferred income position decreased to EUR 58 million, out of which EUR 45 million was related to deferred revenue from software license and maintenance contracts, as mentioned earlier, reflecting the seasonal pattern of deferred revenue evolutions. As you can see from the graphs on the right side of the page, the operating cash flow in the third quarter amounted to EUR 10.4 million, significantly up from the EUR 6.9 million generated in the third quarter of 2024. Capital expenditures for the third quarter amounted to EUR 5.3 million, including EUR 3.1 million of non-recurring CapEx, mainly spent on remaining machinery for the new ACTech plant and on the installation of a solar panel park at HTU. Year-to-date, total CapEx amounts to EUR 11.8 million, out of which 60% or close to EUR 7 million can be considered to be of a non-recurring nature. Over the first 9 months of this year, the operating cash flow amounted to EUR 20 million, while the year-to-date free cash flow is positive at around EUR 11 million. And with that, I'd like to hand the call back to Brigitte. Brigitte de Vet-Veithen: Thank you, Koen. Let's now turn to Page 13. I'll conclude my remarks with a discussion of our full year 2025 guidance. As we approach the end [indiscernible] continue to impact the business environment in which we operate in our Manufacturing and Software segments. For fiscal year 2025, we therefore maintained our guidance as previously communicated with revenues in the range of EUR 265 million to EUR 280 million and adjusted EBIT in the range of EUR 6 million to EUR 10 million. We remain confident that our business is solid and resilient and that Materialise is strongly positioned to capture growth opportunities once market conditions improve. This concludes our prepared remarks. Operator, we're now ready to open the call for questions. Operator: [Operator Instructions] And our first question will come from the line of Troy Jensen with Cantor Fitzgerald. Troy Jensen: Congrats on the nice results. So, I'd just like to just unpack a little bit in Medical. Could you kind of give us an update on -- I guess I'm trying to figure out like relative exposure. I think of you guys as probably CMF and HIPS as the 2 biggest sections. I just would be curious if you could kind of rank order. And then this cardiac and some of these other things, how big and important can they be for next year here? Brigitte de Vet-Veithen: Yes. So I think in general, Troy, I mean, obviously, a very good question. I think what we've repeatedly communicated is that we have our existing markets and some new markets. So CMF, orthopedics and our research and engineering segments are the existing markets where we've already been active for quite a long time and that those markets are a little more mature than the others. In our new markets, we address the cardiac and the respiratory space in particular is new markets. So of course, the majority of our revenue comes from our existing markets. The new markets are still small, but we expect them to grow faster than the existing markets in the future. That's kind of how you need to think about that. Now within the existing markets, all 3 markets remain very important for us. Troy Jensen: Okay. All right. And how about just manufacturing here? I get a bunch of questions. I'll just rattle them off quick and see if you can hit them all. But you just hopes on a recovery, and I'm just kind of curious how big is aerospace and defense as a percentage of revenue? Brigitte de Vet-Veithen: So aerospace remain -- it has been a focus segment for us for quite a while. We see in the aerospace segment in general, we have seen continuous growth in that segment and we do believe that that's going to continue. Now the defense industry is a newer industry for us, at least with the broad engagement that we have communicated about earlier this year. So, the defense area at this point in time is not a significant market for us yet. At the same time, with -- as I mentioned earlier in my remarks, I think with the interactions we had so far, I see potential in that defense segment as our capabilities that we have built for aerospace can particularly be leveraged in the defense industry going forward. Troy Jensen: On the defense side, Brigitte, is it more on the metals front or is it polymers also? Brigitte de Vet-Veithen: It's actually a combination of polymer and metal. I'll give you an example on the aerospace segment, where our polymer offering is really important. There's 2 different applications on the polymer side that you can think about. One is interiors for the aerospace segment at large, in particular, for commercial aircraft as an example. The second is tooling where our polymer capabilities are helpful for aerospace companies, and in particular, the larger OEMs driving this. As an example, we were the first qualified supplier for Airbus in the polymer segment and that's a couple of years back. Troy Jensen: Okay. If I could sneak one more in. Can you just talk about just the manufacturing profitability? I mean, obviously, it's been a drag on you guys, unfortunately, here at these revenue levels. Any thoughts on either a recovery in kind of European industrial markets to drive better profitability or are there other things you can do to kind of cut costs to try to prevent that from diluting kind of the profitability level? Brigitte de Vet-Veithen: Yes. So I'll give you a double answer. So the first part of the answer is that, as Koen highlighted in his review of the financials, we have taken measures to significantly reduce our cost end of last year, earlier this year. And we do see the impact on our financials in manufacturing already. They might not be super visible on the EBIT and EBITDA lines given the weakness -- the continued weakness we see on the revenue line, but they have been making a difference, as Koen highlighted. So that's the first one. The second element to the answer I would give is there is 2 things really we need to see recovery on the revenue line. As you mentioned, the European environment is a really important one for us. So recovery in the European markets will certainly be a driver to bring our revenues to a more usual level. The second element that is important to keep an eye on is the automotive sector as such, because admittedly, in manufacturing at large, we are still exposed to the automotive industry and that is in Europe and in the U.S. And the recovery of the automotive industry will help us to recover to a more normal level on the revenue side as well. So it's really those 2 drivers that we need to keep an eye on. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Ms. Brigitte de Vet for any closing remarks. Brigitte de Vet-Veithen: Thanks again for joining us today. We obviously look forward to continuing our dialogue with you through investor conference or in one-on-one virtual meetings or calls. And we are also looking forward to meeting some of you in person at the upcoming Formnext event in November. In the meantime, please reach out if you have any questions. Thank you, and goodbye for now. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I will be your conference operator today. At this time, I would like to welcome you to the Custom Truck One Source Inc. Third Quarter 2025 Earnings Conference Call [Operator Instructions] I'd like to turn the call over to your host today to Brian Perman. Sir, you may begin. Brian Perman: Thank you. Before we begin, we would like to remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release we issued yesterday afternoon. That press release and our third quarter investor presentation are posted on the Investor Relations section of our website. We filed our third quarter 2025 10-Q with the SEC yesterday afternoon. Today's discussion of our results of operations for Custom Truck One Source Inc., or Custom Truck, is presented on a historical basis as of or for the 3 months ended September 30, 2025, and prior periods. Joining me today are Ryan McMonagle, CEO; and Chris Eperjesy, CFO. I will now turn the call over to Ryan. Ryan McMonagle: Thank you, Brian, and welcome, everyone, to today's call. Building on our momentum from the second quarter, Custom Truck had a strong third quarter, delivering 20% adjusted EBITDA growth and 8% revenue growth versus Q3 2024. Third quarter performance was characterized by continued solid fundamental demand in our core T&D markets and excellent execution by our team, leading to strong results in both our ERS and TES segments and overall year-over-year revenue growth for the quarter. Custom Truck powers the people who strengthen and build our nation's infrastructure. Our trucks are used to build and maintain the grid on a daily basis. Our steady business activity and strong intra-quarter order flow continue to reinforce our optimism about achieving our expected growth targets in 2025. As a result, we are reaffirming our previous fiscal 2025 revenue and adjusted EBITDA guidance. While Chris will discuss our segment's performance in greater detail, I'd like to highlight some key trends. In ERS, our utility contractor customers continue to see sustained and increased levels of activity, which they expect to persist for the foreseeable future, driven largely by spending tied to unprecedented secular growth and electricity demand. As several recent articles highlight, the real bottleneck in the AI build-out is electricity. Current industry projections estimate that total T&D CapEx among U.S. investor-owned utilities for the 5-year period from 2025 to 2029 will be approximately $600 billion. The overall annual growth rate of spending is expected to be almost 10% with transmission spending expected to grow at more than 15% annually through 2029. We feel these trends in the utility end market have been among the key factors driving the growth in our OEC on rents over the last year and position us well for 2026. For the third quarter, average OEC on rent was more than $1.26 billion, a 17% year-over-year increase. We ended the third quarter with over $1.3 billion of OEC on rent and have continued to see growth so far in the fourth quarter. Average utilization in the quarter was just over 79%, up more than 600 basis points versus Q3 of last year and the highest level in more than 2 years. We continue to see mid-70% to mid-80% utilization rates across most of our fleet, demonstrating the long-term resilience of our end markets. These trends drove a year-over-year increase in rental revenue of 18% in the quarter, with total ERS segment revenue up more than 12% versus Q3 of last year. Because of the sustained strong demand, we decided in the quarter to accelerate rental fleet CapEx, which Chris will discuss in more detail. We believe this spending will position us well for continued growth in 2026. At the end of Q3, our total OEC was just over $1.62 billion, our highest quarter end level ever. Coming off near record segment sales last quarter, TES continued to see good sales performance in the third quarter, posting year-over-year growth of 6% and year-to-date growth of 8.5% versus the first 3 quarters of last year. While our backlog was down in the quarter, we continue to see strong intra-quarter order flow, particularly among our local and regional customers. This reflects the current availability of equipment broadly in the market, which decreases the need for customers to place orders far in advance. Signed orders in the quarter from this portion of our customer base were up more than 40% year-over-year, driving overall order growth of over 30%. With the supply of certain vocational vehicles remaining at elevated levels across the market, segment gross margin was down slightly in Q3 compared to the prior quarter. However, it remained within our expected range of 15% to 18%. Overall, our current pace of orders and the continued strong demand for vocational vehicles across our end markets combined to provide us with confidence in our outlook for TES for the rest of the year. We continue to believe that accelerated depreciation provisions contained in the recent federal spending and tax bill will benefit Custom Truck, particularly for sales of used and new vehicles in the fourth quarter. Since the end of the third quarter, we've seen this reflected in our backlog, which has grown so far in the fourth quarter to over $350 million. With respect to the tariff landscape, we continue to feel that as a result of our mitigation actions taken earlier this year, the tariffs will have a limited direct cost impact on our business this year. However, we continue to hear about hesitancy related to new equipment purchase decisions from some of our customers as a result of economic uncertainty, continued high interest rates and the overall inflationary pricing environment to which the tariffs have contributed. We are reaffirming our full year 2025 guidance. Our strong year-to-date results, our robust order flow and resilient end market demand continue to drive our expected growth across our consolidated business this year. Despite some volatility in the macro environment, our business outlook remains positive. Long-term sustained end market demand, buoyed by secular megatrends and our ability to provide exceptional execution on behalf of our customers set us apart from our competition. Our multi-decade relationships with strategic suppliers and our long-tenured and diversified customer base will continue to be key to our success. I continue to have the highest degree of confidence in the Custom Truck team and want to thank everyone for their hard work and dedication that helped achieve these results this quarter. We look forward to updating everyone on our progress on next quarter's call. With that, I'll turn it over to Chris to discuss our third quarter results in detail. Christopher Eperjesy: Thanks, Ryan. For the third quarter, we generated $482 million of revenue, $156 million of adjusted gross profit and $96 million of adjusted EBITDA, up 8%, 13% and 20%, respectively, versus Q3 of 2024. On a year-over-year basis, all our rental segment KPIs improved in the quarter. Average utilization of the rental fleet for Q3 was over 79% compared to 73% in Q3 of the prior year. Average OEC on rent in the quarter was over $1.26 billion compared to under $1.1 billion in Q3 of 2024. Both metrics so far in Q4 are higher than the averages we experienced in Q3, currently standing at more than $1.3 billion and over 80%, respectively. As of today, OEC on rent is up more than $180 million or 15% versus a year ago. The ERS segment had $169 million of revenue in Q3, up more than 12% from $151 million in Q3 of 2024. Rental revenue was up meaningfully on a year-over-year basis, showing 18% growth. Rental asset sales were essentially flat and are up 20% year-to-date compared to the first 3 quarters of last year. Segment adjusted gross profit was $104 million for Q3, up 19% from Q3 of last year. Adjusted gross margin for ERS was 62% in the quarter, more than 370 basis points higher versus the same period last year, driven by a higher mix of rental revenue as well as improved rental margins of almost 76% and sustained rental asset sales margins in the mid-20% range. On-rent yield was 38.2% for the quarter, down slightly from Q3 of last year, but still within our expected upper 30% to lower 40% range. Net rental CapEx in Q3 was $79 million, and our fleet age is just below 3 years. Our OEC in the rental fleet ended the quarter at over $1.62 billion, up almost $130 million versus the end of Q3 2024 and up more than $60 million in the quarter, reflecting our strategic investment given the strong demand environment we continue to experience across our primary end markets, particularly in T&D. We expect to continue to invest in the fleet in the fourth quarter, resulting in high single-digit percentage OEC growth versus the end of 2024, which is higher than previously expected. In the TES segment, coming off near record sales in Q2, we sold $275 million of equipment in Q3, up 6% year-over-year. Gross margin in the segment in Q3 was 15%, down from Q3 2024. We expect TES gross margins to improve in the coming quarters as supply of vocational equipment in the market comes more into balance, reducing some of the pricing pressure we've seen this year. PES new sales backlog decreased by $55 million in the quarter, driven by continued strong sales activity. At 3 months of LTM TES sales, our TES backlog is slightly below our targeted historical average range. However, net orders in Q3 remained strong at $220 million, up more than 24% compared to Q3 of 2024. So far in Q4, which is historically our highest quarter of PES sales, we've continued to see strong order flow and our backlog has grown to over $350 million. That, combined with the ongoing feedback from our customers regarding their equipment needs for the remainder of the year, provides us with confidence that we will see strong revenue growth in TES this year, but we do believe it will be closer to the low end of our guidance range. Our strong and long-standing relationships with our chassis, body and attachment vendors continue to be an important driver of TES production. Our current level of inventory positions us well to meet our production, fleet growth and sales goals for the year as well as help mitigate any impact from tariffs. Our APS business posted revenue of $38 million in the quarter, up 3% compared to Q3 of last year. Adjusted gross margin in the segment was over 26% for Q3, up both year-over-year and sequentially. Our year-to-date adjusted gross margin in APS remains in our expected mid-20% range. Borrowings under our ABL at the end of Q3 were $708 million, an increase of $38 million versus the end of Q2, largely to fund both rental and non-rental CapEx and certain other working capital needs. As of the end of Q3, we had $238 million available and over $230 million of suppressed availability under the ABL, resulting in substantial liquidity for the company. With LTM adjusted EBITDA of $365 million, we finished Q3 with net leverage of 4.53x, a sequential improvement. We did make progress on our planned inventory reduction with inventory down almost $54 million in the quarter. This contributed to a reduction in our floor plan balances of almost $57 million. We continue to expect to reduce our inventory in Q4 and into next year, which should contribute to lower balances on our floor plan lines as well as reduced borrowings on the ABL. However, given the strong demand environment that we are expecting to continue into 2026 and beyond, we now expect to reduce our inventory by $125 million to $150 million compared to the level at the end of last year. We intend to use our levered free cash flow to reduce our net leverage and to continue to target a level of below 3x. This remains a primary and important goal for us and one that we expect to achieve by the end of fiscal 2026. We are reiterating our previous 2025 guidance with total revenue in the range of $1.97 billion to $2.06 billion and adjusted EBITDA in the range of $370 million to $390 million. However, given the sustained rental demand in ERS, we now plan to invest more than previously expected in our rental fleet this year, resulting in net rental CapEx of approximately $250 million. In addition, we expect our non-rental CapEx to be higher this year as well as we have taken the opportunity to fund some additional production and manufacturing improvements at our Kansas City location, which should result in expanded production capacity and better position us for growth across our segments. While our segment guidance remains unchanged, we do expect ERS to finish the year with revenues in the upper half of our $660 million to $690 million range and TES to finish the year with revenues closer to the lower end of the $1.16 billion to $1.21 billion range. The extent of the benefit we get from our customer spending on new and used equipment as a result of the accelerated depreciation provisions is likely to be a key determining factor as to where in our guidance ranges we end up for both ERS and TES. As a result of higher-than-expected rental and non-rental CapEx, as well as the decrease in our planned inventory reduction, we now expect our levered free cash flow to be less than our previous $50 million target. However, we are confident that the incremental CapEx will yield strong returns that will result in higher sustained levels of levered free cash flow going forward. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite some macroeconomic uncertainty this year, our year-to-date results and the continued strong fundamentals of our end markets allow us to be optimistic about the long-term demand drivers in our industry and our ability to produce double-digit adjusted EBITDA growth this year. With that, I will turn it over to the operator to open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Scott Schneeberger from Oppenheimer. Daniel Hultberg: It's Daniel on for Scott. So it seems like momentum is really strong here. Can you guys please elaborate on the visibility you feel you have for 2026 to sustain this momentum, please? Ryan McMonagle: Sure. Yes. Good to hear from you, Daniel, and thanks for the question. Yes, we're seeing really good demand in the utility sector and transmission and distribution. And as we talked about on the call in our remarks, we're seeing demand increase, especially around transmission, in particular. So as everybody is hearing, it does feel like we're heading into a strong cycle of transmission demand. And so that's the decisions that we made in Q3 were to invest more into the rental fleet. Some of that will carry into Q4 as well. And we think that's what sets us up really well for 2026. So we said on the call that OEC on rent averaged $1.26 billion for the quarter. It finished the quarter at $1.3 billion and has continued to grow into October. So utilization on rental is back into the 80 -- is north of 80% at this point. And so that's, I think, why we're really comfortable with the impact of that heading into 2026. Daniel Hultberg: Got it. Honing in on ERS and OEC on rent yield. Could you discuss how you think about that going forward and how you feel about the pricing environment? Ryan McMonagle: Yes. We've guided, obviously, high 30s to low 40s from an on-rent yield perspective, Daniel. And we've seen yield increase a bit in September and into October versus what we averaged for the quarter. So we've seen that as a positive thing. Obviously, 2 things in play there, right? One is as we shift more towards transmission, slightly higher yield that we've talked about. And so I would expect that to continue a bit. And then as utilization increases, we've been able to take advantage of some pricing opportunities where it makes sense. Obviously, we have to price to the market. We have to be competitive in the market. And so that's obviously what we're dealing with on a day-to-day basis. But I think it should be in the range that we've guided to, and we -- I would expect that it would increase a bit from where we -- where it was in Q3 of this year. Operator: Your next question comes from the line of Justin Hauke from R.W. Baird. Justin Hauke: I guess I wanted to ask a little bit about the cash flow. I appreciate all the color on the uptick in the CapEx to kind of capitalize on the growth that you're seeing. But maybe just a little bit more clarification on the inventory reduction and the timing of that. You said kind of into '26 to get that down by the $125 million to $150 million from year-end '24. Just trying to think about what that means? Is that more second half of '26? I just don't know how long this kind of elevated CapEx is going to be before those inventory levels start coming down. And then maybe the corollary to that would be just on the free cash flow guidance saying the levered being under the $50 million. I guess it's been kind of a use of cash all year. I'm just trying to think about the fourth quarter and do you expect to kind of continue to use cash in 4Q? Or will that be a cash inflow quarter? Christopher Eperjesy: Yes. Thanks, Justin. This is Chris. And maybe I wasn't clear. So the $125 million to $150 million reduction versus the start of the year will occur by the end of this year. And so we do expect to see -- I think through Q3, I think we're only down $14 million or $15 million. So you should expect another $110 million to -- I guess, it would be $135 million of further reduction in Q4. And so I think at peak last summer, we said we were just under 11 months of whole goods inventory on hand. I think now we're just under 8. We've set a target of trying to get to 6. I think the into and beyond into 2026 relates to getting that further -- getting down to 6 months by the end of next fiscal year. And so I do expect we'll generate free cash flow in the fourth quarter, but it's -- given the incremental investment in the rental fleet and the timing of some of that inventory reduction, we're not going to have -- for the full year, we won't have any meaningful free cash flow. Justin Hauke: Okay. Okay. And I guess just on the non-rental CapEx, the uptick on the production capabilities, can you quantify just kind of how much that is as we kind of think about, I don't know, the difference for next year versus that investment? Christopher Eperjesy: Yes. So I mean the answer is it really is just expanding some of our capabilities here in our KC campus. And I would think of it in the magnitude of $10 million to $15 million kind of impact, and it really is land building and putting some equipment in those facilities. And so I think we -- next year, we get back. I think historically, we've been $25 million to $40 million of non-rental CapEx. I think it will be -- continue to be similar as we move forward. Operator: Your next question comes from the line of Naim Kaplan from Deutsche Bank. Naim Kaplan: This is Naim Kaplan on for Nicole DeBlase. So I was wondering what was the latest on your utility T&D customers' ability to execute projects? I know you kind of touched on this, but just like to have a little bit of elaboration. And it seems like also the industry is back on track after delays in 2024 and 2025, basically. Is that kind of the right way to think about it that we're back on track? Ryan McMonagle: Yes. I think that's a great way to think about it. I think we're seeing -- we've seen distribution really pick up throughout the year. And I think it's back in a very good spot from a utilization and from a demand to purchase new equipment. And then we're seeing transmission pick up. It's been a significant pickup as it normally is in the fall. And obviously, that's what we've been investing into. And it feels like that it's got very good tailwinds behind it when it comes to transmission projects that are in process and under construction and will continue to need our equipment. So yes, I'd say it's back to normal and continuing to improve on the transmission side. Naim Kaplan: Okay. Perfect. And can you provide more color on the drivers of the 30% organic growth in PES? And maybe if you could touch on the customer types as well. And then on the backlog, was that only down year-over-year due to like a prior year comp because you had some past due backlog last year? Christopher Eperjesy: Yes. I'll take the second question. And you may have to repeat the first -- your first question because I don't think we heard -- you gave a percentage that I don't think we're familiar with. But on the backlog, we've said historically, we're not really a backlog-driven business. We're in kind of an order-driven business. And if you go back and look at the history, we've continued to post -- in '23, we posted 30% new sales growth last year, 7%. This year, on a year-to-date basis, almost 9%. And in that period, the backlog has come down almost $600 million, and we've continued to post growth quarter after quarter. Ryan did talk about in his prepared remarks, we have seen the backlog grow almost 25% -- or a little over 25% here in the first 3 weeks of October. So we're back close to $360 million of backlog. So we're feeling really good about kind of the guidance we're giving and overall, just the health of the new sales business. But if you could just clarify the first question for us. Ryan McMonagle: I think -- was it the -- you're talking about 30% intra-quarter order growth. Is that what you're referring to? Naim Kaplan: Yes, within TES. I'm pretty sure what you had in the release. Ryan McMonagle: Yes. No, that's -- we just wanted to make sure you're asking the right question. The thing that -- in addition to backlog, what we're watching really closely and what we have good visibility to is how orders are coming in within the quarter. And so there's a meaningful -- so we're -- that 30% is an increase in signed orders when we compare Q3 of '25 to Q3 of 2024. And I think that's where we're feeling comfortable about the growth we expect in Q4 and obviously, the performance, the 8.5% growth we've seen year-to-date in the TES segment. So in addition to backlog, we're watching kind of the intra-quarter order flow kind of in a real-time basis, and that's what we wanted to share with you all, too. But that's why I think we have comfort in the full year number that we've talked about for TES. Naim Kaplan: Okay. Very helpful. And just to follow up on that, if I may. Any details on the customer type? Ryan McMonagle: Yes. We're seeing -- it's a good -- we are seeing really strong demand in the utility segment. So that's both our utility contractors and our forestry contractors, where we're seeing really strong demand. As we talked about some in the comments, we're seeing a bit more hesitation in some of the infrastructure end markets, things like refuse and some of our dump truck where there's a bit more inventory in the market that we talked about in the prepared remarks. But I'd say there's still a good mix of our large national customers and our smaller customers as well. And so no significant shift there other than maybe skewing a little bit more towards T&D where we're seeing a stronger demand and infrastructure is a little bit softer from a demand perspective. Operator: Your next question comes from the line of Brian Brophy from Stifel. Brian Brophy: You touched on this a little bit, but hoping to get a little bit more color. Hoping you can give us an update on what you're seeing from a large transmission pipeline perspective. What's the latest you're hearing from your customers regarding to when some of these large projects that have been discussed are going to come to fruition? Ryan McMonagle: Yes. We're seeing good demand there, Brian, for sure. And so we have seen a meaningful uptick in our transmission utilization late in the third quarter and into the fourth quarter. So I think that's driving a lot of the increase that we talked about on the call. And I think we have strong expectations for 2026 there as well. There are a couple of very specific projects, right, that are in process now that are driving that demand. And then there's a lot of floating going on, too, that is for early 2026 also. So really good demand there. I think that's where we -- the comment that we made some additional CapEx investment, that's where we did add to the rental fleet to grow that part of the rental fleet further because we're seeing the good demand that our customers are talking about. Brian Brophy: Okay. And then just to touch on one project in particular, I wanted to ask on GreenLink. Obviously, it's been discussed as a project you guys have been involved with, and we saw some headlines intra-quarter regarding a pause in activity. It doesn't seem like it's impacting your fourth quarter based on some of the comments you made. But just maybe any updated thoughts you can provide on this project and if we could see an impact this quarter? Ryan McMonagle: Yes. No, it's still been -- it's not impacting the fourth quarter. We're still seeing good demand on transmission. I think that's what's always interesting when you get into these strong transmission cycles is I think customers don't want to return gear because they know that they may not see it again too. So I think it should not be an impact in our fourth quarter. And that transmission sector, as I said, is staying very strong from an overall utilization perspective. Operator: Your next question comes from the line of Mike Shlisky from D.A. Davidson. Michael Shlisky: Can we back up a couple of questions? You had mentioned some comments about the infrastructure sector and how that's going. Can you maybe kind of round it out by just talking a few senses on how it's going in the telecom world and in rail as well? Ryan McMonagle: Yes. I think we're seeing -- look, across the board, we're seeing growth, right? And so I think that's important to say. We're seeing the strongest growth in transmission and distribution, just given what's going on there. So we are -- within telecom and rail, we're seeing some activity pick up. As you know, telecom and rail are less than 5% of our revenue. So we're seeing some growth in rail. We're seeing telecom, a lot of discussion and a lot of quoting happening. I expect that should pick up some in the fourth quarter and then into 2026 as well. But overall, it's growth. The strongest growth is in transmission and distribution. And then just where there's more competition from an inventory perspective in things like dump trucks or water trucks or some of our refuse product categories, we're seeing less growth or is the right way to say it, Mike. Michael Shlisky: Got it. And then turning to T&D, you start to see headlines from some data center operators as they build the data center, they're also building or contracting for energy production assets either close by, on site, a few miles away, not a long grid connection as far as distance is concerned, I guess. Not all of the data centers, but some of them are trying to co-locate the energy. Does custom trucks still play a role in a project like that? Does it accelerate the pipeline opportunities when people are just saying we can't wait for the utilities go to build at least on our own infrastructure. Does have an impact on pricing and margins when you have a project where it's much closer to the data center than others? Ryan McMonagle: Yes, it's a great question, Mike. And I think the way we're thinking about it is it is very good overall demand, right, for T&D for us, right? And so to me, it feels like there's a lot of generation that's coming online that in some cases, it's temporary generation, too. And so to me, that's why I think we're getting comfortable that there should be a sustained period of long demand here. So in some cases, it's temporary generation, right, to get the data center up and then the expectation is the utility will come back through and bring a transmission line or a substation or whatever is needed, right, for that particular project. And that's where I think it feels like it's going to be good sustained demand for custom truck and for our trucks in both of those cases. Michael Shlisky: Got it. And then, Chris, can I give some more comments on your -- on the CapEx plan that you put out here for the rest of '25. Is any of this pull forward from '26? I'm trying to figure out, is there a point where you pause in the CapEx kind of harvest what you've got and pay down some more debt at some point? Christopher Eperjesy: The answer is yes. As you know, we -- the age of our fleet going back 3 or 4 years ago was a little over 4 years. We're now, I think, at 2.9 or right around 2.9 years. So that's $0.5 billion, $600 million investment to do that over time. And -- but the short answer to your question is we should start to see some improved free cash flow, certainly as we're able to pull back on some of that net investment. Michael Shlisky: Great. Chris, can I just follow up there? You had said you were once 4 years. I think you were a little bit above 4 years depending on how far back you kind of Nesco and so forth. How far would you take it? Like I guess I'm curious where the competition is with their average age? And how close would you get to the competition while still being the newest. I'm trying to figure out how long you might be able to let your assets for if you were to try to find a way to harvest some cash flow. Ryan McMonagle: Yes, it's a great question. And look, it's -- there's not great data out there, but we do think that we are the youngest fleet, the youngest utility rental fleet that's out there. And so you're right, Mike, there is the ability to age it. And so to me, if you kind of use the bounds of where we are today of under 3, 2.9 or whatever the exact number is right now, and you think about the fact that we were over 4 just a few years ago, to me, that's a pretty good band that you can live in and allow to age -- and allow ourselves to age our fleet and therefore, generate cash flow that way. So I'd give you that as a pretty good band to think about and still have a very strong performing fleet where we take care of the customer and are very competitive from an overall age perspective. Michael Shlisky: And I appreciate you've got a lot of opportunities coming in, so I don't want to issue your balance. So -- anyways I appreciate [indiscernible] a lot. Operator: [Operator Instructions] There are no further questions in queue. I'd like to turn the conference back over to Ryan McMonagle for any closing remarks. Ryan McMonagle: Great. Thanks, everyone, for your time today and your interest in Custom Truck. We look forward to speaking with you on our next quarterly earnings call. And in the meantime, please don't hesitate to reach out with any questions. Thank you again, and have a good day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the TriMas Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sherry Lauderback, Vice President, Investor Relations and Communications. Thank you. You may begin. Sherry Lauderback: Thank you, and welcome to TriMas Corporation's Third Quarter 2025 Earnings Call. Participating on the call today are Thomas Snyder, TriMas' President and CEO; and Teresa Finley, our Chief Financial Officer. We will provide our prepared remarks on our third quarter results and full year outlook, and then we will open up the call for questions. In order to assist with the review of our results, we have included today's press release and presentation on our company website at trimas.com under the Investors section. In addition, a replay of this call will be available later today by calling a (877) 660-6853, meeting ID of 13756458. Before we get started, I would like to remind everyone that our comments today may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our most recent Form 10-K and 10-Q to be filed later today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the appendix in our press release or presentation for the reconciliations between GAAP and non-GAAP financial measures used today during the call. The discussion today on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. At this point, I'll turn the call over to Tom. Tom? Thomas Snyder: Thank you, Sherry. Good morning, everyone, and thank you for joining us today. As I conclude my fourth month as CEO, I remain energized by the opportunity to lead this great organization. Over these 4 months, I've had the privilege of engaging with our teams around the world, visiting 16 facilities, listening to our employees and gaining a deeper understanding of operations and the opportunities that lie ahead. What I've seen is a company with solid capabilities powered by talented people and deeply committed to delivering value for our customers and our shareholders. At the same time, we have identified opportunities for continuous improvement, areas where I believe we can evolve, innovate and enhance our foundation for the future. Let's turn to Slide 3. This quarter, we've continued to take meaningful steps to strengthen our company and position TriMas for long-term success. I'd like to take a moment to highlight a few initiatives on this call. First, we're launching a comprehensive global operational excellence program to drive continuous improvement, enhance efficiency and share best practices across our footprint. This will be our company-wide operating system rooted in Lean Six Sigma principles and designed to improve safety, quality, delivery and cost while increasing speed and standardization. In the next 2 weeks, we'll begin implementation within our packaging business at 2 larger locations in Indiana and Mexico as initial model lines for this rollout. We expect to use these pilots to prove benefits, refine the playbook and then scale across the network, supported by visible daily management and leadership accountability. Over the next month, we are beginning a comprehensive strategic planning process. While strategic assessments are a regular part of our annual cycle, this year's approach goes much deeper. We will rigorously assess where we win, where untapped potential exists and where to focus going forward. Using internal and external data structured strategy tools and fresh voice of the customer input, we will develop a Hoshin Kanri road map often called True North Alignment that cascades from the enterprise value to each division and site. This work will set clear direction on our most important objectives, define actionable initiatives and assign ownership and time lines for accountability. Our goal is simple: align the entire One TriMas team on the few priorities that matter most and ensure consistent execution across the company. In our Packaging group, we've also launched the One TriMas branding initiative, a strategic effort to unify and elevate our brand identity and organizational culture across all regions and business units. Our goal is to consolidate the 6-plus legacy brands into one consistent brand across TriMas Packaging, creating a more cohesive and compelling experience for our customers and our employees, enhancing cross-selling opportunities and simplifying and fine-tuning our message. As part of this effort, we are conducting internal and customer-facing interviews to gain deep insights as to how our brand is perceived, where we can improve and how we can more effectively communicate the value we deliver. Additionally, we have successfully rolled out our new ERP system to a second location, significantly streamlining our operations and enhancing data visibility. We will continue to invest in automation and tools to enhance productivity, provide critical business data and increase responsiveness. These investments will help us reduce costs, improve consistency and free up our teams to focus on higher-value activities. And finally, as part of our global manufacturing optimization strategy, we are starting to actively evaluate our capacity and footprint to better support growth, enhance operational efficiency and respond to evolving market dynamics. In light of evolving trade policies, including tariffs and the increasing customer demand for manufacturing flexibility, cost effectiveness and localized production, it is more important than ever that we have the right capabilities in the right locations. This effort involves a thorough assessment of our global operations to ensure we can deliver high-quality products efficiently while remaining agile and responsive to customer needs. We are analyzing production volumes, logistic flows, cost structures and regional demand patterns to determine where we can scale, consolidate or invest to optimize performance. Together, these initiatives reflect our commitment to build a more agile, efficient and growth-focused enterprise. By strengthening our operational foundation, aligning strategic priorities and investing in our people and infrastructure, we are positioning TriMas to deliver sustainable value for our customers, employees and shareholders. I'm confident the actions we are taking will serve as a strong catalyst for long-term success. Before I shift gears to talk about our third quarter financial performance, I wanted to touch base on the Board-level strategic portfolio review we announced earlier this year. We are well into that process of evaluating our options and actively working on bringing this review to conclusion. However, as we have said in the past, we're not able to specifically announce any updates at this time, but we'll let you know as soon as we can. The team remains committed to making decisions that serve the best interest of our company and our shareholders. Turning to Slide 4. I'm pleased to report a strong third quarter performance with year-over-year sales growth across all 3 segments. TriMas delivered over 16% organic sales growth, along with improved cash flow and earnings per share, driven by solid execution and disciplined operational management. TriMas Aerospace led the way, posting record quarterly sales with over 37% organic growth, expanded margins and a strong backlog that supports continued momentum. TriMas Packaging remains on track for GDP plus growth, supported by ongoing improvement initiatives that position the business for enhanced performance as we look into 2026. These results are a testament to the dedication and focus of our global teams. I want to sincerely thank all our employees for their hard work and continued commitment to delivering value. With that, I'll turn it over to Teresa to walk through the financials and segment results for the quarter. Teresa? Teresa Finley: Thank you, Tom. Let's turn to Slide 5, highlighting our third quarter 2025 financial performance. We delivered another strong quarter with consolidated net sales reaching $269 million, up more than 17% year-over-year. Organic growth exceeded 16% for the quarter, excluding the effects of currency fluctuations and acquisitions and dispositions. Sales from our February acquisition of GMT Aerospace in Germany contributed $6.2 million, more than offsetting the $5.2 million reduction from the divestiture of Arrow Engine in our Specialty Products segment. Favorable currency exchange contributed an additional $2.1 million to net sales, further increasing our overall growth for the quarter. Consolidated operating profit increased by 34% year-over-year to $30.3 million, reflecting strong revenue growth and a 140 basis point expansion in our operating margin, led primarily by improvements in aerospace. This performance translated to a meaningful increase in consolidated adjusted EBITDA, which grew more than 25% to $48 million with margin improvement of 110 basis points to 17.8%. Our adjusted earnings per share increased to $0.61, representing a 42% increase compared to third quarter 2024. Turning our year-to-date performance on Slide 6. I won't spend too much time here as the trends closely align with our strong third quarter results. Year-to-date, sales are up 12.7%, driven almost entirely by organic growth of 12.6%. We've expanded our operating profit margin by 240 basis points to 11% and delivered diluted EPS of $1.68, a 38% increase year-over-year. These results reflect the sustained momentum across our businesses and the disciplined execution of our initiatives. Turning to the balance sheet and capital position on Slide 7. We continue to maintain a solid and flexible balance sheet, supported by low interest rates and long-term debt with no maturities until 2029. Net debt declined from both prior periods as we continue to pay down the increase associated with the GMT Aerospace acquisition. As a result of higher earnings and ongoing debt reduction, our net leverage improved to 2.2x as of September 30, 2025, down from 2.6x at the end of 2024. Free cash flow for the third quarter improved to $26.4 million, bringing year-to-date free cash flow to $43.9 million, more than triple the $12.6 million generated during the same period last year. This improvement reflects our enhanced operating performance and working capital management. Overall, we believe our capital structure is well positioned to support both near-term operations and future strategic investments. Let's shift gears and take a closer look at our Q3 segment performance, beginning with packaging on Slide 8. In the Packaging segment, organic sales grew 2.6% after adjusting for currency, reflecting continued strength in demand for dispensers in the beauty and personal care market. This was partially offset by softer demand for closures and flexibles, primarily used in food and beverage applications. Operating profit for the quarter was $18.2 million, a 4.3% decline primarily due to a tough year-over-year comparison as third quarter 2024 included a $1.1 million in gains from the sale of noncore properties. As a result, operating margin contracted by 120 basis points to 13.4%, while adjusted EBITDA margin came in at 20.1%. Once again, our teams continued to navigate direct tariff impacts effectively through proactive commercial strategies, including pricing adjustments and supplier negotiations. Looking ahead to full year 2025, we continue to expect GDP plus sales growth and relatively stable margins compared to 2024 as we continue to drive commercial discipline and continuous improvement initiatives that Tom mentioned earlier. With 1 quarter remaining, we're closely monitoring the evolving global tariff environment, which does remain one of the most significant external factors affecting the packaging industry. Longer term, we remain focused on positioning our package business for sustainable, profitable growth. Turning to Slide 9. I'll review our Aerospace segment. Our Aerospace Group delivered another record-setting quarter, once again surpassing $100 million in revenue with a year-over-year sales increase of more than 45%. This outstanding performance was driven by continued strength in the aerospace and defense market, improved throughput against a robust order book, disciplined contract execution and $6.2 million in acquisition-related sales from GMT, now operating as TriMas Aerospace Germany or as we call TAG. The year-over-year comparison also benefited from the absence of a work stoppage that impacted Q3 2024 results. Operating profit more than doubled compared to the prior year with margins expanding by 860 basis points. Our trailing 12-month adjusted EBITDA margin now stands at 23% reflecting the aerospace team's strong execution across the board from accelerated factory floor and operational excellence initiatives to strategic procurement actions and delivering innovative solutions that meets evolving customer needs. Given our strong year-to-date performance, we remain confident in achieving full year 2025 organic sales growth of 20% plus, along with margin improvement of over 500 basis points versus 2024. We're highly encouraged by the long-term growth outlook, supported by a healthy backlog and our continued focus on customer-driven innovation. To sustain this momentum, we are prioritizing targeted capital investments to expand capacity and drive further operational improvements across TriMas Aerospace. If we turn to Slide 10, I will now cover our Specialty Products segment. Norris Cylinder delivered improved performance in the third quarter with sales up 31% year-over-year as they continue to recapture market share. This growth more than offset the $5.2 million reduction in sales resulting from the divestiture of Arrow Engine. As a result, the segment posted overall sales growth of 7.2% compared to Q3 2024. Operating profit for this segment was relatively flat year-over-year as the higher profit contribution related to Norris Cylinder was offset by the loss of profit related to the divestiture. However, it's worth noting that Norris Cylinder grew operating profit year-over-year nearly 40%, while expanding margins another 50 basis points. For full year 2025, we expect Norris Cylinder to deliver mid- to high single-digit sales growth with operating margins trending slightly higher year-over-year. We remain focused on driving operational efficiency and leveraging demand tailwinds to support continued profitable growth within the segment. I will now turn the call back to Tom to provide further details on our outlook. Thomas Snyder: Thank you, Teresa. Let's now look -- turn to Slide 11. As highlighted in our press release this morning, we are raising our full year 2025 outlook following 3 strong quarters. We're increasing both our sales and earnings per share guidance supported by continued strength in our Aerospace business. We now expect full year sales growth of approximately 10% compared to 2024 and adjusted earnings per share in the range of $2.02 to $2.12 as compared to the previous guidance of $1.95 to $2.10 per share. At this new midpoint, this represents a 25% increase over last year's earnings per share of $1.65, an encouraging step forward in our growth trajectory. While we expect much of this positive momentum to continue, it's important to note that Q4 typically reflects seasonal softness driven by fewer production days and customer holiday shutdowns. Additionally, the evolving tariff environment continues to introduce uncertainty in customer ordering patterns and consumer demand, which we are actively monitoring. That said, we remain focused on mitigating these impacts through proactive planning and ongoing performance improvement initiatives. Before turning to Q&A, I want to reiterate how pleased I am to be part of TriMas and how excited I am about our future. While each of our businesses, TriMas Packaging, TriMas Aerospace and Specialty Products is at a different stage in its cycle, all are well positioned to deliver long-term growth and value. I'm excited about what we can accomplish together, and I look forward to working with our teams, customers and investors to build an even stronger TriMas. Thank you. And with that, I'll turn the call back to Sherry. Sherry Lauderback: Thanks, Tom. At this point, we would like to open the call to questions from our analysts. Operator: [Operator Instructions] Our first question comes from Ken Newman with KeyBanc Capital Markets. Katie Fleischer: Teresa, I just wanted to clarify -- sorry, this is Katie on for Ken. I should have said that. Teresa, I wanted to clarify one of the comments you said when you were talking about expectations for packaging margins. Did I hear you say that there's -- you expect those to be relatively stable in full year '25 versus 2024? Teresa Finley: Yes, that's correct, Katie. We expect about flat margins year-over-year. Katie Fleischer: Got you. Okay. And then can you help us think about how much cost out benefited margins within Packaging this quarter? And then how much dry powder you think is left for improvement within that segment? Teresa Finley: Well, I'll start, but I'll turn it to Tom. I think we see some definite upside on the activities that we're putting in place across the Packaging business. The continuous improvement initiatives that Tom referenced should certainly help us manage our costs going forward no matter what environment is presented to us in 2026. So we certainly see opportunities ahead. Thomas Snyder: Yes. We're early in that process. We're identifying opportunities. I anticipate a lot of activity, especially as we look towards next year and the opportunity to -- everything I said earlier really about optimizing our footprint, figuring out where we should be making what and then putting the tools of lean in place and driving standardization across these facilities. As we've talked before, these were really separate companies run independently in a lot of regards, not running to any best practices or any particular standards. And so there's definitely a lot of opportunity to improve that. But again, we're early in that. We're kicking it off right now, and I look forward to continuing to report on that as we go forward. Teresa Finley: Katie, I would add that in the quarter, as previous quarter and likely in Q4, we continue to manage our tariff pressures across the Packaging business. We're doing pretty well and managing that through pricing actions and procurement actions, but there is a bit of a headwind, obviously, on our business and FX that we need to continue to try and overcome, maybe somewhere around 30 to 40 basis points in a given quarter. But we're doing well managing that, but that is a headwind we don't think is going to -- it doesn't look like it's going to disappear anytime soon. Katie Fleischer: Got it. And then if I could just squeeze one more in here. I think Howmet had mentioned that they put it up 30% EBITDA margins in their fastener business recently. Any thoughts on how high the TriMas business could get and if that's a reasonable long-term goal? Teresa Finley: We get that question a lot, Katie. We've had such great performance out of the Aerospace. But I would just say we like where our margins are today. We're looking at certainly balancing growth and balancing continuous increase in margin. We think there's always opportunities. We're constantly looking at robotics and other things to take out costs and to create more throughput. So I don't want to say we're done, but I would say we like where we are today. Thomas Snyder: I would just say, too, let me add to that and say that in the visits that I've been to in these facilities, there's a lot of activity about increasing throughput, value stream mapping their operations, identifying areas where they can reduce waste. They're energized about that. We're pretty excited to see kind of the work that they're doing in that area. And so I think between the throughput improvements that they're making in the plants and then the additional -- and we've talked about this before, the capacity that we had largely through adding human resources, skilled trades into these operations. That is one of the bottlenecks to continuing to improve throughput, and we do that in a very measured approach. And so we did that this year. We have opportunities to continue to do that next year. So we'll see both, I think, throughput increase as well as productivity, overall volume and productivity, both in those aerospace facilities. Hopefully, that gives you a little bit of additional color. Operator: Our next question comes from Hamed Khorsand with BWS Financial. Hamed Khorsand: I just want to start off with on the packaging side. You've talked about different strategic events there and trying to manage the business. Why is it every quarter, there's a lot of moving parts associated with it. And do you feel like you're ahead of the curve or right at where the market is? Thomas Snyder: Can you explain a little bit when you say a lot of moving parts, what you're looking at, what you're thinking about? Hamed Khorsand: Sure. Like last quarter and 2 quarters prior, you were talking about the beauty market moving higher. This quarter, you're talking about how you're trying to manage the business with growth strengths. So I'm just trying to understand like do you actually have -- you're on the pulse of this business or you just plan... Thomas Snyder: Yes. Let me -- I can give you a little bit of insight from my perspective here. We continue to see strong growth in the dispensing side of the business. Especially in certain markets, we see a lot of growth in Latin America. We continue to see that. And I think we've been consistent, I think. I mean I haven't been here that long, but I think that's what we've been saying. The -- on the closure side of the business, it's been -- I think we've been consistent there as well. It's been softer than we'd like to see. And both in the U.S. and in Europe for different reasons, perhaps. We've seen some softness. We're more beverage oriented in Europe, and we're more food-oriented, let's say, on the here. So we've seen some, like I said, softness in that closures market. I think it's consistent with what we've been addressing all year. And the Industrial business, that continues to be a very stable business. This year, in fact, slightly growing for a very mature business. And so that's the -- if you want to talk about the moving parts, I mean, those are the parts that are moving. Teresa Finley: Hi, Hamed, I would just add that we've been consistent all year that we're going to turn out GDP plus growth, and we are on track to do that this year. So in terms of consistency there, I don't know if that helps with your question. That's helpful. Hamed Khorsand: And as you look out into 2026, is there anything that bothers you as far as clarity goes in the packaging business. Thomas Snyder: Well, overall, the situation we're talking about, the tariff situation, the lack of global, let's say, demand and economy, all those kind of macro factors that are going to impact any business, those always worry me a bit. But I tend to be a lot more optimistic than pessimistic when I think about next year because, again, I just think there's a lot of things that this business should have been doing that they weren't doing over the past. And I've addressed those in the plan that we laid out here a few minutes ago as far as looking into the future. So I know consolidating our businesses into like one brand, bringing broader awareness to our customers. I mean a lot of customers don't even know TriMas, let's say, when I say not necessarily our customers, but broadly into the packaging space. When you talk about TriMas, they might know some of the brands. They're closer to some of those individual historic brands, but they don't know the breadth or the depth of kind of what we can provide. And we've seen some firsthand situations here recently where there's been some real surprise, like, "Oh, you do that, that's great." So I think we're going to. That's a really important thing. And then getting our plants operationally aligned and driving best practices, that's something that should have been done from the time these plants were acquired. And so we're going to see improvements on the operating side. We're going to see improvements on the commercial side. And I'm very comfortable with an optimistic view as we look forward. Hamed Khorsand: Great. And just lastly, on the aerospace side, how does your order book look for '26. And Do you have the capacity to grow compared to 2025 levels on a unit volume basis? Thomas Snyder: Yes. Our order book is order booked for the most part, right, for 2026. It's a very, very strong backlog. And then we did add some -- spend some capacity -- some CapEx this year to meet the demands of some of our contracts moving forward. And as I mentioned earlier, we're constrained primarily around our skilled resources that we have in our facilities. They're very high skilled tradesmen that are operating in these facilities. We grow capacity roughly 10% a year, somewhere in that area based on the amount of people that we feel is responsible to add and train and bring up to speed in this highly quality-oriented business. Operator: We have reached the end of our question-and-answer session. I would like to now turn the floor back over to management for closing comments. Sherry Lauderback: Once again, thank you for joining us today and for your continued interest in TriMas. We appreciate your ongoing support, and we look forward to updating you on our progress next quarter. Thank you. Thomas Snyder: Thank you, everyone. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to the Alfa Laval Q3 '25 Report Conference Call. I'm Valentina, 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 Tom Erixon, CEO. You will now be joined into the conference room. Tom Erixon: Good morning, and welcome to Alfa Laval's Third Quarter Earnings Call. And Fredrik and I, we're going to take you through the quarter. So let me, as always, start with a couple of introductory comments. Now with a solid order book and good demand in service and short-cycle businesses, sales grew 8% organically in the quarter. It was a stable and clean quarter operationally and earnings increased to a new record level of SEK 3.2 billion in the quarter on the EBITA level. And then finally, as you noticed, we have adjusted our financial targets to better reflect our financial performance levels. And I will comment on the financial targets a bit later. So let me go to the key figures. Order intake was good in the quarter with a 10% organic decline as expected due to the normalization of demand in cargo pumping applications. In the short-cycle business, both order intake and factory utilization are is at high or record high levels in several end markets and product groups. Sales developed well, supported by all 3 divisions and generated a margin of 18.4%. In all, it was a well-executed quarter with mix effects contributing to the margin improvement. Moving on to the Energy division. The market dynamics are shifting towards a stronger HVAC, heat pump data center growth and moderate expectations on CapEx projects in the fossil fuel business. Cleantech remains on a positive growth track across a wide range of applications despite growing concerns regarding the political support for the decarbonization journey in Europe and in the U.S. Strong momentum in energy efficiency, growing demand for nuclear and an expected scaling, making new technologies financially sustainable are the foundation for future growth in the cleantech sector. The margin was sequentially stable, but note that transaction costs related to the Fives Cryo acquisition was charged to the P&L in Q3 on the Energy division. So moving on to Food & Water. Order intake was firm in most end markets. Large order bookings were relatively slow, although the project pipeline still remains healthy in terms of outstanding quotations. Short-cycle demand drove a positive mix change with a healthy margin. The project business generated a positive margin improvement in the quarter, but we are still working through some project execution issues in the quarters to come. Then coming to Marine. Profitability remained sequentially stable on a high and good level with good order execution in the quarter. While the record ship contracting year in 2024 will not repeat, contracting at the yards is expected to remain at about 2,000 vessels per year pace, approximately matching the global yard capacity. As expected, the 2024 contracted ships are now converted into our order books with record level orders in several product groups within the Marine division. The order intake decline compared to last year was entirely related to the expected normalized order level in cargo pumping with new orders at a normal rate for the business. So on to service. Service has grown substantially over many years and now accounts for 31% to 32% of orders, structurally somewhat higher than historically. Still, this year, we have worked through a lot of operational challenges, both related to physical distribution centers and the digital systems supporting the spare parts flow in the Energy division. It is and was a needed scaling project to cope with the larger volumes. And with the troubleshooting behind us, we expect the Energy division to return to service growth in line with other divisions. In the Marine division, service accounted for 40% of order intake, supported by a larger installed base and an aging global merchant fleet. If the aging fleet provides some tailwinds, the constant transfer of older tankers to the Russian dark fleet is a headwind and obviously outside our business scope. Then finally, a few comments on key markets. China and the U.S. accounting for approximately 40% of our business had a strong quarter with good demand in many areas. Note that the cargo pumping affecting an otherwise growing business in both China and Korea. Most markets are stable to positive at this point in time in the quarter, but looking forward, Middle East CapEx projects may be negatively affected by the lower oil price. And with that, I hand over to Fredrik for some further comments. Fredrik Ekstrom: Thank you, Tom. So hello, everyone. Let us get started by recapping the order intake in quarter 3 at SEK 16.6 billion. Organic growth contracted with 10% in the quarter. A substantial part of this contraction stems from the lack of large project orders. In the Energy division, both the welded heat exchangers and Circular Separation Technologies noted the absence of large orders. Desmet and food systems in the Food & Water division denoted the same pattern. And finally, in the Marine division, the continued normalization of tanker vessel contracting impacted the numbers. Important to mention in this context is that the project list remained strong, both in quantity and quality. It is the conversion to orders that is occurring at a lower pace, reflecting uncertainty in the market driven by external factors. Transactional business has a different development, up 8% in the quarter comparatively, excluding currency movements. Both gasketed and brazed heat exchangers booked orders above the same period last year in the Energy division. Fluid handling equipment, separators and decanters also booked higher order intake levels than in quarter 3 last year in the Food & Water division. And finally, our traditional marine products are also continuing to outperform quarter 3 last year. Service was up 8% in the quarter, excluding currency movements. Currency has an overall negative impact of almost 6% and, our acquisitions so far this year have a positive impact of 3% on the total. The same pattern repeats on a year-to-date basis and is an important input to any trend analysis. Book-to-bill in the quarter was 0.96 with a remaining strong backlog of SEK 51 billion, of which SEK 16 billion is slated to be invoiced in quarter 4. The backlog price levels are well in line with current input prices and in line with current tariff levels. Now on to sales. SEK 17 billion in sales in quarter 3 represents a strong historical level for quarter 3. Our manufacturing entities are delivering to our customers on commitment and on high utilization levels, which is clearly visible in the gross profit boosted by a strong factory and engineering result. Currency once again impacts negatively on a comparative basis, but prominently organic growth is up 8% in the quarter. Worth mentioning here is that the proportion of large project business in the invoicing mix is high. Transactional volumes are up, but not to the same extent. Net sales for service grew 3.1% compared to the same quarter last year, accounting for a mix of 30%. We expect this mix pattern to continue into quarter 4. Gross profit improved to 36.8%, boosted by better factory and engineering results and positive purchase price variances compared to the same quarter last year. Operating income increased with 12.6%, to SEK 3 billion. Sales and administration expenses were SEK 2.6 billion during the third quarter, corresponding to 15.4% of net sales. Research and development expenses were SEK 427 million during the third quarter, corresponding to 2.5% of net sales. Earnings per share in the quarter amounted to SEK 5.53 and SEK 15.22 for the first 9 months. The corresponding figure, excluding amortization of step-up values and corresponding tax was SEK 15.97 for the first 9 months. Now on to profitability. The Energy division posted an EBITA margin of 16.6%, which is lower than previous quarters due to a shift in mix towards large orders and costs related to the acquisition of Fives Cryogenics. Continued strong sales in the transactional business portfolio and service compensated for a large project mix invoicing in the quarter, yielding an EBITA of 16.1% for the Food & Water division. The Marine division continued with a positive mix of invoicing from cargo pumping systems and service, which yielded a 23.5% margin. On a group level, the adjusted EBITA margin of 18.4% is a record with a -- sorry, is high with a record SEK 3.2 billion in money terms with a negative currency impact of SEK 178 million. Now on to the debt position. Post 3 acquisitions so far this year, most notably the Fives Cryogenics business, debt stands at SEK 18.6 billion or 1.3x last 12 months EBITDA. Net debt, excluding leases at 0.86 and including leases at 1.1 last 12 months EBITDA. Given our stated thresholds, the group retains sufficient debt power to complete further quality acquisitions as those opportunities arise. Cash flow from operating activities was SEK 2.2 billion in the third quarter and SEK 5.8 billion for the first 9 months. The lower cash flow is mainly due to an increased working capital compared to the same period last year, driven by inventory and predominantly [ WIP ] and decreasing advance payment as large projects are invoiced. Acquisition of businesses in the first 9 months was SEK 9.3 billion, whereof SEK 8.8 billion for the Cryogenics acquisition, and SEK 529 million was due to two minor acquisitions. Financing activities amounted to SEK 3.9 billion in the quarter and SEK 4.5 billion in the first 9 months. These numbers primarily composed of the additional debt added for the acquisitions of SEK 8.7 billion and a shareholders' dividend of SEK 3.5 billion. Before concluding, some guidance for the quarter ahead and looking into 2026. CapEx guidance for the fourth quarter is SEK 700 million, and reiterated guidance of SEK 2.5 billion to SEK 3 billion in 2026. PPA amortization of SEK 175 million in quarter 4 and SEK 580 million in 2026. These numbers include the preliminary purchase price allocations for the three acquisitions in 2025. Tax rate is guided to stay in the interval of 24% to 26%. And with that, I hand back over to Tom for some words on quarter 4. Tom Erixon: Thank you, Fredrik. Some forward-looking comments then as a summary. Let me start with the financial targets. The change in financial targets should not be seen as a change in guidance. We are making the adjustment because of two main reasons. First, we tend to overshoot the targets and consider them a floor level for performance. Now we are moving the targets into the present performance range, and it's important for us, including for internal reasons that we have similar objectives externally and internally. Second, we want to recognize that the investments during the last 5 years into technology and capacity were made for good reasons. We believe we have invested our shareholders' money responsibly and profitably, and we expect to continue to convert those investments into profitable growth in the next 5-year period. So finally, our crystal ball is no better than yours. If global macro deteriorates, if the energy transition stumble, if AI and data centers run into difficulty, we and others would find financial targets challenging. But with that said, we have changed the targets in terms of growth to 7% sales growth. And the EBITA margin moved up to 17% over the cycle. And we kept the ROCE target at the current 20% just to allow for the effects of future potential acquisitions. Regarding the next quarter, we believe demand in the fourth quarter is sequentially stable and on about the same level as in the third quarter. And on a divisional level, we expect the Energy demand to be higher, the Marine to be somewhat lower and the Food & Water to be stable compared to the third quarter. So with that, let's get over to the Q&A session. Operator: [Operator Instructions] The first question comes from Gustaf Schwerin from Handelsbanken. Gustaf Schwerin: Can I ask on the Energy division orders? If we look at this organically, they are largely unchanged versus Q2, so a bit lower than what you guided back during the summer. You, of course, mentioned the decision-making here. So given that you're now saying this should increase in Q4, has anything underlying really changed? Or is this just a matter of slower commercial rates on the orders? Yes, that's the first one. Tom Erixon: It's a good question. I think our perspective is that it is a fairly stable growth curve and sometimes projects end up in one quarter or another. So we are relatively positive to the demand trend in Energy. And given that we see improvement on the HVAC side and in a number of areas, the outlook for Q4 is reasonably positive. So I think it's more a question on when bookings are taking place than any change. We had a reasonable positive view 3 months ago in terms of the growth perspective, and we remain committed to that. Gustaf Schwerin: Okay. Then secondly, on the margin in Energy, can you give us a rough sense of the M&A costs here, and if we should expect this going forward as well? Tom Erixon: You should expect that the margin was essentially unchanged compared to Q2, excluding the cost related to the transaction. There will be some costs also in Q4, but I believe on a lower level. And we are not dealing with them as adjusted earnings. We're just [ charging ] them straight off. Operator: The next question comes from Magnus Kruber from Nordea. Magnus Kruber: Magnus from Nordea. Could you -- with respect to Cryogenics, does that business sit completely within the process industry end market? Tom Erixon: Yes. I mean it depends. There are essentially three application areas for Cryo at present. One is normal industrial gases, and the other one is LNG. And gradually, we expect hydrogen and energy transition applications, including carbon capture, be growing as part of the segment. So those are the end markets that we are dealing with. Largely, the applications are for larger projects in the industrial space. But I remind you that there's also Cryogenics pumping side that may fit well with our Marine business and some other applications as well. So I think the Cryo side may be a bit wider as we go along. But presently, essentially, you could consider it the process industry-related application. Magnus Kruber: Perfect. And secondly, light industry and tech saw a second quarter of declines year-over-year. Of course, FX is part of that. But could you comment a little bit about the momentum in data centers and other parts of the business, please? Tom Erixon: Yes, I think it's a correct observation. We are very comfortable with the development on the data center side. And we are entering into the expected frame agreements. And -- but I think what happens is that in terms of the actual quarterly bookings of the order, there are some variations. So in terms of progress on the data center side, it was good in the quarter. We expect that to continue into Q4 and next year. So we're on track with our plans, but the actual order intake bookings in Q3 was not that strong. Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: So first, I want to come back to the acquired Fives Cryogenics. I know you've talked about in the past that the aftermarket exposure in this entity relative to the, let's say, core Alfa Energy division is lower. And I just wanted to understand is there any difference here in the seasonality on the earnings given the sort of differences in the operational character? And also maybe going forward, I saw that you were adding roughly SEK 2 billion in the backlog. I guess this relates to the acquired entity. And given, let's say, the longer cycles you're addressing there relative to the transactional exposure in the Energy division, is there any significant quarter here going forward that you're set to finalize something or any large order that is going to come in that we should be aware of? Tom Erixon: I will not comment on individual orders, of course, but we always monitor our pipeline of outstanding quotes. And if I look at that pipeline, both in the Food & Water division and in the Energy division, it is relatively positive. The conversion time and if it gets through the final CapEx decision, there's always some uncertainties. But in general, we have a positive feeling around the pipeline in the Energy division, specifically for Q4. The Cryo, I don't -- it is, as you say, low on service. It will probably remain that way. The order intake will vary over the quarters. We had, I think, a normalized Q3. We expect a relatively strong Q4 on the Cryo applications. But in terms of earnings and how we execute those projects, it's percentage completion. I think we will -- Fredrik will work to have that as a stable and correct representation of progress every quarter. So I don't think -- if you want to add something? Fredrik Ekstrom: No, there's no particular seasonality to the percentage of completion. It's when the projects come to fruition and commissioning starts. So there's no deviation from that point of view, and there's no seasonality from that point of view. Carl Deijenberg: Okay. Very well. And then secondly, just very quickly on the pumping systems side. I see here in Q3 that orders seem to be stabilizing and actually being up slightly Q-on-Q, not by a huge amount, but a little bit. And could you just talk a little bit now on the sort of backlog or the timing on the orders you're taking in now on Framo and the lead times, just to understand the phasing of the backlog and so forth in Marine? Tom Erixon: Yes. I will not give you the full timeline on everything, but we are clearly fully booked for Q4, and we are essentially fully booked for 2026. So what we expect to see now is the normalized level renewing normal order flows as the contracting in '26 is expected to remain at about the 2,000 ships. And we don't see huge fluctuations in tanker contracting either. We think sort of with some variations between quarter, we will see a reasonable amount of new orders being signed, new contracts being signed. And so we were at Q3, if you think about it historically, actually perhaps somewhat on the high side when it comes to sort of our average order intake level. So we were pleased with the quarter. I think it substantiates that although we are not going to be at 2024 level in terms of order booking expected for a long time, we will continue to run that business on a good level. And that is also reflected in the investment decision we announced with our biggest CapEx decision in our history of SEK 4 billion. Although spread over a number of steps, a number of sequences and over 5 years plus, it is a big commitment to a business we believe in. Operator: The next question comes from Uma Samlin, Bank of America. Uma Samlin: My first one is on your guidance. So would you be able to help us to clarify how should we think about your growth guidance of 7%? What component of that is organic versus inorganic? And also on the margin guide, did I hear you clearly that the guidance is not a floor, but more of a through-cycle average margins? If that's so, where do you think we are in terms of the cycle? Tom Erixon: Yes. The growth ambition includes the possibility of acquisitions. We will make those judgments as we go, partly on where we are on the organic side and the macroeconomics and partly what opportunities we have on the M&A side. But we feel we have built a stable foundation for organic growth in the coming years. So without that, we would not have stretched our growth targets above the 5% we were at historically. And obviously, as you see, current level is higher. And at some point in time, the spread between the target and the floor level versus where we were just becomes a little bit problematic. So we think this is a good reflection on the growth side. On where we are in the cycle? If you asked me 10 years ago, I would give you a reasonable answer. After the last 5 years when we've been going through a COVID, shutdown, hyperinflation, a trade war, I have no clue where we are. The only thing I know is that with all of the turbulence that we've been living with in global markets, we come through that in a good way. And if we get some stability in the world regarding wars, regarding trade routes, regarding tariffs, I expect that we will have a couple of good years ahead. But to predict the macro events at this point in time seems to be a bit problematic. So we will deal with it as we go. But obviously, if we have a sharp downturn in the coming years, it will affect our financial performance just as everybody else. Uma Samlin: That's super helpful. May I just have one more follow-up on Marine. So how should we think about your expectation for Marine orders into Q4 and into '26, given the contracting has been fairly weak year-to-date. We just heard from your competitors who's expecting sort of like for '26 and '27 marine contracting to be up 30%. What's your thinking on that? Where do you see is the normalized level for Marine orders? Tom Erixon: Well, as I've said a couple of times, if we look at our invoicing path in Marine, it's a somewhat better way to track us financially than on the order intake and the contracting side. The global shipyard capacity in terms of deliveries is at about the 2,000 ship level, thereabouts. It may increase somewhat in the years to come, but we are not quite there yet. So that means that irrespective -- and basically, the yards are fully loaded for the years to come. So we see a lot of stability in terms of our delivery path in the coming years. In some areas, we are obviously tight on capacity now, but we are meeting our commitments and our obligations towards our customers. And there's a team who's doing a very, very good job on that. But sort of the downward risk in terms of volumes of invoicing for the foreseeable future is not -- does not look as a huge challenge at this point in time. I remind you that last year, we had an order intake of SEK 30 billion, about 50% ahead of the normal numbers. And so I said then, and I repeat that we are not a SEK 30 billion division in terms of invoicing, but we are on the SEK 20 billion plus. And I think it's from that level that we work with the organic growth and potential acquisition growth going into '26. Operator: The next question comes from Andreas Koski, BNP Paribas Exane. Andreas Koski: So three questions. First, on Marine sales. Can you give an indication of your pumping systems sales in the quarter? Are we at a level around SEK 2.5 billion or even closer to SEK 3 billion? And did I understand it correctly that you are fully booked through 2026. So the sales level that we're seeing in Q3, we should also expect through 2026? Tom Erixon: I will not give you detailed numbers to the million on individual path. But I want to remind you that the pumping systems include an offshore business. It does include a small aquaculture business. And so the whole thing is not and will not be on cargo pumping applications for tankers. So just for you to keep that in mind. But with that said, all of those businesses are in a good shape. And the demand situation looks -- despite some concerns on the oil and gas side, the demand situation for offshore looks reasonable going forward. The service business in that area remains strong. So that's sort of the backdrop of the business. I think in terms of invoicing, we are more or less at capacity, and the big investment program that we are doing is partly going to cope with the existing demand pressure, modernization, efficiency, automation and site consolidation improvements. But that will not have any major impact on invoicing capability for next year. And in any case, I think at the end of the day, it's the yard capacity that is determining the invoicing level in 2026. And I think they are pretty much running at full pace as we see it. Andreas Koski: Yes. The reason for asking is to try to understand if we should expect a margin of 23%, 24% also for the full year 2026 because the mix will remain as positive as it is today, but maybe you don't want to give any indications of that. Tom Erixon: I have full confidence in your ability to make your own calculation on that. Andreas Koski: Yes. Okay. And then on the order intake side in Q3, I understand Fredrik -- I think Fredrik mentioned that you lacked large project orders in Q3, but that the project business remains strong, both in quantity and quality. So I just wonder, in your outlook statement, have you assumed that the larger part of that project pipeline will convert into orders? Fredrik Ekstrom: No. To say that a larger part of the project list that we have right now would convert into quarter 4, then we would be giving you a different guidance... Andreas Koski: No. I mean a larger part than in Q3, I mean. Fredrik Ekstrom: Well, the conversion rate is determined by a lot of factors, and some of them are clearly external and clearly are held back on uncertainty. And if we see the uncertainty decreases in the coming 20, 30 days and assuming that, that's sufficient for somebody to make the final decision on an investment, then we might see that we have orders that have slipped in from quarter 3 that we expect to come into quarter 4, and there will be orders in quarter 4 that may very well slip into 2026. So it's hard to give you an exact guidance more than the one we already provided for quarter 4. Andreas Koski: Understood. And then lastly, if I may, on your new financial targets. If you want to elaborate and explain why you didn't go for a more ambitious margin target? And how much of your new growth target is expected to be organic? Tom Erixon: Yes. I think on the organic, some people already observed it was quite in line with our 2030 target of SEK 100 billion. We stick to that one. And let's see how the mix is. Obviously, the reason we are increasing the growth target is for organic reasons. We may or may not have some M&A opportunities converting in 2026 and 2027. But we think we have a good growth platform installed, build up, invested into capacity-wise created space for. So the organic growth is, I think, for us, the most important part of the growth story for us. So I leave it at that. We see where it comes. On the profitability target, I said this during many years, at the 15% level that our ambition is not at this moment in time to optimize our margin at all costs. We are a growth company. We are investing what we think is responsibly and profitably into technology and capacity. We continue to do so. And we think the long-term shareholder will benefit from long-term growth plan, stability in our execution. So we don't want to put ourselves into a type of a profit escape opportunity where we are acting everything that is not generating 17% plus. So this was a measured step reflecting approximately where we were and leaving the floor of 15% a little bit behind us and accepting that the current performance level is perhaps about the target range that makes sense for us. Andreas Koski: So does that mean that we shouldn't expect 17% to be sort of the floor as the 15% was? Tom Erixon: No. I think we did the 15% 20 years ago. I don't think it was, at that time, a floor. It was an ambition. We are not super guiding you on the margin. I mean, as you could notice this quarter, we were above. I think we will fluctuate. I think my point is saying, and I've told you this before, that it would be a very simple trick to increase the margin in Alfa Laval from where we are today with a percentage point or 2 if we decided that the long-term future was less opportunistic. And so we are committed to our long-term growth plan. We are investing in that, and we don't want to cut and limit our opportunities for the long-term growth potential that we see. So that will, in a sense, determine a little bit where the margin will be, and that's why we don't want to go too high on our ambitions because we think there are opportunities. But we also recognize that the 15% is not all that relevant as a financial target. And if you look at your own and everybody else's assumptions, I think the market estimates for the coming 3 years is pretty aligned with our targets. So that's why we're saying that don't think about this as a very strong guidance comment. It's more creating a relevance, not least internally for what we expect ourselves to work with. Operator: The next question comes from James Moore from Rothschild & Co. Redburn. James Moore: Can I just go back to Fives and the charges and just confirm that the Fives integration costs were SEK 215 million in the quarter and that the charge is basically exactly in line with the 430 bps impact on the energy margin year-on-year. And would it be fair to say about SEK 100 million for the fourth quarter? And attached -- maybe we start there, and I could follow up. Fredrik Ekstrom: Yes. No. So what we have indicated is that if you look at the sequential development and you look back a quarter, you probably get a better indication of what that charge was in relation to where we were -- finished in quarter 3 and that the same will probably hold true into quarter 4. Of course, some of this is also dependent on the invoicing mix that we have in quarter 4 with the invoicing mix that we had in quarter 3. decreased the margin. I think a good guidance is to look at quarter 2. So sequentially stable. James Moore: Sequentially, not year-on-year. My mistake. And the underlying performance of Fives, did -- it looks like you did SEK 620 million of revenue for, I don't know, [ 2.75 ] months, which to me looks like it's growing 20%. I don't know if that is the case. And if you strip out the charges, what was the underlying operating margin at Fives slightly accretive to Energy in the kind of low 20s margin range as you previously hoped? Or did it go up with growth? Or was it below due to seasonality? And how does the Fives seasonality play out over the coming few quarters, please? Fredrik Ekstrom: Yes. And as we indicated before, there's no real seasonality to the Fives or to the Cryogenics business unit, as we call it. There's no real seasonality to that invoicing. It's more how it's delivered to the customer and the milestones that are agreed with the customers from a percentage of completion point of view. Of course, the invoicing was good in quarter 3 for the Cryogenics business, and the margins were in line with expectations as we took on a business. There are some -- there is an element of onetime charges and integration charges, but we include those as part of the operating business. James Moore: I understand. And lastly, if I could. I understand the philosophy behind your new targets through cycle, internal benchmarking, et cetera. But obviously, behind that is a fair degree of confidence on long-term organic growth potential. I was just wondering to what degree is that underpinned by existing backlogs? And to what degree is it once you've got through those backlogs, you still see a high pace of growth continuing? And what is it that gives you renewed confidence on that apart from recent growth trends being better? Or is it just recent growth trends being better? Tom Erixon: Yes. We think it's better to look at -- if you're a debt analyst, you will look at the last couple of years and make a prediction of the future. If we do that, and we look at all the investments we've done, and how we described the 2030 target last year, and we will go through that again in our Capital Markets Day in November, there is the basis for our belief. We have, I think, an end market exposure that couldn't be better. And so I think it's up to us to utilize those positions in Energy, in Marine and in Food & Water alike. And are we convinced that we will reach the targets? We think this is the best indication we can give to ourselves, and we communicate the same to you guys that this is where we think we will be. But I would recommend you to come to the Capital Markets Day for a little bit of a review of the verticals and the business opportunities, the way we see the plan going forward rather than just a quick Q&A here. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: I was wondering if we could speak a little bit about Marine regulations. You may have seen the MEPC 84 session in October delayed the decision on, I guess, stronger emissions controls. I'm wondering if you're seeing any knock-on impact in terms of how your customers are ordering, not ordering, delaying orders? Tom Erixon: Yes, it's a very good question. And it's, of course, a situation we monitor extremely closely. It does potentially impact the way a customer will decide. I think our best estimate at this moment in time is that one of the main drivers other than efficiency and fuel efficiency and such, for environmental technology and multi-fuels capabilities, is to create an insurance against having a stranded asset some years from now when and if a new regulatory environment is forcing a decrease in the emissions. Now obviously, for many reasons, not only Alfa Laval's business, we are hoping that there will be a framework implemented in terms of emissions control on the Marine side as well as in other areas. And I think short term that the fair amount of ship owners will continue to hedge their bets as they order new ships. And I remind you that if we look at the multi-fuel levels in the industry right now about -- if you take ammonia and LNG and a couple of other sort of main alternative fuels to heavy fuel oils, the current level of orders are representing about 15% or so of the global fleet, equipping themselves with multi-fuel capabilities. So even if it should go down somewhat, it's not going to be a major impact on us in the next quarters or so. If we look at the current trend curves as they are, they are continuing to grow. But of course, those trend curves are back to time almost driven by decisions prior to the delay of the implementation side. So it's a bit early to really make a call on what is the immediate effect. But I would be surprised if we will see a dramatic change in the trend curve over the next couple of quarters while the uncertainty remain. John-B Kim: Great. And if I may, I'm sorry if I missed this, but can you update us on your newer product offerings in energy? I'm speaking specifically about the liquid-to-chip offering? Tom Erixon: Well, it's -- listen, it is our normal product ranges that are going into air and water cooling, and it's a question of capacities for certain sizes and formats and things like that. So the product mix in our supply chain is changing somewhat. But we are not in a technology development -- we do an awful lot of technology development, but for the data centers, it actually is in line with our current supply capabilities. And so our main challenge is to figure the volume demands in the coming years and matching sort of the supply chain capacities that we need in order to serve that market. So that's where we are on that one. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: Klas at Citi. I had -- coming back to the Energy and Food & Water margins. In Energy, obviously, some costs are linked to the recent acquisition, but you still have the R&D ramp. I was under the impression that, that R&D ramp concluded already in the second quarter. So I'm interested in how you look at this into the fourth. And then in Food & Water, you booked quite a lot of large orders in the second quarter. And obviously, this is a very good margin you're delivering right now. But I'm just trying to understand whether the mix from having then that backlog built up on the larger side will start to weigh on the margin here a bit in Food & Water. I'll start here. Fredrik Ekstrom: Well, if I take Food & Water first, of course, the -- we have a large percentage of large orders invoicing out in quarter 3. But we also have a substantial resurgence of the transactional business, and that's been happening over the last 6 quarters that we have seen an increase in the transactional business, including service. And of course, the fundamental margin accretion that we get from that transactional business and the service mix into Food & Water, of course, lifts the margin overall. So it's not that we have drastically changed the margin profile of large project orders. It's rather the mix that we see in the current quarter. That mix may look different, of course, in coming quarters. But -- so it's a little bit based on that mix. And if we then look at the Energy division. Well, the Energy division, we have spoken a little bit about the margin development before. And if we look at specifically the R&D as your question was, well, we have not put an end date to R&D. R&D is something we continue to do over indefinite period really. I mean, it's about product development. And if I take it one step further back to the question that Tom answered just a second ago around data centers, yes, we have a lot of products that are directly applicable and have a really good fit with the current demand for data centers, but we also have the ability to adapt those products further. And that's part of the R&D that we continually do, and that we do in dialogue with our customers. So I don't think, Klas, you should see the investment into R&D as something that has an end date when it comes to the Energy division or any of our other divisions for that matter. And I don't know if Tom wants to complete more on that. Tom Erixon: I agree. Fredrik Ekstrom: Agreed. Klas Bergelind: Okay. Okay. That's good to hear. Then looking at project orders in Energy, I mean, last quarter, and I'm zooming in now on clean energy. I mean, last quarter, i.e., second, you said that decisions were pushed to the right, reflecting increased uncertainty. It looks like orders are coming back here this quarter. So I'm interested in what happened here. And if you see this elsewhere, i.e., that decision-making on the larger side, Tom, is easing a bit or whether it's just normal lumpiness. Tom Erixon: I think maybe a little bit of both. There is a normal lumpiness in that. We have been having and we continue to have, a rather diversified cleantech order book and order pipeline. And that holds both geographically and application-wise. So the bookings were good in Q3. And although good means that the comparable quarter was maybe a bit weak side, so -- but anyhow, it was in line with what we were hoping for. And if we look at the pipeline, which obviously stretches more than a quarter forward, we see a number of projects and some of them, I would say, financially sustainable without being based on regulatory frameworks or such. So there are -- we have obviously moderated our expectations in the 5-year period as to what the energy transition will do. But we are still following an interesting track on a steady growth area in related to carbon capture, in related to plastic and packaging replacement materials in relation to possibility of SAF, and biofuel coming back a bit after a very low investment period during the last few years. So we are cautiously hopeful that we will see the energy transition continuing in a good way. Klas Bergelind: Good. Finally, back to you, Fredrik, on the ROCE target. It's unchanged despite lifting the margin by 2 percentage points. I guess this is just incremental intangibles from recent M&A? Or how should we think about it? Obviously, you're going to invest now in Framo, quite over capacity, but also curious to hear about your further working capital ambition within that. Fredrik Ekstrom: Yes. No. And the reason we have retained the return on capital employed target at 20% is because of exactly the dynamics that you bring up here. It is about a continued CapEx ambition going forward, we reiterate the SEK 2.5 billion to SEK 3 billion a few years going forward. We have announced the investment package in Framo, and we should expect that there will be other acquisitions, beyond the one -- acquisitions we've already made. We have the firepower in our balance sheet to make sure that we can also add on inorganic growth beyond the organic growth opportunities that we have. And a reflection of all of that ambition is why we have returned the return on capital employed target as it is. And it may temporarily -- should all of those things align very much in a short period of time, go below 20%, but with the ambition of going to 20% and above 20% in the long run, of course. Operator: The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: I was just going to ask about the return target that you kept unchanged, but you sort of already replied to it. But I was wondering a little bit. I remember you did lower -- this was before you, but the Board lowered the target from 25% to 20% when you did the Frank Mohn acquisition. How has your major acquisition delivered versus the 20% return target? I guess Frank Mohn today is probably benefiting well above this 20% target. But what about the Norwegian weather forecasting service? Is that also performing well in line with these return targets? Tom Erixon: Well, may I first say that it's so nice to meet an analyst who's been longer with us than ourselves almost. So I appreciate the question very much. And I was not present at the Frank Mohn acquisition, but I think you are completely right that although it was a highly profitable business at the time, but when you put -- I think it was around SEK 13 billion on the balance sheet, to get a 25% return on that number is very hard. We have commented. And of course, as we go forward now, if we look at the Framo acquisition, in today's books, as you know, we are conservative on the goodwill side. So we put as much as we can into amortization, and that is almost completed for the Framo side now. So I think next year is the last year, if I remember correctly. And so we have a slightly smaller balance sheet post on it. We have a company that may be close to twice as big and at maintained margin, I think the return on capital on that investment, now, 12 years later, will start to look quite good. We haven't run those numbers, I think. But we may actually do this ahead of the Capital Markets Day. It's an interesting question. When we have looked at the entire M&A portfolio in recent times, we have concluded that if you take out the acquisitions over the last 15 years or so, our return on capital for the traditional Alfa Laval business or Alfa Laval classic is about 50%. And with the current multiples in the M&A market, we struggle to get to 20% regardless of the profitability. The pricing on those assets allows us maybe to get to a double-digit return number, but definitely not to close to 20%. So we don't see that our CapEx program into our existing businesses is affecting ROCE negatively. We were actually a little bit worried about that when we started the big investment programs years ago, but growth has compensated for that. So we -- the returns on our organic growth journey are excellent. And the question that's going to decide whether we are 25% or 20% or below 20% is the amount of capital we deploy on M&A. We'll get back to that question, I think, at the Capital Markets Day. It's a good one. Fredrik Ekstrom: It's well noted. Tom Erixon: Yes, well noted. Johan Eliason: Yes. No, but it will be interesting. I think the return target is important because it does give you some top price that you're willing to pay, that's obviously interesting for the investors. Looking forward to Capital Markets Day, as I said. Tom Erixon: I think with that, we take the last question. Operator: We have a follow-up question from Magnus Kruber from Nordea. Magnus Kruber: I just wanted to see if you could comment a bit about the development in the other end market category in Food & Water. You've seen a very good pickup there over the past few quarters, and you break out starch and sugars in this quarter specifically. Could you comment a little bit how sustainable this level is? Tom Erixon: Yes. We are reasonably -- well, it tends to be the stability of Alfa Laval, right? It doesn't change that much. The normal dynamics of GDP growth and a happier middle class is taking demands forward. When you think of stability in the Food & Water side, the thing I want you to remember is that we actually dropped quite significantly on the biofuel side 2 years ago. And it's been a very low project activity on the biofuel side other than some exceptions on the ethanol side. And so I think that is still not quite in the books. Pharma came down for us a bit after the COVID, where we had a lot of vaccine-related implementations on pharma. We expect that to come back. Dairy has remained quite good. Beer has been a bit up and down after years of consolidation. We see less of that now, but still the return of CapEx on the brewery side has been a bit better recently than before. So all in all, we see the coming years as reasonably interesting. What I would add to that, if I round up your question with that and say thank you for that, I'll just do a little marketing campaign for the Capital Markets Day. So we will meet in Flemingsberg, which is the technology center for Food & Water and the high-speed separation centers. We are inaugurating that, and we are also displaying part of the technology that we are developing there. And in that context, we will do divisional reviews. And one of the things that is changing is that we are redoing the strategy in the Food & Water division under new leadership with new growth aspirations and new opportunities. So we will review a number of interesting things, some things you will see visually and some things you will see on the slide. We hold those tools as realistic growth opportunities. So I hope you are excited about it. We are almost sold out. Ticket prices are rising. So I would recommend you to sign up quickly, and we look forward to welcome you in Flemingsberg in November. Operator: We have no more questions. Tom Erixon: Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Annukka Angeria: Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 2025 Results Webcast. My name is Annukka Angeria, and I'm working at Nokian Tyres Investor Relations. Together with me in this call, I have Nokian Tyres' President and CEO, Paolo Pompei; and Interim CFO, Jari Huuhtanen. As usual, Paolo and Jari will start by presenting the results. And after that, there will be time for questions. With these words, I will hand over to you, Paolo. Please go ahead. Paolo Pompei: Thank you, Annukka, and good afternoon also from my side. Let's start this presentation with our headline, which is a stronger operating profit improvement in quarter 3, driven by announced pricing in passenger car tire, actions ongoing to further strengthen our financial performance. We are closing an important quarter. And I have to say that I'm very pleased to tell that we are really moving in the right direction. As we said in the headline, our operating profit increased significantly. And obviously, this is very encouraging for the future journey that we have ahead of us. But what we are going to do this afternoon, we are going to talk about our quarterly highlights, the financial performance. Jari will comment on the business unit performance. And then, of course, we will close the presentation with assumptions and guidance. Now let's go to the quarterly highlights. In Slide #4, we had double-digit sales growth. We were able to grow in all the regions. The sales growth was 10.8% in comparable currency. The operating profit improved significantly, plus 427%, and this was mainly driven by our effort in improving our pricing in the passenger car tires. We still have a lot to do. There are still a lot of actions going on in order to improve our financial performance. We're also very pleased about our ramp-up of the operation in Romania that are progressing extremely well, and we are now actually running 24/7. This -- in the month of September, we were also expanding our product offering and brand partnership. We will tell something more in a minute. And of course, there is also starting from the 1st of September, a favorable tariff development in North America for Nokian Tyres. Moving to Slide #5. Let's talk about our new factory in Romania. We are very pleased to say that we are in line with our plan. We will reach 1 million pieces by the end of this year, and we started now operating 4 shifts 24/7. We have now all the people we need to carry on our journey and to make sure we will be able to achieve the target of this year of 1 million pieces. We also released a few weeks ago a new product line that is completing the summer product range at this stage after the all season range that we released only a few months ago with the start-up of the operation in Oradea. Moving to Slide #6. This is also an important step forward for the factory, but also for Nokian Tyres, in particular, for our business in Central and South Europe. We released our Powerproof 2 a few days ago. This is our premium offering in the ultra-high performance segment summer tire. This range is performing extremely well, has been certified in terms of performance and tested by the TUV SUD. And we were able to launch in this new product in the beautiful scenario of our test center in Spain, HAKKA RING, together with more than 160 customers and journalists coming from Central and Southern Europe. This obviously will support our growth in the Central European market, together, obviously, with our winter tire range as well as our all-season tire range. Moving to Slide #7. We're also pleased to tell you that we received once again several testimonies of our premium performance in the winter tire segment, in particular in the Nordics, where we were able to be tested in several magazines or by several associations being scored as #1 tire or on the podium when we talk about studded and not studded winter tires. So we keep our leadership, and we still have new projects coming up in the next few months that will actually reinforce our leadership in the winter tire segment. But we have also some good news related to the heavy tire business. We will receive in a few days silver metal for our Intuitu 2.0 smart tire technology that is going to be fitted in our agricultural tires. This is a very important step forward in terms of connecting the tire to the machine and the operator of the machine, measuring the load of the machine or the pressure and optimizing the operating performance of the machine at the right pressure. Moving to Slide #8. We're also reinforcing our effort in terms of communication. We signed an important agreement for 2 years with the IIHF Association, which is actually Federation, sorry, which is actually going to support the world competition in the Ice Hockey segment in Switzerland in 2026 and in Germany in 2027. We are very pleased to be partner of this important sport because it reflects our value and also it is giving the possibility to Nokian Tyres to be visible to millions of Ice Hockey fans that are obviously happy to view and to support this nice competition. Moving to Slide #10. We are going to look at our performance. Quarter 3 was in some way, stable in Europe, a little bit down in North America. When we look at the performance now year-to-date, we have the market pretty stable in Europe, and we see the market gradually declining in North America when we talk about passenger car tires. The market in truck tires or in the agri tire has been stable in truck tires, while in the agricultural segment is still down compared to previous year, both in the replacement market as well as in the original equipment market. Moving to Slide #11. Despite the, I will say, difficult market condition or stable market condition when we talk about Europe, we are very pleased to say that we were able to grow by 10.8% with comparable currency in the quarter, and we were able to grow in all the regions. But we did really an exceptional good performance in the North American market in a declining market environment. So we are finally doing extremely well in North America, and we are very pleased about the journey that we have done so far. Our EBITDA as well has been increasing up to EUR 65.4 million. This is actually now 19% in percentage of sales. And our segment operating profit has been growing by over 6% to EUR 32.4 million. It's very important to remember that the comparability when we talk about segment operating profit is heavily affected by EUR 13.3 million exclusions or write-down related to the write-down of the contract manufacturing product that we did last year in quarter 3 2024 that are in some way impacting the comparability. This is why we are very pleased about the extremely important growth of over 427% in the operating profit performance that is reflecting really the performance of the company at 360 degrees. Moving to Slide #12. As I mentioned before, we are growing in terms of net sales in all the regions in Europe by 4.6%, in Central Europe and Southern Europe by 9.2%, and we're growing by 27% in North America, supported by good pricing and mix. Moving to Slide #13. We move to the cash flow, in particular, we were able to improve our cash flow performance. This was mainly driven by lower investments, but also by improved working capital as we will see in the next slide. Overall, year-to-date, we are growing in terms of sales by more than 9.4%. And of course, we are improving our segment EBITDA as well as our operating -- segment operating profit. Looking a little bit deeper to the cash flow. You will see that, obviously, the improvement of cash flow was coming, obviously, from the EBITDA improvement of EUR 33 million, then, of course, by an improvement of the working capital, we've been able to grow, reducing our inventory level in our operations. We are also obviously investing less. We are getting step-by-step to a normal level of investments. And of course, we have higher financial expenses. And obviously, we had a lower dividend, but obviously higher debt. So overall, year-to-date, we are improving. And obviously, our target is to become cash positive, meaning generating positive operating cash flow already next year. As we mentioned, we are now guiding EUR 180 million investment level at the end of 2025. This will basically close a long cycle of approximately 3 years that was necessary to reinforce our operations and to build our new manufacturing footprint, in particular, with the latest investment we did in Romania in Oradea. The CapEx are expected to return then next year to a normal level. And of course, we -- as you know, we are entitled to get state aid from the Romanian government up to EUR 100 million, and we are expecting to receive the first part of this incentive by the end of the year or in quarter 1 next year. Moving to Slide #16. I would like to pass the stage to Jari for the performance of the business units. Jari Huuhtanen: Okay. Thank you, Paolo, and good afternoon. I'm moving to Page Passenger Car Tyres. In third quarter, we continued sales and profit growth. Net sales was EUR 234 million and the increase in comparable currencies plus 13.2%. Our average sales price with comparable currencies improved and the share of higher than 18 inches tires increased significantly. Segment operating profit was EUR 38.9 million or 16.6% of the net sales. And the segment operating profit improved due to price increases and favorable product mix. Moving to Page 18. Here, we can see Passenger Car Tyres net sales and segment operating profit bridges in third quarter. Net sales improved from EUR 210 million to EUR 234 million. And clearly, the biggest positive contribution is coming from the price/mix, plus EUR 35 million. Sales volume was slightly down comparing to last year, minus EUR 7 million. And in addition, we had some currency headwind coming mainly from U.S. and Canadian dollars. In segment operating profit, you can see that there are 2 components which are clearly coming visible. First of all, this positive price/mix, EUR 35 million. On the other hand, in supply chain, we have a negative impact of EUR 25 million. Here, the reasons are mostly related to non-IFRS exclusions what we had in last year third quarter. Contract manufacturing inventory write-downs and Dayton ramp-up related exclusions. In material costs, we still had a slightly negative impact, minus EUR 3 million. However, we can say that we are very close to previous year cost level at the moment. Sales volume, minus EUR 3 million, but otherwise, it's very stable performance comparing to prior year. Moving to Page 19, Passenger Car Tyres net sales components, quarterly changes. In price/mix, we can see a significant improvement comparing to last year, plus 16.5%. This is due to implemented price increases and better product mix comparing to last year. In sales volume, minus 3.3% and in currency, minus 1.7% in the third quarter. Moving to Heavy Tyres. In third quarter, we had lower volumes, which affected the net sales and profitability. Net sales was EUR 55.4 million and the change in comparable currencies, minus 4.4%. Net sales decreased mainly due to lower volumes in truck and agri tires. Segment operating profit was EUR 5 million or 9% of the net sales. Profitability declined in Heavy Tyres, mainly due to lower volumes and inventory revaluations, which had a positive impact in last year's third quarter numbers. And in Vianor, in third quarter, we reported improved sales and operating profit. Net sales was EUR 74.9 million and the increase in comparable currencies, plus 7%. Segment operating profit seasonally negative minus EUR 6.4 million or minus 9% of the net sales. However, we can see an improvement both in operating and business profitability. Then I'm handing over back to you, Paolo. Paolo Pompei: Moving to Slide 23 to the assumptions and guidance. Well, we have a very good news in quarter 3 coming from the North American market. As you know very well, we are exporting all-season tire from our factory in Dayton in United States to Canada. And this -- there were obviously counter tariff implemented by Canada in quarter -- at the end of quarter 2. Those counter tariffs have now been removed. So obviously, today, we are in the ideal situation to deliver tires from U.S. to Canada without duties. Anything else remains as it was before 85% of what we sell in the United States is made in United States, and this is making the company much less vulnerable, being -- having a business model that is local for local. And the winter tire business that is going to Canada is supported by our factory in Nokian based in Finland. So moving to Slide 24. Our guidance for 2025 remain exactly the same. We are expected to grow and segment operating profit as a percentage of net sales to improve compared to previous year. We are assuming a stable market to remain at the previous year level. And of course, we are like anybody else, we observe the development of the global economy as well as the geopolitical situation since trade and tariffs are creating some uncertainty and may create some volatility to the company business environment. Of course, we follow our own journey. We have opportunities to grow also in a changing market environment, also supported by our new manufacturing footprint in Romania that is supporting our Central and South European market. We close this presentation. And obviously, we are happy to reply to all your question and answer. Annukka Angeria: [Operator Instructions] The next question comes from Akshat Kacker from JPM. Akshat Kacker: Three, please. The first one on price increases that you implemented, -- congratulations on a good quarter. If you could just put that into context for us, could you just talk about a few regions or product ranges where you've increased these price increases? And specifically, how do you think about the sustainability of these price increases going forward? Because a couple of your peers, the bigger Tier 1s have actually taken down their price/mix assumptions in the last quarter based on the inventory situation and the price mix trade down that they are seeing from the consumers in the market. So just the first question on the price increases and the sustainability of that going forward. The second question is on volumes. I noticed on the passenger coverage that volumes have declined by around 3.5% in the quarter. It's the first quarter where we've seen that volume decline, obviously, somewhat explained by the price increases. But just could you talk to us about overall expectations for volume growth going forward given that the business has been in a supply-constrained mode? And the last one on passenger car margins, please. Again, a very strong development in Q3. Margins have improved to 12% versus the 2% that we saw in Q2. Could you talk about your expectations into Q4? Should we still expect improving mix, improving margins as we go into Q4, please? Paolo Pompei: Excellent. Thank you very much for your question. And obviously, I'm happy to reply to at least the first 2 questions. Talking about price increase, this is a journey that we started already at the end of quarter 1, as you may remember. It was necessary, first of all, to compensate the raw material cost increasing in quarter 1 compared to previous year. And that was mainly valid for all the regions, in particular for Nordics. Then, of course, we combine these price increases also to necessary to gradually reposition our products in Central Europe as well as in North America. The question is if this is sustainable? Of course, we cannot keep increasing pricing. It was extremely important for us, again, to compensate the increasing rising raw material costs and at the same time, to gradually repositioning our products in Central Europe and in North America. Is this affecting volume? Going to the second question, in reality, in a very small part. What I mean is that this important improvement is also related to the strong write-off and consequent sellout of a lot of tires that we did in quarter 3 last year. This is what is affecting the comparability of segment operating profit, but at the same time, it's improving significantly our profit. So this 3% in reality is extremely -- if we take away the action that we did last year in order to release quickly the slow-moving inventory accumulated due to the crisis in the Red Sea, then of course, we can still calculate an important growth for the company. And that is really where the volume effect is coming from. So we are not expecting the price increase to affect volume at this stage and minus 3% is well by the comparability with the previous year due to the action we made in order to release the slow-moving stock that we have accumulated due to the crisis in the Red Sea channel. The margins are improving, obviously will keep improving because at the same time, we are not only improving in terms of prices, but we are also operating more efficiently with our own factories. So obviously -- and now we are moving to the last part of the season, meaning that we will sell in this quarter more winter tire. And so by definition, our margins will keep improving in quarter 4. I hope I replied. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 3 as well, please. The first one is on your planned adjustment measures, the personal negotiations that may lead to 80 permanent white collar job cuts. Could you put that in perspective? Is that part of your better or more efficient operations? Or is that coming on top of what you were describing with the new Romanian plant and the substitution of your offtake by your own production? Second question will be on the EUR 180 million CapEx guide. Could you confirm that it does not include any Romanian state aid that may or not happen in 2025? And finally, you had a tough quarter for your ag and trucks business or what I would call the specialty business or industrial tire business. Could you tell us whether you already see a trough coming for that business and when that would be or whether it's still not visible yet when that would be? Paolo Pompei: Thank you very much for your question. I start with the negotiation. Obviously, this is part of our journey when we want to improve efficiency and productivity. So -- and this is necessary to support the company in this journey, in particular, when we talk about SG&A development. So we start the negotiation. And obviously, we will inform you about the progress. But in general, I mean, it's part of our journey to improve our efficiency and productivity within the company. When we talk about the state aid, I confirm that within the EUR 180 million, there is nothing about the state aid. So this -- at the moment, we are not including the state aid in any calculation when we talk about CapEx as well as cash. About the agri and truck business, well, this is a million-dollar question. However, I believe the agri business, in particular, is subject to cycles. And cycles can be long or short. But in general, obviously, we are now landing at the end of second, I would say, almost second years of downturn. So obviously, I'm expecting the agri business at the OE level in particular, to recover pretty soon in the next 6 to 12 months. Obviously, this is not scientific. I'm just observing the history and the cycle that were affecting the agricultural, in particular, tire business in the last 20 years, and you will see there is a growing trend if you take the last 20 years, but this growing trend has gone through up and down with cycle that were lasting in a positive or negative way 2 or 3 years. I hope I replied to all your questions. Annukka Angeria: [Operator Instructions] The next question comes from Artem Beletski from SEB. Artem Beletski: So I also have 3 to be asked. So the first one is relating to the price/mix development in Passenger Car Tyres. And I guess it's also volume related given the fact that it was a bit messy comparison from last year. I think you agree with it. And maybe just a question on pricing side. So could you maybe comment whether there has been some further price changes, what you have done, for example, during Q3, which are not yet visible in the numbers? Then the second question is related to net debt. So I understand that Q3 seasonally is the peak, what we always see in your case. Maybe you can provide us with some type of indication where you see net debt landing by the end of this year. And the last one is just relating to winter tire season. So how you have seen the demand picture so far when it comes to Europe and also North America? Paolo Pompei: All right. Thank you for the questions. And I start with the first question about price and mix development. I agree with you. Obviously, the comparability with last year is affected by the write-off and consequently by the sale of the slow-moving tires in the Central European market. However, we can say that the price and mix development was good for the company also without this effect. Clearly, we have implemented pricing action in quarter 2 and in quarter 3. There will be a carryover in quarter 4, and that is pretty clear. Then of course, we will not make any comment about future price development for obvious competition rules. Regarding the second question was -- sorry, the third question was about the net debt. As you know very well, considering our seasonality, quarter 3 is always the period of the year where obviously our debts are getting to a higher level. So we are expecting the level of net debt to go down in the next quarter. And about the winter tire season, we can say that obviously, the weather was actually a little bit too warm, let's say, in September, but now it's getting colder, both in the Nordics as well as in North America. So we are expecting the winter tire season to basically start as I speak in this moment in November. We had also a good presales activities, obviously, in the previous month. So the market -- we see the market is still growing. So obviously, we are pretty positive about the development of the winter tire sales. Operator: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'll take the opportunity to ask some follow-up questions, please. First, I'd like to discuss a bit about your working capital, if that's possible. I mean your inventories declined, but receivables increased. Could you indicate whether you see any risk of write-down? And could you talk about your exposure to [ ATD ] Whether it's new, how much it increased? I mean this company went under recently. Did you have any exposure as it moved into Chapter 11 or not? And when I look at your payables, they are higher than usual. Could you explain why and whether this will be a headwind on the working capital front in Q4? And my last question will be on your net interest charge. I mean your net debt obviously has gone up the last 3 years because of your investment program. We've seen the net interest charge in your P&L and your cash flow statement going up. Could you give us some indication about what we should expect for '25, both on the P&L and on the cash flow statement and whether it will already be declining in '26 or be flat in '26 and '25? Paolo Pompei: Okay. Thank you. I will reply to the first one and maybe Jari can also support the discussion on the last 2 topics. About the working capital, the working capital is improving with growing sales year-to-date. So we are very pleased about this development. And obviously, this is really driven in particular by the reduction of the inventory that we have implemented in -- basically during the whole year, in particular now in quarter 2 and quarter 3. The receivables are growing because we are growing in terms of sales. And about ATD, obviously, is a new partnership. I think ATD today is very well supported by strong equity funds, extremely strong from the financial point of view. Of course, our exposure is relative low since we are at the beginning of the journey. So we will grow together with ATD, and we will support -- ATD will support our growth in North America. They are by far the largest national distributor in North America, and they are able actually to very well support our sales in any corner of that country. Payable are higher, obviously, because we are growing in Oradea. But please, Jari, would you like to comment the payable and net interest? Jari Huuhtanen: Yes. Thank you. So first of all, payables, of course, we have multiple different actions ongoing to get a little bit better performance in payables. Unfortunately, at the moment, we are not -- have not been able to see, but of course, we will continue and we want to improve in that respect. And I think the second question was related to net debt and interest expenses in our P&L. Of course, we have more net debt as we discussed earlier and interest expenses are higher than what we had in last year. And then on top of that, you can notice from the report as well that we have some hedging costs, which are related to our Romanian operation and especially to the project to build a new factory in Romania. It's quite difficult to comment anything related to '26 at the moment. So let's come back to that later. But that -- those are the main kind of answers or reasons behind. Annukka Angeria: The next question comes from Rauli Juva from Inderes. Rauli Juva: Rauli from Inderes. A question still on the passenger car tire margins. You touched this already, but just want to be clear, you posted in Q3 now around 16% EBIT margin as in last year and then your Q4 last year was really weak. So I guess you should be improving from that year-on-year. But how do you see the dynamics on the passenger car tire margin from between Q4 and Q3? Paolo Pompei: I think the level of margins that we are reaching today are rewarding really the strong effort of the team globally in improving pricing and at the same time, improving our cost when we talk about manufacturing. So they are a natural consequence of what we are doing around the company. And obviously, we should expect that we are improving because this is what we are here for in order to reach our financial targets. Pricing, as I told you, already has a strong impact, but we should not underevaluate as well the improvement that we are having also from the manufacturing point of view, also considering that last year, we were excluding in quarter 3, the part of the cost that we had in North America in Dayton, while this year we don't have those kind of exclusions. So in terms of comparability, I believe that we are really progressing in the right direction, and this is really encouraging. So you should see step-by-step margins improvement. Akshat Kacker: The next question comes from Akshat Kacker from JPM. A couple of follow-up questions, please. The first one, when I think about your production capacity and your footprint, could you talk about your overall plans for capacity additions going into next year, please? Are you adding more capacity at Dayton or in Finland, please? And the second part of the question is, could you just clarify the contribution from the Romanian plant in terms of commercial tires in this quarter? And how should we expect offtake agreements to progress going into next year? Just a total overview on overall capacity planning, please? Paolo Pompei: Thank you very much. As I mentioned several times, and this is very important, I will focus -- we will focus as a company on profitable growth. So capacity now is there. We were able to build this capacity. We are very pleased about what we were able to do so far, but now it's really time to focus on profitable growth. So the capacity that we have today, it's enough to support our strategic term objective for the next 3 years. So we will not need to implement additional capacity at this stage in -- both in Central Europe as well as in North America. Clearly, we will do specific adjustments on specific lines since we are going, for instance, in terms of mix. So we are producing bigger and bigger sizes. So we will need to do some adjustments in order to increase eventually the capacity on bigger sizes. But in general, I would say, overall, I think it's now time to harvest what we did in the last 3 years and to make sure that we are able to saturate our existing capacity. So answering briefly to your question, we don't see the need to add additional capacity in the next 2 years at this stage. When we talk about offtake, of course, we are reducing the level of offtake. We have indicated that from the strategic point of view, in average, 10% of our total volume will remain in offtake to keep flexibility and to make sure we will be able to get the support of somebody else for product lines that we believe is not strategic to produce internally within the company. Romania start to contribute to the sales in the Central European market. And that is already ongoing since May, June this year. And obviously, we can expect that in the future, more than 80% of what we sell in the European market will be supported by our Romanian factories for Central Europe as well as Southern Europe. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'm sorry for coming back in slot time, but just to come back on the previous question. I just want to make that clear because right now, you're talking about 1 million Romanian capacities, and you said you don't want to increase capacities, but you still aim to have substantially higher production levels in Romania if you plan to be able to supply 80% of your European sales with Romania. So you mean -- I just want to clarify what you said. You mean you're not going to have to add incremental CapEx, but you're still able to increase the absolute level of production in Romania, 2 million, 3 million, 4 million in the next couple of years, knowing that the investment is behind you, right? Paolo Pompei: Thank you very much. And you don't need to apologize if there are questions. So this is really what this section is all about, answering to your question. So we're happy to do it. We need to distinguish about production and capacity. By the end of this year, we will produce 1 million tires, but we have already capacity to produce up to 3 million tires. Step by step, we will during 2026, complete this expansion and obviously, adding semifinished product lines more than curing or building machineries. So this is why we say the investment in Romania for the next 3 years will be really limited because we are at the end of the process. So in total, we will have 6 million pieces capacity already by, let's say, the end of next year, eventually, obviously, we -- this is really how the factory works. So 1 million is the production, but the capacity already by the end of the year will be up to 3 million pieces and up to end of next year up to 6 million pieces, reinforcing areas that are not strictly related to curing and building, but mainly about mixing and semi-finished products. I hope I replied to your question. Annukka Angeria: The next question comes from Artem Betsky from SEB. Artem Beletski: Yes. Also one follow-up from my end. And it is relating to PCT profitability. So what we have seen during years '23 and '24 and also beginning of this year is that margins have been extremely volatile on a quarterly basis. Looking ahead, do you anticipate this type of volatility will be clearly lower? And maybe just coming back to past development, what have been the key reasons in your view that margins have been swinging so much in that segment? Paolo Pompei: For sure. Thank you for your question. Clearly, again, we need to look at the history of this company in the last 3 years. So we came out from the storm, and it was difficult to reach stability when we had obviously the necessity to switch and to change completely our production footprint, moving out from Russia quickly and then building our new footprint, reinforcing our factory in Finland as well as in North America and at the same time, building a new greenfield in Romania. So it was really difficult for the team to manage all this transition. And in some way, we are still managing this transition. But of course, we see finally good progresses, and we see finally a gradual stabilization of our performance and continuous improvement. So answering to your question, of course, you will see more stability in the development of the margins moving forward because now finally, we can leverage our increased capacity. We can leverage efficient and efficient manufacturing footprint. And at the same time, we are improving day by day, as I mentioned, already in placing our product in the market and improving pricing capabilities around the company. I hope this will reply to your question. Annukka Angeria: There are no more questions at this time. So I hand the conference back to the speakers. Operator: If there are no further questions, it is time to end this call. I want to thank you, Paolo and Jari and especially all of you who participated in this call. We wish you a nice rest of the day. Paolo Pompei: Thank you very much, and looking forward to the next call. Jari Huuhtanen: Thank you.
Tuukka Hirvonen: Okay. [Foreign Language] Good afternoon, and welcome to Orion's earnings conference call and webcast for the financial period of January-September 2025. My name is Tuukka Hirvonen. I'm the Head of Investor Relations here at Orion. In a few moments, we will start with the presentation by our CEO and President, Mrs. Liisa Hurme, after which then we will have a Q&A session where you can post questions both to Liisa and also to our CFO, Rene Lindell. [Operator Instructions] And just before I let Liisa to take the stage, I'd like to draw your attention to this disclaimer regarding forward-looking statements. But with that, it's my pleasure to hand over to Liisa. Liisa? Liisa Hurme: Thank you, Tuukka, and welcome to Orion Q3 webcast on my behalf as well. Here are some highlights from quarter 3 2025. Nubeqa received approval from European Commission for use of darolutamide and ADT, androgen deprivation therapy in patients with metastatic hormone-sensitive prostate cancer. Nubeqa also reached all-time high royalties and product deliveries to Bayer during Q3. Generics and Consumer Health business had a strong quarter, supported by good availability of products in our major markets and very successful new launches. Unfortunately, ODM-105, tasipimidine Phase II trial for insomnia didn't reach its efficacy target, and we decided to discontinue the development of that program. And Q3 financials are here. And before I go deeper into the financials, it is good to remember that the comparative period Q3 2024 was an exceptional quarter. We received EUR 130 million worth of milestones last year's Q3. There was a EUR 70 million sales milestone from Bayer related to Nubeqa and EUR 60 million milestone related to the MSD agreement on opevesostat. So these are quite difficult to compare to each other. And now as I go along, I will talk about the base business. So the business without the milestones. The base business growth was 24% from quarter 3 '24 to this year's quarter 3, totaling to EUR 423 million. The operating profit growth was even stronger, 68%, up to EUR 121 million. And our cash flow grew 15% and was being very solid. Of course, last year's -- during last year's Q3, the milestones were booked, but yet not paid. So they were not yet cash in our bank. And when we look closer, the net sales bridge, we can see the kind of a net effect of the difference between the quarters here regarding the milestones in Innovative Medicines column, which is EUR 59 million, but underlying net sales increased by EUR 71 million. So I think the growth, as I earlier said, of Nubeqa product sales and royalties was very strong, but it didn't fully compensate the previous year's milestones. We can also see here that all other divisions positively developed positively, strongest being Generics and Consumer Health, but also Branded Products and Animal Health showed positive development. And Fermion was more or less on par. And here on the operating profit bridge, we can see the full -- kind of a full effect of the last year's milestones, EUR 130 million, but also the positives on the change in sales volume and change in prices and cost of goods and product mix of almost EUR 20 million. And then the royalties of EUR 50 million. We can also see that our fixed cost increased as well, but this is all planned. It's mainly R&D and sales and marketing costs here. Now let's take a view for the first 9 months from January to September. Again, a very nice 22% growth during the first 9 months and 7.8% growth even though we would compare to the previous year's quarter 3, including the milestones. And the first 3 months ended up with EUR 1.2 billion of net sales. Regarding operating profit, EUR 57 million -- 57% growth and slight decrease if we compare to the numbers, including milestones in previous year. And again, a very positive development on cash flow during the first 9 months. Now to Innovative Medicines. This is a bit different picture than you've used to see. There is the shaded area, which tries to tell you the comparison between the quarters, including everything else, but the milestones from the previous year. And 71% of growth is very healthy for Innovative Medicines and also almost 75% growth during the first 9 months. And on the right side here, you can see this all-time high royalties plus product deliveries ending up to EUR 166 million. And I always remind looking at this picture, the very, how would I say, year is very late ended loaded -- back-ended loaded -- back-end loaded for Nubeqa, as you can see here, when you look at the '24 from the first quarter to the last quarter, but here as well. But I would like to remind that in comparison to '24, we already reached the higher royalty rate in the previous quarter with Nubeqa. So we are not going to see a similar shift and change in the royalty rate as we saw last year between the Q3 and Q4. Branded Products growth during Q3 was somewhat slow. It was 3%. And this slowliness in the growth is mainly due to timing of deliveries to our Stalevo partners. And that will be fixed during the rest of the year. So it's kind of a temporary change here. And the growth for the first 9 months is a healthy 9%. And in Easyhaler portfolio, budesonide-formoterol combination product was the clear driver for the growth. And then on the CNS portfolio, Stalevo Japan contributed to growth in Branded Products. And as I say, Generics and Consumer Health quarter 3 was very, very strong. 5.4% growth is extremely good for any generic business, but especially here when we remember that Simdax and Dexdor are included in this business, and they are constantly sliding down facing the generic competition. So we are able to compensate that decrease, but -- and at the same time, increase and grow our sales. And the reason for good quarter is really the good availability of the products in our Nordic countries. The service level is the thing in the Generic business. You need to have the products at the time of the tender where they should be, and you would need to be able to deliver also for all the different countries in the specific timings of tenders or pricing processes. And also, we had a good launch, for example, for Apixaban in Finland. Animal Health continued the good growth trend, although here, we see a bit of a similar slowdown as with Branded Products, and that partly has to do with deliveries as well. But when we look at the first 9 months, it's a very strong 2-digit number growth. And our top 10 product list is as it has been. Nubeqa, there as a flagship with 83% or 84% growth. Easyhaler product portfolio growth was close to 8% and entacapone products grew close to 5%, mainly due to the Japan sales. And our HRT product, Divina, performed very well here on the row 5, growing almost 23%, continuing the strong growth from earlier this year and some oldies like Trexan even 10% -- close to 10% growth and Quetiapine products, 10% growth. And currently, our business divisions are very healthy. The balance between business divisions is very healthy, approximately 30% for Innovative Medicines and Generics and close to 20% for Branded Products. Now Orion's key clinical development pipeline has clearly become oncology focused as we decided to discontinue the ODM-105 project for treatment of insomnia. We have also removed ARANOTE from this list as it's approved both in U.S. and EU. So we now have the DASL-HiCaP study on this list. and then the 2 OMAHA studies with opevesostat that MSD is responsible for. It's good to mention here for these 2 opevesostat studies that their design or primary endpoints have changed since we last presented this so that for the OMAHA3, which is for the later line patients, the primary endpoint is now overall survival. So the progression-free survival has been demoted and overall survival is the primary endpoint. Also, there are changes for the frontline patients study 004, so that the progression-free survival is now a primary endpoint for this study. And these are changes that our partner, MSD, has done, and it looks in all possible ways very logical. Then we have Tenax levosimendan study for pulmonary hypertension proceeding in Phase III. They are planning to start also another Phase III study by the end of this year, another global study for this indication. And then we have another study for opevesostat for metastatic castrate-resistant prostate cancer and 3 studies ongoing, Phase II studies ongoing for several or 3 different hormonal cancers, women's hormonal cancers, breast, endometrial and ovarian cancer. And still, we continue the CYPIDES, which was the Phase II study that formed the basis for those 2 opevesostat 3 and 4 studies for prostate cancer. And our TEAD inhibitor, ODM-212 for solid tumors is proceeding well in Phase I, and we are preparing to start the Phase II program on the first half of next year. Then a few words on the sustainability this time about decarbonization targets. We have set an ambitious target to reduce absolute Scope 1 and 2 greenhouse gas emissions by 70% by the year 2030, and also have 78% of our suppliers, meaning Scope 3 emissions covered by our targets. Then how do we do this? I think for the Scope 1 and 2, we have very concrete actions ongoing. The steam production is one of the most energy-consuming phase in the chemical industry, especially in the API industry. And we are changing the energy source for steam production in all of our facilities -- manufacturing facilities. In Turku, we are electrifying the steam production. In Oulu, we are changing to biofuels from the fossil fuels. And also, we will start an electrifying project in Espoo. So very, very concrete examples here, and we have even done a lot of concrete actions and projects before this, for example, in our Hanko plant. And in the supplier management, we are targeting to our highest emitting suppliers who are not yet aligned with SBT. And here, we try to offer support and practices and technical expertise with our suppliers. And we have specified our outlook today. Our operating outlook for operating profit, we have narrowed from EUR 410 million to EUR 490 million. So nothing drastic. We've been able to narrow it as the year has -- 10 months have already passed. There are 2 months left, and we have a much clearer view on how the year will pan out. And for the net sales, our outlook is from EUR 1.640 billion to EUR 1.720 billion. And here, you can see the upcoming events for next year. And I thank you on my behalf, and welcome Rene here with me to answer your questions. Tuukka Hirvonen: Thank you, Liisa, for the presentation. As we said in the beginning, we will first take questions from the conference call lines, and then we will turn to the questions you can type in through the chat function in the webcast. But at this point, I would like to hand over to the operator with the conference call. Operator: [Operator Instructions] The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have 4 questions. We'll take this one by one. Firstly, starting from the guidance. Can you elaborate on what is driving the small revisions to the lower and upper ends of the guidance ranges? Is this about third quarter actuals? Or have you also updated your forecast for the fourth quarter? Liisa Hurme: Well, of course, the first thing is, as I mentioned, that we know now how the first, say, 10 months have passed, and there are only 2 months left. But there are, of course, uncertainties for the latter part of the year. Nubeqa is a big moving factor in this, also R&D costs. And the tariffs are not that big of a matter here. We do think that they wouldn't have any effect to this year '25. But there are still uncertainties for the rest of the year. So still, we have this range, but there are less uncertainties, and that's why we were able to narrow the range. Sami Sarkamies: Okay. Then moving on to growth momentum at Branded Products and Animal Health. Third quarter growth rates are clearly weaker than we saw in the second quarter. How would you explain that? And what is your expectation regarding Q4? Liisa Hurme: Well, yes, you are very correct that the Branded Products and Animal Health showed a slower growth than previously this year. And it's mainly due to some delays in our deliveries to partners. We have both Animal Health. Animal Health is actually working closely with. We have some very big partners that we are working with. So there might be a 1-day or 2-day delay for the deliveries, and it has an effect clearly even on the quarter if there are big deliveries going on. Same goes with Branded Products. We deliver still to our Stalevo partners across the world. And it's the same thing. I think we've experienced this earlier years as well that sometimes it just happens that we are not able to ship during the quarter that we had planned. But this should be -- we should be able to sort this out by the end of the year during the Q4. Sami Sarkamies: Okay. Then moving on. The third question is on ODM-208. You mentioned that Merck has been changing primary endpoints for the OMAHA studies. When was this change made? Liisa Hurme: This change became public, I think, a month ago, 3 weeks ago, maybe. Tuukka Hirvonen: It was a few weeks ago. In early October, they changed the protocols. It was visible in the ClinicalTrials.gov. So nothing material because we didn't come out with at that point. But of course, something that is very interesting for all of you. So we wanted to highlight it here. Sami Sarkamies: Okay. And then finally, regarding the R&D pipeline, thinking of next year, can you give a bit more color on when you're expecting Phase I readout for ODM-212? And when would you expect to initiate the first Phase II study for that molecule? And then secondly, at CMD, you talked about 3 biological preclinical programs moving into Phase I during next year. Just wanted to check if these projects are still live as you are currently guiding for at least one new program during next year. Liisa Hurme: Yes. I'll start with ODM-212. The Phase I is almost completed. We are looking at the results, and we are basing our Phase II planning on those results. And of course, we will report the results in some forthcoming scientific meeting. Those are usually on embargo until we release them for the scientific audience. And regarding the Phase II program, it's currently under plans. We have filed IND for that and hope to be starting by hopefully mid-'26. And what was -- then there was one more question. Tuukka Hirvonen: About the biologics status. Liisa Hurme: Biologics. Indeed, yes, we told that we have 3 biologics close to advancing to clinical pipeline. And we think that we will be able to proceed with at least one of them to the Phase I next year. Operator: [Operator Instructions] The next question comes from Shan Hama from Jefferies. Shan Hama: Three from me. Also happy to take them one by one. So firstly, could you perhaps give us some, I guess, guide as to the impact on your OpEx from the ODM-105 failure? I mean I know you weren't planning to take it to late-stage development yourselves. So I assume it's not significant, but perhaps any guidance on the provisions set aside there would be helpful. Rene Lindell: Yes, maybe I can take that one. So of course, ODM-105, it was -- we got the results and in such a way, you could say the project was completed. So for this year's perspective, not a big impact in terms of how we expect this year's R&D expenses to be going as it was in our plans and it was completed. Then of course, for next year, you can obviously think that there is a change in how the budget is allocated. 105 million, of course, is not moving forward. There are some tail costs for next year that we'll be taking in this year. But overall, we see it as being quite neutral for this year in compared to whatever we save and whatever provisions we take for costs that would have occurred next year. Shan Hama: All right. And secondly, I mean, you're able to specify your guidance on this increasing visibility on the performance of the businesses. I assume the visibility on the milestone should also be better. Could you perhaps speak a bit on your expectations for this and whether that visibility has shifted slightly from last quarter? Liisa Hurme: Well, as we have stated, we think that we will receive the milestone next year, '26, but it is possible that we receive that milestone already '25. But it's still not possible to state that as a fact that we get it this year. So we remain where we have been to this date that it's possible this year, but we are -- in our plans, it's next year. Shan Hama: Understood. And then finally, given the delay that you mentioned in the deliveries in Branded Products and Animal Health, is it fair to expect a slight boost to 4Q, assuming those deliveries are made as well as the normal business expected in 4Q? Or is it more of a pull-through dynamic? Liisa Hurme: Now I didn't quite get the question. Is it... Tuukka Hirvonen: It's about the timing of shipments in Branded Products and Animal Health since we now saw some headwinds. Will there be a boost in Q4 now that... Liisa Hurme: No, I think it's just -- it's according to plan that we get them out here. So it's not boosting the Q4. Operator: The next question comes from [ Matty Carola ] from OP Corporate Bank. Unknown Analyst: It is [ Matty Carola ]. I ask 2 Nubeqa related questions. First, regarding the U.S. situation and the pricing. I know you are not willing to say a lot about it, but maybe could you a little bit say about the political atmosphere. Do you or your partner get the pressure to lower the price? Or what's your kind of look right now if you look on another side of the Atlantic? Liisa Hurme: Well, I think that's a good question regarding the U.S. business environment. However, I think a question whether our partner gets pressured or needs to change price, I think it's fair to say that, that needs to be asked from Bayer. It's not my place to comment that matter. But in general, there are a lot of things happening in U.S. regarding the pricing, the most favored nation initiative and also, of course, the tariffs. So we follow the situation carefully. Unknown Analyst: All right. Then the second one, you received the latest permits in the U.S. during the summer and also in Europe regarding the latest indication. Have you seen kind of significant volume change or kind of any change about the sales during the Q3 if we speak about the kind of adoption rates or any other kind of sales indication, which is visible after you got the final sales permits? Liisa Hurme: Well, we don't -- of course, we see that the volumes are increasing. That's a very positive thing. But we don't have a kind of a step change if you're referring to that with the new indication. It's more of a linear growth. So it's very positive. I'm sure ARANOTE has a positive effect as it can be used also without docetaxel. But to have a kind of a step change or big growth there, such we don't see exactly. Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: One question from me, and it's just to double check something you said during the presentation about Nubeqa royalties in Q4 compared to Q3. So I understood that we shouldn't expect similar growth as we saw last year, but anything else to add or comment on Q4 royalty rate? Maybe I didn't catch up everything you said in that comment. Liisa Hurme: Very good that you asked. I was trying to explain that last year, the royalty rate changed between Q3 and Q4. So... Tuukka Hirvonen: During Q4. Liisa Hurme: During -- yes, not exactly between, but during Q4. So it had an impact so that the Q4 was clearly higher in Nubeqa sales or royalties to us. But this year, we already reached that royalty rate during Q3. So even though the royalties will be -- or the sales will be growing, so there will be a kind of a double effect of sales growing and royalties -- royalty percentage increasing during quarter 2. So that's the difference. I don't know if I explained it well or if my colleague wants to explain it even better. Anssi Raussi: Got it. And so is your royalty rate hit the cap during Q3? Was it at the end of the quarter? Or was the average rate already capped and will be similar in Q4? Or is it like the run rate at the end of Q3? Tuukka Hirvonen: We reached the cap during Q3, not going to specifics at which point of time. But like Liisa said, kind of the message is that one should not expect similar step-up as you saw last year between Q3 and Q4 because in Q4 last year, we got the step-up coming from the royalty rate increase, but now that won't be happening between Q3 and Q4. So that was kind of the message that we expect the growth to continue, but similar kind of step-up as you saw last year, one should not expect. Operator: There are no more questions at this time. Tuukka Hirvonen: All right. Thank you, operator. Then we turn on to the chat questions. We have a couple here. You still have time to type in more if you have anything on your mind. Let's start with one. This is actually already covered, but just to let you know that [ Aro ] is asking, is it still realistic to think that the EUR 180 million Nubeqa milestone would come already this year? And actually, you, Liisa, already addressed that question. So that's covered. Then we are having one coming from Iiris Theman from DNB Carnegie. Regarding Nubeqa, have you received any feedback from Bayer how ARANOTE sales have developed? What are Bayer's comments? Liisa Hurme: I think not specific comments on ARANOTE . I think we are more or less following the all sales development. And as I said, it's linearly growing. So there, we haven't really seen any step-up due to ARANOTE. And let's remember that there might have been already off-label use with Nubeqa for this patient segment. So it might be that -- it might not be that dramatic, and that's what we've been trying to tell all along while we've been waiting for the ARANOTE approval. Tuukka Hirvonen: All right. Thank you, Liisa. We have no further questions in the chat, but I got a message. Well, actually, now Iiris has a follow-up here. So why administration costs were lower year-on-year? And what should we expect for Q4? Rene Lindell: Yes, There are typically quite many line items there, and some of those are -- can be just shifting from quarter-to-quarter. There can be also some definition changes, what is considered admin and what is considered in the other line items. There are quite minor changes in terms of the overall admin expenses. There's nothing big changing the normal inflation, which is across the board. But yes, I wouldn't expect any drastic differences. Tuukka Hirvonen: All right. Thanks, Rene. Then we have a follow-up from Sami Sarkamies from Danske. So following changed endpoints for ODM-208, so opevesostat, OMAHA trials, do you still foresee an interim readout in '26? Before you answer, of course, we need to point out that we have never estimated or foreseen that there will be a readout. Liisa Hurme: Interim readout. No, no, no. But I think that's public, the readout for the full year. It's that when... Tuukka Hirvonen: Yes. Yes, the full readout, yes, but interim readout. Liisa Hurme: No, no, no. We are not going to comment that or we have never commented that. But the readout from both studies should be in 2028. Tuukka Hirvonen: Yes, that's correct. Then we have a follow-up from Heikkila. He says that Orion's R&D costs have been increasing clearly. At which point do you expect these increases to show as a growth in terms of net sales? And to which development programs are you focusing the most after Nubeqa? Liisa Hurme: We clearly focusing the development programs that are in our hands, and that's ODM-212 now and of course, the biologics that are following that. And when can we expect that program to turn into sales? I would say that would be early 2030s. Tuukka Hirvonen: All right. Thank you, Liisa. Now we have exhausted all the questions from the chat. And also, I got a message that there are no follow-ups in the conference call lines. So it's time for us to wrap up. Thank you for joining us today, and have a great rest of the day and week. Liisa Hurme: Thank you.
Jan Strecker: Good afternoon, ladies and gentlemen, and thank you for joining us today to review financial results for the third quarter of 2025. Present on today's call are Stephan Leithner, our Chief Executive Officer; and Jens Schulte, Chief Financial Officer. Stephan and Jens will provide an overview of our performance and key developments during the quarter. Following their remarks, we will open the line for your questions. As usual, the presentation materials have been distributed via e-mail and are also available for download on our Investor Relations website. This call is being recorded, and a replay will be made available shortly after the conclusion of today's session. With that, let me now hand over to you, Stephan. Stephan Leithner: Thank you, Jan, and welcome, everyone. I'm pleased to present our third quarter results, which once again demonstrate the strength, resilience and strategic balance of Deutsche Börse Group's diversified business model. Despite a more challenging backdrop in select areas, particularly index derivative at Eurex, ESG & Index at ISS stocks and some FX headwinds, we delivered solid net revenue growth without treasury results. This performance was driven by broad-based momentum with 5 out of 8 business units achieving double-digit growth in the quarter. That's a clear reflection of the robust diversification of our franchise. Our portfolio's balance enables us to consistently deliver even when individual segments faced temporary headwinds. By combining businesses with distinct growth drivers, we maintained a steady and scalable performance trajectory. Let me begin the review of the quarter with Investment Measurement Solutions. As expected, Software Solutions was the key growth driver delivering a solid 10% increase in net revenue. Importantly, annual recurring revenue is trending towards the upper end of our guidance range, supported by a robust client pipeline as we head into the fourth quarter and beyond. The recent acquisition of Domos marks an important strategic step for us in the Software Solutions business. Paris-based Domos is a leading provider of technology-driven solutions for managing and administering alternative assets including private equity, real estate and infrastructure investments. By integrating Domos' advanced digital platform and specialized expertise, we can offer clients a broader range of services, great operational efficiency and enhanced transparency in the alternative investment space. This positions us to capture the growing demand for alternatives among institutional investors and strengthens our footprint in a rapidly evolving segment of the financial industry, especially with the general partners, this opens up many new client opportunities. As we explained last quarter, the environment in the second part of our Investment Management Solutions segment, ISS STOXX remains challenging, especially for the ISS part. While we acknowledge the headwinds resulting from a changed attitude towards certain products, especially in the U.S., we believe this is largely temporary dynamic similar to historic cycles. We remain confident in a return to stronger growth in the medium term. In addition to market dynamics, this business saw the biggest impact of the weaker U.S. dollar on the top line. Regarding the 20% minority stake in ISS STOXX held by General Atlantic, nothing has changed, and we are under no pressure to make a decision this year. A buyout remains an option, and we will continue to carefully evaluate all alternatives with a focus on long-term value creation. Let me turn to the second area to Trading & Clearing. We saw strong contributions across several areas. Cash Equities delivered an impressive 21% net revenue growth driven by robust demand for European equities, in particular, from retail flows. Commodities advanced by 10%, continuing their secular growth trajectory, while FX rose by 7%, supported by market share gains. In Financial Derivatives, fixed income products performed well with 11% net revenue growth without treasury results. We're already seeing initial benefits from the active account requirements under EMEA for example, in OTC clearing with a noticeable step-up in volumes, and this puts us on track with our fixed income road map for further momentum in the coming months. As we have explained before, clients have some flexibility for activating accounts, but the overall potential has not changed. Equity index derivatives, however, remained under pressure due to subdued volatility and challenging market conditions. We believe this is primarily driven by cyclical factors, and encouragingly, we have already seen some improvement in volumes in October as volatility has picked up again. Our Fund Services and Security Services businesses, #3 and #4 of my outline, have also delivered excellent results with net revenue growth without treasury results of 15% and 13%, respectively. These gains were driven by record activity levels, supported by continued expansion of debt outstanding, healthy equity market valuations and sustained inflows into European assets, while double-digit growth in our fund business was in line with expectations. The performance in Security Services clearly exceeds them. In addition to strong custody activity, we saw new all-time highs in international settlement and collateral management, which further underscores the strength and scalability of this business. Let me especially applaud the teams in the new client wins and fast onboarding, like with German neo-brokers and Asian clients. On the cost side, for the entire group, operating expense growth came in slightly below our expectations. FX tailwinds and lower share-based compensation helped offset higher investments and inflationary pressures, keeping us firmly on track to achieve our full year target of around 3% cost growth. Based on our new steering methodology without treasury results, this translates into significant scalability, a 7% increase in revenue drove a strong 16% increase in EBITDA for the quarter. Even when including the treasury results, we maintained solid scalability underscoring the strength of our operating leverage. Looking at the 9 months of the year, we are fully in line with our expectations, delivering 9% net revenue growth without treasury results. Based on this performance, we confidently confirm our guidance for 2025. Our outlook remains supported by strong secular growth trends and continued inflows into European assets even as we experience slight FX headwinds. We're also confirming our overall targets for next year under the Horizon 2026 strategy. At our Capital Markets Day on December 10 in London, we'll provide an update on our progress and introduce new midterm guidance beyond 2026. We firmly believe that the secular growth drivers addressed by our strategy will continue to support our performance at least until the end of the decade. In addition, we see new growth themes emerging across the group that we will focus on to further fuel long-term growth. Taken together, these factors will enable us to consistently deliver growth levers going forward comparable to what we have achieved over the past several years. Artificial intelligence will also play a positive role in this journey. Let me emphasize this. It is certainly not a disruption risk, but as a powerful enabler of revenue growth and operational efficiency. We have performed an AI assessment across the group, and the results are very clear. We see our overall portfolio as extremely robust because we operate regulated system-critical infrastructure at scale. Today, I cannot replace. Instead, we are well positioned to capitalize on the AI opportunity. Our cloud-first infrastructure strategy, coupled with our current cloud adoption rate of over 74% has laid the groundwork for rapid, cost-effective and secure scaling of AI. We expect AI to generate tangible value for our clients and shareholders in 3 key areas. First, although most of our core process is already highly automated, AI will help us create greater efficiencies in our internal processes. Currently, we are focusing on automations across the software development life cycle, corporate center optimizations and improvements to client service and processes. Second lever that we see, we are actively rolling out algorithmic and domain-specific AIs across our products to enhance client productivity and initial results are very promising. AI also provides an additional distribution channel for our proprietary financial market data. And as a third lever, we are seeing positive secondary effects in our core businesses. For example, in our commodity business. Europe's power demand is estimated to increase by 10% to 15% due to AI data center energy consumption. Just like AI will drive further noncorrelated trading and small-sized high-volume trading in all of our asset classes. To hear more about this and much more, I warmly invite you to join us in London on December 10. It will be a great opportunity to engage with our leadership team, gain deeper insights into our strategy beyond Horizon 2026 and explore the exciting growth opportunities ahead. With that, I will hand it over to Jens for a closer look at the financials and segment details. Jens Schulte: Yes. Thank you very much, Stephan, and welcome, everyone, also from my side. Let's start with a quick look at our performance over the first 9 months as shown on Page #2. As you recall, the first half of the year came in slightly ahead of expectations. This was largely driven by elevated equity market volatility in March and April, along with strong inflows into European assets. In Q3, we experienced the typical summer seasonality, coupled with lower equity volatility. This had a somewhat greater than anticipated impact on equity derivatives, particularly index products. That said, our year-to-date results remain firmly in line with our full year expectations and our Horizon '26 growth path. Net revenue without the treasury result rose by a solid 9%, underscoring the strength and resilience of our business model. Now turning to operating costs. We saw a few moving parts across the 3 quarters, but overall, the picture is consistent with our planning share-based compensation provision fluctuated during the period but ultimately were flat year-over-year in the first 9 months. The U.S. dollar-euro exchange rate, which started the year as a headwind turned into a modest tailwind. While the impact was less than 1 percentage point, it still contributed positively to the cost development. We also benefited from lower exceptional costs this year. This reflects last year's termination fee related to the EEX NASDAQ agreement as well as the wind down of costs tied to IMS synergy realization. All in, operating costs increased by 3%, exactly as expected. This uptick was primarily driven by inflation and targeted investments in our strategic growth areas. Bottom line, our EBITDA margin without treasury results improved significantly to 53%, up from 50% in the prior year as our businesses continue to scale. And we also made further progress with our share buyback program. By the end of last week, we had repurchased Deutsche Börse shares worth around EUR 441 million. This leaves approximately EUR 59 million remaining to be executed by the end of November. Let's move to Page #3 with our third quarter results. As Stephan already mentioned, net revenue without the treasury result grew by a strong 7%. Given the cyclical headwinds we faced this quarter, this performance highlights the breadth of our diversified portfolio. Total net revenue rose by 3% to EUR 1.44 billion. This was driven by the continued decline in the treasury results, primarily driven by lower interest rates and despite stable cash balances. Operating costs remained stable in the third quarter, while inflation and increased investments played a role. These were fully offset by favorable FX movements, lower share-based compensation expenses and a reduction in exceptional costs. Overall, our cost discipline remains strong and fully aligned with our strategic priorities. We continue to strike the right balance between investing for growth and maintaining operational efficiency. As a result, EBITDA without the treasury result showed high operating leverage increasing by 16%. Lastly, our effective tax rate came in slightly below expectations, thanks to smaller onetime positive effects. Looking ahead, we continue to plan with a 27% tax rate for '26 and beyond. Let's now turn to Page #4 and take a closer look at our segment results, starting with Investment Management Solutions. This segment is composed of 2 key areas. First, Software Solutions, which combines SimCorp's software business with Axioma's analytics capabilities. Within this area, we saw SaaS revenues grow by 22% and while on-premise revenues declined slightly by 1% as expected. This reflects a clear and ongoing shift. Existing clients are increasingly migrating to the cloud and new clients are typically SaaS-based from day 1. Our annual recurring revenue reached EUR 632 million at the end of the quarter, an 18% increase year-over-year at constant currency. Growth was particularly strong in North America with 27% and APAC with 37%. EMEA delivered a solid 17%. These figures compare very favorably with our main peers and reinforce the strength of our global footprint. The second part of the segment is the ESG & Index business of ISS STOXX, which saw flat net revenue development. However, on a constant currency basis, the picture is more encouraging. Net revenue in ESG & Index grew by 4% in Q3, supported by a solid contribution from the ESG business with 6% revenue growth. Similar to previous quarters, the Market Intelligence business experienced flat growth and low equity market volatility negatively impacted the exchange license business in the Index segment. Importantly, the segment's EBITDA saw a significant increase, driven by disproportionately lower operating cost growth, highlighting the scalability and efficiency of our model. Now let's turn to Slide 5, which highlights the performance of our Trading & Clearing segment. Starting with Financial Derivatives. We continue to benefit from strong fixed income activity. Net revenue without the treasury result increased by 11%, driven by double-digit growth in fixed income futures and repo revenues. OTC clearing all saw high single-digit growth, supported by record clearing volumes following the implementation of the EMEA 3.0 active account requirements in June. On the Equity Derivatives side, volatility moderated significantly in the third quarter, creating a headwind for index products. As markets trended upwards to new all-time highs, hedging activity also declined. However, we partially offset the effects of volume through an increase in average revenue per contract. This was in part due to the decommissioning of the Korea Exchange Link for after hours KOSPI trading as mentioned in our last call. Our Commodities business delivered another strong quarter with double-digit growth once again. In gas, revenue rose 31%, fueled by robust activity in European gas markets amidst supply uncertainties and below target storage levels. We also saw continued momentum in power derivatives in the U.S. and APAC, while activity in Europe moderated slightly due to reduced hedging needs. In Cash Equities, we benefited from strong demand for European equities and significant inflows into European ETFs. This reflects a broader investor rotation into European markets and growing interest in passive strategies. Additionally, we recorded a onetime revenue effect of approximately EUR 3 million from the sale of a T7 license to a third-party exchange. Finally, our Foreign Exchange business achieved net revenue growth across most product lines supported by new client wins and geographic expansion. This diversification continues to broaden our revenue base and enhance the resilience of the FX franchise. Turning to Slide #6. Let's look at the continued strong performance in our Fund Services segment. We are seeing positive momentum across the board, supported by higher equity market levels, new client wins, portfolio growth and ongoing inflows into European assets. As a result, we recorded a further increase in assets under custody and sustained high volumes of settlement transactions. Notably, our fund distribution business saw a significant step up in assets under administration, which now exceeds EUR 700 billion, a major milestone. This growth underscores the increasing relevance of our Fund Services offering and our ability to support clients across the full investment life cycle, from custody and settlement to distribution and administration. With disproportionately lower operating cost growth, the segment delivered significant operating leverage, resulting in strong double-digit EBITDA growth, both with and without the treasury results. Lastly, let's move to our Securities Services segment on Page #7, which has seen a further acceleration of growth compared to the strong first half of the year. The segment continued to benefit from strong capital markets activity with ongoing fixed income issuance and higher equity market levels, driving sustained growth in assets under custody and settlement transactions. We also saw record levels of collateral management outstanding this quarter, which contributed to the strong performance in custody revenue. These trends reinforce our central role in the post-trade infrastructure and the strength of our platform. On the interest income side, cash balances remained stable, averaging around EUR 17 billion for the quarter. As expected, we saw seasonal lows in July and August followed by a recovery in September when market activity picked up and balances rose to slightly above EUR 18 billion. The main driver behind the decline in net interest income was the lower interest rate environment. The ECB rate was 1.5 percentage points below the prior year quarter. And the Fed rate was 0.75 percentage points lower, both in line with our expectations. To wrap up, let's take a look at our full year 2025 outlook on Page #8. We are confirming our guidance for the year, supported by our expectations of continued secular growth and sustained inflows into European assets. This is despite the modest FX headwinds and the low equity market volatility and also aligns with the current sell-side consensus. In addition, we continue to expect a treasury result of more than EUR 0.8 billion for 2025. Based on current interest rate assumptions and stable cash balances, we forecast around EUR 825 million, which is also in line with analysts' expectations. On the cost side, we are very well on track to meet our guidance of around 3% growth in operating expenses for the full year. This reflects our disciplined cost management and strategic investment approach. That concludes our presentation. We now look forward to your questions. Operator: [Operator Instructions] And the first question comes from Arnaud Giblast, BNP Paribas Exane. Arnaud Giblat: One question then. I was wondering if -- I mean, you mentioned during the call that the IMS [ STOXX ] was postponed and that you are still considering a potential buyout. But I'm just wondering if you could update us whether there's an actual time frame on giving the [ minority ] shareholders a liquidity event? And if I may, secondly, there's been quite a lot of news around political comments made by German Chancellor around the potential -- around their willingness to see further consolidation in cash equities. So I was just wondering if you could update us on your thoughts there. I mean, historically, we know that cash equities hasn't necessarily been your priority in terms of consolidation. I'm just wondering if that might have shifted. Stephan Leithner: On your first, Arnaud, and I just looked it up last call, we also took you as the first one on the question. So you've got a [ pull ] position. On the first one of your questions regarding to the minorities, there's no change to what we said before. There's the dual track. As we have always said, we're not alone, there is a partner, and we jointly manage the time line. So no changes in that overall. I think second, on the remarks that Chancellor made, I will put them into the context of a broader, very encouraging commitment that is made around strengthening the European capital markets. So really a push that wasn't there historically around capital markets unions, progressed a number of levers in that context. I think for us, we are a big contributor to that. We have made a lot of progress in terms of European full coverage in terms of infrastructure. This isn't only about the cash markets. So there's really no change with respect to our position and our strategy. Operator: Next question is from Benjamin Goy, Deutsche Bank. Benjamin Goy: One question on your excess cash. Maybe you can remind us of the likely position at year-end and how this impacts your capital allocation policy other than the potential minority buyout? Any other major files you're looking at. Jens Schulte: Yes. So thank you very much, Benjamin. So in terms of excess cash, probably this will play out somewhere in the magnitude of EUR 1.5 billion to EUR 2 billion towards the end of the year. In terms of share buybacks that you alluded to, we have our program running, right, as I said, and we will complete the EUR 500 million. And the further story we will communicate when time is there. Operator: The next question is from Enrico Bolzoni, JPMorgan. Enrico Bolzoni: One, I wanted to go back on your comments about AI and being an opportunity, not a risk. And of the 3 elements you listed, I was particularly interested in the second one. I think you quickly mentioned that it might create new distribution channel. Can you perhaps expand a bit more and let us know if, for example, you are signing or about to sign partnership with, for example, third-party AI engines and whether you think that we might see a monetization of these agreements? And then related to that, if I actually have to take a more bearish stance, there's been a lot of rumor about potential disruption for software solution companies. Can you just remind us of what is the position of SimCorp in this regard and why you think is not subject to perhaps AI disruption? So that's my first question. And my second question is, in a way also related to technological disruption. I know you -- when it comes to the ledger, so the blockchain technology [indiscernible] in the past agreement with HQLA. Can you remind us what do you expect will happen to post services in an environment where there is basically a rising velocity of collateral and perhaps the settlement cycle compresses further, maybe also beyond T+1. So how do you think the business should be positioned and is that a risk? Stephan Leithner: Thank you very much, Enrico, taking up both of your questions. Let me first start on the AI side. And I really emphasize and appreciate you taking up SimCorp. I think the uniqueness of SimCorp is that contrary to sort of any ancillary type services on the software side. SimCorp is very much a front-to-back sort of backbone type business. Therefore, it is really anchored at the core of what is the clients' operations, and that really sets it apart. That's why I think we see a lot of positive enhancement possibilities. That's what SimCorp has started to put in place with the copilot for example around their front office reporting capabilities. Many of those tools give improved usage capabilities for the clients. But I don't think there is any way similar to many of our operations type businesses and execution services. This is a real backbone type system that we operate for the clients in the cloud increasingly as we have said. I think the second point with respect to the data, we have a broad set of data points. And let me just highlight 2 or 3 examples out of that. One is the proprietary data that we can provide on collateral management. One of the themes that you later come back with the DLT and blockchain. So we have a pretty unique capability. In terms of the data understanding, both on collateral as well as on settlement that allows us to deliver services directly to clients because we have that connection to the clients. So therefore, our focus is not signing up a wider distribution agreement, but it's really delivering and optimizing what we can do directly with the client. I think that economically is a much better, much stronger way to monetize AI as well as proprietary data, which we have in so many areas. On your second theme around the blockchain and DLT, HQLAX is one good example of a very advanced and broad industry partnership where Deutsche Börse or Clearstream in this case, has carved out a pretty unique position because within that ecosystem of HQLAX with most of the relevant market participants, the only TTP, so the only trusted third party that is able to confirm the portfolio composition similar to a tri-party agent role is really the Clearstream side. So I think it shows that in these network environments, even if there is DLT used, there is a very strong ability for Clearstream to position and have a unique starting point. Now you also inquired around the implications, if I get it correctly, on the T+1, the higher settlement cycles. We overall see this as something that we don't expect material extra costs on our side, very different from many custodian firms who have a big rewiring to do. So there is no material cost because today, we are really able to operate. Most of this process is already on a T+1. This doesn't fundamentally change. So we also don't see an erosion of our position coming out of T+1. It's really strengthening the strongest operators in the CSD space, and that's where certainly there's not more than 2, if I look those that are able to operate. We have just announced the pan-European footprint operation by basically operating direct services on settlement across all 28 CSDs. Again, it's a unique partnership, a unique link up network that Clearstream has, no others have it. I think it will be strengthened if we move into T+1. Operator: Next question is from Tobias Lukesch, Kepler Cheuvreux. Tobias Lukesch: Also one or two questions from my side, please. Touching on the costs, you mentioned some active cost management and also some investments. I would be interested how active were you in Q3? Should we consider the 3% guidance to be more of a 2.6% for this year, and in terms of investments, is there more to come on the AI opportunities that you're seeing? Or is that something we should consider for '26? Or is that not all really impacting your investment cycle that you have planned so far? And very quickly, you touched on the OTC derivative clearing again and said, with EMEA, this is well on track. Maybe you could give us a bit more insight on the business development since also your competitor kind of doubled down on the business with Q3. Jens Schulte: Good. So I take -- first of all, I start with the OpEx question. So in terms of just generally active cost management, we continuously do active cost management, for example, in terms of expanding our location footprint currently moving parts of the business to India and other locations and gaining further efficiency from our systems. So that is an ongoing process that is not only -- has not only been relevant for Q3. Now very specifically to your question in terms of guidance, we do confirm that guidance at the moment. Keep in mind that as in previous years, if you look into '23 and '24, we usually in Q4 have some seasonality, for example, driven by investments being a bit back-end loaded, driven by merit increases, severance and several other things that typically tend to come more out towards the year-end. So for the moment, we do plan with the 3% and that is the target and then let's see how we come in. But we are well underway. I mean that is certainly true. On the second point, OTC clearing, and the EMEA side, so what I alluded to in my part is that we actually did increase the number of accounts from about 1,600 to 2,200, so by 600 accounts. It is fair to say that the activation rate of those accounts is still relatively muted. So it's overall around 20%. However, what we do recognize now is that after a technical implementation standards have come out and after the clients have started to sort themselves, they are now making specific plans as to how to route their flows. And so we do expect the activity to increase next year. Bear in mind on this topic, that the -- basically, the activation requirement needs to be fulfilled throughout the first full year, so until basically May of next year, so the customers still have time and they take the time to organize themselves properly, but we do expect a significant increase of activity beginning of the next calendar year. Stephan Leithner: Let me take your third part, the investments impact of AI. First of all, let me give you a context that I think is truly very important and sets us apart, which is we have gone very much an advanced investment cycle when it comes to a number of items that now really benefit us on the AI journey, and that's, in particular, the transition into the cloud. We have a mid-70% of our portfolio that is in the cloud that allows us much faster and much more efficient. We have in parallel done and made the transition on the IT security side. So again, these are all areas where we have, over the last years, run significant investment portfolios from which we are now benefiting, that's why we also don't expect any requirements or change when it now comes on the AI invest because we can really build on that effectively and efficiently work together with major model providers and deploy very fast into our organization. So that's one of the items that I think truly from a wider market debate that I've seen around the margin impact of AI is something that we, in our scan and in our review process that we have run have really not seen happen. And I think that's very encouraging to us in terms of the speed and the implementation environment. Operator: [Operator Instructions] And now is from Hubert Lam, Bank of America. Hubert Lam: I've just got one of them. Can you talk about a bit about the pipeline of new clients or upsell for SimCorp into Q4. Usually, I think there's more seasonality in Q4. Just wondering if we should expect a big quarter and what kind of growth to expect heading to the end of the year? Stephan Leithner: Thanks for asking the question, Hubert. I think the seasonality of Q4, we have now explained a number of times and documented in the past years. I think we have given the guidance that in the remaining quarters, we'll see 10% quarter-by-quarter or that's what we said after the first quarter, I think we continue to stick and believe. And if we look at the pipeline, that's what we actually see. But software is every year back-end loaded sort of environment, and therefore, I think it's a lot of hard work, but signs are all on track. Operator: And the next question is from Tom Mills, Jefferies. Thomas Mills: You've alluded to the setting up of new medium-term targets at your CMD on the 10th of December, which I guess means to out sort of 2028. There's obviously been a change of CEO and CFO since the current medium-term targets were put in place. Could you maybe talk a bit about how you fear about getting to the '26 targets? Is it your intention to kind of maintain those or do you step back from them at all? Just because I see sort of consensus is a little below where you're currently expecting to get to? Stephan Leithner: Thank you very much, Tom, for giving me the opportunity to reiterate and emphasize what I said earlier. I think we both really very much confirming our 2026, Horizon '26, as we had talked about it before. I think there is no change and December 10 will not make us change their position. And secondly, also emphasize what I alluded to earlier, which is we see that many of the new growth themes that we see emerging are really fueling us for a long-term growth that goes beyond 2026. So we have a very comfortable outlook there. Operator: Next question is from Jochen Schmitt, Metzler. Jochen Schmitt: I have one follow-up question on custody revenues. You have already mentioned higher revenues from collateral management. Would you see those revenues as partly nonrecurring? Or would you see Q3 as a reasonable starting base for modeling purposes? That's my question. Stephan Leithner: So we do see that as recurring revenues. The settlement business, settlement custody business has a very good run at the moment, and we do see that carrying into the future. Operator: At the moment, the last question comes from Michael Werner from UBS. Michael Werner: I got two, please. First, on the [indiscernible] products. I was just wondering if you can update us on your thoughts about the fee holidays that you currently have on them and whether that could potentially lift in 2026? And then just looking at IMS, I know there was some decline in exceptional costs. But the underlying cost base in IMS year-on-year has been pretty steady, showing quite decent operating leverage. Is that something we should expect going forward? Was there any kind of moving parts on the cost base as I assume SimCorp is a place you want to continue to invest? Stephan Leithner: I think with respect to the fee holiday outlook, we have said we will work on establishing a very stable sort of business base before we really change. So we'll continue to monitor that in Q1, how far out that is going to go. We will decide in the course of the year. So there is no prediction that we're giving at this point. I think the second question that you had with respect to the IMS cost operating leverage, indeed, sort of clearly with respect to some of the areas that have shown slower growth or we have been active and the management teams have been working on the cost. So I think you need to look at that in the aggregate of IMS. I think it doesn't signal at all. And our investment commitment around the SimCorp momentum, as we speak, is very unchanged and there's important product enhancements on which we're working. There have been recent product introductions that have also been fueling some of those big wins, in particular, in the U.S. that we have been very proud about and that we reported on basically a named basis, if I can say, in Q2 already. Jan Strecker: There are no further questions in the pipeline. So we would like to conclude today's call. If there's anything else, then please do feel free to reach out to us directly. Thank you very much for your participation, and have a good day.
Operator: Good day, ladies and gentlemen. Welcome to KPN's Third Quarter Earnings Webcast and Conference Call. Please note that this event is being recorded. [Operator Instructions] I will now turn the call over to your host for today, Matthijs van Leijenhorst, Head of Investor Relations. You may begin. Matthijs van Leijenhorst: Yes. Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us today. Today, we published our Q3 results. With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. And as usual, before we begin the presentation, I would like to remind you of the safe harbor on Page 2 of the slides, which applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Now let me hand over to our CEO, Joost Farwerck. Joost Farwerck: Thank you, Matthijs, and welcome, everyone. Let's start with the highlights of the last quarter -- third quarter. Our group service revenues increased by 1.7% with growth across all the segments. In the mix, consumer was supported by ongoing commercial momentum, both in broadband and mobile. Business was driven by mainly SME and LCE. As expected, growth slowed in the third quarter, mainly due to the tailored solutions parts and wholesale continued to grow mainly driven by sponsored roaming. Our EBITDA grew by 2.3% on a comparable basis. And as expected, our free cash flow rebounded in the third quarter, up 12% year-to-date, driven by EBITDA growth. We further expanded our fiber footprint together with our joint venture, Glaspoort. And finally, we remain confident to deliver on the full year 2025 outlook and our 337 midterm ambition. As a reminder, our Connect, Activate and Grow strategy is supported by 3 key pillars. First of all, we continue to invest in our leading networks. Second, we continue to grow and protect our customer base. And third, we further modernize and simplify our operating model. And together, these priorities support our ambition to grow our service revenues and adjusted EBITDA by approximately 3% on average and our free cash flow by approximately 7% over the entire strategic period. And given that we are now nearly halfway through our strategic period, we look forward to sharing a strategy update with you next week, November 5, and we hope you will join us online for the webcast. Let me now walk you through the business details. We lead the Dutch fiber market. In the third quarter, we expanded our fiber footprint by adding 74,000 homes passed together with Glaspoort, and we connected 82,000 homes, bringing us close to 80% homes connected within the fiber footprint. And the rollout pace slowed compared to previous quarters due to timing. We stick to our ambition to cover 80% of Dutch households with fiber. During our strategy update next week, we'll share how we will get there within our financial framework. Let's now have a look at the consumer segment. Consumer service revenues continue to grow, driven by consistent fiber and mobile service revenue growth. Customer satisfaction remains a priority, and thanks to our CombiVoordeel offer supported by super Wi-Fi, our Net Promoter Score rose to plus 15 year-to-date and Net Promoter Score even reached plus 17 during the quarter, showing how these improvements are making a real difference for our customers. Let's take a closer look at our third quarter KPIs. We saw another quarter of double-digit broadband-based growth despite a challenging competitive environment. Thanks to a steady and healthy inflow of new fiber customers, combined with a growing ARPU, our fixed service revenues continue to grow. In mobile, we maintained a strong commercial momentum, adding 47,000 subscribers. And this was partly offset by ARPU decline driven by ongoing promotional activity in the no-frill segment. So overall, our mobile service revenue grew by 1%. Let's now turn to the B2B segment. Business service revenues increased by 1.4% year-on-year, driven by SME and LCE and good commercial momentum. Net Promoter Score rose to plus 5 in the third quarter, reflecting customer appreciation for stability, reliability and the quality of our networks and services. SME service revenues increased by 3.3% year-on-year, driven by growth in Cloud and Workspace, broadband and mobile. LCE service revenues increased by 1% year-on-year, supported by growth in mainly IoT, Unified Communications and CPaaS. Mobile service revenues were impacted by ongoing price pressure, though this was partly offset by a growing customer base. And finally, and as expected, I must say, Tailored Solutions service revenues decreased by 2.5%, reflecting a further focus on value steering. And then wholesale -- our wholesale service revenues continue to grow, mainly due to a strong performance in mobile, driven by the continued growth in international sponsored roaming. Broadband service revenues increased despite a decline in copper base driven by fiber and other service revenues increased mainly due to an update in visitor roaming. Now let me hand over to Chris to give you more details on financials. Hans Figee: Thank you, Joost. Let me now take you through our financial performance. First, let me summarize some key figures for the third quarter. First, adjusted revenues increased 2.4% year-on-year in the third quarter, driven by service revenue growth across all segments and higher non-service revenues. Second, our adjusted EBITDA after leases grew by 4.4% compared to last year, supported by higher service revenues, the IPR benefit and contribution from tower company, Althio. This was partly offset by the holiday provision effect. As a reminder, starting this year, most employees no longer register holiday leave, resulting in a lower provision release in Q3 compared to last year, impacting therefore, the distribution of EBITDA growth over the year with a specific negative accounting impact in the third quarter. Finally, as anticipated, our free cash flow rebounded in Q3 and is now up 12% year-to-date. I'll share more details on the underlying cash developments later in this presentation. Group service revenues grew by 1.7% year-on-year, supported by all segments. And within this mix, consumer revenues increased by 1.1%, driven by, as Joost said, continued solid momentum in both fixed and mobile. Business service revenue growth tapered off somewhat in the third quarter compared to previous quarters, mainly due to developments in Tailored Solutions and timing effects. And finally, wholesale service revenues increased by 5.2% year-on-year, driven by ongoing growth in our international sponsored roaming business. Our adjusted EBITDA grew 4.4% year-on-year in Q3 or 2.3% on a comparable basis if we adjust for the IPR benefits, the Althio contribution and the holiday provisioning effects. Direct costs remained broadly in line with last year, reflecting shifts in the revenue mix, particularly within Tailored Solutions, where our continued focus on value and margin steering is shaping direct cost dynamics. On a comparable basis, our indirect cost base decreased by EUR 5 million, driven by lower energy and billing costs. We further scaled down our workforce, resulting in a reduction of over 300 FTEs compared to previous year. Our year-to-date operational free cash flow increased by 12% compared to last year or 8.6% excluding the IPR benefit and Althio, driven therefore by EBITDA growth. As expected and communicated to you, free cash flow generation rebounded in the third quarter, mainly due to improved working capital and lower interest payments. Year-to-date, our free cash flow is up 12% compared to the first 9 months of last year, again, supported by EBITDA growth and partly offset by higher interest payments and cash taxes paid this year. Finally, we ended the quarter with a cash position of EUR 373 million, absorbing the impact of the interim dividend over '25 and share buyback payments. We continue to run with a strong balance sheet. At the end of Q3, we had a leverage ratio of 2.5x, in line with our self-imposed ceiling and remained stable compared to the previous quarter. We expect our leverage ratio to return to 2.4x by the end of the year, supported by increased free cash flow generation. Our interest coverage ratio was sequentially a bit lower at 9.5x, and our cost of senior debt decreased slightly, mainly driven by lower floating interest rates. Our exposure to floating rates, by the way, remains limited at only 16%. Our liquidity position of around EUR 1.4 billion remains strong covering debt maturities until the end of '28. We are on track to deliver the 2025 outlook we shared with you in July. And on 25th of July, we completed our EUR 250 million share buyback program for the year. The cancellation of about 60 million treasury shares will be finalized in Q4. And August 1, we paid out an interim dividend of EUR 0.073 per share in respect of 2025. And finally, we reiterate our midterm, also known as our 337 targets as presented at our previous Capital Markets Day. As outlined back then, both service revenues and EBITDA are expected to grow 3% per year on average over the plan period and our free cash flow by 7% per annum on average with growth in cash back-end loaded due to our CapEx plans. Until 2026, our free cash flow growth is expected to grow at a low single-digit rate per year since we face increasing cash taxes year-on-year. Now let me briefly wrap up with the key takeaways. We continue to see service revenue growth across all segments. While revenue growth moderated somewhat in Q3, we anticipate a recovery in the fourth quarter. Our commercial momentum remains solid, and we continue to lead the Dutch fiber market. Our net add developments in both fixed and mobile and both in consumer and business was quite satisfactory in Q3. As expected and planned for, EBITDA growth was relatively soft in Q3, but is set to recover in Q4. Cash flow generation was strong, up more than 10% year-to-date. Overall, we're on track this year and continue to make good progress towards our annual and midterm targets, and we reiterate our guidance for the year. Finally, as we approach the halfway point of our strategy, we can't wait and look forward to providing you with an update of our strategy next week, on November 5. Thanks for listening and turn to your questions. Matthijs van Leijenhorst: Yes. Thanks, Chris. Operator, please open the line for the Q&A. Please limit your questions to 2 please. Operator: [Operator Instructions] Our first question is from Polo Tang of UBS. Polo Tang: I have 2. The first one is, is there any update in terms of the Glaspoort acquisition of part of the DELTA Fiber footprint? And my second question is, we have a general election in the Netherlands this week, but is this having any impact on public sector spending in terms of your B2B segment? Joost Farwerck: Yes, Polo, thanks for the questions. The Glaspoort acquisition, it takes our regulator a very long time to come to a final opinion. So as you know, Glaspoort intends to acquire a rural fiber footprint of approximately 200,000 house passed from DELTA Fiber, and it's still under ACM review. We expect, well, something within 1, 2 months because it takes really too long. We think it's still no reason to refuse it. This could reduce overbuild risks for both parties and supports healthy market development. Then elections coming up in the Netherlands, that's tomorrow, by the way. We -- on the midterm, we see limited impact on KPN. Major topics in the elections are immigration, health care, housing markets. Well, the government wants to build more houses, and we think that's a good one because then we can take them into the house pass footprint. Topics that could affect KPN on the longer term are about investments in defense, and we're in good position on that. We are selected as the main digital provider for the Ministry of Defense and discussions around fiscal affairs, for instance, the innovation box facility and the share buyback taxation, but that's a vacant faraway remark somewhere from one of the left wing parties. So all in all, I don't expect that much impact for KPN. Polo Tang: Just on public sector, can I just clarify if there's any freezing of public sector spend into an election or out of an election because we see that sometimes in other markets? Joost Farwerck: No, not really. We have some kind of a framework. So when elections are coming up and when a Cabinet falls in the Netherlands, then they select a couple of topics that they have to continue to run. And we are all convinced in the Netherlands that we should keep on investing in the themes I just mentioned. And also when it comes to cybersecurity and digital, there's no slowing down there from the government, and we are heavily involved in there. Operator: And our next question comes from Mollie Witcombe of Goldman Sachs. Mollie Witcombe: My first question is on B2B. You have said that you've seen some price pressure in mobile and B2B. Could you give us a little bit more color on this? Are you seeing this dynamic both in LCE and in SMEs? And to what extent should we consider this when we're looking at longer-term trends going into 2026? And my second question is just on the B2C competitive environment. What are you seeing in terms of competition? And have there been any incremental differences versus last quarter? Hans Figee: On your question on mobile price pressure, mostly in LCE and larger corporate tickets, there is some price pressure going on. I think that I would say from our point of view, there's still some of the decline, but the decline is declining. So you can say the second derivative is positive, but that's a bit of a nerdy view. But I would say expected LCE, some repricing of our base into next year, but then probably we have good hope it's going to be bottoming out, at least. So there is some price decline, but it's getting a bit better. We saw something similar in SME, but SME, we especially be able to counter that with value-added services by selling more security solutions to customers. So keeping our ARPU up. So there is some price pressure, most notable in LCE, but gradually abating. So we'll go into next year, but I think somewhere during the course of this year, that effect we hopefully [ achieve that ]. And SME, it's much less prevalent. And there, we see and have experienced good opportunities to counter that with additional value-added services like additional bundlings, but mostly security services around SME to keep your ARPU stable there. Joost Farwerck: Yes. And on the competitive environment, well, like in Q2, the market remains competitive in consumer markets, so Odido and VodafoneZiggo, especially. VodafoneZiggo launched a new proposition, broadband fixed on their cable network, a 2-gig proposition recently announced. So interesting to see how they will do there. But impact on KPN expected to be limited because our first proposition is 1 gig, and we also offer 4 gig. So most of the new customers land in 1 or 4 gig via our fiber network. And for us, it's very important to play our own game. So we focus on base management, for instance, on convergence households via CombiVoordeel, resulting in lower copper and fiber churn and 11,000 net adds. We also are very happy with the acquisition of Youfone because on the lower end of the market, you call it that way, there's true competition going on. So Youfone covers that. And currently, more than already 2/3 of our broadband base is on fiber, and that's leading to lower churn and higher NPS. So that's how we position ourselves in this competitive environment. Operator: And our next question comes from Paul Sidney of Berenberg. Paul Sidney: [Technical Difficulty] revenue growth, it did slow into Q3 at the group level. There's obviously lots of moving parts... Matthijs van Leijenhorst: Paul, paul. Paul Sidney: Can you hear me? Matthijs van Leijenhorst: We couldn't hear the first part. Could you start over again? Thanks. Paul Sidney: Sure. Can you hear me now okay? Matthijs van Leijenhorst: Perfect, perfect. Paul Sidney: Okay. Great. Yes, just a first question on service revenue growth. We did see it slow into the quarter at the group level. There's lots of moving parts, and you've given some great granularity in terms of the drivers of that. But as we head into Q4, how confident are you that we can see an acceleration in that service revenue growth trend? And then secondly, just looking a bit bigger picture, you report very comprehensive KPIs, very detailed guidance, net add, service revenue growth, NPS scores, free cash flow and returns guidance. I was just wondering, if we take a step back, which of those is most important to KPN as a business in terms of what really is sort of driving the business? And maybe we get more detail on next week, but just really interested to hear your views on that. Hans Figee: Yes. Paul, let me give you some more granularity on how we see service revenue growth developing. I'm going to just walk you through the business. I think the second question is a typical CEO question. Joost Farwerck: Yes, for sure. Hans Figee: I'll leave that to you. Look, on consumer, fixed is showing 1% service revenue growth. We've had tailwinds from a price increase, some headwinds from migration from front to back book discounts, et cetera. I think overall, the good news is that churn is actually reducing. The churn is doing better than ever. It's one of the best churn quarters in fixed in some time to come. Also please note, we have a CombiVoordeel product, which we give customers with multiple products, additional discounts leading to lower churn. That additional discount feeds through the top line. So that affects top line and fixed service revenue growth by almost 0.5% this quarter and even more in next quarter. So for Q4, we expect fixed service revenues to come in at a 0.4%, 0.5%, but that's really the accounting and the upfront payment on these additional discounts that lead to churn. So the discount, especially to multi-converged customers, and we're seeing benefits of churn on that. We'll give you more intel next week because that feeds into [ '26 ]. In mobile, you see a price increase coming in has already come in, has landed pretty well. So I would expect mobile consumer to be around 1.5% in the fourth quarter, fixed below 1% and mobile well above 1% then go to B2B. I see SME recover. I mean there was some technicality in the SME numbers, but it's also, I think, good base and ARPU development, especially in the third quarter. And a little bit easier comps, I would say SME should be 4% to 5% again in the fourth quarter and also in that into the next year. LCE hovering around 0. And on the Tailored Solutions business, there's always some volatility in this business that has to do with the timing of projects. For example, if you go back to last year, we saw growth -- service revenue growth in Q3, from 5% to 2% back to 5%. There's always a bit of volatility in this business due to the nature of these activities. In the third quarter, we saw the effects of KPN condition more steering on margins. So we lost some business. Some of it we didn't actually mind because there was actually 0 margin revenues and underlying this growth in defense spending. So I'd expect the Tailored Solutions business to be back around 2% to 3% in the fourth quarter, which should bring B2B to around 3%. Wholesale, I would say, probably around 4% to 5-ish in the fourth quarter. So that means overall service revenues in Q4, I would say, around 2%, probably 2% or a bit up. But that's the moving parts. Some of it has to do with technicalities. For example, as I said, in fixed service revenues, the accounting for the [indiscernible] cost shows up to revenues. It is showing up to churn, so it leads to real value, but short-term service revenues are a bit affected. Mobile should recover, SME should recover and the rest, I think I explained to you for probably around 2%-ish service revenue growth in Q4. Joost Farwerck: Yes, Paul. And then your question on all the KPIs and the main target. I mean, yes, we try to keep things simple in our strategy. We're a single country operator. We're healthy, and we build a plan for all stakeholders. So we invest in the Netherlands, we invest in customers, we invest in our own people, and we want to reward our shareholders in a decent way. And for that reason, you're right, we give a lot of KPIs, which is about broadband base growth or base growth in broadband, mobile, SME, CAGRs on revenue, net Promoter Score, you name it all. At the end, we simplified everything by saying it's a 337 CAGR. So that's a top line EBITDA and cash. And if I have to make a choice, I say the 7, the cash is the most important one of those 3. And the rest is all leading. So sometimes you're a bit behind on the subsegment. Sometimes you're a bit speeding up somewhere, sometimes NPS is lower or higher. But at the end, it's very important that we get to that financial promise, and we're on track. So -- but it depends a bit on the stakeholder, I -- when it comes to the KPIs we focus on. Operator: And the next question comes from David Wright of Bank of America. David Wright: Just on VodafoneZiggo, they obviously announced their strategic shift earlier this year, pushing a little more into Q2. I'm sure we'll get a similar message on Q3. Are you observing -- how are you observing the sort of retail pushback now? They've obviously branded the 2 gigabit product. We've got a slightly keener pricing. Do you observe anything else? Is there a lot more marketing spend? Is the marketing different than it was before? Just any casual observations you might have on how they've changed [ TAC ]. Joost Farwerck: Well, the change we saw was the announcement on Superfast Internet. I think for the market, that's not that bad. I mean, on mobile, we all 3 move to unlimited, which is a good development for the total market. And if the total market moves to higher speed broadband, wouldn't be that bad, I guess. But we play our own game. So like I mentioned, customers come in on 1 or 4 gig, and that's difficult to copy. So, so far, it's more an announcement then I see real movements in the market. Chris, anything to add on? Hans Figee: Yes. I mean when I look at, for example, our broadband net adds and fiber net adds, fiber net adds have been steady, net adds. But if you exclude all the copper migrations, fiber real new clients come in around 60,000 to 70,000 for quite some time now. So it's pretty steady. We've seen churn coming down. So we've seen churn coming down in both fiber and copper. That churn reduction started in Q2 and continued in Q3. So that's actually positive. And we don't want to steer just by the month, but when I look at just the simple October numbers, the order balances and the early indication of the month of October are fine. So at this point, it feels that we are obviously cognizant that it's a serious competitor out there. But in terms of underlying performance, no change in recent trends from where we are right now. In fact, churn has come down and things have not fallen off a cliff in the month of October. Operator: And our next question comes from Joshua Mills of BNP Paribas. Joshua Mills: A couple of questions from my side. Firstly, it's been about a year since Odido launched FWA services across the Netherlands. I wondered if you could give an update on how you think that's impacted the competitive landscape and whether it is impacting on your wholesale line losses as well or whether that's due to other factors? And then secondly, if I just build on that wholesale line loss question, trends look to be similar to the last couple of quarters. How would you expect that to develop over the next couple of years? And do some of the more aggressive promotions we're seeing from your ISP partners go anyway to help with that trend going forward, even if it's painful on the retail side? Joost Farwerck: Yes, fixed wireless access from Odido, we see activations on fixed wireless access, but it's also a different market than the broadband market in general in the Netherlands. So it's also a bit of a niche market for people camping, people on holiday, people in boats. So therefore, it's useful. It's also used as another option than whole buy on our network or on DELTA's network. So for Odido, they are asset-light on fixed and they are asset-heavy on mobile. So they try to clearly sell more customers, fixed wireless access to leverage the asset and to avoid the wholesale payments. But it's not really impactful when it comes to total broadband market share. So we use it as well, by the way, in super rural areas, but we always use it in combination with the fixed line. So for us, convergence is, as you know, the strategy. So in copper areas, the speed of the Internet connection can be supported by bonding via fixed wireless access. And probably, we're going to use that more frequently in the rural areas. Hans Figee: Yes. And Joost, on the wholesale side, if you look at the line losses in wholesale, that's really only copper. So wholesale fiber is growing from our main customer and wholesale copper is declining. As we understand, that decline is mostly related to the switching of the Tele2 brand, so the switching of a brand and the switching of the brand leads to customer migration. That's the main driver for losses in copper and wholesale. I expect that to continue in Q4 and possibly in Q1, but that's probably -- then the light at the end of the tunnel. I think that's the end in sight on that development. And then, for example, broadband service revenues, I think we're up about 2% this year. I think broadband service revenues in mobile will be plus 2% this year. Next year, around flattish is a combination of fiber growth indexation and the decline in that copper part. So I think when I look at it, it's mostly the line loss in copper related to the switching off of a brand, and that is a project that will come to an end, I would say, next -- somewhere mid- to early Q1, I would expect that impact to really to fade away. Operator: And our next question comes from Keval Khiroya of Deutsche Bank. Keval Khiroya: I've got 2 questions, please. So you've done quite well on consumer broadband despite the competitive backdrop. But how do you think about the gap between front and back book pricing in broadband? Do you get many requests from customers to move to the current cheaper promos in the market? And secondly, helpfully, you commented on wholesale broadband. But how do we think about the level of mobile wholesale growth next year? Obviously, sponsored roaming has been quite helpful. And does that continue? Any insights on the level of growth next year would be helpful. Joost Farwerck: Yes. So we shifted a bit on strategy as we announced last year, and that is invest more in existing customers instead of playing the acquisition game. We think it's very important to make a difference against the more challengers in the market. And investing in the customer base also leads to back book front book migrations. So that's how revenues in broadband are impacted, and that's why you only see 1 point something on service revenue growth while we do a price increase of 3. Having said that, that's part of our plan. And so when we move customers into what we call combination -- CombiVoordeel, then they have to sign up for 2 years, and that's leading to a back book front book migration. But -- so we made it part of our strategy. Hans Figee: Yes. And Keval, on the wholesale side, yes, indeed, we've been quite successful in mobile service revenue growth in wholesale. I expect that to continue. I don't plan on this level of growth going forward. But we have a decent funnel of potential new counterparties signing up in these type of businesses. And then we have a number of these clients that we help to win new business. So we work them for them to win new businesses. So I expect continued growth in this business going forward, perhaps not at the same pace. I think wholesale should be able to grow around 4% or so top line growth next year, all in with flattish broadband service revenue growth and the remainder is mobile. So continued growth, but let me be a bit conservative and not project the same level of growth, but wholesale around 4% service revenue growth next year is definitely feasible with all of this. Operator: And our next question comes from Ajay Soni of JPMorgan. Ajay Soni: Mine is just around the FTE reduction. So I think you're 300 lower year-over-year, which seems to be around 3% of your employee base. So my first question is just around why is this not being reflected maybe more obviously within your EBITDA bridge? Are there any other headwinds which are -- which means it isn't reflected? And I think looking further ahead, can you accelerate this FTE reductions over the next year, so they are more meaningful in 2026? Joost Farwerck: Yes. Thanks for the question. And next week, we will update you on what we are doing on transformation programs and how we look at the company in a couple of years from now and what kind of operating model we're building. And as a result of that, yes, we expect more FTE reduction. So why don't you see the minus 300 already impacting our EBITDA. First of all, we have a CLA increase. We -- other increased pension costs. So we have to cover up for, I don't know, 6% something of increasing wage costs. And secondly, it's also about the timing in the year. So the 300 will kick in on a higher scale next year than this quarter. But moving the company to a lower FTE base as a result of quality improvements and digitalization is very important also to cover costs and to make a step down. Operator: And our next question comes from Siyi He of Citi. Siyi He: I have 2, please. The first one is really on the comments of the Q4 service revenue growth of 2%. Just trying to think about the trend for next year. I think you mentioned that the B2B and wholesale trend probably is going to be similar level to Q4. And I'm just wondering if you can comment what kind of tailwinds that you would expect to basically help the service revenue growth to accelerate from the 2% to the midterm guidance of 3% and my second question is basically on fiber rollout. I'm sure that you will cover it next week. But just wondering if you can give us some color of how should we think about the fiber CapEx considering that there seems going to be a decent acceleration needs to be done to meet the above 80% coverage target. Joost Farwerck: Well, on the fiber CapEx, we clearly guided to the market that we will make a step down in 2027, and we still plan for that. So we expect a step down of at least EUR 250 million. That's in our guidance, and we stick to the guidance. Chris? Hans Figee: Yes. I mean on the service revenue growth, we'll give you a lot more details -- next week on our capital strategy update -- on the full capital market strategy update, we'll give you more details. But think of consumer to be growing around 1.5%, I think B2B north of 3%, B2B around 4%, and that should make for top line growth, but more in details next week. B2B 3, wholesale 4, yes. Operator: And the next question comes from David Vagman of ING. David Vagman: The first one, coming back on the competitive environment in broadband. If you can comment on your view on your expectation rather on the potential ARPU evolution, in mind speed tiering, but also competition, the announcement of VodafoneZiggo and the tweaking of offers by Odido yesterday. And then second question on the broadband wholesale market in the Netherlands, also your expectation on the ARPU side for KPN? Joost Farwerck: Yes. So on the -- I mean, the market is competitive. It will stay competitive, and I don't expect that to change. The difference between the Netherlands and most other markets is that we have a fully fiberized country already almost. So we're -- 90% of the households already are covered by fiber networks. All households are connected to at least 2 networks fixed. So what I want to say, our digital infrastructure fixed is of a super high level compared to other countries. So there is a competition between the fixed players, but I don't expect much competition coming in from fixed wireless access or satellite or other things you see in countries covering more rural areas as well, like -- and then -- so the competition will be firm, but we positioned ourselves, and I'm glad we did, by the way, we built a fiber footprint of almost 70%, more or less clean. And there's not that much appetite to overbuild us there. It will be more competitive in the new areas for us. So there, we can say to overbuild. We're waiting for our regulator to see what they do with that Glaspoort deal. But compared to other countries, I would say, yes, it is competitive. It is challenging, but we build a strong fiber footprint in the core of our strategy. Hans Figee: Yes. And to your point on wholesale ARPUs in broadband, a couple of things at play. Of course, every year, we have indexation. There's a schedule approved and agreed with the regulator, effectively around 2% indexation every year. Our ARPU is supported by the mix shift from copper to fiber. So we see a decline in copper and increase in fiber, that is supportive. And then any ARPU actions that we do to support our broadband -- for broadband partners tend to be linked to retention, tend to be for specific higher speeds or tend to be around linked to volume commitments. So basically, I would say ARPUs in wholesale broadband are pretty much the same and often linked to a combination of mix, price increases and/or specific agreements on retention and volume. Operator: And the final question is from Ottavio Adorisio of Bernstein. Ottavio Adorisio: A couple of follow-up questions. On Slide 8, you effectively stated that you expect bottoming up on the mobile. And during the call, effectively, you highlighted the price increases. But when someone look at the chart, you can see that, that revenue trends bottom up already in Q4 and deteriorated afterwards. So my question is that what makes you confident that the price increase will stick this time around, we don't go to promotion later on and the revenue trends deteriorate again? The second one is on the broadband. The churn for copper for your copper customers is stable, you stated that one. But looking at the numbers, you look at the migration from copper to fiber to be the lowest this quarter over the past 2 years. So my question is that there is any plan to encourage migration by reducing the price gap between copper and fiber? Hans Figee: Yes. On the first question, what happened -- what will happen from Q3 to Q4, what happened last year? Well, Q4 last year was a very particular quarter where a few things happened. We saw a temporary drop, actually, an accounting drop with roaming that actually reversed in the first quarter. You can see in the first quarter, sales revenue growth in mobile going up had to do with the accounting and booking of some roaming revenues. Second, we had an iPhone credit. If you recall well last year, we had some iPhone disturbances for which we gave some of our customer specific credits to compensate for that. I mean the iPhone disturbances are on hold for the end customers. And thirdly, we had a special offer in the market in that very fourth quarter. So a couple of particular trends that took down growth in the fourth quarter to a low level after which it rebounded in Q1 last year. So those were particular impacts on that third quarter, fourth quarter, and I don't expect them to repeat. So that gives me some comfort that, that blip that you saw last year will not come again this year. And the second question on copper upgrades to fiber. We really try to upgrade customers to fiber. It's a function of network rollout. It's a function of planning. It's a function of access to customers that fluctuates a bit over time. There's no strategic or technical retweet in this part, if you see what I mean. It has to do with timely and operational execution. We will continue to migrate customers from copper to fiber. We might actually, at the point in the midterm, try to accelerate that to enable the switch off of our copper network to accelerate. Joost, do you want to add? Joost Farwerck: Well, the unique thing of our fiber footprint is that we're building a fiber footprint with 80% of the households homes connected. And that's first of all to migrate all existing customers of KPN to the fiber network. That's the copper churn or the urban copper migration. Then we want to connect a lot of new customers, and then we want to connect as well a lot of wholesale connections. So there's more room on the network of households already prepared for an activation from a distance. So the copper migration is something that's really in our system to finalize to switch off the copper network as well. Matthijs van Leijenhorst: Okay. One final question. Operator: And our final question comes from Joshua Mills from BNP Paribas. Joshua Mills: Possibly a pedantic one here. But if I look at Slide #6 in the presentation where you have homes passed as a percentage of Dutch households, you have the target of 80%. And I don't see a year associated with that. I think in previous presentations, you were highlighting that you'd reach 80% homes passed coverage by the end of 2026. Can you just confirm that that's still the guidance and there's no change there, just so I'm clear. Joost Farwerck: Well, so yes, we are expanding our fiber footprint this year, next year and the years after, 74,000 homes passed, 82,000 homes connected this quarter. We stick to 66,000 because if you read it as well as you did. And last quarter, we also reported 66,000, but that's because of annual addition of households by CBS, the Central Bureau of Statistics in the Netherlands. And we stick to our ambition of 80% of Dutch households on fiber. But next week, during our strategy update, we'll share how we will get there within our financial framework. So we aim for 80%, and we confirm our midterm ambition of 3 targets, including the CapEx step down of to EUR 1 billion in 2027. Joshua Mills: Okay. And just -- so to be clear, the explicit target previously of reaching 80% by the end of 2026 is... Joost Farwerck: I've said earlier in previous calls as well that there's a lot of KPIs like we just discussed out there. And sometimes we meet -- we're getting faster, sometimes we're slowing down. The 80% is also a target, which is a very important one for us, and we will meet it for sure. But on the timing part, we will get back to you next week. And at the end, it's for us very important that the overall total strategy works, and that's working. Matthijs van Leijenhorst: Okay. That concludes today's session. Obviously, we will see -- we'll meet online next week during our strategy -- next Wednesday on the 5th of November. See you then. Cheers. Operator: Thank you. Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect your line. Have a nice day.
Operator: Welcome to the fiscal 2026 First Quarter Earnings Call for Applied Industrial Technologies. My name is Eric, and I'll be your conference operator for today's call. [Operator Instructions] Please note that this conference call is being recorded. I will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin. Ryan Cieslak: Okay. Thanks, Eric, and good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our first quarter results. Both of these documents are available in the Investor Relations section of applied.com. Before we begin, just a reminder, we'll discuss the business outlook and make forward-looking statements. All forward-looking statements are based on current expectations subject to certain risks and uncertainties, including those detailed in our SEC filings. Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents. Our speakers today include Neil Schrimsher, Applied's President and Chief Executive Officer; and Dave Wells, our Chief Financial Officer. With that, I'll turn it over to Neil. Neil Schrimsher: Thanks, Ryan, and good morning, everyone. We appreciate you joining us. I'll begin today with perspective and highlights on our results, including an update on industry conditions and expectations going forward. Dave will follow with more financial detail on the quarter's performance and provide additional color on our outlook. I'll then close with some final thoughts. So overall, we had a nice start to fiscal 2026. We delivered strong earnings performance in the first quarter with EBITDA and EPS growing 13% and 11%, respectively, over the prior year, which exceeded our expectations. Sales growth was largely in line with our outlook and strengthened compared to last quarter against a still muted and choppy end market backdrop. We converted stronger sales growth into even greater EBITDA growth through solid gross margin execution, cost control and our internal initiatives. As a result, EBITDA margins expanded over the prior year and exceeded the high end of our first quarter guidance. In particular, our service center team delivered a strong quarter on both the top and bottom line, and I'm encouraged by the positive momentum building from our internal initiatives and industry position. Sales across our Engineered Solutions segment were relatively flat versus the prior year, but orders remain positive. Hydradyne contribution continues to increase and the segment has solid growth potential moving forward. Overall, our execution and progress in the first quarter provides positive momentum to achieve our fiscal 2026 objectives and accelerate our value creation potential moving forward. Digging more into the sales trends, broader end market demand remained mixed during the quarter as lingering trade policy uncertainty continued to impact customers' purchasing decisions. That said, we would describe the underlying demand backdrop as stable to slightly positive. And overall, moving in the right direction when looking at it over the past several quarters. Year-over-year trends across our top 30 end markets improved slightly with 16 generating positive sales growth compared to 15 last quarter. We saw stronger trends across several of our primary end markets with strongest growth in machinery, food and beverage, refining, pulp and paper, metals, oil and gas and aggregates during the quarter. This was offset by declines in lumber and wood, transportation, chemicals, mining and utilities and energy. Year-over-year organic sales trends were stronger in July and August relative to September, though partially reflecting more difficult comparisons later in the quarter. Combined with greater pricing contribution, reported organic sales growth of 3% was the strongest in 2 years with a 2-year stack trend improving sequentially for the third consecutive quarter. Organic sales growth in the quarter was led by our Service Center segment with reported growth of 4.4%, accelerating nicely from the low single-digit declines we experienced in fiscal 2025. Growth was strongest across our national account base, while local account sales were up modestly year-over-year. which is an improvement from recent quarters. Strengthening service center sales growth is an encouraging sign for both the segment as well as our broader operations, as the shorter cycle nature of our service center operations is typically a good indicator of underlying industrial activity and potential demand for capital-related spending moving forward. We believe modest firming in manufacturing production and capacity utilization, combined with pent-up demand from deferred maintenance activity is driving more technical MRO and break-fix activity at the margin. We're seeing stronger activity across some of our heavy U.S. manufacturing verticals that are break-fix intensive. This includes primary metals market, where related service center sales were up by a high single-digit percent year-over-year in the quarter. Our service center team also continues to benefit from ongoing sales initiatives technology investments and greater cross-selling opportunities, which is supplementing their performance beyond underlying market demand. It's also important to highlight the strong execution of our service center team in the quarter where they levered 4% sales growth to 10% EBITDA growth, while particularly benefiting from more favorable AR provisioning over the prior year, the underlying earnings leverage was solid and highlights the team's operating discipline, ongoing cost control and effective management of broader inflationary headwinds. Within our Engineered Solutions segment, organic sales in the first quarter finished slightly lower compared to the prior year but remain on a solid path to stronger growth. Of note, segment orders sustained positive momentum, increasing nearly 5% organically over the prior year during the quarter, with a 2-year stack trend accelerating sequentially. Segment orders have now been positive year-over-year for 3 straight quarters with book-to-bill above 1 during the quarter. Order growth strengthened across our industrial and mobile OEM fluid power operations during the quarter. This exceeded our expectations and leaves us incrementally constructive on related fluid power sales trends moving forward. Our fluid power team for leading engineering capabilities and customer reach are driving new business opportunities tied to mobile electrification, next-generation fluid power systems and fluid conveyance. We also believe a lower interest rate environment and tax incentives could be particularly positive for our fluid power customer base, which is primarily comprised of small to midsized domestic OEMs. In addition, new business development and customer indications signal a potentially active backdrop across our technology vertical and discrete automation operations entering the second half of fiscal 2026. This includes an expanding position supporting the data center market with our fluid power and flow control solutions tied to thermal management applications and our automation teams providing robotic solutions supporting material handling applications. Our enhanced technical footprint in the Southeast U.S. region, following our Hydradyne acquisition, has further strengthened our data center position and related order momentum. Demand signals across our semiconductor customer base also remain encouraging and indicate a potential greater ramp in related orders and shipments during the second half of fiscal 2026, as the wafer fab equipment cycle gains momentum. I would also highlight recent investments we've made in engineering, systems and production capacity over the past several years that provide significant support to fully leverage these demand tailwinds moving forward. As a reminder, the technology and discrete automation verticals combined represent more than 25% and of our Engineered Solutions segment sales and could be an increasing contributor to the segment's growth moving forward based on our initiatives, growing order book and broader secular tailwinds. In addition, our flow control team is focused on capturing growth developing within life sciences, pharmaceutical and power generation markets within the U.S. With established product portfolios and leading technical capabilities around calibration services, instrumentation, steam and process heating and filtration we are favorably positioned to win in these markets. On a side note, our flow control backlog ended the quarter at its highest first quarter level in over 3 years, with orders positive year-over-year. Combined with relatively easy comparisons, we remain optimistic on the setup of our Engineered Solutions segment entering the second half of fiscal 2026 as recent order momentum converts and underlying end markets continue to firm. At the same time, we remain constructive on our ability to lever stronger sales and drive greater earnings growth and EBITDA margin expansion. Our first quarter performance is a good reflection on this. Of note, we achieved 17% incremental margins on EBITDA, inclusive of ongoing inflationary pressures, including LIFO and unfavorable M&A mix. We believe our underlying business model, combined with ongoing operational initiatives and structural mix tailwinds provide notable earnings growth levers to achieve our mid- to high-teen incremental annual margin target and continue to expand EBITDA margins in a positive sales growth backdrop. In addition, sales growth and EBITDA margin should benefit from ongoing progress developing across Hydradyne. As we approach our 1-year anniversary of the acquisition, we are very encouraged by the performance the broader team is delivering and the potential we see ahead. Hydradyne earnings contribution continues to improve, with EBITDA up over 20% sequentially in the first quarter and EBITDA margins improving nicely from the prior 6-month trend. We are making strong progress with sales synergies and our teams collaborate and leverage innovative fluid power solutions. This includes connecting Hydradyne strong repair and field service support across our legacy MRO customer base while enhancing their value proposition by providing access to our systems engineering team and complementary product lines. We're also tracking well to our operational synergy streams, including solid progress on harmonizing systems processes and operational efficiencies. Combined with the growing backlog and firming demand across their core end markets, we believe Hydradyne could be nicely additive to our organic sales growth and EBITDA margin trend as we anniversary the transaction into the second half of fiscal 2026. Lastly, we remain on track to have another active year of capital deployment to further supplement our growth potential and shareholder returns. M&A remains a top capital allocation priority for fiscal 2026. Our pipeline is active with varying sized targets across both segments. This includes several midsized targets at various stages of due diligence that could enhance our technical differentiation and value-added service capabilities. In addition, we expect to remain active with share repurchases for the remainder of fiscal 2026 as we balance the cadence of potential acquisitions, our balance sheet capacity and the value we see across applied from our strategy and long-term earnings potential. At this time, I'll turn it over to Dave for additional detail on our results and outlook. David Wells: Thanks, Neil. Just as a reminder before I begin, as in prior quarters, we have posted a quarterly supplemental investor presentation to our investor site for your additional reference as we recap our most recent quarter performance. . Turning now to details of our financial performance in the quarter. Consolidated sales increased 9.2% over the prior year quarter. Acquisitions contributed 6.3 points of growth which was partially offset by a negative 10 basis point impact from foreign currency translation. The number of selling days in the quarter was consistent year-over-year. Netting these factors, sales increased 3% on an organic basis. As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was approximately 200 basis points for the quarter. This is up from approximately 100 basis points in the fourth quarter and primarily reflects the effective pass-through of incremental announced supplier price increases in recent periods as previously discussed. Moving to consolidated gross margin performance as highlighted on Page 7 of the deck, gross margin of 30.1% was up 55 basis points compared to the prior year level of 29.6%. During the quarter, we recognized LIFO expense of $2.6 million which was up slightly from the prior year first quarter amount of $2 million. On a net basis, this resulted in an unfavorable 5 basis point year-over-year impact on gross margins during the quarter. The year-over-year improvement in gross margins primarily reflects positive mix contribution from our Hydradyne acquisition, solid channel execution and benefits from our margin initiatives as well as more muted gross margin performance in the prior year first quarter. This was partially offset by mix headwinds from growth in strategic accounts and lower flow control sales. Price cost trends were relatively neutral in the quarter. As it relates to operating costs, selling, distribution and administrative expenses increased 9.7% compared to prior year levels. SG&A expense was 19.4% of sales during the quarter. Excluding depreciation and amortization expense, SG&A was 18% of sales during the quarter and down 10 basis points from the prior year. On an organic constant currency basis, SG&A expense was up a modest 0.7% year-over-year compared to the 3% increase in organic sales. During the quarter, ongoing inflationary headwinds and growth investments were balanced by solid cost control and internal productivity initiatives as well as the benefit of more favorable AR provisioning resulting from our working capital initiatives and collections performance. Overall, stronger organic sales growth, coupled with M&A contribution, favorable gross margin performance and solid cost control resulted in reported EBITDA increasing 13.4% year-over-year, including over 6% on an organic basis. This resulted in EBITDA margins of 12.2%, expanding 46 basis points from the prior year level of 11.7%, which was above the high end of our first quarter guidance of 11.9% to 12.1%. Reported earnings per share of $2.63 was up 11.4% from prior year EPS of $2.36. On a year-over-year basis, EPS benefited from a reduced share count tied to our buyback activity, partially offset by a higher tax rate as well as increased interest and other expense on a net basis. Turning now to sales performance by segment. As highlighted on Slides 8 and 9 of the presentation. Sales in our Service Center segment increased 4.4% year-over-year on an organic basis when excluding a 10 basis point positive impact from acquisitions and a 10 basis point negative impact from foreign currency translation. So organic sales increase in the quarter was primarily driven by ongoing internal initiatives firming technical MRO demand and incremental price contribution. Sales growth was strong across our national account base, reflecting benefits from sales force investments and cross-selling actions. Segment trends also continue to be supported by favorable growth across Fluid Power MRO sales. Segment EBITDA increased 10.1% over the prior year while segment EBITDA margin of 13.9% expanded over 70 basis points. This year-over-year improvement primarily reflects solid operating leverage and stronger sales growth, channel execution and cost control as well as more favorable AR provisioning requirements. Within our Engineered Solutions segment, sales increased 19.4% over the prior year quarter with acquisitions contributing 19.8 points of growth. On an organic basis, segment sales decreased 0.4% year-over-year. The modest decline was primarily driven by muted sales trends during September across our flow control operations, reflecting softer project-related shipments. In addition, sales growth across our technology vertical was softer than expected in September, primarily tied to more gradual or conversions across the semiconductor market. We view this as timing related, considering backlog trends customer indications and broader sector tailwinds, as Neil highlighted earlier. Sales across industrial and mobile fluid power markets were also lower year-over-year. However, the decline was more modest and improved notably from fiscal 2025 trends, primarily reflecting easier comparisons and firming OEM customer demand. Sales across our automation businesses increased organically for the second straight quarter with organic growth of 4% year-over-year, driven by solid robotic solutions demand in the U.S. business. EBITDA increased 16% over the prior year, reflecting contributions from our Hydradyne acquisition as well as solid cost management, which was partially offset by modestly lower organic EBITDA on muted sales trends in the quarter. Segment EBITDA margin of 13.8% was down roughly 40 basis points from prior year levels, primarily reflecting unfavorable acquisition mix and lower fluid control sales. That said, we expect segment EBITDA margin trends to improve as acquisition mix headwinds ease and segment sales improve. Of note, Hydradyne's EBITDA contribution continues to increase as we progress along our integration and synergy initiatives with its financial performance tracking to our first year guidance of $260 million in sales and $30 million in EBITDA with growth and synergy momentum, providing upside support into the second half of fiscal 2026. Moving to our cash flow performance. Cash generated from operating activities during the first quarter was $119.3 million, while free cash flow totaled $112 million, representing conversion of 111% relative to net income. Compared to the prior year, free cash was down slightly, reflecting greater working capital investment balanced by ongoing progress with internal initiatives. From a balance sheet perspective, we ended up September with approximately -- excuse me, $419 million of cash on hand and net leverage at 0.3x EBITDA, which is above the prior year level of 0.1x. Our balance sheet is in a solid position to support our capital deployment initiatives moving forward. including accretive M&A, dividend growth and opportunistic share buybacks. During the first quarter, we repurchased approximately 204,000 shares for $53 million. Turning now to our outlook. As indicated in today's press release and detailed on Page 12 of our presentation, we are modestly raising full year fiscal 2026 EPS guidance to reflect first quarter performance and updated diluted share count assumptions following the first quarter buyback activity. We now project EPS in the range of $10.10 to $10.85 compared to prior guidance of $10 to $10.75. That said, we are maintaining our sales guidance of about 4% to 7%, including up 1% to 4% and on an organic basis as well as EBITDA margins of 12.2% to 12.5%. Guidance continues to assume 150 to 200 basis points of year-over-year sales contributions from pricing. Our sales outlook remains largely unchanged from the views we provided in mid-August. We believe end market trends are moving in the right direction, and we are encouraged by positive order and business funnel momentum. However, we continue to assume industrial activity remains mixed near term, and we expect our conversion across our Engineered Solutions backlog to be more weighted toward the back half of our fiscal year. Combined with sales trends in October, we currently project fiscal second quarter organic sales to increase by a low single-digit percent over the prior year quarter with Service Center segment growth above the Engineered Solutions segment. This is consistent with the midpoint of our initial guidance provided in mid-August and implies underlying sales trends remain relatively stable in the second half of our fiscal year at midpoint. We also acknowledge the low end of our sales guidance would imply a softening market in the back half of the year. We view this as little probability based on our indicators and performance to date. However, consistent with our typical approach to guidance, we believe it remains prudent to maintain our full year range at this early point in the year, pending greater clarity and less volatility across the macro and trade policy backdrop. Overall, we are running in line with our sales expectations year-to-date and remain constructive on our setup moving to the second half of the year. Lastly, from a margin standpoint, we are encouraged by our first quarter performance and reiterating the outlook provided in mid-August. We continue to assume ongoing inflationary pressures and growth investments as well as $14 million to $18 million of LIFO expense. For the second quarter, we expect gross margins to increase slightly on a sequential basis and EBITDA margins of 12% to 12.3%. I would note that we faced a difficult year-over-year gross margin and EBITDA margin comparison in the second quarter. Our prior year second quarter margin was favorably impacted by more modest LIFO expense of $0.7 million and nonroutine supplier rebate benefits as well as record performance across our Engineered Solutions segment tied to favorable mix. We expect stronger relative year-over-year EBITDA margin trends in the second half of the year reflecting greater expense leveraging and ongoing Hydradyne synergy progress as well as the potential for more favorable mix dynamics. With that, I will now turn the call back over to Neil for some final comments. Neil Schrimsher: So to wrap up, we are encouraged by our first quarter performance, including stronger top line trends, sustained positive order momentum and margin execution. We continue to have many self-help growth and margin opportunities that we expect to manifest in coming quarters and provide ongoing support levers. That said, we expect near-term sales to remain choppy, as customers balance production schedules, project phasing and capital investments into the seasonally slower fall and winter months particularly as broader trade policy uncertainty continues to linger. Importantly, we believe the underlying fundamental backdrop within our core end markets is moving in the right direction and has the potential to gain momentum as the year progresses. Feedback and sentiment from customers is gradually improving. Demand indications are more favorable across both traditional end markets, such as metals and machinery as well as emerging verticals, including discrete automation, life sciences and technology. We're seeing encouraging funnels across both our segments that should translate into incremental order growth as additional trade policy clarity emerges, interest rates continue to moderate and capital investment decisions are finalized. Certain U.S. industrial macro data points have trended more positive in recent months, including machinery and metals new orders as well as mining production, which have traditionally correlated well with our underlying core business. While ISM readings remain in flux, we believe the elongated sub-50 trend is positioned to move higher when considering leaner inventories and potential benefits from pro-business policies. In addition, qualitative data points around planned investments in North American manufacturing infrastructure, and onshoring continue to broaden, while our customer service requirements are growing as they face technical labor shortages and an aged equipment base. We are well positioned to capitalize on these trends given our domain knowledge and scale across industrial facilities core capital equipment. This includes our expertise around critical motion and powertrain products in demanding applications, access to premier supplier brands and nonstandard components, nationwide local service reliability. In addition, we have leading channel position in providing advanced robotics, machine vision and high-tech fluid power systems. Combined with our network of service shops, technicians and engineers, we are positioning our strategy and teams to play an increasingly critical role in linking legacy industrial production infrastructure and processes with new advanced applications and technologies, both now and into the future. Lastly, our balance sheet and liquidity provide strong support to opportunistically pursue ongoing organic investment and strategic M&A in the current environment as well as other capital deployment that could augment returns for all stakeholders going forward. Once again, we thank you for your continued support. And with that, we'll open up the lines for questions. Operator: [Operator Instructions] Your first question comes from the line of David Manthey with Baird. David Manthey: My first question -- first a comment, I mean, the business seems to be tracking really well, and I appreciate the conservative guidance given the many headwinds. And along those lines, as we look forward here into the December quarter, Christmas is on a Thursday this year, which makes it kind of tough for that Friday, December 26 between the holiday and the weekend. Just wondering if you've been hearing anything from your customers in terms of holiday shutdowns as they look forward to the end of the year. Neil Schrimsher: I would say at this stage, still a little early. We plan to be working. I'd say that for one. But I think many dialogue with our customers, they're starting to look at projects, planned maintenance activity out for and looking forward to the -- what they think will be ongoing demand requirements for them. So -- and we're aware of the mid-week seasonal holiday dropping in that, a little early, but I'm expecting some customers are going to be leaning in and active as they look forward at demand requirements and some others may take some time out, but that also opens up doors for additional planned project maintenance. Ryan Cieslak: Dave, this is Ryan. I just would add to that dynamic is taken into account in terms of the second quarter guide that we provided as it relates to maybe some impact from the holiday timing. We do have an easier comparison in the month of December, which could balance some of that as well. David Manthey: Great. I can't promise I'll be in the office on the 26th, but I'm glad to hear you guys will. Second question is, Neil, in the past, you've mentioned that inflation is manageable if your suppliers, a, increase the price as opposed to putting through a surcharge and b, give you 45 days' notice to push that through to the customer base. One of your distribution comps recently noted a compressed supplier notification periods. And I'm just wondering if you've noticed anything, any different behavior from your supplier base along those lines? Neil Schrimsher: David, I'd say overall, no real difference in behavior. I would say the orderly the increases have been orderly notifications. Obviously, the team is doing a very nice job in implementing across price/cost in the quarter, equal into that side, we did see price contribution increased a couple of hundred basis points in that. We're looking at perhaps there'll be the 232 on derivative products. But I think there, some manufacturers, a few moved, and I think some others are just contemplating looking at country of origin and when that -- what the impact will be and when that will come through as a price increase. And so some will organize that for the beginning of the calendar year with the typical notice period. So I'd say overall, it continues to be an orderly environment. Teams are focused. We know how to execute, and we'll continue to do so. Operator: Your next question comes from the line of Brett Linzey with Mizuho. Peter Costa: This is Peter Costa on for Brett. So I think you had said previously that Engineered Solutions would outperform Service Center by about 100 basis points in fiscal '26, is this still something that's possible with a stronger second half? Or are you expecting a more balanced organic mix now? Neil Schrimsher: Yes. I would say as we look at the second quarter, I could see service centers continuing to be ahead. And then as I look at the second half of the year, we could see Engineered Solutions with the order backlog, project conversions to be greater than the Service Centers in the second half of fiscal '26. Ryan Cieslak: Yes, Peter, I'd say that, that assumption for the full year is still in line with our guidance as it relates to overall the Engineered Solutions segment around 100 basis points. Peter Costa: Awesome. And then maybe just on consolidated incrementals as you get Engineered Solutions comes back and Hydradyne's less dilutive. Could you actually see upside to incrementals as we go into the second half? Neil Schrimsher: Yes, we think there could be the setup also a broadening of local accounts, greater engineered solutions. So I think clearly, that potential exists. Operator: Your next question comes from the line of Sabrina Abrams with Bank of America. Sabrina Abrams: Can you help me understand like the orders growth has been quite good for the past few quarters in both fluid power and I think on the flow control. And my understanding is the projects, the lead times are not particularly long, maybe 180 days or less. So just trying to understand the dynamic. When these orders do turn positive and when you do convert out of backlog, are customers delaying? Because it seems like it's taken longer than usual. Neil Schrimsher: No, Sabrina, I would say there's just variance in projects on the time to convert based on sometimes complexity of the project or the overall status of the project and the schedule and where we sequenced into that. So I'm encouraged by the continuous orders expansion into that. Fluid power was up nicely, 9% in the quarter. Flow control, nice order growth in as well. I think there, there is some pivot in some of the projects where previously they would add projects around carbon capture and some other activity. There's a little more around power generation, life science and pharmaceuticals, but we're encouraged that, that work will continue to be in the U.S. markets. And then on the automation side, we had a tough comparable, plus 25% from an order standpoint last quarter, down slightly on order this side, but a 2-year stack that's over 23%. We take that as very encouraging across our discrete automation opportunities in robotics and vision. So good coming input on projects. We expect the conversion will be occurring. Some of it may sequence more in with calendar year-end into the second half of our fiscal 2026, but we've got a good pipeline to execute on. Sabrina Abrams: Okay. Great. And just want to ask again about pricing. I think last quarter, the thought was that pricing would ramp through the year with Q1 maybe not quite -- like it seems like pricing came in better than what we had spoken about. Have you changed how you are thinking about the cadence of pricing throughout the year? Because it seems to me not raising the pricing guide. It seems like you're being conservative here. Neil Schrimsher: I think, Sabrina, we're just early into it. We did come in at that 200 basis points. We've guided to 150 to 200 basis points. Could it develop more as we look out, I think that will be a little bit contingent on market activity and the rate of additional supplier increases at that time. So we think coming offsetting those expectations mid-August to looking at now, perhaps it's a little early to say it will ramp beyond the 200 basis points that we had in the quarter. Operator: Your next question comes from the line of Ken Newman with KeyBanc. Kenneth Newman: Maybe for my first one. Neil, on the Engineered Solutions side, it's good to hear that the orders they are improving. I'm just curious, do you have any color on what you're seeing out of that segment through October? Any help on whether that's kind of improving from what you saw at the end of September with maybe the fall off in activity there and just confidence on the timing of the conversion of that backlog. Neil Schrimsher: Yes. We continue to see good order activity. Teams are engaged and working on that order conversion and working on those projects. I would say also there is an MRO component in those businesses that we're working on. A little bit of the flow control group as they work through chemicals, perhaps there's a little bit of softness on the MRO side that played into the quarter. We expect that to continually improve, especially as we get into calendar 2026, with that interaction of customers. And then I just think that the setup and the dialogue, and we touched on it in the remarks. I think there's greater wafer fab equipment activity in calendar 2026. We know there's increased life sciences and pharmaceutical interest on that side. Our participation in data centers continues to grow and things that we're doing in thermal management, liquid cooling, but also our robotic solutions in that. So I'm encouraged that our Engineered Solutions business has great breadth. When an end market is shifting or changing, the teams are very focused on being where growth is occurring and positioning ourselves very nicely. So as we work through the second quarter, we feel very good about the second half of fiscal 2026. Kenneth Newman: Got it. That's helpful. And then just thinking about capital allocation, it was good to hear that the pipeline is still pretty active for M&A you did buy back some stock this past quarter. How do you think about the priority or the opportunities to put capital to work here in the second quarter or into the back half? And with automation starting to pick up on demand, is that making it easier or harder to get deals done? Neil Schrimsher: I would say a few things there. Priorities remain, right? We very much are going to be focused in funding our organic growth opportunities like we have to support automation and our fluid power technology segment businesses in that. So we'll continue to have organic growth also in systems remains a priority. We are active, busy on multiple fronts. Pipeline continues to have bolt-on opportunities in both segments as well as some midsized opportunities. So we'll continue to be busy on that front. And then we'll have other ways to return capital to the shareholders, increasing dividend as well as remaining active in share repurchase. So we think we're in a good position, continuing strong cash generation in that area. And I don't think the deal environment is more difficult in that front. We're going to continue to be a disciplined acquirer. We have clear priorities. We work to have ourselves in good positions when those opportunities arise. We say we can't perfectly control timing, but we feel good about our setup and opportunities for increased capital deployment in 2026. Operator: Your next question comes from the line of Chris Dankert with Loop Capital Markets. Christopher Dankert: Congrats on a nice start to the year here. I guess, first off, I'm looking at the margin guidance, calling for gross margins up a little bit sequentially, nice to see that. I guess I appreciate the year-over-year comp headwinds from rebates and mix and whatnot. But why wouldn't the EBITDA gross margin -- or excuse me, the EBITDA margin improved sequentially as well? And what are some of the maybe the sequential offsets that we should be thinking about? Neil Schrimsher: Yes. I think as you get in, Dave touched on it a little bit as we think about LIFO, the LIFO expense in the second quarter last year, $700,000. As we think about LIFO this time, it could perhaps be $4 million or greater into the site. So I think that is one different point Dave touched on the nonroutine rebate that would have occurred last time. And then perhaps some of the mix headwinds, still the M&A integration is lower as it would come in for now into that front. And then I think on a little less engineered solutions in the quarter and perhaps local accounts on the service center side ramping, but ramping less than some of the national accounts will all be influences on that side. David Wells: Yes, on that, Chris, we did see some modest benefit in the first quarter. You recall we took some provisioning charges in our Q4 based on our formulaic approach with customers and a couple of payment delays, vast majority of that came back to us in the quarter. So that was a modest benefit as well that would play through to EBITDA versus beyond the gross margin step-up that we talked about. Neil Schrimsher: And then I think, Chris, right, if we look past the second quarter, we feel like we've got a nice opportunity for greater expense leveraging in the back half of our year, probably increased in ongoing contributions from Hydradyne and then potentially mix benefits that we would get there of greater engineered solutions as well as local accounts as we think about the back half of the year. Christopher Dankert: Got it. I guess as a follow-up, thinking about the Hydradyne synergies, anything you can give us there in terms of is that still on track from both a cross-selling and a cost reduction perspective? Any anecdotes in terms of cross-selling wins you highlight there? Neil Schrimsher: Yes. So I would say on track to deliver first year synergies. So we feel good about that, growing opportunity on the sales and the repair. So they have very good capabilities there. And so we would see it on the maintenance side, cylinder repair and other opportunities, just where we have capability and resource in an important geography and then continued progress on the work streams on the cost side, use of technology in that front, standardizing on some processes, supporting them for the internal back-office capabilities in that front, all of those developing nicely. And then as we think about ongoing growth, they're well positioned from a data center standpoint. We think there's more we can do there and then how we support them from a central engineering standpoint, especially as fluid power technologies continue to increase around electrification in some of those electronics and controls can be positive as well on the growth side as we look forward. David Wells: We did highlight too in the comments, Chris, the EBITDA for the quarter did step up another 20% sequentially following the increase that we saw in Q4. So we continue to be pleased with the progress the team is making there. Operator: Your next question comes from the line of Patrick Schuchard with Oppenheimer. Patrick Schuchard: I wanted to ask about automation growth in Engineered Solutions. Can you contrast how much of the positive sales growth is secular market pickup versus internal initiatives and/or market share impact? Neil Schrimsher: Well, I think it's still early. We got a good run rate of the businesses probably scaling nicely at $250 million or so. So we're doing a nice job in ramping. I think we are opening and serving more industrial customers opportunities with these capabilities as well as participating in some nice projects around traditional industry segments. So we expect robotics as a general market to continue to grow, and we're well positioned there, both collaborative and autonomous mobile robots into the site. But we're also doing a nice job in the vision offering and where customers can see the benefits of quality control and inspection and what those solutions provide in there. So I think it's a combination, Pat, that we're just well positioned. We're opening up more opportunities with existing customers as well as serving traditional verticals with those companies that they had previously and growing them. Patrick Schuchard: Okay. And you talked about cross-selling as an organic driver. And you've mentioned in the past these initiatives were in the early innings of getting going. So just looking for an update there, what are you guys seeing in terms of revenue at cross-selling tool overall? Neil Schrimsher: Yes. I'd still say we'd characterize it as early innings. Our funnels are growing, project opportunities are expanding. Teams will be together in the coming weeks to further that planning and execution, some key suppliers there as well. So pleased with the progress. We know we have even more impact that we can have with our customers. And as the customers deal with aging equipment, perhaps an aging technical workforce, they're looking for someone to help them on broader needs, broader solutions, and we're well positioned to continue to do that. Patrick Schuchard: And if I could just squeeze one more in. You talked about some of the sequential margin dynamics in the guide, but I wanted to dig a little bit deeper on the top line. You mentioned demand is stable. The engineered business had positive book-to-bill this quarter, but the guide implies the second quarter might be down slightly sequentially versus normal seasonality, up low single digits. So just kind of curious if there's anything we should consider there. Ryan Cieslak: Patrick, I would say nothing different than how we typically think about it. The guide for the second quarter top line is in line at the midpoint with what we guided in August. We continue to expect a choppy environment near term, as we talked about in the prepared remarks around the slower seasonality, also earlier talking about the timing of holidays, taking that into account as well. And then just the backlog conversion of the Engineered Solutions segment, we expect that to be more of a back-half weighted dynamic. And so taking, taking that into account, but really is no change to how we view the year setting up in the original guidance that we established in August. Operator: Your next question comes from the line of Sam Darkatsh with Raymond James. Sam Darkatsh: Apologize if you mentioned this earlier and I missed it, I was kicked off the call middle of the way through. First, your end market vertical commentary was fairly similar to your #1 competitor with a couple of exceptions, which would be pulp and paper and oil and gas, which you called out as favorable and they called out as headwinds. What specifically happening in those 2 particular verticals that's conceivably allowing you to pick up some incremental business? Neil Schrimsher: Yes, I don't know that I've got a great comparison contrast in that. I think a broadly energy markets seem to be active and doing well into the side. And just paper, we've got a good position, and we continue to look at how do we create value add for those customers and perhaps expand our offering and capabilities with them. But in a comparison contrast, I don't know if they had anything else to point out. Sam Darkatsh: Got it. And my last question. And again, I'm sorry if you've already mentioned this. The 2% pricing that you realized in the quarter, how would that break out service center versus engineered? Ryan Cieslak: Yes. Yes. Sam, I'd say relatively similar. Not a huge change or difference in the -- by segment if I had to push it one way, maybe a little bit higher in the service center side of the business, but pretty consistent. Sam Darkatsh: Are there particular product categories or verticals in which pricing was more pronounced, I'm guessing product categories more so than verticals? Ryan Cieslak: Yes, nothing that we would call out as materially different. I mean, it's been generally a pretty broad-based impact across the product and you're seeing inflation as well as just general price updates come through really across the board. So nothing that we would call out as materially different in one category versus the other. Sam Darkatsh: So as an example, then what I'm getting at, I guess, is bearings is not like something steel related or something along those lines would not be a material outlier? Ryan Cieslak: No. I mean, I think in the context of really our core products in general, a lot of steel content across all of them, particularly on the service center side. So we would not call out bearings as an overweight in terms of what we're seeing from a pricing standpoint right now. Operator: At this time, I'm showing we have no further questions. I'll now turn the call over to Mr. Schrimsher for any closing remarks. Neil Schrimsher: I just want to thank everyone for joining us today, and we look forward to talking with you throughout the quarter. Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good day, everyone. Welcome to the conference call covering NBT Bancorp's Third Quarter 2025 Financial Results. This call is being recorded and has been made accessible to the public in accordance with SEC Regulation FD. Corresponding presentation slides can be found on the company's website at nbtbancorp.com. Before the call begins, NBT's management would like to remind listeners that, as noted on Slide 2, today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission. Actual results may differ from those projected. In addition, certain non-GAAP measures will be discussed. Reconciliations for these numbers are contained within the appendix of today's presentation. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this call is being recorded. I will now turn the conference over to the NBT Bancorp President and CEO, Scott Kingsley for his opening remarks. Mr. Kingsley, please begin. Scott Kingsley: Thank you. Good morning, and thank you for joining us for this earnings call covering NBT Bancorp's Third Quarter 2025 results. With me today are Annette Burns, NBT's Chief Financial Officer; Joe Stagliano, President of NBT Bank and Joe Ondesko, our Treasurer. Our operating performance for the third quarter reflected the positive attributes of productive asset repricing trends, the diversification of our revenue streams, prudent balance sheet growth and the additive impact of our merger with Evans Bancorp completed in the second quarter. Operating return on assets was 1.37% for the third quarter with a return on equity of 12.1% and an ROTCE of 17.6%. Each metric demonstrates continued improvement over the linked and prior year quarters, and importantly, reflects the generation of positive operating leverage. Our tangible book value per share of $25.51 at September 30 is 7% higher than a year ago and above the level it was at when we announced the Evans merger 13 months ago. This continued capital strength has us very well positioned to support all our strategic growth initiatives. The continued remix of earning assets, diligent management of funding costs and the addition of the Evans balance sheet resulted in an improvement in net interest margin for the sixth consecutive quarter. We are pleased with our progress to date with net interest margin expansion. However, recent and expected changes to Fed funds rates will likely challenge future margin improvements compared to our most recent quarters. Growth in noninterest income continues to be a highlight with each of our nonbanking businesses achieving productive improvements in both revenue and earnings generation year-over-year. We were also pleased to announce an 8.8% improvement to our dividend to shareholders earlier in the quarter, marking our 13th consecutive year of increases. This reflects our strong capital position and our generation of consistent and improving operating earnings. As we have stated before, our capital utilization priorities are to continue to support NBT's organic growth and the consistent improvement to the quarterly dividend we pay our shareholders. In addition, we appreciate the opportunity to evaluate and partner with other like-minded community banks. Returning capital to shareholders and opportunistic share repurchases is also part of our capital planning. And as such, we renewed our $2 million share repurchase authorization through the end of 2027. Before turning the meeting over to Annette to review our third quarter results with you in detail, Joe Stagliano will provide some additional color on our progress in the Western region of New York and other initiatives across the markets. Joe? Joseph Stagliano: Thank you, Scott. We continue to build on the momentum of our successful Evans Bank integration. Since the merger, we've experienced solid growth in deposits in the Western region of New York and we are retaining key lending relationships despite experiencing approximately $30 million of net contractual runoff in the portfolio. Customer sentiment remains strong, and employee engagement is high. Let me walk you through some of our key market developments. In Buffalo and Rochester, we've had success recruiting and onboarding talented professionals across all lines of business, which complements the strong team we already have in place. Our new Webster branch in Greater Rochester opened in April, and it's off to a promising start. To support growth -- to support our growth initiatives in Rochester, we plan to open a financial center in the market during 2026. Additionally, we are exploring locations in the Finger Lakes to fill in our branch network in this attractive region. In the second half of 2026, we expect to break ground on a new branch location near the planned Micron chip fabrication site in Clay, New York. In addition, our current team of bankers and network of locations in the Mohawk Valley are well positioned to support the growth anticipated from Chobani's plans for a new facility expected at 1,000 jobs to the area. Our new Malta, New York branch near GlobalFoundries is seeing excellent traffic and growth. In the Hudson Valley, IBM has announced plans to expand the Poughkeepsie and we are seeing positive demographic shifts in the region. We entered this market through our merger with Salisbury Bank and are eager to improve our concentration characteristics in this region. Earlier this year, we opened our fourth branch in Burlington, Vermont, and we are seeing good momentum. We are set to open an additional branch office in Portland, Maine in early 2026. We've also secured a site in Torrington, Connecticut that will connect our presence in West Hartford with our locations in Litchfield County in early 2026. In addition, we remain focused on scaling our operations in New Hampshire, supported by the strong team of bankers we have in place there. Our team continues to evaluate both new locations and branch optimization using an active and structured process. This dual focus ensures that we remain agile and responsive to market needs as we maintain operational efficiency. I will now turn it over to Annette. Annette Burns: Thank you, Joe, and good morning. Turning to the results overview page of our earnings presentation. In the third quarter, we reported net income of $54.5 million or $1.03 per diluted common share. Excluding acquisition expenses, our operating earnings per share were $1.05, an increase of $0.17 per share compared to the prior quarter. Revenues grew approximately 9% from the prior quarter and 26% from the third quarter of the prior year, driven by improvements in net interest income, including the impact of the Evans merger. The next page shows trends in outstanding loans. Total loans were up $1.6 billion for the year, including acquired loans from Evans. Excluding consumer loans and a planned contractual runoff status and the loans acquired from Evans, annualized loan growth in 2025 was approximately 1% higher from December 2024. Growth in commercial, indirect auto and home equity loans were partly offset by declines in residential mortgage balances. During 2025, we have experienced a higher level of commercial real estate payoffs while production has remained strong. We have captured quality lending opportunities across our markets, which has also provided growth in core deposits. This gives us flexibility to remain disciplined in our loan pricing and focus on holistic relationships. Our total loan portfolio of $11.6 billion remains very well diversified and is comprised of 56% commercial relationships and 44% consumer loans. On Page 7, total deposits of $13.7 billion were up $2.1 billion from December 2024. Excluding the deposits acquired from Evans, deposits increased $250 million from the end of 2024, with growth in checking and money market accounts. 58% of our deposit portfolio consists of no and low-cost checking and savings accounts, while 42% is held in higher cost time and money market accounts. The next slide highlights the detailed changes in our net interest income and margin. Our net interest margin in the third quarter increased 7 basis points to 3.66% from the prior quarter primarily driven by the continued improvement in earning asset yields. Net interest income for the third quarter was $134.7 million, an increase of $10 million above the prior quarter and $33 million above the third quarter of 2024. The increase in net interest income from the prior quarter was largely attributed to the first quarter impact of the Evans acquisition, along with earning asset yield improvement. As a reminder, approximately $3 billion of earning assets repriced almost immediately with changes in the federal funds rate while approximately $6 billion of our deposits, principally money market and CD accounts remain price-sensitive. The opportunity for further upward movement in yields will depend on the shape of the yield curve and how we reinvest loan and investment portfolio cash flows. The trends in noninterest income are outlined on Page 8. Excluding securities gains, our fee income was $51.4 million, an increase of 9.8% compared to the previous quarter and an increase of 13.5% from the third quarter of 2024. The seasonally higher third quarter also benefited from a full quarter of Evans activity. Our combined revenue from retirement plan services, wealth management and insurance services executed $32 million in quarterly revenues. As a reminder, and consistent with historical trends, the fourth quarter is typically our lowest quarter in revenue generation for these businesses. Noninterest income represented 28% of total revenues in the third quarter and reflects the strength of our diversified revenue base. Total operating expenses, excluding acquisition expenses, were $110 million for the quarter, a 4.4% increase from the prior quarter and reflected a full quarter of Evans activity. Salaries and employee benefit costs were $66.6 million, an increase of $2.5 million from the prior quarter. This increase was primarily driven by the full quarter impact of Evans, higher incentive compensation and higher medical costs. Slide 10 provides an overview of key asset quality metrics. Provision expense for the 3 months ended September 30, 2025, was $3.1 million compared to $17.8 million for the second quarter of 2025. The decrease in provision for loan losses during the quarter was attributable to $13 million of acquisition-related provision for loan losses in the second quarter, partially offset by net charge-offs returning to a more normalized level in the third quarter. Reserves were 1.2% of total loans and covered 2.5x the level of nonperforming loans. In closing, growth in our net interest income and fee-based revenues drove our record performance in the third quarter and contributed to our meaningfully improved operating performance for the first 9 months of 2025. We are in a strong capital position, have growth opportunities across all our markets and are well positioned to take advantage of them. Thank you for your continued support. At this time, we welcome any questions you may have. Operator: [Operator Instructions] It comes from the line of Feddie Strickland with Hovde Group LLC. Please proceed. Feddie Strickland: Just wanted to start on expenses. You've got a full run rate of Evans, now on the expense line. I was just wondering if you could talk about where you're at in terms of cost saves and maybe what we should expect in terms of the total expense line over the next quarter or so. Annette Burns: Sure. Happy to take that. We think that our cost saves are essentially achieved during the third quarter. So we don't expect to have any additional meaningful impact related to those on a go-forward basis. The run rate that we had in the fourth -- in the third quarter of $110 million is an appropriate run rate as we look forward. Just as a reminder, we typically see merit increases starting in the first quarter and running off our typical expense increase going forward, typically runs somewhere between 3.5% and 4.5%. That's kind of how we think about 2026. Feddie Strickland: Got it. That's helpful. And just wanted to ask, thinking about loan growth, it sounds like you've got some new hires there that should help the pipeline longer term. What should we think over the next couple of quarters in terms of net new loan growth and keeping in mind what's the level of runoff that you expect in the residential solar and other consumer book? Scott Kingsley: So let's attack that one together. In terms of our activity for the last 2 quarters, it's actually been very robust. We experienced a much higher level of payoffs than we had anticipated. And quite frankly, than we had experienced in a year ago. But I think as we roll into early to mid-2026, low to mid-single-digit growth rate is probably appropriate for our markets. Stand-alone, our markets still have really good activity levels in them. And our pipeline, quite frankly, is very good. Getting things on the construction side to a closing outcome, as you know, in our weather, we probably don't close a whole bunch of those in December through February. But quite frankly, we like where the pipeline is with that and think there's really good opportunities. We will look at where we are from a balance sheet perspective right now and really like where we're centered holistically, which means an 85% loan-to-deposit ratio for us, quite frankly, is more comfortable for us than something in the '90s. We think it gives us longer-term optionality from an invested asset standpoint. So at that level and where we are in those expected growth rates, we could still move up earning assets, they might just not all be loans. So -- but we're very comfortable with that from an outcome standpoint and think it's probably almost as important for us that we've continued this steady growth on the funding side, mostly on the core deposit side. So that's how we're kind of framing where we think the balance sheet moves. Operator: Our next question comes from the line of Steve Moss with Raymond James. Stephen Moss: Maybe just start off, Scott, maybe just following up on expenses here. You guys mentioned the recruitment of talent here and the de novo branches as well. Just maybe curious as to if you can size up what your expected talent recruitment is going to be and kind of how you're thinking about how many de novo branches you may add over the next 12 months or so? Scott Kingsley: So I kind of frame it this way, Steve, and I'll ask Annette and Joe to comment if I've left something out. I think in terms on the brand side, I think we're thinking 4 to 6 a year to improve our concentration in some of the markets that we're either new to or where our concentration is, quite frankly, not robust enough. So as an example, I think we've said that from the beginning that Rochester, New York, as an example, is one of those markets where when we partnered with Evans, their concentration was we'll see on the east side of Rochester in some great spots, but building that out across sort of Central City, Rochester and maybe even to the west side maybe there's a concentration of 2 to 4 more sites for us over the next couple of years to use that example. I think that's also a spot for us where the recruiting of additional talent in the Western region of New York State has been very productive for us. We had this -- let's hold stuff in from Evans posture for the first 5 or 6 months, and we think we've done that, and we think our team has done very well on that. And now we're in a position to be a little bit more assertive and add some people to the mix that we think can move up some of our long-term expectations on the growth side. Annette Burns: I would just say from a expense management, I think we look at branch optimization to kind of offset some of the growth initiatives and then as well as technology investments to help improve efficiencies. So given that, I don't think that we would see an outsized expense growth than what we historically see from NBT. Stephen Moss: Okay. That's helpful. And then just in terms of maybe just thinking about your presence across upstate New York, just kind of curious, are you interested in additional M&A deals or just kind of how you're thinking about things at the current time. Scott Kingsley: Steve, I'd frame it kind of both ways saying that we are interested in building out the franchise that now goes from Buffalo to Portland and Wilkes-Barre, Pennsylvania to Burlington. Fill-in strategies for us are probably first in our mind. Would we move the franchise another 50 miles West, South, East for sure. But frankly, filling in some of those from an opportunistic build-out standpoint, including the potential for M&A is absolutely primary for us. So we are -- we have the opportunity to have discussions with like-minded smaller community banks. And we're hoping that we've left a good impression in that if long-term independence is not in their plans, they'll see the value proposition of talking to us. Stephen Moss: Appreciate that, Scott. And then maybe just 1 on the core margin here, just kind of curious, any updated thoughts around purchase accounting accretion going forward here? And could we see any incremental core margin expansion here? Annette Burns: Great question. So from an accretion standpoint, I think that's fairly stabilized and appropriate run rate. So I don't think we'll have any material change of that over the next, let's say, 4 quarters or so. As we think about the margin, in the short term, with the potential for multiple rate cuts, in our near future here. We think there might be a little bit of margin pressure, and that's really because even though we're neutrally positioned, our assets reprice almost immediately, while we have to actively manage our deposit repricing. As a reminder, $6 billion of our assets of our deposits that we're able to reprice about $1.4 million of those are in CDs. So it might take a little like a full quarter to work through those to help offset those asset repricing. So the fourth quarter could see a little bit of pressure and then looking out into 2026, especially if we see an improvement in that shape of the yield curve, we could see some margin improvement jumping off of the fourth quarter. Stephen Moss: Okay. And just 1 follow-up there. Just what percentage of loans are variable rate these days? Annette Burns: Somewhere around $3 billion are variable rate. Scott Kingsley: Yes. And Steve, that includes all of our assets that are variable. So the loans are probably $2.5 billion to $2.6 billion, which quick in my head, that's a little over 20%. And then there's probably $100 million to $150 million worth of investment securities that's are variable. And then currently, we find ourselves in a Fed fund sold position. So those overnight funds obviously move with changes in SOFR or Fed funds changes, and that's a couple of hundred million for us. Operator: Our next question comes from the line of Mark Fitzgibbon with Piper Sandler. Mark Fitzgibbon: Just wanted to follow up with a question on the solar loans. I guess I'm curious, is there any way to kind of accelerate the exit of those? Is there kind of any depth to the market to sell those loans? Scott Kingsley: That's a really good question and something we spend a lot of time with. Today, Mark, the answer is no for that. There is desire potentially for that asset. In other words, people still like the asset class a lot despite all of the volatility and future volatility associated with new originations. But remember, we still have a fair portion of our loans that were originated in the 2020 to 2023 operating years and they contain yields that are lower than the market is demanding today. So for us to move that on an accelerated basis, we would have to embrace a fair value loss today. And that's something we need to do. Those assets are performing, again, not utopian yields, but those assets are performing the way they're supposed to perform and our credit characteristics have been exactly in line with what we expected. Mark Fitzgibbon: Okay. And then I guess I'm curious, are you seeing any pressure at all on the auto loan delinquencies right now? Scott Kingsley: Not significant at all. Quite frankly, it's been very consistent. Remember, we're in the A and B paper classes. I think both from an origination standpoint, we might see this going forward with a couple of the industry announcements that capacity for C&D lending might be more substantially impacted over the next 3 months, 12 months period of time. But for us, it's been great. And remembering, we're making our indirect auto loans in our footprint. And most of our footprint doesn't have meaningful public transportation. So people are making their car loan payments so they can go to work. Mark Fitzgibbon: Okay. And then 1 for Annette. Annette, your comments earlier, I think you said with respect to the margin, it'd be challenging to improve it. Should we take that to mean that the margin will decline? Or do you sort of think you can hold the margin somewhere close to the current level? Annette Burns: So for the fourth quarter, that's where we're reflecting it might be a little bit of a challenge to hold but a few basis points for one direction or the other. And then I think we kind of stabilize pending no further rate actions and have the ability to see a little bit of margin improvement quarter-over-quarter as we still have some opportunity to reprice our loan book. Scott Kingsley: And Mark, we've been very deliberate about making sure that we're holding spreads on new assets that we're winning. We don't think at this point in time, in sort of the credit cycle, which is probably closer to mature is the right time to be reaching for growth. Mark Fitzgibbon: Okay. And then lastly, no updates on the timing for the Micron technology project. Scott Kingsley: Yes. $64,000 question so thanks for asking it. Today, we still expect shovels in the ground at the site here late in the fourth quarter. But if you know our ZIP code very well, the shovel has to have a lot of pressure on it to get into the ground in the next couple of months. Our perspective today on that, Mark, is that the site will be improved relative to taking on the fill and because this site, quite frankly, is a touch wet so I think the next 5 to 7 months are site fill in making sure that the activity has been compressed with the expectation that building actually starts mid-to late 2026. Operator: Our next question is from the line of Matthew Breese with Stephens Inc. Matthew Breese: A few kind of margin-related questions. First, do you happen to have the spot cost of deposits either at quarter end or most recent date and then I was hoping you could provide some color on the roll-on versus roll-off dynamics of fixed and/or adjustable rate loans today. Scott Kingsley: On the spot side, now let's get back to you. We don't have that sitting in front of us today. I will say this, we're pretty sure because we made some adjustments to deposit costs after the Fed rate change in September that October's cost of funds are probably slightly lower than September's. But my guess is it's measured in single basis points. So let's reframe your second part of your question if you would. Matthew Breese: Yes. For your fixed rate and adjustable rate loans, what is the roll-on versus roll-off rates? Annette Burns: Maybe I'll take that based on book. So for our commercial portfolio, we probably have about a 50 basis point differential now between our portfolio yields and our origination rates. For indirect auto, we're just about there. And really, that's dependent on the belly of the curve and where we price those auto loans. So if you look at our presentation, we're probably a little bit lower on our new origination rates than our current portfolio yield. So that's going to probably fluctuate from quarter-to-quarter. And then where we have the most room is in our residential mortgages, which is about -- still about 160 basis points of room between our portfolio yields and our new origination rates. Matthew Breese: Okay. And then this 1 kind of leads into my next question, which is your securities yields are still pretty low relative to what you could go purchase something at today. When do we see a more pronounced pickup in securities yields as the back book starts to reset or mature? Scott Kingsley: So our portfolio today is very much a cash flowing portfolio. So it's mostly mortgage-backed securities. So it's pretty orderly. It's in the line of a couple of hundred million dollars a year from a cash flow standpoint. So we don't think that changes much. But we will acknowledge your comment that our portfolio yields are now below our peer group because we think we're the last ones in the peer group that did not do a onetime charge or a restructuring. Matthew Breese: Okay. And just last one, Scott, your comments on perhaps earning asset growth beyond loan growth. I felt like it was a not so subtle hint that we might see some securities growth near term. To what extent might that happen? And to what extent do you lean into kind of your excess cash position to do that? Scott Kingsley: Yes. That's a terrific question. I think today, we have that flexibility today. And maybe over the last couple of years, we didn't enjoy that flexibility at the same level. So I think it's a duration-based risk/reward for us, Matt, that today, when you stay in the short term end setting aside expectations as short-term rates may come down a little bit. There's really not much of a penalty to stay in Fed funds or something very short term. That probably gets a little bit more definition to it after the expected changes in Fed funds rates here in the fourth quarter, and we'll assess it from there. When we kind of look at that is we've never taken a real mismatch in terms of duration in our portfolios. So I wouldn't expect to start that in this cycle. But I do think an opportunity does present itself for us to continue to analyze if we can leg into that a little bit more. Remember we are very deliberate about how we handle the investment portfolio that we inherited from Evans and where we push those cash flows to what we disposed of and what we decided to retain. Our construct around investment securities continues to be making sure we have enough latitude to support the collateralization for our municipal deposits. So that's more of our focus points than whether we have incremental earnings opportunity associated with a $50 million, $60 million, $100 million leg in on the security side. Operator: Our next question is from the line of David Konrad with KBW. David Konrad: I wanted to switch gears a little bit and talk about fee income. I thought it was a really good quarter, particularly in insurance. Just maybe -- I know it's seasonally probably your strongest quarter there, but highlight what's going on there? And maybe is 7% in annual growth rate that you can think about in 2026. Annette Burns: Good question. So for our insurance business, our third quarter is our most seasonally high, probably to the tune of about $1 million, and that's just some seasonality of some of our municipal customers. So the first and third quarter are typically higher for our insurance business. The growth rate of around 7%, I would say somewhere those high mid-single digits is an appropriate run rate seeing some good commercial growth across our business line. Commercial business -- our insurance business is very integrated with our banking business. So a lot of referral opportunities as it relates to that, and that's what drives the growth there. Scott Kingsley: And to follow that, David, the rate of change on rate increase that the insurance companies have been able to be approved for is a little bit less than we experienced over the last couple of years. So in other words, new rate structures, we're generating growth for most agencies in the 4% to 6% rate before you even add new customer development. David Konrad: Got it. And then maybe last question and follow-up here. Help us out a little bit on next quarter and your outlook as we get a little bit more seasonally challenged in the fourth quarter for the total fee income business. Scott Kingsley: Yes. So historically, and Annette will remind me if I'm wrong on this, historically, fee income for benefits administration and insurance has typically been 6% to 8% lower in the fourth quarter than it was experienced in the third quarter. And there's nothing for us today telling us that we'd be outside of that expectation. Annette Burns: And I would also just remind there's probably about $1.5 million of unique items to the quarter gains in the third quarter. So that also kind of made the third quarter a little higher. Operator: [Operator Instructions] We have a question from the line of Feddie Strickland with Hovde Group. Feddie Strickland: Just had a quick follow-up on capital. You talked a little bit about M&A down the road already. But just wanted to get your thoughts on capital management, any sort of capital ratio number you're trying to manage to? And could we see buybacks executed beyond the level of offsetting the stock-based comp? Scott Kingsley: So thank you for the question and good reference point. Over the last 2.5 years, we've been really, really deliberate on capital retention because we were going through the completion and closing of both the Salisbury transaction as well as the Evans transaction. So we weren't active -- real active in a lot of our other attributes because we wanted to make sure we had the purchase accounting right and that our estimates of impact on dilution were appropriate. We've gone through that. We're very comfortable. A matter of fact, we've exceeded our expectations on getting back to pre-announcement levels of capital. Holistically, right now, we're really comfortable from a capital position. And I would argue on most days, we have too much. And just given the risk attributes of our balance sheet, but that being said, I think we're in a spot from a maintenance standpoint of our capital levels holistically and specifically at the bank, where there's -- we can embrace every opportunity that we have without worrying about that. To your question, historically, we always try to cover equity-based compensation plans with repurchases so that we didn't dilute ourselves on a creek basis. Today, given where valuations are for high-quality earnings generation characteristics like we have suggest that maybe we should be a little bit more active with repurchase activity. Has never been our principal focus relative to capital management, but we find ourselves in a position today where we're not sure the market has fully recognized our capacity for earnings. Feddie Strickland: All right. Great. And just one last one on the margin. I understand the dynamics of repricing loans versus deposits and a lag on deposits. But it sounds like if we get some level of steepness in the yield curve and a couple more cuts, and you start to get the benefit of those deposit costs lower, maybe in the mid '26. I mean, could we see initial pressure on the margin near term, but maybe margins start to come up a little bit over time with maybe some backup loan repricing, the deposit lag piece and assuming we have some level of steepness in the curve. Annette Burns: I think that's a good summary of how we're thinking about margin and potential for margin improvement, was just a reminder that you're probably not going to see the same level of benefit that we saw in 2025 just because a lot of our loan book has repriced. And so it's really less of an opportunity than what we've seen. Operator: And as I'm not showing any further questions in the queue, I will turn the call back to Scott Kingsley for his closing remarks. Scott Kingsley: Thank you. In closing, I want to thank everyone on the call for participating today and for your continued interest in NBT and at least for this week, go build. Operator: And, thank you, Mr. Kingsley. This concludes our program. You may disconnect, and have a great day. Scott Kingsley: Thank you.
Operator: Good day, and welcome to the Everest Group Limited 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 Matt Rohrmann, Head of Investor Relations. Please go ahead. Matthew Rohrmann: Thank you, Betsy. Good morning, everyone, and welcome to the Everest Group Limited Third Quarter of 2025 Earnings Conference Call. The Everest executives leading today's call are Jim Williamson, President and CEO; and Mark Kociancic, Executive Vice President and CFO. We're also joined by other members of the Everest management team. Before we begin, I'll preface the comments by noting that today's call will include forward-looking statements. Actual results may differ materially, and we undertake no obligation to publicly update forward-looking statements. Management comments regarding estimates, projections and future results are subject to the risks, uncertainties and assumptions as noted in Everest's SEC filings. Management may also refer to certain non-GAAP financial measures. Available explanations and reconciliations to GAAP can be found in our earnings press release, investor presentation and financial supplement on our website. With that, I'll turn the call over to Jim. James Williamson: Thanks, Matt, and good morning, everyone. Since becoming CEO of Everest 9 months ago, I've been focused on resolving the legacy issues surrounding our U.S. insurance casualty book, evaluating how and where capital is allocated in the group and assessing the results, opportunities and challenges facing each of our businesses. Yesterday, we announced 2 strategic actions that position Everest as a more agile and profitable company with greater capital flexibility to invest in developing the group and return capital to shareholders. First, we are exiting global retail insurance. The teams running that business have done an exceptional job improving performance over the last 2 years. At the same time, it's clear to me the ongoing investments required in that business and the capital needed to support it are better placed than Everest's other opportunities. Second, we have established a comprehensive adverse development cover for our North America insurance division covering reserves for accident years 2024 and prior. With $1.2 billion of gross limit attaching at a strengthened carried reserve level, this cover will help ensure the results of prior poor underwriting decisions no longer overshadow our strong current performance. Long-term prospects in our core Reinsurance business and in the Wholesale & Specialty insurance operations we're retaining are excellent. I'll continue to set a simple standard for the businesses we operate. Capital deployed must be properly remunerated at acceptable levels of risk. We will operate in businesses with clear competitive advantage, strong economics and a well-defined forward path. This standard will be applied as we continue to develop our operations and evaluate opportunities to further diversify the company. Turning now to performance in the quarter. Group gross written premium was $4.4 billion, down 1% from last year, largely reflecting targeted re-underwriting in Insurance and careful portfolio mix management in Reinsurance. Our combined ratio for the quarter was 103.4%. Excluding prior year development and net cat losses, the attritional combined ratio was 89.6%, demonstrating the strength of our underlying book. Operating income was $316 million compared with $630 million last year, the difference almost entirely attributable to the reserve adjustment I mentioned earlier. Our Reinsurance business continued to perform exceptionally well in the quarter. Gross written premium of $3.2 billion was down 2% year-over-year, reflecting disciplined cycle management. The combined ratio was 87%, improving year-over-year, driven by lower cat losses and favorable prior year development. Reinsurance reserves are in a strong position. Portfolio mix in Reinsurance continues to develop favorably with property and other short-tail lines increasing by almost 5% year-over-year, while casualty and financial lines decreased by over 10%. This reflects our consistent strategy of reducing exposure to U.S. casualty in the face of persistent legal system abuse. I would also highlight the strong performance of our Global Specialties business, which produced almost $500 million of gross written premium and over $100 million of underwriting income in the quarter. We're investing in this business and expect it to deliver top and bottom line growth in the coming quarters and years. Market conditions in the Reinsurance business, particularly in our cat-exposed lines, should remain favorable through the January 1, 2026, renewal. While market capacity is increasing, Everest is a preferred partner, and we see no barriers to continued attractive capital deployment in this market. Make no mistake, though, where deals do not offer attractive and appropriate returns, we will cut back. Moving to Insurance. The team's execution of our 1-Renewal Strategy remediated the North America casualty book in record time. We're maintaining pricing momentum, improving risk selection and exiting underperforming accounts, all of which position the go-forward Insurance portfolio for increased profitability. In the quarter, 45% of our U.S. casualty business did not renew. We believe AIG is ideally positioned to maximize the value of this portfolio going forward, and we were pleased to conclude our renewal rights transaction with such a close partner. We're now reorganizing our insurance operation to focus on our global wholesale and specialty insurance capabilities and expertise. This is a strategic move that directly aligns Everest with the evolving needs of the market. Historically, our go-forward wholesale and specialty businesses outperformed our retail business by approximately 10 combined ratio points. Year-to-date, total written premium was approximately $1.7 billion. The long-term profitability and growth outlooks for the market segments we're focused on are excellent, while Everest's current share is measured in basis points. I'll have more to say about that business in future quarters. To summarize, I would characterize this past quarter as one of action and clarity. We've confronted our legacy casualty issues head on, optimized the portfolio and positioned Everest for a new chapter. Our core business engines, Reinsurance as well as Wholesale & Specialty insurance are performing well. Our balance sheet is strong and generating meaningful net investment income. Our capital is flexible, and we're moving to a position of significant excess capital to deploy. And our team remains intensely focused on disciplined execution. Before I hand it over to Mark, I want to thank my Everest colleagues around the world. These past months have required both focus and resolve, and our team has handled them with the utmost professionalism and integrity. We're all driving toward a unified goal of a more nimble, resilient and profitable enterprise. And with that, I'll turn the call over to Mark. Mark Kociancic: Thank you, Jim, and good morning, everyone. The transformative actions we announced this quarter helped drive certainty into Everest's insurance reserve adequacy and position the company to focus on well-developed and more profitable lines of business. We expect these moves to yield improved returns on capital for Everest and value creation for shareholders. As Jim mentioned earlier, we sold the renewal rights of our U.S., U.K., European and Asia Pacific commercial retail insurance business to AIG. These businesses collectively total approximately $2 billion in gross written premiums. The transaction will result in meaningful total value to Everest and significant capital will be released over time. We expect to take a pretax nonoperating charge in the range of $250 million to $350 million associated with the transaction with the charge being recognized over 2025 and 2026. The transaction meaningfully streamlines Everest's operating model and bolsters our focus on core Reinsurance and Specialty & Wholesale Insurance businesses. We took further action to fortify our U.S. casualty reserves, strengthening reserves by $478 million on a net basis or 12.4 points on the combined ratio. This was split between the insurance and other segments and follows the acceleration of our global reserve studies into the third quarter. We also entered into an adverse development cover, providing $1.2 billion of gross limit with Everest having co-participation of $200 million. The ADC covers $5.4 billion of North American insurance subject reserves for accident years 2024 and prior with an effective date of October 1, 2025. Everest will be transferring $1.25 billion of in-the-money reserves. As a result, we expect net investment income to be lower by approximately $60 million per year over the next several years. And we will be paying approximately $122 million of premium upon closing of the transaction, which is expected to be in the fourth quarter. Starting with group results. Everest reported gross written premiums of $4.4 billion, representing a 1.2% decrease in constant dollars, while excluding reinstatement premiums from the prior year quarter. The combined ratio was 103.4% for the quarter, reflecting the net reserve strengthening I mentioned a few moments ago. The Reinsurance business had favorable reserve development of $29 million, and this was more than offset by reserve strengthening of $361 million in our Insurance segment and $146 million in our Other segment. The quarter benefited from relatively light catastrophe losses, which contributed 1.3 points to the group combined ratio. The group attritional loss ratio increased 1.4 points to 59.9% in the quarter, with the increase largely driven by our conservative approach to setting initial loss picks in U.S. casualty lines. The attritional combined ratio increased 3 points to 88.8% when excluding the impact of $34 million in profit commissions related to prior year loss reserve releases in mortgage lines, largely due to contingent commissions also associated with our mortgage lines business. Moving to Reinsurance. Gross written premiums decreased 1.7% in constant dollars when adjusting for reinstatement premiums during the quarter. Consistent with prior quarters, we exhibited solid growth in property and specialty lines while remaining disciplined in casualty lines. The combined ratio improved 4.8 points from the prior year to 87%. The improvement was largely driven by lower catastrophe losses, which amounted to $45 million or 1.6 points on the combined ratio versus 9.1 points on the combined ratio in the prior year quarter. Net favorable prior year development also contributed 1 point to the improvement. Our reinsurance reserve studies yielded minor development in casualty lines with continued strength in property, mortgage and international lines. Overall, we believe we are continuing to build upon our embedded reserve margins. The attritional loss ratio increased 60 basis points to 57.5% as we proactively embedded conservatism into our U.S. casualty loss picks. The attritional combined ratio increased 180 basis points to 85.3% when excluding the impact of $34 million in profit commissions associated with mortgage -- favorable mortgage reserve development. And moving to Insurance. Gross premiums written increased 2.7% in constant dollars to $1.1 billion. Strong growth in Other Specialty and Accident & Health was largely offset by the aggressive actions we are taking in U.S. casualty lines. The underwriting-related expense ratio was 19%, with the increase driven by reduced casualty earned premium growth from our 1-Renewal Strategy. The attritional loss ratio increased to 67% this quarter, reflecting our disciplined approach to setting and sustaining prudent loss picks in our U.S. casualty lines portfolio, given the elevated risk environment due to social inflation. As I mentioned earlier, we strengthened our insurance reserves in the quarter, largely driven by U.S. casualty lines in accident years 2022 through 2024. And this was due to an acceleration of large loss activity, particularly in excess casualty and management liability and higher frequency in general liability and management liability, resulting in more conservative assumptions. We believe that increased prudence in loss development factors in 2025 loss picks in conjunction with the ADC transaction we entered into will help us turn the page on the U.S. casualty reserving issues experienced over the past several years. Reserve strengthening in the Other segment was largely driven by U.S. casualty lines, primarily the sports and leisure business. Most other segment reserves are also covered in the ADC, excluding asbestos, amongst other minor items. Moving on to investments. Net investment income increased to $540 million for the quarter, and this was driven by higher assets under management and strong alternative asset returns, which generated $112 million of net investment income in the quarter versus $72 million in the prior year quarter. Overall, our book yield decreased slightly to 4.5% given the large component of non-U.S. dollar assets. Our current new money yield is approximately 4.8%, and we continue to have a short asset duration of approximately 3.4 years and the fixed income portfolio benefits from an average credit rating of AA-. For the third quarter of 2025, our operating income tax rate was 9.4%, which was below our working assumption of 17% to 18% for the year due to the jurisdictional mix of profits in the quarter and a $23 million onetime benefit from our 2024 U.S. tax filing. Shareholders' equity ended the quarter at $15.4 billion or $15.5 billion, excluding $87 million of net unrealized depreciation on available-for-sale fixed income securities. Book value per share ended the quarter at $366.22, an improvement of 15.2% from year-end 2024. When adjusted for dividends of $6 per share year-to-date. We will also realign our reporting segments beginning in Q1 2026 and communicate that once it's finalized in the coming weeks. We did not repurchase any shares in the quarter. However, we continue to view share repurchases as an attractive opportunity to deploy capital, and we expect to resume meaningful share repurchases going forward. With that, I will turn the call back over to Matt. Matthew Rohrmann: Thanks, Mark. Betsy, we're now ready to open the line for questions. [Operator Instructions] Operator: [Operator Instructions] The first question today comes from Josh Shanker with Bank of America. The first question comes from Meyer Shields. Meyer Shields: May I come in, too? Mark Kociancic: Yes. Josh, we hear you. James Williamson: It's -- it's actually, Meyer, but I'm glad you can hear me. Meyer Shields: Yes. So doing some very quick math on the 10 percentage point differential on -- between the specialty and the retail business in insurance, it suggests that it's running at a 95% combined ratio, excluding cat. I was hoping you can get a sense as to what the cat load is for the specialty business, whether 2025 or 2026? Mark Kociancic: Meyer, it's quite modest actually, almost de minimis, definitely very low relative to the overall insurance division burden that we currently have. Meyer Shields: Okay. Fantastic. And when I look at the transferred reserves and the fact that $2 billion of insurance gross written premiums is going to be non-renewed one way or the other. Is there any way of ballparking what that ultimately means in terms of capital liberation? Mark Kociancic: So Meyer, just I want to make sure I understand your question. So the $2 billion of retail business that we transferred to AIG and any other nonrenewal of subject premium over the renewal, you're interested in the capital release from that? Is that accurate? Meyer Shields: Yes, that's exactly right. Mark Kociancic: Yes. So there's multiple components to that. We do expect it to be substantial over time. The -- let me just put a few things on the table because I think it's more of a timing issue than anything else. So the renewal process will take place, broadly speaking, over the coming 12 months. So over that time, we will benefit from nonrenewing that premium on our own paper, and we will start to reduce the capital intensity associated with the premium itself. In the meantime, we will have meaningful net earned premium continue to show up in our P&L from 2025 writings, as you would expect. And that will be accompanied with traditional P&L items, so commission expense, loss expense, G&A, et cetera. And so those loss reserves will also attract some capital charge over that time. In addition to that, we will have the existing set of reserves which have been enhanced by roughly $0.5 billion of casualty reserves running off over time, and that will release capital as well. However, we do have as a result of the extra $0.5 billion charge principally in casualty, a significantly higher level of casualty reserves, which means we'll have less diversification benefit in the coming few quarters of that reserve runoff. So I would expect capital relief from this transaction, the remediation, the runoff, et cetera, to become more visible in the back half of '26, but we certainly see it coming. Matthew Rohrmann: The next question comes from Josh Shanker with Bank of America. Joshua Shanker: There's a lot of moving parts in the announcement. There's the ADC, there's the renewal rights transfer. Obviously, there's the charge related. The one thing that hasn't been announced is a plan of what to do with capital. I think investors might have felt some comfort if there was some announcement that we plan a large repurchase or there was a commitment from management to want to own the shares here. The stock is trading below book, how should we frame the appetite for returning capital to shareholders over the 1-, 2-year period? Mark Kociancic: So Josh, it's Mark. We obviously view capital repatriation, share buybacks very attractively for the several of the points you mentioned. Clearly, trading at a discount to book makes it attractive. We're in a lower growth period of the cycle. And so as we're generating returns, we certainly foresee meaningful retained earnings accumulation. I would say that the kind of activity that you saw in the first half of the year this year would represent a floor on buybacks as we pursue Q4 and then into 2026. And to my earlier point to Meyer, we do expect the transactions that we've entered into to unlock more capital for that purpose over time. Joshua Shanker: All right. And then trying to understand the sort of chronology. Obviously, a little less than a year ago, there was a plan for a 1-year renewal and obviously, the decision that Everest is not the appropriate owner for a lot of its retail risk. When did the company come to understand that? And of the underwriting that had done in like the past 6 months, do we have any concerns that Everest wasn't the right underwriter for that risk and we need to worry about '25 reserves? James Williamson: Yes, Josh. So let me start by talking a little bit about the re-underwriting process and where we are in that process, and then I'll come on to the timing of the decisions around the go-forward business. So just to refresh memories, I took on leadership of the Insurance business last year 2024 at the sort of end of the spring. We had really ramped up the remediation process that you've seen play out that we've called the 1-Renewal Strategy in July of '24, meaning it essentially began to complete itself in July of '25 and with a little bit of tail into the third quarter. And so that re-underwriting is complete. There is no further re-underwriting of the casualty book other than normal portfolio management that is required as we go forward. One statistic that I will share with you, and this is going to be relevant to how you think about the '25 loss picks. But if you look at the development that we've observed in 2025 that led us to an additional strengthening of our back book reserves, 80% of that development in U.S. casualty came from policies that were eliminated from our portfolio during the course of the remediation. And I think that's a good early indicator that we were over the right target that we dealt with the remediation decisively and that the go-forward portfolio will perform extremely well. Now that said, we've still booked it at very, very prudent loss picks. We're not taking credit for any of that, but we do expect it to play out. And then to the broader question you asked, which I think is an important one, and I'm going to spend a couple of minutes on it, if you'll indulge me. In terms of how we got to the decision and the chronology of getting to the decision around the go-forward portfolio, that was a comprehensive process. It was not driven by what we observed in the reserves. It was a process that was led by the management team, included a number of outside strategic advisers and ultimately included our Board of Directors in a very thorough process. And the purpose of that process was to determine what are our best opportunities to drive shareholder value and compounded book value per share growth over time period. We didn't bring any biases into that process around businesses we had built, businesses that we otherwise liked, et cetera. It was purely a strategic review to get at those critical answers. And during the course of that process, as I shared in my opening comments, it became really clear to me, to the rest of the management team, to our advisers and to our Board that our best opportunities are in our Reinsurance business, which is a leading -- market-leading franchise and in our Wholesale & Specialty Insurance operations, which perform at a very high level, which allow us to very nimbly manage the market cycle, which require much less investment in terms of people and technology and therefore, have less execution risk. And we talked a little bit about the performance gap in the combined ratio. And so therefore, the decision was to focus on those businesses. And as a result, we determined that it was best to exit retail insurance, and that's how we got to the transaction that we announced yesterday. But that gives you a comprehensive sense of how these things play together. Operator: The next question comes from Gregory Peters with Raymond James. Charles Peters: So one of the questions that seems to pop up on a recurring basis as you've cleaned up your insurance operation casualty reserves is the potential risk of spillover into the reinsurance book on your casualty business. And since you've completed your full year reserve review a little early, maybe you can give us some perspective on why you're confident your -- the casualty reserves inside your reinsurance business are going to hold up. James Williamson: Yes, Greg, I certainly understand the question, but I think I would really begin by resetting the premise because these are 2 very different portfolios. And one of the things I've been really honest about during the course of this process is where our insurance casualty book performed on a historical basis. And I would characterize it bluntly as squarely in the bottom quartile of performance in our industry. And whether you -- whether I observe our own results, if you talk to brokers who have a fair bit of data, industry observers, there is a huge distinction in performance between bottom quartile underwriters and top quartile underwriters. And I think that's played out over all market cycles in all lines of business. So we were bottom quartile. Now we fixed that. And I think over time, that portfolio is going to perform really well, and I think will be an asset to our partner, AIG, as they take it on. So that's one point. The other is I would not expect, based on the fact that we write a top quartile reinsurance portfolio, there's no basis to expect that portfolio to perform in the same way that a bottom quartile portfolio would perform. Now yes, it's subject to the same issues around social inflation and things of this nature. But the top quartile underwriters, they were consistently doing what we've done over the last year in insurance, which is very closely managed limits, ensure that you're getting top pricing for the exposures you're taking, carefully selecting classes of business to write, leaning on loss-sensitive features to align interest with your clients. All of those things that we've talked about as part of the remediation. That's what our reinsurance clients have consistently done throughout the cycle. And so there's just no reason to expect those portfolios to operate in a similar fashion over time. Charles Peters: And then can we just talk about property reinsurance pricing conditions going forward, considering the light year, I noted in your presentation that your PMLs are inching upwards and that you grew your property cat and non-cat reinsurance business in the quarter. How are you thinking about that business in the '26 period of time, considering what looks to be like a lot of pricing pressure? James Williamson: Yes. Well, first of all, I would characterize it in general as still a very favorable environment. And one of the points that I made on the last quarter's call was that if you didn't know that prices had corrected up by 50% at 1/1/23 and you just looked at the rate level that's currently persisting in the market and compared it to prior historical rate levels, let's say, in the 20 teens, you would say this is a great cat market and people should be writing it. And I think that's true. And I think that's why you're seeing the competition. People recognize that it's well priced and they want to write it. Prices will likely come down. There are various estimates if you believe, let's say, a 10% expectation of price decreases at 1/1. I still think that means that property cat is well priced. And so I think it's still a risk that we will be looking to take. Now as I said in my prepared remarks, when the market moves down 10%, that's going to mean there's going to be some clients where we view the pricing and we don't think it's adequate, and we'll adjust accordingly. In terms of the non-cat or the pro rata growth you saw in the quarter, that was really -- that's more of the flow-through of growth that's occurred over the last couple of years as we've leaned into that market correction. We've been very selective in terms of where we're growing that portfolio and with which cedents. And so I feel very, very good about that book. The one thing I do want to just say, though, and I think this is important, when people talk about a light year, nothing we're going to do at 1/1/26 or in any renewal has anything to do with the fact that it was a light year. First of all, I didn't feel that light. We started with a major wildfire. We've got a Cat-5 hurricane churning in the Caribbean right now. We don't react to one good year and say, well, we're going to do one thing or the other based on that. We're making long-term bets based on where we see the pricing trajectory of the business. And you will not see us be afraid when the time comes, if it comes, to begin pulling back, taking ships off the table if we're not getting paid appropriately for the risks that we're being asked to bear. Operator: The next question comes from Alex Scott with Barclays. Taylor Scott: I wanted to come back to the ADC and just see if you could talk a bit about how you thought about sizing the $1.2 billion gross protection. I mean, can you characterize that in terms of like standard deviations away from your point estimate and that kind of thing, just so we can get a sense for how protected this is? James Williamson: Yes, Alex, good question. Let me start with a little bit of the philosophy or the strategy behind it before we get into the actual ADC numbers. What we wanted to do was to put the issues of our historical casualty reserve challenges behind us. And you've seen this management team, I think, be pretty focused on making that happen and obviously have taken a couple of actions to do that. Obviously, the reserve strengthening that you saw in the quarter was all about getting ultimately to an ADC that would create finality around those issues. This is something we don't want to have to talk about again. So in terms of sizing it, one of the things I would think about is we've talked about reserve margin in the past, and we talked about hundreds of millions of dollars of reserve margin. I would think about the ADC as $1.2 billion of reserve margin. It's about ensuring that -- again, that we create that finality. And so it's less about, well, I need to be at a certain percentage of the actuarial best estimate or a certain standard deviation. It's more about putting this out in the tail so that people don't have to worry about it anymore. So that's really what drove it more than trying to land anywhere on a particular curve. Mark Kociancic: Alex, I would add a couple of points to Jim's commentary. So the subject matter reserve pool is approximately $5.4 billion. So when you take into context the $1.2 billion of cover on top of that, that is very substantial. So if you think about a distribution to the point you were making, I would call that quite broad, quite strong, certainly more than a traditional range of an ACE and certainly nothing that we would expect to blow through, to be quite frank with you, given the overwhelming nature of it. So the underlying reserve base is also somewhat diversified with other lines of business. So the casualty reserves, I would say, are the ones that are currently in focus from a risk perspective. And so this $1.2 billion can really be seen, I think, as to Jim's point, finality on the subject for us. Taylor Scott: Got it. Very helpful. Follow-up question is on the insurance segment, you commented a bit about the profitability of what you're retaining versus what's going in the renewal rights. You also mentioned several times just the conservatism that you're now embedding into loss picks. And so I just wanted to make sure I'm understanding the 2 things correctly. I mean if it's sort of -- I think Meyer mentioned 95% and you didn't correct them on the go forward, is there any kind of conservatism that needs to be thought of layered on top of that for a while before you kind of get to that level? Or is that where it's running right now even with the conservatism that you feel like you're embedding now? James Williamson: Yes, Alex. Look, I would say one of the reasons I didn't correct the 95% is we don't give forward guidance. But I'd say we have tried to create some clarity here by indicating this business performs well. I'd say the lower half of the 90s is a reasonable way of thinking about a conservative approach to booking that business. Given where we've come from, we want to make sure that we are being prudent in the loss picks. And so the way I'm talking about it assumes that we're going to keep some conservatism. The other key point to keep in mind, though, is if you think about the Wholesale & Specialty business on a go-forward basis, the share of that business that's U.S. casualty exposed is something that we're managing very closely. And so the need for conservatism gets affected, obviously, by the mix of the portfolio you're writing, and that's certainly within our control. So I think you can see us print some very solid current period results while also being conservative in the picks, which to me is the best combination. Operator: The next question comes from Andrew Andersen with Jefferies. Andrew Andersen: Hear your comments on the difference between the reinsurance casualty and insurance casualty, but I think you did mention some movement on casualty reinsurance this quarter. Could you just expand a bit on what that was? And I just want to confirm, this was effectively the reserve study for the year across both segments? Or is there still some studies in the fourth quarter? Mark Kociancic: No. Reinsurance is complete in terms of the reserve studies. There might be a couple of very small ones, but they'd be immaterial to this. Clearly, we did all the casualty studies, very minor puts and takes, nowhere close to the magnitude of what we had last year. Feeling very good about it, and it's fully reflected in our Q3 figures. Andrew Andersen: Okay. And on just growth, I suppose if you don't have that favorable view of -- on primary casualty, that somewhat reflects your reinsurance casualty growth. But that line has been coming in for a while. What are you kind of seeing in the pricing environment on casualty reinsurance and your go-forward view there for growth? James Williamson: Yes. I mean the main way that we participate in the casualty reinsurance market is on a quota share basis. And so the real price that we keep an eye on is rate relative to the trend line. I think that's been a pretty favorable story really for the last year plus. I don't really see that changing. It's compressed a little bit, but you still see -- our clients are still keeping rate in excess of trend across those casualty lines. I don't -- I haven't seen any evidence of the quality of underwriting slipping, certainly not among our clients where we've seen that, that those are folks that are no longer our clients. And then the last piece I would say is there has been a persistent stickiness to ceding commissions that I don't think is really all that smart on the part of the reinsurance industry. And so you've seen us act maybe a little counter to what some others are doing insofar as if we're going to take these risks, we want to make sure that the alignment of interest is there and that we're not overpaying for the business. So I don't really see that changing. So I think it's sort of status quo. I think there's plenty of good quality casualty reinsurance to write, maybe not as much as we would like, but plenty for us to focus on, plenty of great clients to participate with. And so I think we're kind of in a -- I think we're at the right level now. And from here, it's just the usual portfolio management work that we are always doing. Operator: The next question comes from Brian Meredith with UBS. Brian Meredith: Jim, first question, I think in your prepared comments, you talked about looking for ways to diversify the company more. Can you maybe elaborate a little bit on that? And why is that important? And why not just kind of stick with your kind of core competencies here right now in Reinsurance and Wholesale & Specialty businesses? James Williamson: Sure, Brian. Yes. I mean, look, what I -- I wouldn't read too much into that comment. We're always looking at opportunities. When we talk about diversification, I would always apply the clear priorities that I signaled or the standard that I set in my prepared remarks, which is if we're going to deploy capital anywhere, it's got to get remunerated at acceptable levels of risk. It's got to be in businesses where we see clear competitive advantage, where the economics are good, where the path forward around execution is strong. And so look, it's a big world. We participate, I think, meaningfully in a number of markets. We're still underweight in a lot of places. And you've heard me talk about them in the past. In the specialties, obviously, and I mentioned our reinsurance specialty performance, $500 million of premium in the quarter, over $100 million of profit. It's a terrific business, lots of room to grow there, which creates diversification because you're not -- that's not property cat, that's not core U.S. casualty. We're still underweight in Asia. The team out there in Reinsurance has done a phenomenal job of growing that business. I think we can continue to play that out over time. We have -- we're organizing now around Global Wholesale & Specialty in a way that we haven't before. We've named Jason Keen, who was the co-CEO of our International Insurance business as CEO of that new division. He will definitely find interesting opportunities to grow again over time. And so that's really what I'm referring to. And we evaluate those very carefully. And I think you can certainly feel confident that we've set a clear standard on how we're going to think about those opportunities as we move forward. Brian Meredith: Great. That's helpful. And then second question, just back on the ADC. I'm just curious, any way you can provide maybe some details on how you think the ADC reinsurers arrived at the attachment point? I mean I look at the adverse development you had in your insurance, it's about 2x your risk margin at year-end 2024 and 1x on the other segment. James Williamson: Yes. I mean one thing that I would point out is I was really, really glad that we were able to do this transaction with Longtail Re, which I'm sure you're familiar with that team and Mike Sapnar. Those are super credible underwriters. They did an excellent job evaluating the portfolio. And so it's -- I would describe it as more of a collaborative process than anything else. Obviously, one of the features of this ADC that I think is really critical to focus on is the fact that there is no loss corridor. And clearly, establishing a stronger reserve base is, I think, a precursor to getting $1.2 billion of gross limit on top of your carry position without a loss corridor. And so that was an important characteristic of how we brought all this together. And I think that was important to us because it now creates certainty and people now understand that '24 and prior North America insurance development, if there is any, which we set our ultimates hoping that there's not. But if there is any, it will be covered under the ADC. And so that's sort of the process they go through. It's a very rigorous process, a collaborative one. And I think it got to economics that will be very, very good for Longtail Re, but are also quite reasonable from Everest perspective. Operator: The next question comes from David Motemaden with Evercore ISI. David Motemaden: I had a question just on the casualty reinsurance reserves. Mark, you had mentioned there was some minor development there in the quarter that was offset by some of the shorter tail releases. I was wondering if you could just elaborate a little bit on what happened exactly there and some of the trends you're observing on the casualty reserves. Mark Kociancic: Yes. A couple of comments. I would say it's definitely subsided. You're looking at a few older years that were getting impacted from a few cedents. We're seeing good signs of adequacy overall. And when I compare it to the trends we saw last year or the previous year '23 or '24, really didn't see the same level of development that we saw there, particularly when we were bridging the data. So we felt quite comfortable with what we were seeing and the ability to offset it. I think the other point that I would make is -- so I mean, it's all U.S. casualty based. There was nothing else from an international basis that was concerning us at all. It's obviously something we're focused on because it is so much in the spotlight with social inflation. So we do a lot of individual cedent reviews as we look at the data. But the other point that I made in my script is the overall strength of the reinsurance segment and the embedded margin that we believe we're building in there. We continue to see very favorable signs of adding embedded margin, waiting for it to season and then releasing it when it's ready. David Motemaden: Got it. And the gross change on the Casualty Re side, is that something you could size for us? Mark Kociancic: A few percentage points, very small on the base. So definitely on the low end. David Motemaden: Got it. And then just quickly, I think just staying on the Casualty Re reserves. I think when we had the reserve update at the end of last year, there was $180 million of risk margin in that book, and you guys had said it was at the upper part of the actuarial best estimate range. I was wondering, has that improved? Is that in the 90th percentile now? I guess, how big is the risk margin? Has that stayed the same? Any sort of detail on those metrics would be helpful. Mark Kociancic: Yes. I want to make sure I understand which segment you're referring to. Was it -- sorry, was it Reinsurance or Insurance? David Motemaden: Yes, the casualty -- on the Casualty Re side. Mark Kociancic: On the Casualty Re side, yes. So we're definitely comfortable with it. I think what we did last year, the concept of the risk margin that we put into the management best estimate was really to deal with uncertainties that we foresaw from a management perspective relative to the actuarial central estimate. And so as we observe the data coming in, the loss experience and how broad-based it was, we could see that, that uncertainty really wasn't crystallized into a loss experience that was more in line with our expectations. And so the point that I would make is that the uncertainty on the higher end is not something that we see today. We're quite comfortable with the loss development factors that we put into our Q3 studies. We're benefiting from this extra data. We're seeing stabilizing trends. The loss picks are in a good spot. It's something we've also taken the time out of prudence to strengthen in the current year 2025. So from a Reinsurance perspective, we're in a good spot. Operator: The next question comes from Ryan Tunis with Cantor. Ryan Tunis: Just, I guess, Jim, kind of a broad question on just the ROE trajectory. At the beginning of the year, you thought the ROE was x, I don't know, call it, 14%, 15%. Just thinking through the moving parts on what that is now. I mean we're losing $2 billion of insurance premium, $60 million of investment income, but obviously, we're getting some costs out and some elevated capital management. So I'm just wondering how you're thinking about the ROE profile of this company. James Williamson: Yes, Ryan, thanks for the question. It's good to hear from you. Let me step back a little bit and paint a little bit of the broader picture and then get into the specifics of your question just in terms of the moving parts around the specific transaction and what it will mean for the group. The first thing I would say is, as you'd appreciate, there's an embedded cost that is included in the P&L that's now going to be transferred, which involves, obviously, employee costs, technology, et cetera. We have a very clear strategy around how we rationalize that in 2026. And as Mark indicated earlier, we're still expecting and just on simple math and accounting, a fairly robust amount of earned premium to flow through our P&L from the portfolio that we're selling in 2026 as it runs down. And so I think the -- on a very rough justice basis, the rundown of the cost and the rundown of the earned premium are moving in the same direction. Not to say there won't be some drag at certain points or things we'll have to manage. But I'm pretty confident we'll get to a good place around that. And so as we sort of exit the transaction and get the business rightsized, I don't expect that to be a long-term headwind for the group as you get out past 2026. The other thing I would say is, obviously, you have a market cycle that is -- it's doing what market cycles do. It's ebbing and flowing. And right now, particularly in short-tail lines, you see a little bit of a takedown both in the primary market and in reinsurance around property pricing, et cetera. But as I indicated in earlier questions, I still think it's very attractive. And so are we still sort of in the mid-teens level of ROE for -- over the cycle? Yes. Are we at a part of the cycle in '26 where maybe it's just slightly below that? Maybe. But lots of levers for us to pull, not least of them will be capital management actions, as Mark indicated, to manage that over time in a really attractive way. Ryan Tunis: Got it. And then just a follow-up on the decision to do the renewal rights deal. Are you describing -- I guess, first of all, I was a little bit surprised that it doesn't sound like there's any overlap on the retail business and the remediation you did. So seems reasonably clean from a reserve standpoint and it's a sub-100% combined ratio business. So why do the renewal rights deal rather than pursue sale opportunities? James Williamson: Yes. Yes. So fair question. So first of all, just to reiterate some things I said earlier, the decision around -- the strategic decision that I made in conjunction with the management team, our advisers and the Board was about focusing on our core reinsurance business and these really attractive Wholesale & Specialty businesses. That's the real primary decision that got made. And so the decision to exit retail insurance is a byproduct of that. And then the question becomes, once you've gotten there, what is the most effective way to create that. And I think from the perspective of a few factors played into why a renewal rights transaction. Well, one, the reality is we're going to need to and we have dealt with the back book of reserves from the ADC, but it's just not a practical thing to try to transfer that at this point. A number of legal entities that support the retail business are also really important to the Wholesale & Specialty businesses that we're persisting. That's important. And then ultimately, we got to a place where we had the right partner to work with to get this deal done effectively quickly with a lot of certainty. And there's also, obviously, the needs of your partner you got to think about. So all those things aligned. And ultimately, it was really clear to me that a renewal rights transaction was the most efficient way to effectuate the strategic priorities that we had set during this process of focusing on our Reinsurance and Wholesale & Specialty Insurance businesses. Operator: The next question comes from Hristian Getsov with Wells Fargo. Hristian Getsov: In the past, you've spoken about increasing the international component of the primary insurance book. I guess with all the moving pieces, particularly around the renewal rights and the new focus on the Wholesale & Specialty side, is there any change in that game plan? And then I guess, sticking to that, is there enough runway for you guys to grow that business organically? Or can M&A be a bigger part of the story moving forward? James Williamson: Sure, Hristian. Let me take the questions in turn. So the growth in international, obviously, that was largely a retail strategy, although we also have a terrific wholesale business in our Everest Global Markets, which is our London market business. And I want to be really clear about something important. And I think this is true both on the international side as well as North America post the remediation, there was nothing wrong with the books of business. And there was nothing wrong with the way the teams were executing their strategies. They were getting good results. But the question that we confronted strategically is what is the best use of our capital and our investments going forward. And clearly, as I've said a number of times, the opportunity in Reinsurance and in Wholesale & Specialty Insurance for us at this point in our evolution is just a much stronger proposition than continuing to invest in retail. So yes, the decision to divest the retail business will blunt the international growth in the short term, but it's for strategic reasons that we've spent a lot of time explaining today. So in terms of the business going forward, and particularly that Wholesale & Specialty business, which I said -- as I've said, we've now reorganized into a single business under great leadership. I do think there will be growth opportunities. We're supremely focused on bottom line results. But as market conditions allow, I think there is organic growth that we can pursue. I will stress probably being very repetitive at this point, but we can pursue those growth opportunities organically with far fewer investments in people and infrastructure than is required in the retail business, which I think is attractive for us. And then could M&A be part of the plan? I think that's possible. But we've been pretty consistent on this point, which is if we do something like that in Wholesale & Specialty, it's going to be about bolting on capabilities that are attractive, that are consumable, that have modest execution risk. Those are the sorts of characteristics that I think would you would want to think about if we were to do any M&A in the Wholesale & Specialty space. Hristian Getsov: Got it. And then how are you thinking about pricing at the 1/1 renewals, just given what we know through hurricane season to date? And does the ADC and renewal rights sell, does that increase your appetite for you to go and get new business now that you're done through the 1-Renewal Strategy and you're getting a bunch of capital alleviation over the next 12 months? James Williamson: Yes. So in terms of the pricing outlook, I think the market consensus is prices are going to come off a bit, probably in the range of 10%, depending on who you believe. I think the business is still well priced if that happens in terms of expected return. Now having said that, I would not expect us to look to significantly grow from that point when prices are coming down, I think it's more about being very selective. Capital constraints were never an issue as we've expanded the book. And we had excess capital before this transaction. We have more of it now. That is not a factor in determining how much cat we're going to write. It's really more about the underlying dynamics of the cat market and how it compares to other opportunities to deploy capital. Operator: The next question comes from Tracy Benguigui with Wolfe Research. Tracy Benguigui: Just some clarification on your comment, there was no loss corridor. I mean, I see that in the schematic. But I just assumed that the $539 million of casualty reserve strengthening would have been your loss corridor have you not taken those actions. So I'm just wondering, did Longtail Re come in and say, I will attach $5.4 billion, so you have to fill in the gap? Or would they have done the deal at a lower attachment? James Williamson: Well, yes, Tracy, I'm not going to speculate on what they might have done. But what I would say is it was a collaborative process in terms of arriving at the structure of this deal, and we were sharing a lot of information, a lot of transparency was taking place. But remember, this is fundamentally driven by an appropriate actuarial process within Everest to arrive at what we think the ultimate loss ratios are going to be. And I think -- and again, I'm not going to speak for Longtail, but I think anyone looking at the approach that we've taken to those reserves would say, we believe in the ultimates, and I think that's the real takeaway here. Those are the right ultimate loss ratios given everything that's occurred in the external environment and the underwriting issues that we've had. And so therefore, we can attach at that ultimate. And I think that speaks volumes about how people are feeling about what's going to happen next in terms of those ultimate loss ratios holding from here. Tracy Benguigui: Got it. And I'm just curious how wide of a search did you conduct? This is not a knock on Longtail Re, but just doing a deal with a non-rated reinsurer piqued my interest given the capital discussion on this call. I mean, there's less relief given higher counterparty credit risk. James Williamson: Yes. So just one thing in terms of the deal features, and then I'll come into the process. We are facing off against 2 rated fronting carriers as part of the transaction. So we're not taking credit risk to Longtail Re. We have rated balance sheets, very strongly rated balance sheets facing us as fronts in the transaction. So it's a good question and something we thought carefully about. We ran a very comprehensive process. We use Gallagher Re as our broker in the process. They were -- and if you know their casualty team is world-class. They did a very comprehensive search. We worked with a number of parties. But -- what I really liked about Longtail is a couple of things. One, we have a pre-existing relationship with Stoneridge Asset Management through Mount Logan. They've been very steadfast partners of ours. So that was a feature. And I think there's a lot of our companies do together today and can do together going forward. And then I have enormous respect for Mike Sapnar personally, and I think he's a fantastic underwriter and his -- frankly, his seal of approval on all this was important to me. So I think this outcome is just fantastic for Everest, and I think it will prove to be a really good trade for Longtail as well. Tracy Benguigui: Okay. So you said there were 2 fronting companies. It's like retrocession. Like if you could just share a little bit more detail behind that. James Williamson: Yes. So the deal, the transaction, the $1.2 billion gross limit is split into 2 layers. The first layer is fronted by State National. The second layer is fronted by MS Transverse. Longtail sits behind those 2 carriers and has collateral arrangements, et cetera. But we face off, we are ceding to those 2 rated balance sheets. Mark Kociancic: Yes. Tracy, it's worth pointing out we have an 8-K with all the details on the ADC. I think we issued it yesterday. So certainly, you can get that structure from there. Operator: This concludes our question-and-answer session and concludes our conference call today. Thank you for attending today's presentation. You may now disconnect.
Tuukka Hirvonen: Okay. [Foreign Language] Good afternoon, and welcome to Orion's earnings conference call and webcast for the financial period of January-September 2025. My name is Tuukka Hirvonen. I'm the Head of Investor Relations here at Orion. In a few moments, we will start with the presentation by our CEO and President, Mrs. Liisa Hurme, after which then we will have a Q&A session where you can post questions both to Liisa and also to our CFO, Rene Lindell. [Operator Instructions] And just before I let Liisa to take the stage, I'd like to draw your attention to this disclaimer regarding forward-looking statements. But with that, it's my pleasure to hand over to Liisa. Liisa? Liisa Hurme: Thank you, Tuukka, and welcome to Orion Q3 webcast on my behalf as well. Here are some highlights from quarter 3 2025. Nubeqa received approval from European Commission for use of darolutamide and ADT, androgen deprivation therapy in patients with metastatic hormone-sensitive prostate cancer. Nubeqa also reached all-time high royalties and product deliveries to Bayer during Q3. Generics and Consumer Health business had a strong quarter, supported by good availability of products in our major markets and very successful new launches. Unfortunately, ODM-105, tasipimidine Phase II trial for insomnia didn't reach its efficacy target, and we decided to discontinue the development of that program. And Q3 financials are here. And before I go deeper into the financials, it is good to remember that the comparative period Q3 2024 was an exceptional quarter. We received EUR 130 million worth of milestones last year's Q3. There was a EUR 70 million sales milestone from Bayer related to Nubeqa and EUR 60 million milestone related to the MSD agreement on opevesostat. So these are quite difficult to compare to each other. And now as I go along, I will talk about the base business. So the business without the milestones. The base business growth was 24% from quarter 3 '24 to this year's quarter 3, totaling to EUR 423 million. The operating profit growth was even stronger, 68%, up to EUR 121 million. And our cash flow grew 15% and was being very solid. Of course, last year's -- during last year's Q3, the milestones were booked, but yet not paid. So they were not yet cash in our bank. And when we look closer, the net sales bridge, we can see the kind of a net effect of the difference between the quarters here regarding the milestones in Innovative Medicines column, which is EUR 59 million, but underlying net sales increased by EUR 71 million. So I think the growth, as I earlier said, of Nubeqa product sales and royalties was very strong, but it didn't fully compensate the previous year's milestones. We can also see here that all other divisions positively developed positively, strongest being Generics and Consumer Health, but also Branded Products and Animal Health showed positive development. And Fermion was more or less on par. And here on the operating profit bridge, we can see the full -- kind of a full effect of the last year's milestones, EUR 130 million, but also the positives on the change in sales volume and change in prices and cost of goods and product mix of almost EUR 20 million. And then the royalties of EUR 50 million. We can also see that our fixed cost increased as well, but this is all planned. It's mainly R&D and sales and marketing costs here. Now let's take a view for the first 9 months from January to September. Again, a very nice 22% growth during the first 9 months and 7.8% growth even though we would compare to the previous year's quarter 3, including the milestones. And the first 3 months ended up with EUR 1.2 billion of net sales. Regarding operating profit, EUR 57 million -- 57% growth and slight decrease if we compare to the numbers, including milestones in previous year. And again, a very positive development on cash flow during the first 9 months. Now to Innovative Medicines. This is a bit different picture than you've used to see. There is the shaded area, which tries to tell you the comparison between the quarters, including everything else, but the milestones from the previous year. And 71% of growth is very healthy for Innovative Medicines and also almost 75% growth during the first 9 months. And on the right side here, you can see this all-time high royalties plus product deliveries ending up to EUR 166 million. And I always remind looking at this picture, the very, how would I say, year is very late ended loaded -- back-ended loaded -- back-end loaded for Nubeqa, as you can see here, when you look at the '24 from the first quarter to the last quarter, but here as well. But I would like to remind that in comparison to '24, we already reached the higher royalty rate in the previous quarter with Nubeqa. So we are not going to see a similar shift and change in the royalty rate as we saw last year between the Q3 and Q4. Branded Products growth during Q3 was somewhat slow. It was 3%. And this slowliness in the growth is mainly due to timing of deliveries to our Stalevo partners. And that will be fixed during the rest of the year. So it's kind of a temporary change here. And the growth for the first 9 months is a healthy 9%. And in Easyhaler portfolio, budesonide-formoterol combination product was the clear driver for the growth. And then on the CNS portfolio, Stalevo Japan contributed to growth in Branded Products. And as I say, Generics and Consumer Health quarter 3 was very, very strong. 5.4% growth is extremely good for any generic business, but especially here when we remember that Simdax and Dexdor are included in this business, and they are constantly sliding down facing the generic competition. So we are able to compensate that decrease, but -- and at the same time, increase and grow our sales. And the reason for good quarter is really the good availability of the products in our Nordic countries. The service level is the thing in the Generic business. You need to have the products at the time of the tender where they should be, and you would need to be able to deliver also for all the different countries in the specific timings of tenders or pricing processes. And also, we had a good launch, for example, for Apixaban in Finland. Animal Health continued the good growth trend, although here, we see a bit of a similar slowdown as with Branded Products, and that partly has to do with deliveries as well. But when we look at the first 9 months, it's a very strong 2-digit number growth. And our top 10 product list is as it has been. Nubeqa, there as a flagship with 83% or 84% growth. Easyhaler product portfolio growth was close to 8% and entacapone products grew close to 5%, mainly due to the Japan sales. And our HRT product, Divina, performed very well here on the row 5, growing almost 23%, continuing the strong growth from earlier this year and some oldies like Trexan even 10% -- close to 10% growth and Quetiapine products, 10% growth. And currently, our business divisions are very healthy. The balance between business divisions is very healthy, approximately 30% for Innovative Medicines and Generics and close to 20% for Branded Products. Now Orion's key clinical development pipeline has clearly become oncology focused as we decided to discontinue the ODM-105 project for treatment of insomnia. We have also removed ARANOTE from this list as it's approved both in U.S. and EU. So we now have the DASL-HiCaP study on this list. and then the 2 OMAHA studies with opevesostat that MSD is responsible for. It's good to mention here for these 2 opevesostat studies that their design or primary endpoints have changed since we last presented this so that for the OMAHA3, which is for the later line patients, the primary endpoint is now overall survival. So the progression-free survival has been demoted and overall survival is the primary endpoint. Also, there are changes for the frontline patients study 004, so that the progression-free survival is now a primary endpoint for this study. And these are changes that our partner, MSD, has done, and it looks in all possible ways very logical. Then we have Tenax levosimendan study for pulmonary hypertension proceeding in Phase III. They are planning to start also another Phase III study by the end of this year, another global study for this indication. And then we have another study for opevesostat for metastatic castrate-resistant prostate cancer and 3 studies ongoing, Phase II studies ongoing for several or 3 different hormonal cancers, women's hormonal cancers, breast, endometrial and ovarian cancer. And still, we continue the CYPIDES, which was the Phase II study that formed the basis for those 2 opevesostat 3 and 4 studies for prostate cancer. And our TEAD inhibitor, ODM-212 for solid tumors is proceeding well in Phase I, and we are preparing to start the Phase II program on the first half of next year. Then a few words on the sustainability this time about decarbonization targets. We have set an ambitious target to reduce absolute Scope 1 and 2 greenhouse gas emissions by 70% by the year 2030, and also have 78% of our suppliers, meaning Scope 3 emissions covered by our targets. Then how do we do this? I think for the Scope 1 and 2, we have very concrete actions ongoing. The steam production is one of the most energy-consuming phase in the chemical industry, especially in the API industry. And we are changing the energy source for steam production in all of our facilities -- manufacturing facilities. In Turku, we are electrifying the steam production. In Oulu, we are changing to biofuels from the fossil fuels. And also, we will start an electrifying project in Espoo. So very, very concrete examples here, and we have even done a lot of concrete actions and projects before this, for example, in our Hanko plant. And in the supplier management, we are targeting to our highest emitting suppliers who are not yet aligned with SBT. And here, we try to offer support and practices and technical expertise with our suppliers. And we have specified our outlook today. Our operating outlook for operating profit, we have narrowed from EUR 410 million to EUR 490 million. So nothing drastic. We've been able to narrow it as the year has -- 10 months have already passed. There are 2 months left, and we have a much clearer view on how the year will pan out. And for the net sales, our outlook is from EUR 1.640 billion to EUR 1.720 billion. And here, you can see the upcoming events for next year. And I thank you on my behalf, and welcome Rene here with me to answer your questions. Tuukka Hirvonen: Thank you, Liisa, for the presentation. As we said in the beginning, we will first take questions from the conference call lines, and then we will turn to the questions you can type in through the chat function in the webcast. But at this point, I would like to hand over to the operator with the conference call. Operator: [Operator Instructions] The next question comes from Sami Sarkamies from Danske Bank Markets. Sami Sarkamies: I have 4 questions. We'll take this one by one. Firstly, starting from the guidance. Can you elaborate on what is driving the small revisions to the lower and upper ends of the guidance ranges? Is this about third quarter actuals? Or have you also updated your forecast for the fourth quarter? Liisa Hurme: Well, of course, the first thing is, as I mentioned, that we know now how the first, say, 10 months have passed, and there are only 2 months left. But there are, of course, uncertainties for the latter part of the year. Nubeqa is a big moving factor in this, also R&D costs. And the tariffs are not that big of a matter here. We do think that they wouldn't have any effect to this year '25. But there are still uncertainties for the rest of the year. So still, we have this range, but there are less uncertainties, and that's why we were able to narrow the range. Sami Sarkamies: Okay. Then moving on to growth momentum at Branded Products and Animal Health. Third quarter growth rates are clearly weaker than we saw in the second quarter. How would you explain that? And what is your expectation regarding Q4? Liisa Hurme: Well, yes, you are very correct that the Branded Products and Animal Health showed a slower growth than previously this year. And it's mainly due to some delays in our deliveries to partners. We have both Animal Health. Animal Health is actually working closely with. We have some very big partners that we are working with. So there might be a 1-day or 2-day delay for the deliveries, and it has an effect clearly even on the quarter if there are big deliveries going on. Same goes with Branded Products. We deliver still to our Stalevo partners across the world. And it's the same thing. I think we've experienced this earlier years as well that sometimes it just happens that we are not able to ship during the quarter that we had planned. But this should be -- we should be able to sort this out by the end of the year during the Q4. Sami Sarkamies: Okay. Then moving on. The third question is on ODM-208. You mentioned that Merck has been changing primary endpoints for the OMAHA studies. When was this change made? Liisa Hurme: This change became public, I think, a month ago, 3 weeks ago, maybe. Tuukka Hirvonen: It was a few weeks ago. In early October, they changed the protocols. It was visible in the ClinicalTrials.gov. So nothing material because we didn't come out with at that point. But of course, something that is very interesting for all of you. So we wanted to highlight it here. Sami Sarkamies: Okay. And then finally, regarding the R&D pipeline, thinking of next year, can you give a bit more color on when you're expecting Phase I readout for ODM-212? And when would you expect to initiate the first Phase II study for that molecule? And then secondly, at CMD, you talked about 3 biological preclinical programs moving into Phase I during next year. Just wanted to check if these projects are still live as you are currently guiding for at least one new program during next year. Liisa Hurme: Yes. I'll start with ODM-212. The Phase I is almost completed. We are looking at the results, and we are basing our Phase II planning on those results. And of course, we will report the results in some forthcoming scientific meeting. Those are usually on embargo until we release them for the scientific audience. And regarding the Phase II program, it's currently under plans. We have filed IND for that and hope to be starting by hopefully mid-'26. And what was -- then there was one more question. Tuukka Hirvonen: About the biologics status. Liisa Hurme: Biologics. Indeed, yes, we told that we have 3 biologics close to advancing to clinical pipeline. And we think that we will be able to proceed with at least one of them to the Phase I next year. Operator: [Operator Instructions] The next question comes from Shan Hama from Jefferies. Shan Hama: Three from me. Also happy to take them one by one. So firstly, could you perhaps give us some, I guess, guide as to the impact on your OpEx from the ODM-105 failure? I mean I know you weren't planning to take it to late-stage development yourselves. So I assume it's not significant, but perhaps any guidance on the provisions set aside there would be helpful. Rene Lindell: Yes, maybe I can take that one. So of course, ODM-105, it was -- we got the results and in such a way, you could say the project was completed. So for this year's perspective, not a big impact in terms of how we expect this year's R&D expenses to be going as it was in our plans and it was completed. Then of course, for next year, you can obviously think that there is a change in how the budget is allocated. 105 million, of course, is not moving forward. There are some tail costs for next year that we'll be taking in this year. But overall, we see it as being quite neutral for this year in compared to whatever we save and whatever provisions we take for costs that would have occurred next year. Shan Hama: All right. And secondly, I mean, you're able to specify your guidance on this increasing visibility on the performance of the businesses. I assume the visibility on the milestone should also be better. Could you perhaps speak a bit on your expectations for this and whether that visibility has shifted slightly from last quarter? Liisa Hurme: Well, as we have stated, we think that we will receive the milestone next year, '26, but it is possible that we receive that milestone already '25. But it's still not possible to state that as a fact that we get it this year. So we remain where we have been to this date that it's possible this year, but we are -- in our plans, it's next year. Shan Hama: Understood. And then finally, given the delay that you mentioned in the deliveries in Branded Products and Animal Health, is it fair to expect a slight boost to 4Q, assuming those deliveries are made as well as the normal business expected in 4Q? Or is it more of a pull-through dynamic? Liisa Hurme: Now I didn't quite get the question. Is it... Tuukka Hirvonen: It's about the timing of shipments in Branded Products and Animal Health since we now saw some headwinds. Will there be a boost in Q4 now that... Liisa Hurme: No, I think it's just -- it's according to plan that we get them out here. So it's not boosting the Q4. Operator: The next question comes from [ Matty Carola ] from OP Corporate Bank. Unknown Analyst: It is [ Matty Carola ]. I ask 2 Nubeqa related questions. First, regarding the U.S. situation and the pricing. I know you are not willing to say a lot about it, but maybe could you a little bit say about the political atmosphere. Do you or your partner get the pressure to lower the price? Or what's your kind of look right now if you look on another side of the Atlantic? Liisa Hurme: Well, I think that's a good question regarding the U.S. business environment. However, I think a question whether our partner gets pressured or needs to change price, I think it's fair to say that, that needs to be asked from Bayer. It's not my place to comment that matter. But in general, there are a lot of things happening in U.S. regarding the pricing, the most favored nation initiative and also, of course, the tariffs. So we follow the situation carefully. Unknown Analyst: All right. Then the second one, you received the latest permits in the U.S. during the summer and also in Europe regarding the latest indication. Have you seen kind of significant volume change or kind of any change about the sales during the Q3 if we speak about the kind of adoption rates or any other kind of sales indication, which is visible after you got the final sales permits? Liisa Hurme: Well, we don't -- of course, we see that the volumes are increasing. That's a very positive thing. But we don't have a kind of a step change if you're referring to that with the new indication. It's more of a linear growth. So it's very positive. I'm sure ARANOTE has a positive effect as it can be used also without docetaxel. But to have a kind of a step change or big growth there, such we don't see exactly. Operator: [Operator Instructions] The next question comes from Anssi Raussi from SEB. Anssi Raussi: One question from me, and it's just to double check something you said during the presentation about Nubeqa royalties in Q4 compared to Q3. So I understood that we shouldn't expect similar growth as we saw last year, but anything else to add or comment on Q4 royalty rate? Maybe I didn't catch up everything you said in that comment. Liisa Hurme: Very good that you asked. I was trying to explain that last year, the royalty rate changed between Q3 and Q4. So... Tuukka Hirvonen: During Q4. Liisa Hurme: During -- yes, not exactly between, but during Q4. So it had an impact so that the Q4 was clearly higher in Nubeqa sales or royalties to us. But this year, we already reached that royalty rate during Q3. So even though the royalties will be -- or the sales will be growing, so there will be a kind of a double effect of sales growing and royalties -- royalty percentage increasing during quarter 2. So that's the difference. I don't know if I explained it well or if my colleague wants to explain it even better. Anssi Raussi: Got it. And so is your royalty rate hit the cap during Q3? Was it at the end of the quarter? Or was the average rate already capped and will be similar in Q4? Or is it like the run rate at the end of Q3? Tuukka Hirvonen: We reached the cap during Q3, not going to specifics at which point of time. But like Liisa said, kind of the message is that one should not expect similar step-up as you saw last year between Q3 and Q4 because in Q4 last year, we got the step-up coming from the royalty rate increase, but now that won't be happening between Q3 and Q4. So that was kind of the message that we expect the growth to continue, but similar kind of step-up as you saw last year, one should not expect. Operator: There are no more questions at this time. Tuukka Hirvonen: All right. Thank you, operator. Then we turn on to the chat questions. We have a couple here. You still have time to type in more if you have anything on your mind. Let's start with one. This is actually already covered, but just to let you know that [ Aro ] is asking, is it still realistic to think that the EUR 180 million Nubeqa milestone would come already this year? And actually, you, Liisa, already addressed that question. So that's covered. Then we are having one coming from Iiris Theman from DNB Carnegie. Regarding Nubeqa, have you received any feedback from Bayer how ARANOTE sales have developed? What are Bayer's comments? Liisa Hurme: I think not specific comments on ARANOTE . I think we are more or less following the all sales development. And as I said, it's linearly growing. So there, we haven't really seen any step-up due to ARANOTE. And let's remember that there might have been already off-label use with Nubeqa for this patient segment. So it might be that -- it might not be that dramatic, and that's what we've been trying to tell all along while we've been waiting for the ARANOTE approval. Tuukka Hirvonen: All right. Thank you, Liisa. We have no further questions in the chat, but I got a message. Well, actually, now Iiris has a follow-up here. So why administration costs were lower year-on-year? And what should we expect for Q4? Rene Lindell: Yes, There are typically quite many line items there, and some of those are -- can be just shifting from quarter-to-quarter. There can be also some definition changes, what is considered admin and what is considered in the other line items. There are quite minor changes in terms of the overall admin expenses. There's nothing big changing the normal inflation, which is across the board. But yes, I wouldn't expect any drastic differences. Tuukka Hirvonen: All right. Thanks, Rene. Then we have a follow-up from Sami Sarkamies from Danske. So following changed endpoints for ODM-208, so opevesostat, OMAHA trials, do you still foresee an interim readout in '26? Before you answer, of course, we need to point out that we have never estimated or foreseen that there will be a readout. Liisa Hurme: Interim readout. No, no, no. But I think that's public, the readout for the full year. It's that when... Tuukka Hirvonen: Yes. Yes, the full readout, yes, but interim readout. Liisa Hurme: No, no, no. We are not going to comment that or we have never commented that. But the readout from both studies should be in 2028. Tuukka Hirvonen: Yes, that's correct. Then we have a follow-up from Heikkila. He says that Orion's R&D costs have been increasing clearly. At which point do you expect these increases to show as a growth in terms of net sales? And to which development programs are you focusing the most after Nubeqa? Liisa Hurme: We clearly focusing the development programs that are in our hands, and that's ODM-212 now and of course, the biologics that are following that. And when can we expect that program to turn into sales? I would say that would be early 2030s. Tuukka Hirvonen: All right. Thank you, Liisa. Now we have exhausted all the questions from the chat. And also, I got a message that there are no follow-ups in the conference call lines. So it's time for us to wrap up. Thank you for joining us today, and have a great rest of the day and week. Liisa Hurme: Thank you.
Operator: Good evening, and thank you for standing by for New Oriental's FY 2026 First Quarter Results Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I'd like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao. Sisi Zhao: Thank you. Hello, everyone, and welcome to New Oriental's First Fiscal Quarter 2026 Earnings Conference Call. Our financial results for the period were released earlier today and are available on the company's website as well as on Newswire services. Today, Stephen Yang, Executive President and Chief Financial Officer; and I will share New Oriental's latest earnings results and business updates in detail with you. After that, Stephen and I will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the view expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statements, except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's Investor Relations website at investor.neworiental.org. I'll now first turn the call over to Mr. Yang Stephen. Please go ahead. Zhihui Yang: Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. Before diving into the details of our first quarter results, I would like to share that after periods of testing and trialing various business models and offerings, formulating the right strategy and direction for New Oriental. We're pleased to see that the company has now entered a stable growth trajectory. This quarter, we recorded an encouraging set of results that exceeded our expectations, mainly driven by our strong capabilities, enhancing operational resilience and sustainable profitability. This quarter's total net revenue has increased by 6.1% year-over-year. Bottom line-wise, we're delighted to see that our efforts to manage costs and streamline efficiency has yielded tangible success with non-GAAP operating margin reaching 22% this quarter, representing a year-over-year improvement of 100 basis points. Our key remaining business remains solid, while our new initiatives have continuously demonstrated positive momentum. Breaking it down for the first fiscal quarter of 2026. Overseas test prep business recorded a revenue increase of about 1% year-over-year. Overseas study consulting business recorded a revenue increase of about 2% year-over-year. Our adults and university students business recorded a revenue increase of 14% year-over-year. At the same time, our continued investments in new education business initiatives primarily centered on facilitating students all around development have delivered consistent progress, further driving the company's overall momentum. Firstly, the non-academic tutoring business, which focused on cultivating students' innovative ability and comprehensive qualities has now been rolled out to around 60 cities. Market penetration has grown steadily, particularly across high-tier cities. The top 10 cities contribute over 60% of this business. Secondly, the intelligent learning system and device business, which utilize our past teaching experience, data technology to provide personalized and targeted learning and exercise content to improve students' learning efficiency has been tested in around 60 existing cities. We're encouraged by the improved customer retention and scalability of these new initiatives. The top 10 cities contribute over 50% of this business. In summary, our new educational business initiatives recorded a revenue increase of about 15% year-over-year for the first quarter of 2026. Moving to the integrated tourism-related business line and breaking it down, both domestic and international study tours and research camp for K-12 and university students were connected across 55 cities nationwide, with the top 10 cities contributed over 50% of our revenue. In parallel, we provide a series of premium tourism offerings primarily designed for middle-aged and senior audiences across 30 featured provinces in China and internationally. Our product range has also been expanded to now include cultural travel, China study tour, global study tour and camp education. With regards to our OMO system, our efforts in developing and revamping our online merging offline teaching platform continued. These efforts aim to deliver more advanced and diversified education service to our customers of all ages. A total of $28.5 million have been invested during the quarter to upgrade and maintain our OMO teaching platform. Beyond OMO, we continue to focus on our venture in AI. Our newly launched AI-powered intelligent learning device and smart study solution marks significant steps of our ongoing pursuit to transform education through technology. Encouraged by the positive market feedback, we have been and will continue to refine and embed AI across our offerings to strengthen New Oriental's core capabilities. Simultaneously, we're also leveraging AI to streamline internal operations, thereby boosting efficiency and providing enhanced support for our teaching staff. As an industry leader, we're dedicated to driving long-term revenue growth through dual focus on product innovation and operational efficiency. In upcoming quarters, we look forward to sharing tangible results and positive highlights on performance that are backed by our investments in AI. Now with regards to the East Buy's performance. In fiscal year 2026, East Buy strategically invested in its private label portfolio centered around the promise to deliver products that are healthy, high quality and good value for money. As we enrich East Buy's product categories, our blockbuster offerings, namely the nutritious food product line has particularly stood out. We have strengthened our capability through rigorous end-to-end quality management from sourcing to aftersales service, which resulted a greater market recognition for our private label products. During the reporting period, East Buy further advanced its East Buy app and membership platform, connecting our loyal customer base to premium products and services. As the business continued to evolve steadily, East Buy has intensified its focus on improving operational efficiency and profitability metrics to align closely with the group's corporate strategy. Now, I will turn the call over to Sisi to share with you about the key financials. Sisi, please go ahead. Sisi Zhao: Thank you, Stephen. Now I'd like to share our key financial details for this quarter. Operating costs and expenses for the quarter were $1,212.2 million, representing a 6.1% increase year-over-year. Cost of revenues increased by 9.3% year-over-year to $637.8 million. Selling and marketing expenses increased by 3.6% year-over-year to $200.6 million. G&A expenses increased by 2.4% year-over-year to $373.8 million. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 239.8% to $23.3 million in the first fiscal quarter of 2026. Operating income was $310.8 million, representing a 6% increase year-over-year. Non-GAAP operating income, excluding share-based compensation expenses and amortization of intangible assets resulting from business acquisitions was $335.5 million, representing an 11.3% increase year-over-year. Net income attributable to New Oriental for the quarter was $240.7 million, representing a 1.9% decrease year-over-year. Basic and diluted net income per ADS attributable to New Oriental were $1.52 and $1.5, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $258.3 million, representing a 1.6% decrease year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $1.63 and $1.61, respectively. Net cash flow generated from operations for the first fiscal quarter of 2026 was approximately $192.3 million, and capital expenditure for the quarter were $55.4 million. Turning to the balance sheet. As of August 31, 2025, New Oriental had cash and cash equivalents of $1,282.3 million, $1,570.2 million in term deposits and $2,178.1 million in short-term investments. New Oriental's deferred revenue, which represents cash collected upfront from customers and related revenue that will be recognized as the service or goods were delivered at the end of the first fiscal quarter of 2026 was $1,906.7 million, an increase of 10% as compared to $1,733.1 million at the end of the first fiscal quarter of 2025. Now, I will hand over to Stephen to go through our outlook, guidance and our new shareholder return plan. Stephen? Zhihui Yang: Thank you, Sisi. Following a strong start to the fiscal year, we're optimistic about further improving our margins and operational efficiency while staying committed to effect cost control and sustainable profitability across our all business. As part of these efforts, we are taking a thoughtful and strategic approach to capacity expansion and hiring, ensuring that we continue to grow without compromising the quality of our offerings. We plan to increase our presence in cities with stronger top line and bottom line performance last year, while carefully managing resources. Rest assured, we will closely monitor the pace and scale of new openings, aligning them with local official needs and financial results throughout the year. Guidance-wise, we expect total net revenue for the group, including East Buy in the second quarter of the fiscal year 2026, September 1, 2025 to November 30, 2025, to be in the range of $1,132.1 million to $1,263.3 million, representing year-over-year increase in the range of 9% to 12%. In the second quarter, we projected a notable acceleration of revenue growth in K-12 business, driven by our enhanced service quality, which has led to steady year-on-year and quarter-on-quarter improvement in student retention rates. As for the full fiscal year 2026, we are very confident that our previously provided guidance of total net revenue for the group, also including East Buy to be in the range of $5,145.3 million to $5,390.3 million will be realized, representing a year-over-year increase in the range of 5% to 10%. As part of our appreciation for our shareholders' unwavering support, we today announced that the shareholder return plan for the fiscal year 2026 has begun. The Board of Directors has approved an ordinary cash dividend and new share repurchase program. Regarding the ordinary share dividend, the ordinary cash dividend of $0.12 per common share or $1.2 per ADS will be paid in two installments with an aggregate amount of approximately $190 million. The first installment with $0.06 per common share or $0.6 per ADS will be paid to holders of common shares or ADS of recorded as of the close of business on November 18, 2025, Beijing and Hong Kong time and New York time, respectively. The second installment $0.06 per common share or $0.6 per ADS is expected to be paid around 6 months after the payment date of the first installment to holders of common shares and ADS of the record date to be further determined by the Board of Directors. Details of the second installment will be announced in due course. Regarding the share repurchase program, pursuant to the new share repurchase program, the company may repurchase up to $300 million of its ADS or common shares from open market over the next 12 months. To conclude, New Oriental remains committed to our trajectory of sustainable growth, delivering premium offerings to our customers and sharing the fruits of our success with our shareholders. We're also in close collaboration with the government authorities in various province and municipalities in China, ensuring compliance with the relevant policies, guidelines and any related implementations, regulations and measures and adjusting our business operation as required. This is the end of our fiscal year 2026 Q1 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these. Thank you. Operator: [Operator Instructions] We will now take our first question from the line of Felix Liu from UBS. Please ask your question, Felix. Felix Liu: I'm glad to hear that you mentioned or expect a notable acceleration in your K-12 business in the upcoming quarter. I know previously, there are market concerns over increased competition, especially over the summer. So, could management elaborate on how is the latest competition landscape in K-12 that you're feeling at the moment? What are the -- have you made any adjustments to your strategy? And what is a reasonable level of sustainable growth for your K-12 business in the mid- to long term? Zhihui Yang: Thank you, Felix. First of all, I'm very happy to see the revenue growth acceleration in our K-12 business since Q2. As you know, started in Q1 and even for the whole year, I think our target is to enhance our quality of product and service in K-12 business. And I think since Q2, we will see the good result. I think, the better quality drives the student retention rate up after the summer. So, that means more and more students chose our Q2 course and also the better word of mouth attracts new student enrollment of our autumn classes. Yes, as you know, we missed some competition pressure in the summer, because of some competitors were using the low price or even the free course strategy. But now we are happy to see students came back to New Oriental to enroll our classes in autumn. So, that's why we raised the guidance of the K-12 business. So, let's divide the K-12 business one by one. And so, we expect the K9 new business revenue growth will be around 20% year-over-year growth in Q2. And for the high school business, I think in the Q2, the growth rate will return to double-digit growth. So, I think you see the revenue acceleration since Q2. And so, I think the high student retention rate and the better word of mouth will drive the revenue growth acceleration. And I think, I believe the revenue growth acceleration will continuously since Q2 and throughout the year. So for -- yes, so for the whole year, 2026, I think the K9 business will be -- the year-over-year growth will be over 20%. And for the high school, like double-digit growth. So, I think, our strategy is correct, because the student retention rate, both for the primary school students and middle school students and high school students, all this is why the student retention rate is getting higher year-over-year. Operator: Our next question comes from the line of Alice Cai from Citibank. Yijing Cai: I have two quick questions. First on SBC. It jumped into a lot to $23 million this quarter. I'm wondering what drove this increase and what's the outlook? The other increase, $21 million, would you break down what the driver is for the SBC? Zhihui Yang: Yes. I think, Alice, your question is about the SBC, the share-based compensation. I think in the second half of the last fiscal year, we issued -- we grant the ADS shares to the management and the staff and teachers in the next 3 years. So, it's driving the SBC up. And yes, so the number of the SBC in this quarter is bigger than that of last year. And yes, but as you know... Sisi Zhao: Yes. You can roughly estimate going forward, every quarter, the SBC expenses will be similar with this quarter and at this kind of level for the coming several quarters. Zhihui Yang: Yes. But I think typically, the first year we recorded more SBC expenses, more in first year and then less in second and third year. Operator: We will now take our next question from the line of Lucy Yu from Bank of America Securities. Lucy Yu: Stephen, I have a question on overseas. It looks like overseas has been stronger than your earlier expectation. Could you please break down the test prep growth by age and also the consulting growth break down by subsegment? How should we think about the overseas sustainability growth? And will that impact your guidance for the full year? Zhihui Yang: Yes. As for the overseas-related business, as you know, we are adversely affected by the external environment. Last quarter, we guided in Q1, the revenue of the overseas-related business would be down by 5%. But in Q1, I think overseas test prep still grew by 1%. Overseas consulting business grew by 2%. I think, we will strive to minimize the negative impact going forward. And so, in the Q2, we still guide the overseas-related business will be down by low single digits in Q2, which were still use the conservative method to make the forecast. And I think, yes, the negative impact from the -- like the international relationship, even the outside environment changed a lot. But I think, we will strive to minimize the impact. And so, we do expect we can beat our guidance, because we do the guidance in Q2, even for the whole year more conservatively. Lucy. Lucy Yu: Stephen, just to follow up. So for example, your test prep is positive. So by age group, like younger age, high school and like, college students, which one of them is better than expected? And also for the consulting business, I believe that 60% is around pure consulting and the other 40% is like background raising. So which part of that is better than expected? Zhihui Yang: Within the overseas test prep, the younger age students group, the business of that part grew very fast, even more than 25% year-over-year. So, that's why the makeup of the like the adults or even the college students business is down. And within the overseas consulting business, I think the non-U.S. and U.K. business, especially for the Asia country consulting business and the background improving the business still grew very fast. So as a whole, I think the overseas test prep and consulting business, we will still give the guidance like the 4% or 5% down year-over-year. But I believe we will do better than our guidance, Lucy. Operator: Our next question comes from the line of D.S. Kim from JPMorgan. D. S. Kim: I actually wanted to ask why the share price is down 6%, 7% pre-market, but I guess that's a question for the market not you. I actually have a question regarding shareholder return policy, if that's okay. How shall we think about the policy going forward, say, is this based on your projected or budgeted net profit and payout ratio? Or is it more based on our expectation on cash flows and whatnot? The reason why I'm asking is, if I use my own estimated the GAAP EPS, what you announced is roughly about 100% payout, say, like 40% payout for the dividend and 60% for buyback based on my GAAP net profit or EPS. Is that what we should think about going forward, i.e., like we could pay regularly over 50% as you guided, but more like 100% payout going forward based on this earnings and payout? Or shall we treat the buyback as one-off only for current year, because of the stock price is low and we only -- we can only expect 50% going forward? Like can we walk us through how we can think about the payout ratio or shareholder return going forward? Zhihui Yang: Thank you, D. S. It's a good question. I think last quarter, our Board approved 3-year shareholder return plan. And this -- we announced earlier today, we paid $190 million dividend, which amounted to the 50% of net profit, we generated last year. And combined with the $300 million, the new share buyback program. So let's do the math. We -- I think, the payout ratio this year is over 130% if you compare the capital allocation with the net profit we made last year. And the dividend plus the share buyback yield is over 5%. So, I think the -- going forward, next year, I think the dividend we will pay, because I think, it is a regular dividend. And the $300 million share buyback we announced this year is not onetime. It's not onetime. I think, next year, I think, I will discuss with the Board and to push the Board to approve the new capital allocation program. And I think, we will keep the high level of the payout ratio and the yield, because think about that, we meet some pressure slowing down the top line. And -- but we can still like the 10% or plus topline growth and generate higher margin. And also, we are piling up the cash. So, that's why the Board support the management to pay more capital allocation to investors. And I think the investors deserve to get more money the capital allocation from the company. And so we announced the 3 years -- the shareholder return plan. So, I think in the next year, we will pay more. D. S. Kim: If I may follow up just on that part, just to clarify, when I said 100%, that was based on fiscal year '26, my EPS. Because the wording of the announcement say this is a dividend for fiscal year 2026. But based on what you say, shall we, going forward, expect that, like, what you announced is actually coming out of fiscal year '25 earnings and what you are going to announce next year will be coming out of fiscal '26. So, will there be 1-year delay? And is that how we should think about? Or I guess, it's all flexible, but just wanted to get your thoughts. Zhihui Yang: I think, this is our internal policy. Because we make the calculation based on the last year net profit. So, we -- last quarter, we announced that we paid no less than 50%. But finally, we paid about 30% -- 30%. And next year, I think we will calculate based on the net profit we made in fiscal year 2026, and we will do the same thing. D. S. Kim: I think that's actually much, much better than what I had expected. So, I am again wondering why stock is down 6%, not up 6%. But anyway, let's see how it goes. Operator: Next question comes from the line of Yikun Zheng from Citic. Yikun Zheng: Congratulations on the strong results. My question is regarding the operating margin. Since the operating margin in Q1 is quite good, I'm not sure if it was mainly due to the cost reduction plan or some other reasons? And how can we expect the contribution of the cost reduction plan for the next season or for the full year? And how do we expect the operating margin for the full year? Zhihui Yang: It's a good question about margin. Let us start the margin analysis of Q1 this quarter. Even though we meet some margin pressure from the slowdown of the overseas-related business, but we still got the group margin expansion by 100 basis points in Q1. And I think the margin expansion was mainly driven by the better utilization, operating leverage and the cost control and the profit contribution from East Buy. As you know, we started to do the cost control since March in the last fiscal year, this year March. And we have seen the good results. And I think, it will help the margin expansion even in the rest of the year, this fiscal year. And we look ahead into the Q2 margin guidance. I think, we are quite optimistic about the margin expansion for the whole group in Q2. And so that means the core business and the East Buy business, both of the business, the margin will be up in Q2. And I believe the margin expansion in Q2 will be greater than that of Q1. And as for the margin outlook for the whole year, I think the whole group are focusing on the profitability across all business lines. We are doing the cost control in all business lines. So, we do hope we can get the margin expansion for the whole year for the group. Operator: We'll take our next question from the line of Elsie Sheng from CLSA. Yiran Sheng: Congratulations on the very good results. I have a quick question on the tax rate, because I noticed that the tax rate in the first quarter is higher. So, could you let us -- so what should we look at the tax rate in the next quarter and also for the full year? Zhihui Yang: In Q1, I think the situation is special, because even the -- since the second half of last year and Q1, we paid dividend from the WFOE to ListCo. And so, we need to pay the withholding tax to the tax bureau. So, it drive the ETR up in Q1. So it was 27%. And typically, we paid 25% of the ETR. And going forward, I think we probably -- we will do more -- pay more dividends from WFOE to ListCo. So, I think in this year, the ETR will be higher than that of last year or normal. But I think the reason is that, you saw, we announced earlier today, we raised the capital allocation to investors roughly $490 million as the capital allocation total. So, we need more dollars, and that's why it drives the ETR up. Operator: [Operator Instructions] We now take our next question from the line of Timothy Zhao from Goldman Sachs. Timothy Zhao: My question is regarding the Q2 K9 new initiatives. When I look at the enrollment growth for this quarter, I still noticed a pretty big gap between the non-academic tutoring and the intelligent learning system and devices. Just wondering, can we use that gap to model the revenue growth gap between these two segments for the first quarter or the second quarter? And do we think that this gap may sustain, I think, going forward, given I think for the intelligent learning system, I think it's a very good business. It's probably also margin accretive to you. Zhihui Yang: I think, the growth rate, the revenue growth of the junior high school business is a little bit faster than the primary schools business. Because, first of all, it's a little bit low base than the kids' business. And secondly, we spent a lot of the efforts and resources in the last 3, 4 years to open a new business of the middle school business. And I think, the whole team contribute a lot of the -- provide a better the product to the customers and the students love the new product. That's why the revenue growth is better. And so going forward, I think we believe the revenue growth of the middle school business will be a little bit higher than the kids' business. But as a whole, the K9 new business growth, you saw our guidance for Q2 and even for the whole year. I think definitely, it's the revenue acceleration is coming. And so as I said, in Q2, the K9 business roughly 20% top line growth. And we do hope we can do better in the second half of the year. Operator: We are now approaching the end of the conference call. I'll now turn the call over to New Oriental's Executive President and CFO, Stephen Yang, for his closing remarks. Zhihui Yang: Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen. Welcome to KPN's Third Quarter Earnings Webcast and Conference Call. Please note that this event is being recorded. [Operator Instructions] I will now turn the call over to your host for today, Matthijs van Leijenhorst, Head of Investor Relations. You may begin. Matthijs van Leijenhorst: Yes. Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us today. Today, we published our Q3 results. With me today are Joost Farwerck, our CEO; and Chris Figee, our CFO. And as usual, before we begin the presentation, I would like to remind you of the safe harbor on Page 2 of the slides, which applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to the safe harbor. Now let me hand over to our CEO, Joost Farwerck. Joost Farwerck: Thank you, Matthijs, and welcome, everyone. Let's start with the highlights of the last quarter -- third quarter. Our group service revenues increased by 1.7% with growth across all the segments. In the mix, consumer was supported by ongoing commercial momentum, both in broadband and mobile. Business was driven by mainly SME and LCE. As expected, growth slowed in the third quarter, mainly due to the tailored solutions parts and wholesale continued to grow mainly driven by sponsored roaming. Our EBITDA grew by 2.3% on a comparable basis. And as expected, our free cash flow rebounded in the third quarter, up 12% year-to-date, driven by EBITDA growth. We further expanded our fiber footprint together with our joint venture, Glaspoort. And finally, we remain confident to deliver on the full year 2025 outlook and our 337 midterm ambition. As a reminder, our Connect, Activate and Grow strategy is supported by 3 key pillars. First of all, we continue to invest in our leading networks. Second, we continue to grow and protect our customer base. And third, we further modernize and simplify our operating model. And together, these priorities support our ambition to grow our service revenues and adjusted EBITDA by approximately 3% on average and our free cash flow by approximately 7% over the entire strategic period. And given that we are now nearly halfway through our strategic period, we look forward to sharing a strategy update with you next week, November 5, and we hope you will join us online for the webcast. Let me now walk you through the business details. We lead the Dutch fiber market. In the third quarter, we expanded our fiber footprint by adding 74,000 homes passed together with Glaspoort, and we connected 82,000 homes, bringing us close to 80% homes connected within the fiber footprint. And the rollout pace slowed compared to previous quarters due to timing. We stick to our ambition to cover 80% of Dutch households with fiber. During our strategy update next week, we'll share how we will get there within our financial framework. Let's now have a look at the consumer segment. Consumer service revenues continue to grow, driven by consistent fiber and mobile service revenue growth. Customer satisfaction remains a priority, and thanks to our CombiVoordeel offer supported by super Wi-Fi, our Net Promoter Score rose to plus 15 year-to-date and Net Promoter Score even reached plus 17 during the quarter, showing how these improvements are making a real difference for our customers. Let's take a closer look at our third quarter KPIs. We saw another quarter of double-digit broadband-based growth despite a challenging competitive environment. Thanks to a steady and healthy inflow of new fiber customers, combined with a growing ARPU, our fixed service revenues continue to grow. In mobile, we maintained a strong commercial momentum, adding 47,000 subscribers. And this was partly offset by ARPU decline driven by ongoing promotional activity in the no-frill segment. So overall, our mobile service revenue grew by 1%. Let's now turn to the B2B segment. Business service revenues increased by 1.4% year-on-year, driven by SME and LCE and good commercial momentum. Net Promoter Score rose to plus 5 in the third quarter, reflecting customer appreciation for stability, reliability and the quality of our networks and services. SME service revenues increased by 3.3% year-on-year, driven by growth in Cloud and Workspace, broadband and mobile. LCE service revenues increased by 1% year-on-year, supported by growth in mainly IoT, Unified Communications and CPaaS. Mobile service revenues were impacted by ongoing price pressure, though this was partly offset by a growing customer base. And finally, and as expected, I must say, Tailored Solutions service revenues decreased by 2.5%, reflecting a further focus on value steering. And then wholesale -- our wholesale service revenues continue to grow, mainly due to a strong performance in mobile, driven by the continued growth in international sponsored roaming. Broadband service revenues increased despite a decline in copper base driven by fiber and other service revenues increased mainly due to an update in visitor roaming. Now let me hand over to Chris to give you more details on financials. Hans Figee: Thank you, Joost. Let me now take you through our financial performance. First, let me summarize some key figures for the third quarter. First, adjusted revenues increased 2.4% year-on-year in the third quarter, driven by service revenue growth across all segments and higher non-service revenues. Second, our adjusted EBITDA after leases grew by 4.4% compared to last year, supported by higher service revenues, the IPR benefit and contribution from tower company, Althio. This was partly offset by the holiday provision effect. As a reminder, starting this year, most employees no longer register holiday leave, resulting in a lower provision release in Q3 compared to last year, impacting therefore, the distribution of EBITDA growth over the year with a specific negative accounting impact in the third quarter. Finally, as anticipated, our free cash flow rebounded in Q3 and is now up 12% year-to-date. I'll share more details on the underlying cash developments later in this presentation. Group service revenues grew by 1.7% year-on-year, supported by all segments. And within this mix, consumer revenues increased by 1.1%, driven by, as Joost said, continued solid momentum in both fixed and mobile. Business service revenue growth tapered off somewhat in the third quarter compared to previous quarters, mainly due to developments in Tailored Solutions and timing effects. And finally, wholesale service revenues increased by 5.2% year-on-year, driven by ongoing growth in our international sponsored roaming business. Our adjusted EBITDA grew 4.4% year-on-year in Q3 or 2.3% on a comparable basis if we adjust for the IPR benefits, the Althio contribution and the holiday provisioning effects. Direct costs remained broadly in line with last year, reflecting shifts in the revenue mix, particularly within Tailored Solutions, where our continued focus on value and margin steering is shaping direct cost dynamics. On a comparable basis, our indirect cost base decreased by EUR 5 million, driven by lower energy and billing costs. We further scaled down our workforce, resulting in a reduction of over 300 FTEs compared to previous year. Our year-to-date operational free cash flow increased by 12% compared to last year or 8.6% excluding the IPR benefit and Althio, driven therefore by EBITDA growth. As expected and communicated to you, free cash flow generation rebounded in the third quarter, mainly due to improved working capital and lower interest payments. Year-to-date, our free cash flow is up 12% compared to the first 9 months of last year, again, supported by EBITDA growth and partly offset by higher interest payments and cash taxes paid this year. Finally, we ended the quarter with a cash position of EUR 373 million, absorbing the impact of the interim dividend over '25 and share buyback payments. We continue to run with a strong balance sheet. At the end of Q3, we had a leverage ratio of 2.5x, in line with our self-imposed ceiling and remained stable compared to the previous quarter. We expect our leverage ratio to return to 2.4x by the end of the year, supported by increased free cash flow generation. Our interest coverage ratio was sequentially a bit lower at 9.5x, and our cost of senior debt decreased slightly, mainly driven by lower floating interest rates. Our exposure to floating rates, by the way, remains limited at only 16%. Our liquidity position of around EUR 1.4 billion remains strong covering debt maturities until the end of '28. We are on track to deliver the 2025 outlook we shared with you in July. And on 25th of July, we completed our EUR 250 million share buyback program for the year. The cancellation of about 60 million treasury shares will be finalized in Q4. And August 1, we paid out an interim dividend of EUR 0.073 per share in respect of 2025. And finally, we reiterate our midterm, also known as our 337 targets as presented at our previous Capital Markets Day. As outlined back then, both service revenues and EBITDA are expected to grow 3% per year on average over the plan period and our free cash flow by 7% per annum on average with growth in cash back-end loaded due to our CapEx plans. Until 2026, our free cash flow growth is expected to grow at a low single-digit rate per year since we face increasing cash taxes year-on-year. Now let me briefly wrap up with the key takeaways. We continue to see service revenue growth across all segments. While revenue growth moderated somewhat in Q3, we anticipate a recovery in the fourth quarter. Our commercial momentum remains solid, and we continue to lead the Dutch fiber market. Our net add developments in both fixed and mobile and both in consumer and business was quite satisfactory in Q3. As expected and planned for, EBITDA growth was relatively soft in Q3, but is set to recover in Q4. Cash flow generation was strong, up more than 10% year-to-date. Overall, we're on track this year and continue to make good progress towards our annual and midterm targets, and we reiterate our guidance for the year. Finally, as we approach the halfway point of our strategy, we can't wait and look forward to providing you with an update of our strategy next week, on November 5. Thanks for listening and turn to your questions. Matthijs van Leijenhorst: Yes. Thanks, Chris. Operator, please open the line for the Q&A. Please limit your questions to 2 please. Operator: [Operator Instructions] Our first question is from Polo Tang of UBS. Polo Tang: I have 2. The first one is, is there any update in terms of the Glaspoort acquisition of part of the DELTA Fiber footprint? And my second question is, we have a general election in the Netherlands this week, but is this having any impact on public sector spending in terms of your B2B segment? Joost Farwerck: Yes, Polo, thanks for the questions. The Glaspoort acquisition, it takes our regulator a very long time to come to a final opinion. So as you know, Glaspoort intends to acquire a rural fiber footprint of approximately 200,000 house passed from DELTA Fiber, and it's still under ACM review. We expect, well, something within 1, 2 months because it takes really too long. We think it's still no reason to refuse it. This could reduce overbuild risks for both parties and supports healthy market development. Then elections coming up in the Netherlands, that's tomorrow, by the way. We -- on the midterm, we see limited impact on KPN. Major topics in the elections are immigration, health care, housing markets. Well, the government wants to build more houses, and we think that's a good one because then we can take them into the house pass footprint. Topics that could affect KPN on the longer term are about investments in defense, and we're in good position on that. We are selected as the main digital provider for the Ministry of Defense and discussions around fiscal affairs, for instance, the innovation box facility and the share buyback taxation, but that's a vacant faraway remark somewhere from one of the left wing parties. So all in all, I don't expect that much impact for KPN. Polo Tang: Just on public sector, can I just clarify if there's any freezing of public sector spend into an election or out of an election because we see that sometimes in other markets? Joost Farwerck: No, not really. We have some kind of a framework. So when elections are coming up and when a Cabinet falls in the Netherlands, then they select a couple of topics that they have to continue to run. And we are all convinced in the Netherlands that we should keep on investing in the themes I just mentioned. And also when it comes to cybersecurity and digital, there's no slowing down there from the government, and we are heavily involved in there. Operator: And our next question comes from Mollie Witcombe of Goldman Sachs. Mollie Witcombe: My first question is on B2B. You have said that you've seen some price pressure in mobile and B2B. Could you give us a little bit more color on this? Are you seeing this dynamic both in LCE and in SMEs? And to what extent should we consider this when we're looking at longer-term trends going into 2026? And my second question is just on the B2C competitive environment. What are you seeing in terms of competition? And have there been any incremental differences versus last quarter? Hans Figee: On your question on mobile price pressure, mostly in LCE and larger corporate tickets, there is some price pressure going on. I think that I would say from our point of view, there's still some of the decline, but the decline is declining. So you can say the second derivative is positive, but that's a bit of a nerdy view. But I would say expected LCE, some repricing of our base into next year, but then probably we have good hope it's going to be bottoming out, at least. So there is some price decline, but it's getting a bit better. We saw something similar in SME, but SME, we especially be able to counter that with value-added services by selling more security solutions to customers. So keeping our ARPU up. So there is some price pressure, most notable in LCE, but gradually abating. So we'll go into next year, but I think somewhere during the course of this year, that effect we hopefully [ achieve that ]. And SME, it's much less prevalent. And there, we see and have experienced good opportunities to counter that with additional value-added services like additional bundlings, but mostly security services around SME to keep your ARPU stable there. Joost Farwerck: Yes. And on the competitive environment, well, like in Q2, the market remains competitive in consumer markets, so Odido and VodafoneZiggo, especially. VodafoneZiggo launched a new proposition, broadband fixed on their cable network, a 2-gig proposition recently announced. So interesting to see how they will do there. But impact on KPN expected to be limited because our first proposition is 1 gig, and we also offer 4 gig. So most of the new customers land in 1 or 4 gig via our fiber network. And for us, it's very important to play our own game. So we focus on base management, for instance, on convergence households via CombiVoordeel, resulting in lower copper and fiber churn and 11,000 net adds. We also are very happy with the acquisition of Youfone because on the lower end of the market, you call it that way, there's true competition going on. So Youfone covers that. And currently, more than already 2/3 of our broadband base is on fiber, and that's leading to lower churn and higher NPS. So that's how we position ourselves in this competitive environment. Operator: And our next question comes from Paul Sidney of Berenberg. Paul Sidney: [Technical Difficulty] revenue growth, it did slow into Q3 at the group level. There's obviously lots of moving parts... Matthijs van Leijenhorst: Paul, paul. Paul Sidney: Can you hear me? Matthijs van Leijenhorst: We couldn't hear the first part. Could you start over again? Thanks. Paul Sidney: Sure. Can you hear me now okay? Matthijs van Leijenhorst: Perfect, perfect. Paul Sidney: Okay. Great. Yes, just a first question on service revenue growth. We did see it slow into the quarter at the group level. There's lots of moving parts, and you've given some great granularity in terms of the drivers of that. But as we head into Q4, how confident are you that we can see an acceleration in that service revenue growth trend? And then secondly, just looking a bit bigger picture, you report very comprehensive KPIs, very detailed guidance, net add, service revenue growth, NPS scores, free cash flow and returns guidance. I was just wondering, if we take a step back, which of those is most important to KPN as a business in terms of what really is sort of driving the business? And maybe we get more detail on next week, but just really interested to hear your views on that. Hans Figee: Yes. Paul, let me give you some more granularity on how we see service revenue growth developing. I'm going to just walk you through the business. I think the second question is a typical CEO question. Joost Farwerck: Yes, for sure. Hans Figee: I'll leave that to you. Look, on consumer, fixed is showing 1% service revenue growth. We've had tailwinds from a price increase, some headwinds from migration from front to back book discounts, et cetera. I think overall, the good news is that churn is actually reducing. The churn is doing better than ever. It's one of the best churn quarters in fixed in some time to come. Also please note, we have a CombiVoordeel product, which we give customers with multiple products, additional discounts leading to lower churn. That additional discount feeds through the top line. So that affects top line and fixed service revenue growth by almost 0.5% this quarter and even more in next quarter. So for Q4, we expect fixed service revenues to come in at a 0.4%, 0.5%, but that's really the accounting and the upfront payment on these additional discounts that lead to churn. So the discount, especially to multi-converged customers, and we're seeing benefits of churn on that. We'll give you more intel next week because that feeds into [ '26 ]. In mobile, you see a price increase coming in has already come in, has landed pretty well. So I would expect mobile consumer to be around 1.5% in the fourth quarter, fixed below 1% and mobile well above 1% then go to B2B. I see SME recover. I mean there was some technicality in the SME numbers, but it's also, I think, good base and ARPU development, especially in the third quarter. And a little bit easier comps, I would say SME should be 4% to 5% again in the fourth quarter and also in that into the next year. LCE hovering around 0. And on the Tailored Solutions business, there's always some volatility in this business that has to do with the timing of projects. For example, if you go back to last year, we saw growth -- service revenue growth in Q3, from 5% to 2% back to 5%. There's always a bit of volatility in this business due to the nature of these activities. In the third quarter, we saw the effects of KPN condition more steering on margins. So we lost some business. Some of it we didn't actually mind because there was actually 0 margin revenues and underlying this growth in defense spending. So I'd expect the Tailored Solutions business to be back around 2% to 3% in the fourth quarter, which should bring B2B to around 3%. Wholesale, I would say, probably around 4% to 5-ish in the fourth quarter. So that means overall service revenues in Q4, I would say, around 2%, probably 2% or a bit up. But that's the moving parts. Some of it has to do with technicalities. For example, as I said, in fixed service revenues, the accounting for the [indiscernible] cost shows up to revenues. It is showing up to churn, so it leads to real value, but short-term service revenues are a bit affected. Mobile should recover, SME should recover and the rest, I think I explained to you for probably around 2%-ish service revenue growth in Q4. Joost Farwerck: Yes, Paul. And then your question on all the KPIs and the main target. I mean, yes, we try to keep things simple in our strategy. We're a single country operator. We're healthy, and we build a plan for all stakeholders. So we invest in the Netherlands, we invest in customers, we invest in our own people, and we want to reward our shareholders in a decent way. And for that reason, you're right, we give a lot of KPIs, which is about broadband base growth or base growth in broadband, mobile, SME, CAGRs on revenue, net Promoter Score, you name it all. At the end, we simplified everything by saying it's a 337 CAGR. So that's a top line EBITDA and cash. And if I have to make a choice, I say the 7, the cash is the most important one of those 3. And the rest is all leading. So sometimes you're a bit behind on the subsegment. Sometimes you're a bit speeding up somewhere, sometimes NPS is lower or higher. But at the end, it's very important that we get to that financial promise, and we're on track. So -- but it depends a bit on the stakeholder, I -- when it comes to the KPIs we focus on. Operator: And the next question comes from David Wright of Bank of America. David Wright: Just on VodafoneZiggo, they obviously announced their strategic shift earlier this year, pushing a little more into Q2. I'm sure we'll get a similar message on Q3. Are you observing -- how are you observing the sort of retail pushback now? They've obviously branded the 2 gigabit product. We've got a slightly keener pricing. Do you observe anything else? Is there a lot more marketing spend? Is the marketing different than it was before? Just any casual observations you might have on how they've changed [ TAC ]. Joost Farwerck: Well, the change we saw was the announcement on Superfast Internet. I think for the market, that's not that bad. I mean, on mobile, we all 3 move to unlimited, which is a good development for the total market. And if the total market moves to higher speed broadband, wouldn't be that bad, I guess. But we play our own game. So like I mentioned, customers come in on 1 or 4 gig, and that's difficult to copy. So, so far, it's more an announcement then I see real movements in the market. Chris, anything to add on? Hans Figee: Yes. I mean when I look at, for example, our broadband net adds and fiber net adds, fiber net adds have been steady, net adds. But if you exclude all the copper migrations, fiber real new clients come in around 60,000 to 70,000 for quite some time now. So it's pretty steady. We've seen churn coming down. So we've seen churn coming down in both fiber and copper. That churn reduction started in Q2 and continued in Q3. So that's actually positive. And we don't want to steer just by the month, but when I look at just the simple October numbers, the order balances and the early indication of the month of October are fine. So at this point, it feels that we are obviously cognizant that it's a serious competitor out there. But in terms of underlying performance, no change in recent trends from where we are right now. In fact, churn has come down and things have not fallen off a cliff in the month of October. Operator: And our next question comes from Joshua Mills of BNP Paribas. Joshua Mills: A couple of questions from my side. Firstly, it's been about a year since Odido launched FWA services across the Netherlands. I wondered if you could give an update on how you think that's impacted the competitive landscape and whether it is impacting on your wholesale line losses as well or whether that's due to other factors? And then secondly, if I just build on that wholesale line loss question, trends look to be similar to the last couple of quarters. How would you expect that to develop over the next couple of years? And do some of the more aggressive promotions we're seeing from your ISP partners go anyway to help with that trend going forward, even if it's painful on the retail side? Joost Farwerck: Yes, fixed wireless access from Odido, we see activations on fixed wireless access, but it's also a different market than the broadband market in general in the Netherlands. So it's also a bit of a niche market for people camping, people on holiday, people in boats. So therefore, it's useful. It's also used as another option than whole buy on our network or on DELTA's network. So for Odido, they are asset-light on fixed and they are asset-heavy on mobile. So they try to clearly sell more customers, fixed wireless access to leverage the asset and to avoid the wholesale payments. But it's not really impactful when it comes to total broadband market share. So we use it as well, by the way, in super rural areas, but we always use it in combination with the fixed line. So for us, convergence is, as you know, the strategy. So in copper areas, the speed of the Internet connection can be supported by bonding via fixed wireless access. And probably, we're going to use that more frequently in the rural areas. Hans Figee: Yes. And Joost, on the wholesale side, if you look at the line losses in wholesale, that's really only copper. So wholesale fiber is growing from our main customer and wholesale copper is declining. As we understand, that decline is mostly related to the switching of the Tele2 brand, so the switching of a brand and the switching of the brand leads to customer migration. That's the main driver for losses in copper and wholesale. I expect that to continue in Q4 and possibly in Q1, but that's probably -- then the light at the end of the tunnel. I think that's the end in sight on that development. And then, for example, broadband service revenues, I think we're up about 2% this year. I think broadband service revenues in mobile will be plus 2% this year. Next year, around flattish is a combination of fiber growth indexation and the decline in that copper part. So I think when I look at it, it's mostly the line loss in copper related to the switching off of a brand, and that is a project that will come to an end, I would say, next -- somewhere mid- to early Q1, I would expect that impact to really to fade away. Operator: And our next question comes from Keval Khiroya of Deutsche Bank. Keval Khiroya: I've got 2 questions, please. So you've done quite well on consumer broadband despite the competitive backdrop. But how do you think about the gap between front and back book pricing in broadband? Do you get many requests from customers to move to the current cheaper promos in the market? And secondly, helpfully, you commented on wholesale broadband. But how do we think about the level of mobile wholesale growth next year? Obviously, sponsored roaming has been quite helpful. And does that continue? Any insights on the level of growth next year would be helpful. Joost Farwerck: Yes. So we shifted a bit on strategy as we announced last year, and that is invest more in existing customers instead of playing the acquisition game. We think it's very important to make a difference against the more challengers in the market. And investing in the customer base also leads to back book front book migrations. So that's how revenues in broadband are impacted, and that's why you only see 1 point something on service revenue growth while we do a price increase of 3. Having said that, that's part of our plan. And so when we move customers into what we call combination -- CombiVoordeel, then they have to sign up for 2 years, and that's leading to a back book front book migration. But -- so we made it part of our strategy. Hans Figee: Yes. And Keval, on the wholesale side, yes, indeed, we've been quite successful in mobile service revenue growth in wholesale. I expect that to continue. I don't plan on this level of growth going forward. But we have a decent funnel of potential new counterparties signing up in these type of businesses. And then we have a number of these clients that we help to win new business. So we work them for them to win new businesses. So I expect continued growth in this business going forward, perhaps not at the same pace. I think wholesale should be able to grow around 4% or so top line growth next year, all in with flattish broadband service revenue growth and the remainder is mobile. So continued growth, but let me be a bit conservative and not project the same level of growth, but wholesale around 4% service revenue growth next year is definitely feasible with all of this. Operator: And our next question comes from Ajay Soni of JPMorgan. Ajay Soni: Mine is just around the FTE reduction. So I think you're 300 lower year-over-year, which seems to be around 3% of your employee base. So my first question is just around why is this not being reflected maybe more obviously within your EBITDA bridge? Are there any other headwinds which are -- which means it isn't reflected? And I think looking further ahead, can you accelerate this FTE reductions over the next year, so they are more meaningful in 2026? Joost Farwerck: Yes. Thanks for the question. And next week, we will update you on what we are doing on transformation programs and how we look at the company in a couple of years from now and what kind of operating model we're building. And as a result of that, yes, we expect more FTE reduction. So why don't you see the minus 300 already impacting our EBITDA. First of all, we have a CLA increase. We -- other increased pension costs. So we have to cover up for, I don't know, 6% something of increasing wage costs. And secondly, it's also about the timing in the year. So the 300 will kick in on a higher scale next year than this quarter. But moving the company to a lower FTE base as a result of quality improvements and digitalization is very important also to cover costs and to make a step down. Operator: And our next question comes from Siyi He of Citi. Siyi He: I have 2, please. The first one is really on the comments of the Q4 service revenue growth of 2%. Just trying to think about the trend for next year. I think you mentioned that the B2B and wholesale trend probably is going to be similar level to Q4. And I'm just wondering if you can comment what kind of tailwinds that you would expect to basically help the service revenue growth to accelerate from the 2% to the midterm guidance of 3% and my second question is basically on fiber rollout. I'm sure that you will cover it next week. But just wondering if you can give us some color of how should we think about the fiber CapEx considering that there seems going to be a decent acceleration needs to be done to meet the above 80% coverage target. Joost Farwerck: Well, on the fiber CapEx, we clearly guided to the market that we will make a step down in 2027, and we still plan for that. So we expect a step down of at least EUR 250 million. That's in our guidance, and we stick to the guidance. Chris? Hans Figee: Yes. I mean on the service revenue growth, we'll give you a lot more details -- next week on our capital strategy update -- on the full capital market strategy update, we'll give you more details. But think of consumer to be growing around 1.5%, I think B2B north of 3%, B2B around 4%, and that should make for top line growth, but more in details next week. B2B 3, wholesale 4, yes. Operator: And the next question comes from David Vagman of ING. David Vagman: The first one, coming back on the competitive environment in broadband. If you can comment on your view on your expectation rather on the potential ARPU evolution, in mind speed tiering, but also competition, the announcement of VodafoneZiggo and the tweaking of offers by Odido yesterday. And then second question on the broadband wholesale market in the Netherlands, also your expectation on the ARPU side for KPN? Joost Farwerck: Yes. So on the -- I mean, the market is competitive. It will stay competitive, and I don't expect that to change. The difference between the Netherlands and most other markets is that we have a fully fiberized country already almost. So we're -- 90% of the households already are covered by fiber networks. All households are connected to at least 2 networks fixed. So what I want to say, our digital infrastructure fixed is of a super high level compared to other countries. So there is a competition between the fixed players, but I don't expect much competition coming in from fixed wireless access or satellite or other things you see in countries covering more rural areas as well, like -- and then -- so the competition will be firm, but we positioned ourselves, and I'm glad we did, by the way, we built a fiber footprint of almost 70%, more or less clean. And there's not that much appetite to overbuild us there. It will be more competitive in the new areas for us. So there, we can say to overbuild. We're waiting for our regulator to see what they do with that Glaspoort deal. But compared to other countries, I would say, yes, it is competitive. It is challenging, but we build a strong fiber footprint in the core of our strategy. Hans Figee: Yes. And to your point on wholesale ARPUs in broadband, a couple of things at play. Of course, every year, we have indexation. There's a schedule approved and agreed with the regulator, effectively around 2% indexation every year. Our ARPU is supported by the mix shift from copper to fiber. So we see a decline in copper and increase in fiber, that is supportive. And then any ARPU actions that we do to support our broadband -- for broadband partners tend to be linked to retention, tend to be for specific higher speeds or tend to be around linked to volume commitments. So basically, I would say ARPUs in wholesale broadband are pretty much the same and often linked to a combination of mix, price increases and/or specific agreements on retention and volume. Operator: And the final question is from Ottavio Adorisio of Bernstein. Ottavio Adorisio: A couple of follow-up questions. On Slide 8, you effectively stated that you expect bottoming up on the mobile. And during the call, effectively, you highlighted the price increases. But when someone look at the chart, you can see that, that revenue trends bottom up already in Q4 and deteriorated afterwards. So my question is that what makes you confident that the price increase will stick this time around, we don't go to promotion later on and the revenue trends deteriorate again? The second one is on the broadband. The churn for copper for your copper customers is stable, you stated that one. But looking at the numbers, you look at the migration from copper to fiber to be the lowest this quarter over the past 2 years. So my question is that there is any plan to encourage migration by reducing the price gap between copper and fiber? Hans Figee: Yes. On the first question, what happened -- what will happen from Q3 to Q4, what happened last year? Well, Q4 last year was a very particular quarter where a few things happened. We saw a temporary drop, actually, an accounting drop with roaming that actually reversed in the first quarter. You can see in the first quarter, sales revenue growth in mobile going up had to do with the accounting and booking of some roaming revenues. Second, we had an iPhone credit. If you recall well last year, we had some iPhone disturbances for which we gave some of our customer specific credits to compensate for that. I mean the iPhone disturbances are on hold for the end customers. And thirdly, we had a special offer in the market in that very fourth quarter. So a couple of particular trends that took down growth in the fourth quarter to a low level after which it rebounded in Q1 last year. So those were particular impacts on that third quarter, fourth quarter, and I don't expect them to repeat. So that gives me some comfort that, that blip that you saw last year will not come again this year. And the second question on copper upgrades to fiber. We really try to upgrade customers to fiber. It's a function of network rollout. It's a function of planning. It's a function of access to customers that fluctuates a bit over time. There's no strategic or technical retweet in this part, if you see what I mean. It has to do with timely and operational execution. We will continue to migrate customers from copper to fiber. We might actually, at the point in the midterm, try to accelerate that to enable the switch off of our copper network to accelerate. Joost, do you want to add? Joost Farwerck: Well, the unique thing of our fiber footprint is that we're building a fiber footprint with 80% of the households homes connected. And that's first of all to migrate all existing customers of KPN to the fiber network. That's the copper churn or the urban copper migration. Then we want to connect a lot of new customers, and then we want to connect as well a lot of wholesale connections. So there's more room on the network of households already prepared for an activation from a distance. So the copper migration is something that's really in our system to finalize to switch off the copper network as well. Matthijs van Leijenhorst: Okay. One final question. Operator: And our final question comes from Joshua Mills from BNP Paribas. Joshua Mills: Possibly a pedantic one here. But if I look at Slide #6 in the presentation where you have homes passed as a percentage of Dutch households, you have the target of 80%. And I don't see a year associated with that. I think in previous presentations, you were highlighting that you'd reach 80% homes passed coverage by the end of 2026. Can you just confirm that that's still the guidance and there's no change there, just so I'm clear. Joost Farwerck: Well, so yes, we are expanding our fiber footprint this year, next year and the years after, 74,000 homes passed, 82,000 homes connected this quarter. We stick to 66,000 because if you read it as well as you did. And last quarter, we also reported 66,000, but that's because of annual addition of households by CBS, the Central Bureau of Statistics in the Netherlands. And we stick to our ambition of 80% of Dutch households on fiber. But next week, during our strategy update, we'll share how we will get there within our financial framework. So we aim for 80%, and we confirm our midterm ambition of 3 targets, including the CapEx step down of to EUR 1 billion in 2027. Joshua Mills: Okay. And just -- so to be clear, the explicit target previously of reaching 80% by the end of 2026 is... Joost Farwerck: I've said earlier in previous calls as well that there's a lot of KPIs like we just discussed out there. And sometimes we meet -- we're getting faster, sometimes we're slowing down. The 80% is also a target, which is a very important one for us, and we will meet it for sure. But on the timing part, we will get back to you next week. And at the end, it's for us very important that the overall total strategy works, and that's working. Matthijs van Leijenhorst: Okay. That concludes today's session. Obviously, we will see -- we'll meet online next week during our strategy -- next Wednesday on the 5th of November. See you then. Cheers. Operator: Thank you. Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect your line. Have a nice day.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Labcorp Holdings Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christin O'Donnell, Vice President of Investor Relations. Please go ahead. Christin O'Donnell: Thank you, operator. Good morning, and welcome to Labcorp's Third Quarter 2025 Conference Call. As detailed in today's press release, there will be a replay of this conference call available. With me today are Adam Schechter, Chairman and Chief Executive Officer; and Julia Wang, Executive Vice President and Chief Financial Officer. This morning, in the Investor Relations section of our website at www.labcorp.com, we posted both our press release and an Investor Relations presentation with additional information on our business operations, which include a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures. Please see the use of adjusted measures section in our press release and Investor Relations presentation for more information regarding our use of non-GAAP financial measures. Additionally, we are making forward-looking statements. These forward-looking statements include, but are not limited to, statements with respect to the estimated 2025 guidance and the related assumptions, the projected impact of various factors on the company's businesses, operating and financial results, cash flows and/or financial condition, including global economic and market conditions, future business strategies, expected savings, benefits and synergies from the LaunchPad initiative and from acquisitions and other strategic transactions and partnerships, the completed holding company reorganization and opportunities for future growth. Each of the forward-looking statements is subject to change based upon various factors, many of which are beyond our control. More information is included in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and in the company's other filings with the SEC. We have no obligation to provide any updates to these forward-looking statements even if our expectations change. Now I'll turn the call over to Adam Schechter. Adam Schechter: Thank you, Christin, and good morning, everyone. Thank you for joining us today to discuss our third quarter 2025 financial results and progress on our strategy. During the quarter, we delivered strong revenue growth and margin improvement, leading to double-digit EPS growth. Our financial results reflect continued momentum in our Diagnostic Laboratories and Central Laboratory businesses. At an enterprise level, revenue increased to $3.6 billion, representing 9% growth compared to last year. Margin for the quarter improved 100 basis points, driven by Diagnostics. Adjusted EPS grew 19%, and we generated strong free cash flow of $281 million. Moving to our business segments. Diagnostics revenue increased 8.5%, primarily due to strong organic growth of 6%. Margin improved 110 basis points, driven by strong organic demand in Invitae. Invitae was accretive in the quarter and will be slightly accretive for the full year. BLS revenue increased 8% or 5% constant currency. Central Laboratories growth was strong at 10% or 7% constant currency, more than offsetting softness in early development. BLS margin improved 20 basis points and the quarterly book-to-bill was 0.9 with the trailing 12 months remaining strong at 1.09. In response to the lower-than-anticipated revenue in early development, we are beginning to divest or restructure through site consolidation, approximately $50 million of annual revenue. We will focus these actions on noncore areas, which will result in a more streamlined business and slight improvement to operating income. Julia will provide more details on our results and full year 2025 outlook in just a moment. We continue to make progress on our strategy to be the partner of choice for health systems and regional/local laboratories to lead in high-growth therapeutic areas and to use science and technology to accelerate growth, to enhance the customer experience and to improve operational efficiency across our business. Starting with health systems and regional/local laboratories, we've added a significant number of strong strategic relationships over the past several years. Through these partnerships and acquisitions, we've expanded our patient and provider network, and we've strengthened our presence in key markets. These partnerships have increased access to our broad test menu. They've improved patient care and have driven efficiencies for our customers. This quarter, we signed an agreement to acquire select clinical laboratory assets of Empire City Laboratories, which serves the New York Tri-State area. We signed an agreement to acquire select assets of Laboratory Alliance of Central New York, a pathology reference laboratory. In parallel, we signed an agreement with Crouse Health to manage their inpatient labs. We expect these transactions to close in the first quarter of 2026. We continue to make progress on the acquisition of select assets of the outreach business from Community Health Systems across 13 states, which we expect to close by year-end. We completed our acquisition of select oncology and clinical testing assets from BioReference Health. This acquisition further solidifies Labcorp's position as an industry leader in oncology. We continue to have a very robust pipeline of opportunities, and we look forward to updating you on our progress. Additionally, we are expanding our business in high-growth specialty areas, including oncology, women's health, neurology and autoimmune diseases. These are areas where science, clinical need, the use of genetic testing and innovation are accelerating. We are experiencing strong growth across these segments, which also increases demand in our core test menu as physicians rely on Labcorp for comprehensive diagnostic solutions. In the quarter, we introduced several innovative testing capabilities. We expanded our leading oncology and genetic testing portfolio. OmniSeq INSIGHT, our comprehensive genomic profiling test for solid tumors in support of therapy selection now evaluates ovarian tumors for HRD. PGDx elio tissue complete used for therapy selection for pan solid tumors became the first and remains the only tissue-based tumor profiling test with CE marking under the European Union's In Vitro Diagnostic Regulation. This enhances our global tissue profiling capabilities in support of clinical trials. Geneoscopy received FDA approval for a simplified at-home collection method for ColoSense for colorectal cancer screening. As a commercial partner, we will be expanding access to this test to patients and providers. We also expanded access to our Invitae genetic tests through Epic Aura, enabling streamlined ordering and results delivery for Epic customers. In neurology, where we have one of the most comprehensive test menus in the industry, we expanded our leadership position. We introduced the first blood-based test cleared by the FDA to aid in the diagnosis of Alzheimer's disease in specialty care settings. In early 2026, we're planning to offer the only FDA-cleared blood test to rule out Alzheimer's related amyloid pathology in the primary care setting. Separately, we continue to experience strong momentum in our consumer business. In the quarter, we launched several consumer-initiated tests through Labcorp OnDemand, including tests for lead exposure, ApoB for heart health and a panel for healthy aging. Labcorp partnered with Praia Health, a consumer experience platform for health systems to help close care gaps and to deliver better experiences for patients. Moving now to review our use of science and technology to accelerate growth, to enhance the customer experience and to improve operational efficiency. This quarter, we launched Labcorp Test Finder, a generative AI tool developed with Amazon Web Services to improve test selection for providers and health systems. It allows clinicians to easily search for lab tests using plain language, streamlining decision-making and improving care. In our core laboratory operations, we're investing in digital and AI capabilities to improve in areas such as pathology, cytology and microbiology. Through a collaboration with Roche, we are digitalizing pathology workflows using slide scanners to enhance diagnostic speed and scalability. We've also deployed a new FDA-cleared AI platform for digital cytology that enables remote viewing and rapid analysis of cell-based samples, improving turnaround times. Finally, we're using AI and automation to accelerate microbiology workflows to reduce turnaround times. These are just a few examples where we are using technology, robotics and AI. We look forward to discussing others in the future. In summary, we delivered a strong quarter and made meaningful progress on our strategy. We have momentum as we finish 2025 and move into 2026. Our focus remains on driving value for both our customers and shareholders. With that, I'll turn the call over to Julia to discuss our financial results and 2025 outlook in greater detail. Julia Wang: Thank you, Adam. Now let me start with a review of our Q3 financials, and my remarks today will focus on our adjusted financial results. Please see our earnings press release and supplemental financial presentation for detail on our GAAP results. Revenue for the quarter was $3.6 billion, an increase of 8.6% compared to last year, driven by organic growth of 6.2%, the impact from acquisitions of 1.7% and the foreign currency translation of 0.7%. Adjusted operating income in the quarter was $513 million or 14.4% of revenue compared to $441 million or 13.4% of revenue last year. The increase in adjusted operating income and operating margin was primarily driven by organic demand, including the strong performance of Invitae. Our LaunchPad initiative continued to be on track in the quarter, which offset typical increases in personnel costs. The adjusted tax rate for the quarter was 23.3% compared to 22.8% last year. We continue to expect our adjusted tax rate for full year 2025 to be approximately 23%. Adjusted EPS was $4.18 in the quarter, up 19% from last year. Free cash flow for the quarter was $281 million compared to $162 million last year. The $119 million increase in free cash flow was primarily driven by higher cash earnings. For the full year, we expect capital expenditures to be approximately 3.5% of revenue. During the quarter, the company invested $268 million in acquisitions and partnerships, paid out $60 million in dividends and repurchased $25 million of stock. At quarter end, we had $598 million in cash, while total debt was $5.6 billion. Our debt leverage as of quarter end was 2.4x gross debt to trailing 12-month adjusted EBITDA and slightly under the low end of our targeted leverage range of 2.5x to 3x. Now I will review our segment performance, beginning with Diagnostics Laboratories. Revenue for the quarter was $2.8 billion, an increase of 8.5% compared to last year, with organic growth of 6.3% and acquisitions of 2.2%. Total volume increased 4.7% compared to last year, with organic volume contributing 3.5% as we continued to execute our strategy and drive strong demand. Acquisitions contributed 1.2%. Price/mix increased 3.7% versus last year. Organic price/mix was 2.8% as we benefited from mix, primarily due to the annualization of Invitae as well as an increase in test per accession. Acquisitions contributed 1%. Diagnostics adjusted operating income for the quarter was $450 million or 16.3% of revenue compared to $387 million or 15.2% of revenue last year. Adjusted operating margin was up 110 basis points. Adjusted operating income and operating margin increased, primarily driven by organic demand, including the strong performance of Invitae, coupled with slight favorability from weather year-over-year. Now I will review the segment performance of Biopharma Laboratory Services or BLS. Revenue for the quarter was $799 million, an increase of 8.3% compared to last year due to an increase in organic revenue of 5.3% and foreign currency translation of 3%. We continue to perform well in Central Labs. In constant currency, Central Labs revenue was up 7% in the quarter. Early Development revenue was up 1.1%, lower-than-expected due to delayed study starts. In response to the lower-than-anticipated revenue in Early Development, we are beginning to divest or restructure through site consolidation, impacting approximately $50 million in annual revenue in noncore areas. We expect these actions to result in a more streamlined business with a slight improvement in operating income. BLS adjusted operating income for the quarter was $132 million or 16.5% of revenue compared to $121 million or 16.4% of revenue last year. Adjusted operating income grew 9% year-over-year, driven by organic demand. We ended the quarter with a backlog of $8.6 billion, and we expect approximately $2.7 billion of this backlog to convert into revenue over the next 12 months. Our segment quarterly book-to-bill was 0.89. Our trailing 12-month book-to-bill remains strong at 1.09. Now I will discuss our updated 2025 full year guidance, which assumes foreign exchange rates effective as of September 30, 2025, for the remainder of the year. The enterprise guidance also includes the impact from currently anticipated capital allocation, utilizing free cash flow for acquisitions, share repurchases and dividends. Beginning with the segments, Diagnostics continues to execute well in the marketplace. We have maintained the midpoint versus prior guidance and narrowed the growth range to 7.2% to 7.8%, which assumes approximately 4.5% organic revenue growth. In BLS, we expect to grow 5.7% to 7.1% versus prior year. We have lowered the midpoint by 40 basis points versus prior guidance due to the unfavorable impact of currency. In constant currency, we have maintained the midpoint versus prior guidance as strength in Central Labs is offsetting softness in Early Development. We continue to expect Central Labs to grow in the mid-single digits for the full year. We now expect Early Development to grow low single digits for the full year, with Q4 presenting the most challenging year-over-year comparison. We updated the 2025 enterprise revenue growth guidance range to 7.4% to 8%. We lowered the midpoint by 40 basis points due to timing of acquisition revenue, which are held at the enterprise and the unfavorable impact from currency. We continue to expect full year enterprise margins to increase with margins improving in both Diagnostics and BLS in 2025 versus 2024. Our guidance range for adjusted EPS is $16.15 to $16.50 with an implied growth rate at the midpoint of 12%. As compared to prior guidance, we have narrowed the range and raised the midpoint by approximately $0.05. Our free cash flow guidance range is $1.165 billion to $1.285 billion. We narrowed the range and raised the midpoint by $25 million versus prior guidance, given our strong cash flow generation year-to-date. In closing, our quarterly performance reflects the strong execution of our strategy and the continued efforts of our teams across the organization. As we look ahead, we are confident in our ability to deliver sustainable growth and long-term value for our shareholders. We look forward to updating you in the coming quarters. Operator, we will now take questions. Operator: [Operator Instructions] And our first question comes from Lisa Gill of JPMorgan. Lisa Gill: I just want to better understand when we think about the revenue and the updated guidance around revenue. So Julia, I heard you talk about currency and acquisitions. I'm curious, one, are you seeing an increase in utilization from, for example, the exchange population as people anticipate that they potentially could lose their benefit or it could cost more going into 2026? And then is there a way for you to break down that 40 basis point between currency and acquisitions? And again, is the acquisition just a timing aspect and so we'll see that come through in '26? Adam Schechter: Lisa, I'll start. First, I'd say that $13 million of it was from the foreign exchange, the rest was from the acquisitions, and it's fully timing related. Some of the acquisitions this year closed a little bit later than what we anticipated. So that impacted us just a little bit and then a few fell into next year. But overall, the pipeline remains strong. The acquisitions remain strong. So it's purely timing related. With regard to your question on utilization, I'll first start off by saying we had a very strong quarter when you look at the Diagnostic business. And when you look at the organic volume, it was up 3.5%. And when I think about the volume, we're certainly seeing some uptick, I think, from demographics in the marketplace, from market share that we're gaining. I don't necessarily believe it's due to people concerned about losing to ACA because doctors can only take so many appointments and I don't -- and they're usually very booked. So it would be hard to get a large number of people into those offices that quickly. So I think we're seeing it more from organic volume increases. Operator: And our next question comes from Michael Cherny of Leerink Partners. Michael Cherny: Congrats on a nice quarter. Maybe if I can dig in a little bit on organic price per mix in particular. It's been strong. You had a tough comp this quarter, and yet it still grew nicely. As you think about the behavioral changes that you're making as an organization, how much of it do you feel is proactive versus reactive in terms of what you can push versus what the market is bringing to you as we think about how that builds beyond this year? Adam Schechter: Yes. Sure, Michael. I'll give you some context, and I'll ask Julia to jump in and give you some specifics on the price/mix. So when I look at the Diagnostic revenue, it grew 8.5% versus last year. Organically, it was about 6%. When I look at the organic volume, that grew 3.5% and price/mix grew about 2.8%. Some of that was from mix, but also from Invitae. But I'll ask Julia to give you some more specifics about the price/mix. Julia Wang: Yes. Michael, if you were to break down the impact between unit price and mix, we continue to see unit price being relatively flat. Therefore, the price/mix impact has really been benefiting from mix. And as Adam just shared, in the third quarter, our organic price/mix was up 2.8%. That was driven primarily by increase in tests per session as well as Invitae. Now the impact in Invitae was more pronounced in Q3 due to the timing of the annualization being in the middle of Q3. And going into Q4, we expect Invitae to drive continued price/mix favorability and the impact will somewhat moderate when compared to Q3. And if we step back and look at price/mix in general, over time, we have seen a slight yet consistent growth in test per accession post-COVID era. Longer term, we continue to believe that the mix growth will be supported by the increase in our partnerships with the large hospitals and the health systems as well as the aging population, the health and wellness trend, the breadth of our test menu as well as our focus on specialty testing. And for the full year, you might have seen that in terms of our updated guidance, we maintained the midpoint of Diagnostic revenue guidance of 7.5% and updated the organic revenue growth expectation to 4.5%, whereby the price/mix is going to be a big contributor to that expectation. Operator: And our next question comes from Jack Meehan of Nephron Research. Jack Meehan: I was hoping to get a little bit more color on the announcement around the site consolidation in the Early Development business. Can you just talk about what the factors were you're seeing in the market that led you to make this decision? And it sounds like we got the revenue impact. Is it possible to think about -- it sounds like this might be a low margin, just what the earnings impact might be from the decision? Adam Schechter: Yes, absolutely. And Jack, I'll start off with giving some additional color, then I'll answer the question specifically. But if you look at the Biopharma Laboratory Services businesses, it performed well. And you saw an 8% increase in revenue or 5% in constant currency, but it was really driven by strength in Central Laboratories, it was up 10%, 7% if you look at constant currency, and it more than offset the weakness that we saw in Early Development. Based upon what we're seeing in Early Development, we've decided to look at some noncore areas. We're going to divest certain things there, but we're also going to have some site consolidation. And that will be leading to approximately $50 million of annualized revenue. But without that revenue, we expect to see a slight increase in operating income. So it actually was negatively impacting our accretion. So that will be a positive for us. What drove us that decision was we look at 3 things with the Early Development business. We look at RFPs coming into us, then we look at what's our win rate and then we look at do the trials start on time. If you look at the RFPs and numbers, we're getting about the same number of RFPs that we've gotten in the past. If you look at our win rate, it's about the same. Our market share is stable as it's been in the past. The issue that we're seeing is with timing of study starts. They're just not starting in a timely fashion that we would have expected based upon historical time lines. We expected that to start to come back to more normalcy. Unfortunately, it has not. Based upon that, we've decided to streamline the business and to take the actions we talked about today. Operator: And our next question comes from Patrick Donnelly of Citi. Patrick Donnelly: Maybe just given that PAMA is a little more topical here heading into year-end. Can you just talk about the expectations there? I know you've talked about the $100 million top line impact. I think during conference season, you were talking about some levels of mitigation efforts, maybe something like $25 million. Can you talk about, I guess, the probability, what you're hearing on PAMA, results, et cetera? And then again, what you're doing on the offset? Are you already kind of getting things in line? Would love just your thoughts on the expectations and then the potential mitigation efforts you guys could do into next year? Adam Schechter: Yes, absolutely, Patrick. So we've consistently said that we believe the CMS's execution of PAMA was not accurate, and it shouldn't be implemented in its current form. We've worked really closely with our trade organization, ACLA, to advocate for the RESULTS Act, which would put a freeze on the cuts for a period of time. When you look at that, it has strong bipartisan support. I mean, Democrats, Republicans sponsored the bill. We think that we have very strong support. The question is, with everything that's happening right now and the shutdown and everything else, will we see additional legislation approved by the end of this year. We're going to continue to advocate for it. We have strong support for it, but it's very hard to handicap whether or not that will happen by year-end. We also are continuing to work to see if it should be and can be delayed again as it has been for the last number of years. And that's really going to come down to, I believe, the [ OBO ] score, which we've not seen a final score. If the [ OBO ] score is positive or maybe kind of neutral to slightly negative, I think there's a good chance that it could be delayed again. If it's not, and it goes in a different direction, then I think it will be more difficult with everything else that's going to have to happen by the end of the year. So it's really difficult to predict whether we'll be able to get the results, legislation implemented and/or get another delay. So therefore, we think the prudent strategy is for us to plan that there will be a $100 million impact on both the top line and bottom line for full year 2026. And with that, we are already planning and we have work underway to offset, like you said, approximately $25 million of that impact. And that's in addition to the commitment that we have for LaunchPad, which roughly offsets the cost of inflation. So we're going to do that in addition to. And a lot of that's going to come from the things that we've started to discuss for AI implementation and things that we're doing to increase our efficiency and use AI more effectively. So those things are underway, and we'll provide guidance for 2026 in February, and we'll give you more specifics. Operator: And our next question comes from Erin Wright of Morgan Stanley. Erin Wilson Wright: Could you speak a little bit to your efforts around the consumer-driven testing, the contribution you're seeing now from that? I know one of your peers was talking about that, the margin profile growth rate of that business? And is it starting to what move the needle in terms of volume or overall revenue growth? Adam Schechter: Yes. So if you look at our consumer business, we continue to have a strong focus on consumerism. We're trying to meet the patients where they are through a whole bunch of different channels. And importantly, I mean, we interact or engage with over 75 million patients through all the different avenues that people come to get Labcorp results or information from Labcorp. So as the consumers are taking a much greater control of their health care, we want to be a resource for them and offer solutions that put them in the driver seat, frankly. Today, a lot of them engage with us through our on-demand e-commerce platform. We also have the Ovia app where many people interact with us as well. And what we're seeing is a very significant increase in terms of growth rate. There's no doubt about it. It hasn't reached critical mass at the moment for us to pull out the numbers and provide separate numbers, but we're continuing to add new tests. Just this quarter, we added tests for lead exposure, ApoB for heart health and even a panel for healthy aging. And we're going to continue to add new things there. In addition to that, if you look at Ovia Health, it's a leading app that supports women's health and it guides through all different stages, including pregnancy, postpartum, menopause and a lot more. So these are really important capture points for us. I do believe we're going to continue to see growth in these areas. And as it reaches critical mass, we'll figure out when to start to report it separately. Operator: And our next question comes from Andrew Brackmann of William Blair. Andrew Brackmann: Maybe I guess, on the Diagnostics segment margin expansion, I think it was 110 basis points in the quarter. Can you maybe pick that apart a bit more for us? And I guess, how should we be thinking about the go forward there and considerations around things like price, Invitae and just underlying improvements there? Julia Wang: Yes. Andrew, let me provide some color on margin. As you can see, we delivered meaningful margin expansion at the enterprise level in the third quarter, up 100 basis points versus prior year, supported by both segments. As we shared before, the year-over-year margin comparison in the second half of this year gets tougher for BLS and gets easier for Diagnostics, given the margin evolution throughout 2024. As such, in the third quarter of this year, BLS margin was up 20 basis points, driven by organic demand. Diagnostics had a strong margin improvement of 110 basis points versus prior year, which was primarily driven by organic demand, including strong performance of Invitae. You might recall that Invitae annualized in August of this year and is now fully integrated into our broader business infrastructure. As you look at the Diagnostics margin in Q3, in addition to Invitae, there were some other puts and takes. For example, the savings from our LaunchPad initiative, coupled with a slight favorability from weather helped us offset typical annual wage increases and mix impact from in-hospital lab management agreements. As we think about Q4 margin for Diagnostics, we expect Invitae to continue to be a tailwind. Sequentially speaking, we expect margins to moderate in Q4 versus Q3, reflecting typical seasonality. Overall, I would say that we expect the full year margin expansion by both segments to support enterprise margin expansion in 2025, which contributes to our expectation of growing adjusted EPS by 12% for the full year at the midpoint of our guidance. Operator: Our next question comes from Elizabeth Anderson of Evercore ISI. Joanna Dynak: This is Joanna for Elizabeth. So I have a question about '25 guidance. We only have 1 quarter left, yet the EPS guidance do have a very wide range of $0.35. Like what are the major moving pieces that could swing you towards the high end or the low end of that guidance range? Adam Schechter: Yes. Thank you for the question. And as I look at the guidance, we've narrowed the ranges in our overall revenue guidance and our Diagnostic guidance. We purposely kept the range in BLS a little bit larger. We didn't adjust it this quarter. And the primary reason is as we're looking to do some of the divestitures and/or the site consolidation, the timing of what could impact us this quarter is a little bit uncertain. We're moving as fast as we can, but there are certain things that we can only move so fast on. And that's why we've kept that range a bit wider than we typically would. Operator: And our next question comes from Kevin Caliendo of UBS. Kevin Caliendo: I'm still a little confused about why the margins weren't maybe a little bit better in 3Q. I'm wondering if there was anything discretionary, but any discretionary spend on top of that, just given this. But my real question is more around '26. If we think about the impact if PAMA comes back, let's say, you said the net impact would be $70 million, $75 million. Given all the other puts and takes that you have with Invitae and some of the other deals that you have, can you still meet your LRP if PAMA comes back? And I know there a chance that you could be updating your LRP at some point next year. But I'm just thinking out loud here, just given sort of where the headwinds and tailwinds are. Adam Schechter: Yes. So Kevin, first of all, thank you for the question. And there's nothing unusual for the margins. The 110 basis point improvement in Diagnostics, we think, is strong, driven partially by Invitae, but there's also offsets when you think about some of the hospital deals that we do, they typically start off being dilutive to margins and over time, get to the average margin. So there's always some puts and takes to the margins as we think about that. We also are on track for our Labcorp -- our LaunchPad initiative, which is taking out a significant amount of cost covering almost all of the inflation that we have from employees. So if you then think about Biopharma Laboratory Services, we also saw an increase in the margin of about 20 basis points. When you put those 2 together, we thought we had a strong margin improvement of 100 basis points for the quarter. As we think about next quarter, we expect to see continued strength, particularly in Diagnostics. It's important to note that this quarter, we overlapped 2 or 3 months from the Invitae acquisition. Next quarter, it will be 3 out of 3 months. And in addition to that, we'll continue to make progress in the other areas. BLS will be more difficult because, as you may recall, it was an easier compare in the first half of the year, it's a much more difficult compare in fourth quarter for BLS. But net-net, margins for both businesses, we expect to improve this year versus last year. It's frankly too early to give specifics about 2026. We're going to provide that guidance in February. But I would say we're working really hard to do everything we can to not only get the LaunchPad, but also additional savings from some of the AI initiatives that we have underway, which would offset as much as we can from the impact of PAMA, which is such both on the top line importantly as well as the bottom line. So it's an impact to both top line and bottom line there. Operator: And our next question comes from Luke Sergott of Barclays. Anna Krasinski: This is Anna Krasinski on for Luke. It sounds like the hospital M&A pipeline has reaccelerated given all the macro and policy uncertainty. And just curious if you can talk about whether your deal criteria has changed at all given this larger opportunity set? And would you be willing to take on a lower-margin asset that offers meaningful potential share gains in a particular geography where you're less penetrated? Adam Schechter: Yes. No, thank you for the question. And the hospital pipeline does remain strong, and I expect it to continue to be strong. When I think about the hospital business, I think about 3 different parts of it. One is running the laboratories in the hospital. Those are typically the lowest margin business, but it has a very high return on cost of capital. So we will do that business even though it's a bit lower in margin because it does have a great return on cost of capital. The second thing we look at is the reference work. So if it's business that they can't do in a hospital lab, well they send it to us as reference. And that's good margin business, about the same as our average margin. And then the third part is acquiring the outreach business, which also is about the same as our average margin. Most hospitals, when we do all 3 of those things, it ends up being about the same as our average margin. If we were to only do the hospital running of the labs, it would be lower, but that's not typical. Typical, we would do running the labs along with either the reference and/or the outreach business. So net-net, it should be neutral to margins over time. Operator: And our next question comes from Michael Ryskin of Bank of America. Unknown Analyst: This is Aaron on for Mike. It looks like esoteric testing is growing almost double routine. I guess how are you guys prioritizing R&D investments into those more esoteric tests? And then kind of following that line of questioning for Geneoscopy's ColoSense, how are you thinking about your commercialization strategy? And any reimbursement updates that you guys can provide us? Adam Schechter: Yes. So I'll start with the esoteric business. And we certainly are seeing growth in esoteric business, and it's -- continued asymptotic increases over time. But when you think about 700 million tests that we do in a year, it's hard to move the needle. And typically, esoteric tests are lower in volume overall, but they're very important because when you run the esoteric test, you typically do all the routine tests that come along with it. We have been launching many esoteric tests. But importantly, we're focused on oncology, women's health, neurology and the autoimmune areas. And in those areas, we see growth rates that should be 2 to 3x faster than the overall diagnostic market. So it's certainly an area that we want to be competing in. When we think about how to compete, some of those tests we develop ourselves, some of those tests we license or acquire. And we're really focused on what's the best way to get the best test to market as quickly as we can. And to us, it's more about having all the tests that a physician would need for a patient as opposed to developing any one test internally. So we're really agnostic to developing it ourselves or to acquiring or licensing it. Operator: And our next question comes from Yujin Park of Baird. Yujin Park: On BLS, can you provide more color on bookings between Central Lab and Early Development? I recognize Central Lab bookings can be more chunky quarter-by-quarter and Early demand -- Development demand environment, as you said, didn't change much, but I wanted to hear your thoughts between the 2. Adam Schechter: Yes. So I'll start off with overall on the book-to-bill, then I'll talk specifically. If you look at the book-to-bill, it was about 0.9 for the quarter, a little bit lower than we typically like. We like to be about 1.0 to 1.05. But if you look at the trailing 12 months, it was a 1.09. And I've always said that you have to be careful looking at any one quarter because there are ups and downs to any one quarter. But over time, the trailing 12 months, that's a better predictor. I would expect the book-to-bill in fourth quarter to be better than it was in the third quarter, if you look at it sequentially, albeit it will be a tough year-over-year compare because last year fourth quarter was very strong as well. If I look at the book-to-bill, I feel confident that we're in a very good place. Book-to-bill is a good measurement for the Central Laboratory business, and it remains very strong. I've always said book-to-bill is a little bit more difficult for Early Development business with the primary reason being that many studies in Early Development start and end in the same year. And therefore, there's not a lot of 2- or 3-year trials that kind of build your book-to-bill over time. So you would expect the Early Development book-to-bill to be lower than the Central Laboratory, which it is. But I would say the Central Laboratory is very strong. For the Early Development, I look at the RFPs, the win rate are strong. It's the study starts that are really the issue in Early Development. Operator: And our next question comes from David Westenberg of Piper Sandler. Skye Gilbert: This is Skye on for Dave. Could you provide some more color on the expected revenue and EPS accretion from the completed and progressing acquisitions for 2025 and if you can, 2026, kind of what are the key integration milestones we should be looking out for and potential synergies expected from these transactions? Adam Schechter: Yes. So I think it's -- if you look at what we've provided, we say typically, we expect the acquisitions to provide 1.5% to 2.5% growth in a given year. And that's what we are projecting in our longer-term guidance, which we continue to expect that type of growth. The pipeline remains strong. It remains good. We don't give specific operating income or margin for the individual deals. What I would say is, as I look at hospital deals, in general, when you do all 3 pieces of the business, meaning the reference laboratory work, the in-house laboratory work for the hospital itself as well as the acquisition of the reference -- of the outpatient labs, you tend to have a margin that's about the same as our average margin. Operator: And our next question comes from Tycho Peterson of Jefferies. Tycho Peterson: I want to probe on the Central Lab strengths a bit more. I understand your book-to-bill comments earlier, but can you maybe just talk about the acceleration you saw here in 3Q, a nice step-up from 2Q. Maybe just talk about the durability of what you're seeing now on the Central Lab side. Adam Schechter: Yes. So if you look at our Central Lab business, it remains strong. It had 10% growth on the top line, but it was 7% if you looked at the constant currency growth rate, which is very healthy growth. We expect that it will be in the mid-single-digit growth for the full year. That's typically where you'd expect the Central Laboratory business to grow. We're seeing strong book-to-bill. Last quarter, we announced that we had several large studies that were going to go over multiple years. The more large studies over multiple years you have, the better you are. But overall, I would say that, that business, we expect to continue to grow and to do well as we look for that to offset some of the softness that we're seeing for the Early Development for the rest of the year. Operator: I show no further questions at this time. I'd like to turn it back to Adam Schechter for closing remarks. Adam Schechter: Well, thank you, everybody, for joining us today. And I want to just take a moment to recognize our 70,000-person team members around the world. Our employees really are the driving force behind our mission to improve health and improve lives. Hopefully, you see we have momentum based upon our third quarter results going into fourth quarter, and we look forward to sharing our 2026 guidance in February of next year. Thank you all. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Jan Strecker: Good afternoon, ladies and gentlemen, and thank you for joining us today to review financial results for the third quarter of 2025. Present on today's call are Stephan Leithner, our Chief Executive Officer; and Jens Schulte, Chief Financial Officer. Stephan and Jens will provide an overview of our performance and key developments during the quarter. Following their remarks, we will open the line for your questions. As usual, the presentation materials have been distributed via e-mail and are also available for download on our Investor Relations website. This call is being recorded, and a replay will be made available shortly after the conclusion of today's session. With that, let me now hand over to you, Stephan. Stephan Leithner: Thank you, Jan, and welcome, everyone. I'm pleased to present our third quarter results, which once again demonstrate the strength, resilience and strategic balance of Deutsche Börse Group's diversified business model. Despite a more challenging backdrop in select areas, particularly index derivative at Eurex, ESG & Index at ISS stocks and some FX headwinds, we delivered solid net revenue growth without treasury results. This performance was driven by broad-based momentum with 5 out of 8 business units achieving double-digit growth in the quarter. That's a clear reflection of the robust diversification of our franchise. Our portfolio's balance enables us to consistently deliver even when individual segments faced temporary headwinds. By combining businesses with distinct growth drivers, we maintained a steady and scalable performance trajectory. Let me begin the review of the quarter with Investment Measurement Solutions. As expected, Software Solutions was the key growth driver delivering a solid 10% increase in net revenue. Importantly, annual recurring revenue is trending towards the upper end of our guidance range, supported by a robust client pipeline as we head into the fourth quarter and beyond. The recent acquisition of Domos marks an important strategic step for us in the Software Solutions business. Paris-based Domos is a leading provider of technology-driven solutions for managing and administering alternative assets including private equity, real estate and infrastructure investments. By integrating Domos' advanced digital platform and specialized expertise, we can offer clients a broader range of services, great operational efficiency and enhanced transparency in the alternative investment space. This positions us to capture the growing demand for alternatives among institutional investors and strengthens our footprint in a rapidly evolving segment of the financial industry, especially with the general partners, this opens up many new client opportunities. As we explained last quarter, the environment in the second part of our Investment Management Solutions segment, ISS STOXX remains challenging, especially for the ISS part. While we acknowledge the headwinds resulting from a changed attitude towards certain products, especially in the U.S., we believe this is largely temporary dynamic similar to historic cycles. We remain confident in a return to stronger growth in the medium term. In addition to market dynamics, this business saw the biggest impact of the weaker U.S. dollar on the top line. Regarding the 20% minority stake in ISS STOXX held by General Atlantic, nothing has changed, and we are under no pressure to make a decision this year. A buyout remains an option, and we will continue to carefully evaluate all alternatives with a focus on long-term value creation. Let me turn to the second area to Trading & Clearing. We saw strong contributions across several areas. Cash Equities delivered an impressive 21% net revenue growth driven by robust demand for European equities, in particular, from retail flows. Commodities advanced by 10%, continuing their secular growth trajectory, while FX rose by 7%, supported by market share gains. In Financial Derivatives, fixed income products performed well with 11% net revenue growth without treasury results. We're already seeing initial benefits from the active account requirements under EMEA for example, in OTC clearing with a noticeable step-up in volumes, and this puts us on track with our fixed income road map for further momentum in the coming months. As we have explained before, clients have some flexibility for activating accounts, but the overall potential has not changed. Equity index derivatives, however, remained under pressure due to subdued volatility and challenging market conditions. We believe this is primarily driven by cyclical factors, and encouragingly, we have already seen some improvement in volumes in October as volatility has picked up again. Our Fund Services and Security Services businesses, #3 and #4 of my outline, have also delivered excellent results with net revenue growth without treasury results of 15% and 13%, respectively. These gains were driven by record activity levels, supported by continued expansion of debt outstanding, healthy equity market valuations and sustained inflows into European assets, while double-digit growth in our fund business was in line with expectations. The performance in Security Services clearly exceeds them. In addition to strong custody activity, we saw new all-time highs in international settlement and collateral management, which further underscores the strength and scalability of this business. Let me especially applaud the teams in the new client wins and fast onboarding, like with German neo-brokers and Asian clients. On the cost side, for the entire group, operating expense growth came in slightly below our expectations. FX tailwinds and lower share-based compensation helped offset higher investments and inflationary pressures, keeping us firmly on track to achieve our full year target of around 3% cost growth. Based on our new steering methodology without treasury results, this translates into significant scalability, a 7% increase in revenue drove a strong 16% increase in EBITDA for the quarter. Even when including the treasury results, we maintained solid scalability underscoring the strength of our operating leverage. Looking at the 9 months of the year, we are fully in line with our expectations, delivering 9% net revenue growth without treasury results. Based on this performance, we confidently confirm our guidance for 2025. Our outlook remains supported by strong secular growth trends and continued inflows into European assets even as we experience slight FX headwinds. We're also confirming our overall targets for next year under the Horizon 2026 strategy. At our Capital Markets Day on December 10 in London, we'll provide an update on our progress and introduce new midterm guidance beyond 2026. We firmly believe that the secular growth drivers addressed by our strategy will continue to support our performance at least until the end of the decade. In addition, we see new growth themes emerging across the group that we will focus on to further fuel long-term growth. Taken together, these factors will enable us to consistently deliver growth levers going forward comparable to what we have achieved over the past several years. Artificial intelligence will also play a positive role in this journey. Let me emphasize this. It is certainly not a disruption risk, but as a powerful enabler of revenue growth and operational efficiency. We have performed an AI assessment across the group, and the results are very clear. We see our overall portfolio as extremely robust because we operate regulated system-critical infrastructure at scale. Today, I cannot replace. Instead, we are well positioned to capitalize on the AI opportunity. Our cloud-first infrastructure strategy, coupled with our current cloud adoption rate of over 74% has laid the groundwork for rapid, cost-effective and secure scaling of AI. We expect AI to generate tangible value for our clients and shareholders in 3 key areas. First, although most of our core process is already highly automated, AI will help us create greater efficiencies in our internal processes. Currently, we are focusing on automations across the software development life cycle, corporate center optimizations and improvements to client service and processes. Second lever that we see, we are actively rolling out algorithmic and domain-specific AIs across our products to enhance client productivity and initial results are very promising. AI also provides an additional distribution channel for our proprietary financial market data. And as a third lever, we are seeing positive secondary effects in our core businesses. For example, in our commodity business. Europe's power demand is estimated to increase by 10% to 15% due to AI data center energy consumption. Just like AI will drive further noncorrelated trading and small-sized high-volume trading in all of our asset classes. To hear more about this and much more, I warmly invite you to join us in London on December 10. It will be a great opportunity to engage with our leadership team, gain deeper insights into our strategy beyond Horizon 2026 and explore the exciting growth opportunities ahead. With that, I will hand it over to Jens for a closer look at the financials and segment details. Jens Schulte: Yes. Thank you very much, Stephan, and welcome, everyone, also from my side. Let's start with a quick look at our performance over the first 9 months as shown on Page #2. As you recall, the first half of the year came in slightly ahead of expectations. This was largely driven by elevated equity market volatility in March and April, along with strong inflows into European assets. In Q3, we experienced the typical summer seasonality, coupled with lower equity volatility. This had a somewhat greater than anticipated impact on equity derivatives, particularly index products. That said, our year-to-date results remain firmly in line with our full year expectations and our Horizon '26 growth path. Net revenue without the treasury result rose by a solid 9%, underscoring the strength and resilience of our business model. Now turning to operating costs. We saw a few moving parts across the 3 quarters, but overall, the picture is consistent with our planning share-based compensation provision fluctuated during the period but ultimately were flat year-over-year in the first 9 months. The U.S. dollar-euro exchange rate, which started the year as a headwind turned into a modest tailwind. While the impact was less than 1 percentage point, it still contributed positively to the cost development. We also benefited from lower exceptional costs this year. This reflects last year's termination fee related to the EEX NASDAQ agreement as well as the wind down of costs tied to IMS synergy realization. All in, operating costs increased by 3%, exactly as expected. This uptick was primarily driven by inflation and targeted investments in our strategic growth areas. Bottom line, our EBITDA margin without treasury results improved significantly to 53%, up from 50% in the prior year as our businesses continue to scale. And we also made further progress with our share buyback program. By the end of last week, we had repurchased Deutsche Börse shares worth around EUR 441 million. This leaves approximately EUR 59 million remaining to be executed by the end of November. Let's move to Page #3 with our third quarter results. As Stephan already mentioned, net revenue without the treasury result grew by a strong 7%. Given the cyclical headwinds we faced this quarter, this performance highlights the breadth of our diversified portfolio. Total net revenue rose by 3% to EUR 1.44 billion. This was driven by the continued decline in the treasury results, primarily driven by lower interest rates and despite stable cash balances. Operating costs remained stable in the third quarter, while inflation and increased investments played a role. These were fully offset by favorable FX movements, lower share-based compensation expenses and a reduction in exceptional costs. Overall, our cost discipline remains strong and fully aligned with our strategic priorities. We continue to strike the right balance between investing for growth and maintaining operational efficiency. As a result, EBITDA without the treasury result showed high operating leverage increasing by 16%. Lastly, our effective tax rate came in slightly below expectations, thanks to smaller onetime positive effects. Looking ahead, we continue to plan with a 27% tax rate for '26 and beyond. Let's now turn to Page #4 and take a closer look at our segment results, starting with Investment Management Solutions. This segment is composed of 2 key areas. First, Software Solutions, which combines SimCorp's software business with Axioma's analytics capabilities. Within this area, we saw SaaS revenues grow by 22% and while on-premise revenues declined slightly by 1% as expected. This reflects a clear and ongoing shift. Existing clients are increasingly migrating to the cloud and new clients are typically SaaS-based from day 1. Our annual recurring revenue reached EUR 632 million at the end of the quarter, an 18% increase year-over-year at constant currency. Growth was particularly strong in North America with 27% and APAC with 37%. EMEA delivered a solid 17%. These figures compare very favorably with our main peers and reinforce the strength of our global footprint. The second part of the segment is the ESG & Index business of ISS STOXX, which saw flat net revenue development. However, on a constant currency basis, the picture is more encouraging. Net revenue in ESG & Index grew by 4% in Q3, supported by a solid contribution from the ESG business with 6% revenue growth. Similar to previous quarters, the Market Intelligence business experienced flat growth and low equity market volatility negatively impacted the exchange license business in the Index segment. Importantly, the segment's EBITDA saw a significant increase, driven by disproportionately lower operating cost growth, highlighting the scalability and efficiency of our model. Now let's turn to Slide 5, which highlights the performance of our Trading & Clearing segment. Starting with Financial Derivatives. We continue to benefit from strong fixed income activity. Net revenue without the treasury result increased by 11%, driven by double-digit growth in fixed income futures and repo revenues. OTC clearing all saw high single-digit growth, supported by record clearing volumes following the implementation of the EMEA 3.0 active account requirements in June. On the Equity Derivatives side, volatility moderated significantly in the third quarter, creating a headwind for index products. As markets trended upwards to new all-time highs, hedging activity also declined. However, we partially offset the effects of volume through an increase in average revenue per contract. This was in part due to the decommissioning of the Korea Exchange Link for after hours KOSPI trading as mentioned in our last call. Our Commodities business delivered another strong quarter with double-digit growth once again. In gas, revenue rose 31%, fueled by robust activity in European gas markets amidst supply uncertainties and below target storage levels. We also saw continued momentum in power derivatives in the U.S. and APAC, while activity in Europe moderated slightly due to reduced hedging needs. In Cash Equities, we benefited from strong demand for European equities and significant inflows into European ETFs. This reflects a broader investor rotation into European markets and growing interest in passive strategies. Additionally, we recorded a onetime revenue effect of approximately EUR 3 million from the sale of a T7 license to a third-party exchange. Finally, our Foreign Exchange business achieved net revenue growth across most product lines supported by new client wins and geographic expansion. This diversification continues to broaden our revenue base and enhance the resilience of the FX franchise. Turning to Slide #6. Let's look at the continued strong performance in our Fund Services segment. We are seeing positive momentum across the board, supported by higher equity market levels, new client wins, portfolio growth and ongoing inflows into European assets. As a result, we recorded a further increase in assets under custody and sustained high volumes of settlement transactions. Notably, our fund distribution business saw a significant step up in assets under administration, which now exceeds EUR 700 billion, a major milestone. This growth underscores the increasing relevance of our Fund Services offering and our ability to support clients across the full investment life cycle, from custody and settlement to distribution and administration. With disproportionately lower operating cost growth, the segment delivered significant operating leverage, resulting in strong double-digit EBITDA growth, both with and without the treasury results. Lastly, let's move to our Securities Services segment on Page #7, which has seen a further acceleration of growth compared to the strong first half of the year. The segment continued to benefit from strong capital markets activity with ongoing fixed income issuance and higher equity market levels, driving sustained growth in assets under custody and settlement transactions. We also saw record levels of collateral management outstanding this quarter, which contributed to the strong performance in custody revenue. These trends reinforce our central role in the post-trade infrastructure and the strength of our platform. On the interest income side, cash balances remained stable, averaging around EUR 17 billion for the quarter. As expected, we saw seasonal lows in July and August followed by a recovery in September when market activity picked up and balances rose to slightly above EUR 18 billion. The main driver behind the decline in net interest income was the lower interest rate environment. The ECB rate was 1.5 percentage points below the prior year quarter. And the Fed rate was 0.75 percentage points lower, both in line with our expectations. To wrap up, let's take a look at our full year 2025 outlook on Page #8. We are confirming our guidance for the year, supported by our expectations of continued secular growth and sustained inflows into European assets. This is despite the modest FX headwinds and the low equity market volatility and also aligns with the current sell-side consensus. In addition, we continue to expect a treasury result of more than EUR 0.8 billion for 2025. Based on current interest rate assumptions and stable cash balances, we forecast around EUR 825 million, which is also in line with analysts' expectations. On the cost side, we are very well on track to meet our guidance of around 3% growth in operating expenses for the full year. This reflects our disciplined cost management and strategic investment approach. That concludes our presentation. We now look forward to your questions. Operator: [Operator Instructions] And the first question comes from Arnaud Giblast, BNP Paribas Exane. Arnaud Giblat: One question then. I was wondering if -- I mean, you mentioned during the call that the IMS [ STOXX ] was postponed and that you are still considering a potential buyout. But I'm just wondering if you could update us whether there's an actual time frame on giving the [ minority ] shareholders a liquidity event? And if I may, secondly, there's been quite a lot of news around political comments made by German Chancellor around the potential -- around their willingness to see further consolidation in cash equities. So I was just wondering if you could update us on your thoughts there. I mean, historically, we know that cash equities hasn't necessarily been your priority in terms of consolidation. I'm just wondering if that might have shifted. Stephan Leithner: On your first, Arnaud, and I just looked it up last call, we also took you as the first one on the question. So you've got a [ pull ] position. On the first one of your questions regarding to the minorities, there's no change to what we said before. There's the dual track. As we have always said, we're not alone, there is a partner, and we jointly manage the time line. So no changes in that overall. I think second, on the remarks that Chancellor made, I will put them into the context of a broader, very encouraging commitment that is made around strengthening the European capital markets. So really a push that wasn't there historically around capital markets unions, progressed a number of levers in that context. I think for us, we are a big contributor to that. We have made a lot of progress in terms of European full coverage in terms of infrastructure. This isn't only about the cash markets. So there's really no change with respect to our position and our strategy. Operator: Next question is from Benjamin Goy, Deutsche Bank. Benjamin Goy: One question on your excess cash. Maybe you can remind us of the likely position at year-end and how this impacts your capital allocation policy other than the potential minority buyout? Any other major files you're looking at. Jens Schulte: Yes. So thank you very much, Benjamin. So in terms of excess cash, probably this will play out somewhere in the magnitude of EUR 1.5 billion to EUR 2 billion towards the end of the year. In terms of share buybacks that you alluded to, we have our program running, right, as I said, and we will complete the EUR 500 million. And the further story we will communicate when time is there. Operator: The next question is from Enrico Bolzoni, JPMorgan. Enrico Bolzoni: One, I wanted to go back on your comments about AI and being an opportunity, not a risk. And of the 3 elements you listed, I was particularly interested in the second one. I think you quickly mentioned that it might create new distribution channel. Can you perhaps expand a bit more and let us know if, for example, you are signing or about to sign partnership with, for example, third-party AI engines and whether you think that we might see a monetization of these agreements? And then related to that, if I actually have to take a more bearish stance, there's been a lot of rumor about potential disruption for software solution companies. Can you just remind us of what is the position of SimCorp in this regard and why you think is not subject to perhaps AI disruption? So that's my first question. And my second question is, in a way also related to technological disruption. I know you -- when it comes to the ledger, so the blockchain technology [indiscernible] in the past agreement with HQLA. Can you remind us what do you expect will happen to post services in an environment where there is basically a rising velocity of collateral and perhaps the settlement cycle compresses further, maybe also beyond T+1. So how do you think the business should be positioned and is that a risk? Stephan Leithner: Thank you very much, Enrico, taking up both of your questions. Let me first start on the AI side. And I really emphasize and appreciate you taking up SimCorp. I think the uniqueness of SimCorp is that contrary to sort of any ancillary type services on the software side. SimCorp is very much a front-to-back sort of backbone type business. Therefore, it is really anchored at the core of what is the clients' operations, and that really sets it apart. That's why I think we see a lot of positive enhancement possibilities. That's what SimCorp has started to put in place with the copilot for example around their front office reporting capabilities. Many of those tools give improved usage capabilities for the clients. But I don't think there is any way similar to many of our operations type businesses and execution services. This is a real backbone type system that we operate for the clients in the cloud increasingly as we have said. I think the second point with respect to the data, we have a broad set of data points. And let me just highlight 2 or 3 examples out of that. One is the proprietary data that we can provide on collateral management. One of the themes that you later come back with the DLT and blockchain. So we have a pretty unique capability. In terms of the data understanding, both on collateral as well as on settlement that allows us to deliver services directly to clients because we have that connection to the clients. So therefore, our focus is not signing up a wider distribution agreement, but it's really delivering and optimizing what we can do directly with the client. I think that economically is a much better, much stronger way to monetize AI as well as proprietary data, which we have in so many areas. On your second theme around the blockchain and DLT, HQLAX is one good example of a very advanced and broad industry partnership where Deutsche Börse or Clearstream in this case, has carved out a pretty unique position because within that ecosystem of HQLAX with most of the relevant market participants, the only TTP, so the only trusted third party that is able to confirm the portfolio composition similar to a tri-party agent role is really the Clearstream side. So I think it shows that in these network environments, even if there is DLT used, there is a very strong ability for Clearstream to position and have a unique starting point. Now you also inquired around the implications, if I get it correctly, on the T+1, the higher settlement cycles. We overall see this as something that we don't expect material extra costs on our side, very different from many custodian firms who have a big rewiring to do. So there is no material cost because today, we are really able to operate. Most of this process is already on a T+1. This doesn't fundamentally change. So we also don't see an erosion of our position coming out of T+1. It's really strengthening the strongest operators in the CSD space, and that's where certainly there's not more than 2, if I look those that are able to operate. We have just announced the pan-European footprint operation by basically operating direct services on settlement across all 28 CSDs. Again, it's a unique partnership, a unique link up network that Clearstream has, no others have it. I think it will be strengthened if we move into T+1. Operator: Next question is from Tobias Lukesch, Kepler Cheuvreux. Tobias Lukesch: Also one or two questions from my side, please. Touching on the costs, you mentioned some active cost management and also some investments. I would be interested how active were you in Q3? Should we consider the 3% guidance to be more of a 2.6% for this year, and in terms of investments, is there more to come on the AI opportunities that you're seeing? Or is that something we should consider for '26? Or is that not all really impacting your investment cycle that you have planned so far? And very quickly, you touched on the OTC derivative clearing again and said, with EMEA, this is well on track. Maybe you could give us a bit more insight on the business development since also your competitor kind of doubled down on the business with Q3. Jens Schulte: Good. So I take -- first of all, I start with the OpEx question. So in terms of just generally active cost management, we continuously do active cost management, for example, in terms of expanding our location footprint currently moving parts of the business to India and other locations and gaining further efficiency from our systems. So that is an ongoing process that is not only -- has not only been relevant for Q3. Now very specifically to your question in terms of guidance, we do confirm that guidance at the moment. Keep in mind that as in previous years, if you look into '23 and '24, we usually in Q4 have some seasonality, for example, driven by investments being a bit back-end loaded, driven by merit increases, severance and several other things that typically tend to come more out towards the year-end. So for the moment, we do plan with the 3% and that is the target and then let's see how we come in. But we are well underway. I mean that is certainly true. On the second point, OTC clearing, and the EMEA side, so what I alluded to in my part is that we actually did increase the number of accounts from about 1,600 to 2,200, so by 600 accounts. It is fair to say that the activation rate of those accounts is still relatively muted. So it's overall around 20%. However, what we do recognize now is that after a technical implementation standards have come out and after the clients have started to sort themselves, they are now making specific plans as to how to route their flows. And so we do expect the activity to increase next year. Bear in mind on this topic, that the -- basically, the activation requirement needs to be fulfilled throughout the first full year, so until basically May of next year, so the customers still have time and they take the time to organize themselves properly, but we do expect a significant increase of activity beginning of the next calendar year. Stephan Leithner: Let me take your third part, the investments impact of AI. First of all, let me give you a context that I think is truly very important and sets us apart, which is we have gone very much an advanced investment cycle when it comes to a number of items that now really benefit us on the AI journey, and that's, in particular, the transition into the cloud. We have a mid-70% of our portfolio that is in the cloud that allows us much faster and much more efficient. We have in parallel done and made the transition on the IT security side. So again, these are all areas where we have, over the last years, run significant investment portfolios from which we are now benefiting, that's why we also don't expect any requirements or change when it now comes on the AI invest because we can really build on that effectively and efficiently work together with major model providers and deploy very fast into our organization. So that's one of the items that I think truly from a wider market debate that I've seen around the margin impact of AI is something that we, in our scan and in our review process that we have run have really not seen happen. And I think that's very encouraging to us in terms of the speed and the implementation environment. Operator: [Operator Instructions] And now is from Hubert Lam, Bank of America. Hubert Lam: I've just got one of them. Can you talk about a bit about the pipeline of new clients or upsell for SimCorp into Q4. Usually, I think there's more seasonality in Q4. Just wondering if we should expect a big quarter and what kind of growth to expect heading to the end of the year? Stephan Leithner: Thanks for asking the question, Hubert. I think the seasonality of Q4, we have now explained a number of times and documented in the past years. I think we have given the guidance that in the remaining quarters, we'll see 10% quarter-by-quarter or that's what we said after the first quarter, I think we continue to stick and believe. And if we look at the pipeline, that's what we actually see. But software is every year back-end loaded sort of environment, and therefore, I think it's a lot of hard work, but signs are all on track. Operator: And the next question is from Tom Mills, Jefferies. Thomas Mills: You've alluded to the setting up of new medium-term targets at your CMD on the 10th of December, which I guess means to out sort of 2028. There's obviously been a change of CEO and CFO since the current medium-term targets were put in place. Could you maybe talk a bit about how you fear about getting to the '26 targets? Is it your intention to kind of maintain those or do you step back from them at all? Just because I see sort of consensus is a little below where you're currently expecting to get to? Stephan Leithner: Thank you very much, Tom, for giving me the opportunity to reiterate and emphasize what I said earlier. I think we both really very much confirming our 2026, Horizon '26, as we had talked about it before. I think there is no change and December 10 will not make us change their position. And secondly, also emphasize what I alluded to earlier, which is we see that many of the new growth themes that we see emerging are really fueling us for a long-term growth that goes beyond 2026. So we have a very comfortable outlook there. Operator: Next question is from Jochen Schmitt, Metzler. Jochen Schmitt: I have one follow-up question on custody revenues. You have already mentioned higher revenues from collateral management. Would you see those revenues as partly nonrecurring? Or would you see Q3 as a reasonable starting base for modeling purposes? That's my question. Stephan Leithner: So we do see that as recurring revenues. The settlement business, settlement custody business has a very good run at the moment, and we do see that carrying into the future. Operator: At the moment, the last question comes from Michael Werner from UBS. Michael Werner: I got two, please. First, on the [indiscernible] products. I was just wondering if you can update us on your thoughts about the fee holidays that you currently have on them and whether that could potentially lift in 2026? And then just looking at IMS, I know there was some decline in exceptional costs. But the underlying cost base in IMS year-on-year has been pretty steady, showing quite decent operating leverage. Is that something we should expect going forward? Was there any kind of moving parts on the cost base as I assume SimCorp is a place you want to continue to invest? Stephan Leithner: I think with respect to the fee holiday outlook, we have said we will work on establishing a very stable sort of business base before we really change. So we'll continue to monitor that in Q1, how far out that is going to go. We will decide in the course of the year. So there is no prediction that we're giving at this point. I think the second question that you had with respect to the IMS cost operating leverage, indeed, sort of clearly with respect to some of the areas that have shown slower growth or we have been active and the management teams have been working on the cost. So I think you need to look at that in the aggregate of IMS. I think it doesn't signal at all. And our investment commitment around the SimCorp momentum, as we speak, is very unchanged and there's important product enhancements on which we're working. There have been recent product introductions that have also been fueling some of those big wins, in particular, in the U.S. that we have been very proud about and that we reported on basically a named basis, if I can say, in Q2 already. Jan Strecker: There are no further questions in the pipeline. So we would like to conclude today's call. If there's anything else, then please do feel free to reach out to us directly. Thank you very much for your participation, and have a good day.
Operator: Thank you for standing by, and welcome to Invesco's third quarter earnings conference call. [Operator Instructions] As a reminder, today's call is being recorded. Over to Greg Ketron, Invesco's Head of Investor Relations. Sir, you may begin. Gregory Ketron: All right. Thanks, Cedric, and to all of you joining us today. In addition to the press release, we have provided a presentation that covers the topics we plan to address. The press release and presentation are available on our website, invesco.com. This information can be found by going to the Investor Relations section of the website. Our presentation today will include forward-looking statements and certain non-GAAP financial measures. Please review the disclosures on Slide 2 as well as the appendix for the appropriate reconciliations to GAAP. Finally, Invesco is not responsible for the accuracy of our earnings transcripts provided by third parties. The only authorized webcast are located on our website. Andrew Schlossberg, President and CEO; and Allison Duke, Chief Financial Officer, will present our results this morning, and then we'll open up the call for questions. I'll now turn the call over to Andrew. Andrew Schlossberg: Okay. Thank you, Greg, and good morning to everybody. I'm pleased to be speaking with you today. We continue to perform remarkably well against our strategic priorities, which are centered on emphasizing the intersection of market size and secular change while leveraging our unique position to drive growth in the highest opportunities, regions, channels and asset classes. We delivered another strong quarter of broad-based progress, and we continue to generate significant operating leverage while executing on initiatives to unlock value across the organization to deliver for both clients and shareholders. If you turn to Slide 3 of the presentation, which highlights some of our most recent high-impact initiatives over the past several months. In aggregate, these initiatives will help to streamline our business, drive profitability and margin expansion, build a stronger balance sheet and continue to enhance shareholder returns. Significant among these efforts is the strengthening of our capital management through the recapitalization of our balance sheet. Here, we have improved flexibility, enabling us to continue to further deleverage. We have already repaid approximately 25% of the term loans used for the $1 billion preferred stock repurchase announced earlier this year, accelerating the expected earnings accretion from that transaction and paving a path for future redemptions. We have also made substantial progress in our efforts to simplify and hone our organizational focus. Of note is the implementation of our hybrid investment platform which we announced in May, would be shifting to a combined Alpha and Aladdin program. Progress continues in our conversion. During the third quarter, we launched the second wave of significant equity AUM onto the Alpha platform. This entire hybrid implementation, which is on track to be complete by the end of 2026 will drive simplification, improved investment system consolidation and future cost avoidance. Also under the banner of simplifying our business and focusing on improving performance, earlier in the quarter, we realigned our fundamental equities, global international and regional investment teams. We have consolidated capabilities under a single CIO for these particular asset classes and made portfolio management changes to our U.S. developing markets and aspects of our international and regional equity strategies. This consolidated global related equity platform mirrors our already established global fixed income structure and as part of our ongoing efforts to strengthen our investment returns in this important area for the firm. The single platform also allowed us to elevate our top investment talent and use our scale advantages to gain efficiencies. Investment performance does take time to turn around, but we are beginning to see progress on this front. Further advancing our efforts to simplify and streamline our focus, we announced in late summer, our decision to sell Intelliflo, which is our cloud-based practice management software subsidiary. This sale will generate net cash of approximately $100 million at closing, which is expected in the fourth quarter, and it could also generate up to $65 million in additional future potential earn-outs. Finally, we are accelerating growth through a number of recently announced business development initiatives noted on the bottom of Page 3. I'm pleased to report that we have made significant progress with our Barings private markets partnership, launching our first joint product together earlier this month. The speed at which we have been able to execute is notable. Together, we have come to market with the jointly managed Invesco Dynamic Credit Opportunity Fund within just a few months of our announced partnership. This product strategy is an interval fund targeting the U.S. wealth management market that dynamically allocates across the full spectrum of private corporate credit. By combining our 2 firms complementary strengths, we're accelerating our ability to meet client demand for income-oriented solutions in this rapidly evolving market. This represents the first milestone of the broader private market strategic product and distribution partnership with Barings, which MassMutual intends to support with a total of $650 million of capital. A second co-managed fund is currently in development and is expected to be in market at the beginning of next year. These new strategies will complement our existing private real estate offerings that are targeting U.S. wealth management clients and have seen significant organic traction over the past several quarters. Also in the category of accelerating our growth, we are in the final stages of selling a majority interest in our Indian business to the Hinduja Group and jointly establishing a local joint venture. We believe that the combined benefits of our existing Indian asset management business with Hinduja's domestic financial institution and local expertise will enhance the growth of that business. Our ongoing minority ownership structure will allow us to participate in the Indian market development, while also refocusing our resources accordingly. We expect this transaction to close in the fourth quarter and Allison will detail the financial implications and anticipated timing of these transactions later in the call. Finally, as you are all well aware, a significant transformative growth initiative is underway as we seek to modernize the structure of our sizable QQQ ETF. We are in the process of soliciting shareholder approval, and we are pleased to report that we have seen strong participation and momentum in the proposals outlined in the proxy, and votes cast are overwhelmingly in favor of the proposals. We are getting close to the vote totals needed and to allow for additional time to solicit the votes needed to pass the proposals. Last week, we announced that the special meeting of the QQQ shareholders has been adjourned until December 5. Our scheduled time to complete the solicitation process is not an all uncommon. And given the sheer size of this fund and its large retail shareholder base, it is not unexpected. We are proud of the progress on these significant initiatives highlighted on Page 3. We believe they are indicative of the exceptionally hard work of our Invesco colleagues to drive these and other efforts to completion, while continuing to seek incremental opportunities to unlock value. I am grateful for all that has been done and the ongoing disciplined focus on delivering to our clients and our shareholders. So let's pivot now to Slide 4 for our third quarter business highlights. We had strong momentum coming into the quarter, which continued as key market indices reached new highs and increasing investor confidence was bolstered with the Fed rate cut in September. These dynamics are leading to some broadening out of investor demand, which is a welcome shift in the asset management landscape and one that we are beginning to see reflected in our results. We reached a record AUM of $2.1 trillion with exceptionally strong net long-term inflows of nearly $29 billion, or an 8% annualized organic growth which is our best flow quarter since 2021. Even more encouraging with the breadth of these flows, reflecting our diversified scaled global platform. We had strong growth on many dimensions, including across most of our strategically important investment capabilities. It also included positive flows in aggregate in both our active and passive products, the retail and institutional channels and across the Americas, EMEA and Asia Pacific regions. Nearly 40% of our long-term AUM is now from clients outside of the U.S. and 2/3 of our net inflows this quarter were from EMEA and Asia Pacific regions. In the quarter, we continued to scale our ETF platform, gaining market share and launching products to meet client demand. When considering the entirety of our ETF and index offerings across all investment capabilities and including the QQQ, we recently reached an important milestone of $1 trillion in AUM. This was among our best-performing quarters for our increasingly profitable ETF and index investment capability with an annualized organic growth of 15%. We garnered record net inflows in a diverse set of products for our U.S. range, including the QQQM,several ETFs within our S&P Factor suite, the China technology ETF. And in EMEA, we generated strong flows in our use of QQQ ETF and our synthetic product suite. We continue to innovate and evolve our ETF lineup to offer investors new ways to access our in-house, high-quality active strategies. Notably, 65% of our ETF launches this year have been active. Our 5 new active ETFs launched during the third quarter brings our total to 36 months. The development is not only a U.S. trend. We now have 10 active UCITS ETFs, extending our smart beta range of products in the EMEA region. Our ending active ETF AUM firm-wide stands at $16 billion. However, when including our active teams engaged in our passive and index capabilities, it elevates that total AUM to nearly $30 billion. Bringing the depth of our investment capabilities into the ETF wrapper has long been part of our overall strategy and will continue to be as we innovate to meet client demand. Shifting to fundamental fixed income where we garnered over $4 billion in net long-term inflows in the third quarter. However, this only considers what's included in our fundamental fixed income capability. Looking more broadly at the fixed income asset class across all of our investment products, the third quarter net long-term flow number jumps to nearly $13 billion with the inclusion of our fixed income ETFs and China JV-based fixed income assets. Here again, the strength of our geographic profile is evident with more than half of our overall fixed income inflows coming from clients outside the United States. Though overall recent client demand trends remained largely intact this quarter in fixed income, we did begin to see a measured extension from ultrashort and short-term fixed income to the intermediate and longer end of the curve. We saw institutional interest for investment-grade bonds with strong demand in Asia, driving net inflows. Further, we saw demand for our leading United States defined contribution focused, stable value capability, and we are exiting the quarter with a healthy pipeline for this product. Additionally, our U.S. Wealth Management SMA platform continued to help drive fixed income flows, particularly in municipal bond strategies. Our entire SMA platform which also includes a portion of equity assets continued to capture market share, and it now stands at nearly $34 billion in AUM. We have one of the fastest-growing SMA offerings in the U.S. wealth management market with an annualized organic growth rate of 19%. Moving to our China JV and Indian capabilities where we produced exceptionally strong results this quarter. Our broad product suite and scale position in China is empowering us to perform as well as dynamic shift in this market. We reached a record high AUM in our China JV of $122 billion, reflecting a 16% increase over last quarter. We delivered a robust $8.1 billion of net long-term inflows in these capabilities, marking one of our best quarters to date, $7.3 billion of that total came from our China JV which represents a 34% annualized organic growth rate. Flows during the quarter in our China JV were led by fixed income plus and our ETF funds. Institutional investors are favoring fixed income plus strategies as they provide an effective means of enhancing equity exposure. We are also beginning to see interest in pure equity strategies, particularly in passive funds, as demand for active equity is slower to regenerate. We are exceedingly well positioned for the near and longer-term trends developing in the onshore China market. We continue to innovate to meet client demand across both active and passive capabilities. Of note, we launched 12 new products this quarter in our China JV, including our first fixed income ETF. We believe that in time, demand for fixed income products will shift towards those offered in the ETF wrapper. We also launched equity index funds to capture increasing demand for these growth-oriented products. While we continue to launch innovative products to meet current and future client demand in our China JV, existing products have been the more significant driver of our organic growth, an indication of the strength of our platform. We expect our China JV to continue to benefit as both the secular and now cyclical tailwinds develop in the world's second biggest economy. Shifting to private markets where we posted $600 million of net inflows driven by private credit and direct real estate. Private credit had nearly $1 billion of net inflows with strong CLO demand during the quarter in both the U.S. and EMEA as these products continue to offer meaningful value versus corporate bonds. We launched 3 new CLOs during the quarter, two in Europe and one in the United States. Direct real estate contributed nearly $100 million of net inflows. INCREF, which is our real estate debt strategy targeting the U.S. wealth management channel continues to generate net inflows, and we continue to onboard platforms and clients. INCREF is now on 3 of the 4 major U.S. wealth management platforms. Assets in this fund with leverage now total over $4 billion after just 2 years in the market. Our real estate team also remains well-positioned in the institutional markets, with $7 billion of dry powder to capitalize on emerging opportunities. And as I outlined earlier, our partnership with Barings should help accelerate growth for overall private market strategies in the wealth channel. In fundamental equities, we have continued to see positive flows from our clients in EMEA and Asia Pacific, specifically for global and regional equities and headlined by our Global Equity Income Fund managed out of the United Kingdom. This fund posted record net inflows of $3.8 billion during the quarter, predominantly from clients in the Japanese market, where it ranked first among retail active funds and has rapidly grown to $20 billion in AUM and has a very favorable net revenue yield to the firm. This is a compelling representation of our ability to have the right products in the right markets at the right time. Despite these positive flow highlights, we did record overall net outflows in fundamental equities of $5 billion in the quarter. Our results partially reflect the broader secular outflow trend in actively managed equities, particularly in the United States. This was compounded by the expected acceleration of net outflows from our developing markets fund, which totaled $4.5 billion for the quarter. Given our strategic decision to reposition the fund to a new internal portfolio management team, this wasn't wholly unexpected. We are confident that the aforementioned fundamental equity platform changes that have been recently implemented sharpen our focus on investment performance and risk management as we continue to identify areas of demand within fundamental equities and mitigate redemptions at a better rate than the market. Moving on to Slide 5, which shows our overall investment performance relative to benchmark and peers as well as our performance in key capabilities where information is readily comparable and more meaningful to driving results. Investment performance is key to winning and maintaining market share despite overall market demand. As such, achieving first quartile investment performance remains a top priority for Invesco. Overall, more than half of our funds are performing in the top quartile of peers on a 3-year time horizon with 45% reaching that bar on a 5-year basis. Further, nearly 70% of our AUM is meeting its respective benchmarks over those measurement periods. Of note, we saw significant improvements in some of our fundamental equity performance with more than half of our funds beating benchmark on a 3-year basis and 39% in the top quartile on a 5-year basis. Continuing to strengthen our investment performance is key to reducing redemption rates in these critically important equity strategies. Fixed Income continues to have strong performance with nearly half of our funds performing in the top quartile on a 3-year basis and nearly 2/3 beating their benchmarks. So with that, let me turn the call over now to Allison to discuss the quarter's financial results, and I look forward to your questions. Allison Dukes: Thank you, Andrew, and good morning, everyone. I'll start with the third quarter financial results on Slide 6. Strong markets and net asset inflows drove assets under management to a record level for Invesco in the third quarter. Total AUM exceeded $2.1 trillion at quarter end. This was $123 billion or 6% higher than at the end of the second quarter and $329 million or 18% higher than the end of the third quarter of 2024. Average long-term assets under management were $1.46 trillion, an increase of 9% over last quarter and 16% over the same quarter last year. Growth in total assets under management during the quarter was driven by market gains of $99 billion and net long-term inflows of $29 billion. Net revenues, adjusted operating income and adjusted operating margin all significantly improved from last quarter and the third quarter of 2024, while adjusted operating expenses continued to be well managed. This drove meaningful operating -- this drove meaningful positive operating leverage on both a sequential quarter and a year-over-year basis. On a sequential quarter basis, positive operating leverage was 480 basis points delivering a 300 basis point improvement in the third quarter operating margin to 34.2%. On a year-over-year basis, positive operating leverage was 410 basis points delivering a 260 basis point improvement in operating margin. Adjusted diluted earnings per share was $0.61 for the third quarter. We continue to strengthen the balance sheet during the quarter through the repayment of $260 million of the 3-year bank term loan. We also ended the quarter with no draws on our revolving credit facility. Given the level of operating cash generation going into the fourth quarter, we are in a position to repay the remaining $240 million of the 3-year term loan by the end of this month. When we announced the repurchase of $1 billion of preferred stock in April, funded with $1 billion in term loans, we indicated that once the loans will repay, the EPS run rate benefit would reach $0.13 annually. Given that we will have repaid $500 million, up to $1 billion in term loans earlier than projected, we will have captured approximately 60% of that EPS run rate benefit on a go-forward basis. The magnitude of the potential reduction in the remaining $500 million term loan that matures in 2030 will depend on the level of cash flow we generate going forward. Additionally, we have a $500 million senior note that we intend to redeem when it matures this coming January of 2026. Finally, we continued common share repurchases, buying back $25 million or 1.2 million shares during the quarter. Moving to Slide 7, a slide most of you are familiar with by now is we've been including this update for a number of quarters, and hopefully, you have found this helpful in analyzing our net revenue and net revenue yield dynamics. Client demand continues to drive diversification of our portfolio. And as a result, concentration risk and higher fee fundamental equities and multi-asset products has been reduced while our portfolio reflects a higher mix of ETFs, index and fundamental fixed income capabilities. Our more balanced AUM profile better positions the firm to navigate various market cycles, events and shifting client demand. The ranges by capability are representative of where the net revenue yield has trended over the past 5 quarters, and we know where in the range yields have trended more recently. To provide context for the net revenue yield trends during the third quarter, our overall net revenue yield was 22.9 basis points. This is similar to the sequential quarter decline that we experienced in the second quarter. The magnitude of the last 2 quarterly declines is notably lower than prior quarters. And maybe aside, we're closer to reaching a degree of stabilization in the net revenue yield, but this will be dependent on the future direction of asset mix shift. The exit net revenue yield at the end of the third quarter was 22.8 basis points near the adjusted net revenue yield for the quarter. As Andrew noted earlier, last week, we announced a special meeting of QQQ shareholders have been adjourned until December 5 to allow for additional time to solicit votes. We did want to note that under the new structure, the revised fee allocation would work similar to how we currently recognize fees on most of our ETFs. The 18 basis point fee will be recognized as investment management fees, approximately 12 basis points, which is principally for the licensing fee and administrative custody and transfer agency services will be recognized as third-party distribution, service and advisory expense. Under the current structure, marketing expenses associated with the QQQ are included a third-party expense. Upon finalization and filing of the definitive proxy statement, reflecting comments from the SEC and further accounting review, it would determine that the marketing expenses associated with the QQQ should be included in the marketing expense line item versus third-party expense. This is solely a reclassification of where the marketing expenses are reported and the expected overall net impact to adjusted operating income of approximately 4 basis points of QQQ AUM and is unchanged from what we previously disclosed. Now turning to Slide 8. Net revenue of $1.2 billion in the third quarter was $82 million higher as compared to the same quarter last year. The increase in net revenue was largely from investment management fees, which were $102 million higher than last year and mainly driven by higher average AUM. Operating expenses continue to be well managed with the increase of $24 million, partially driven by variable employee compensation related to higher revenue. On a sequential quarter basis, the increases in net revenue and operating expenses were driven by similar dynamics as the year-over-year changes. And that result is a substantial increase in positive operating leverage on both the year-over-year and sequential quarter basis. The Alpha hybrid platform implementation costs of $11 million were below our expectations for the third quarter, but near the range of prior quarters. We launched the second wave of equity AUM onto the Alpha platform during the third quarter. We will continue to implement the hybrid approach we announced earlier this year. We expect the overall implementation to be completed by the end of 2026. Regarding implementation costs going forward, we expect onetime implementation costs to continue in the $10 million to $15 million range for the fourth quarter as we transition more AUM onto the platform. This amount in future quarters may fluctuate to a degree due to timing as we work towards completion by the end of 2026. We'll provide further updates as the implementation progresses throughout next year. As disclosed in August, we reached an agreement with Carlyle to sell Intelliflo, our cloud-based practice management software subsidiary. We moved Intelliflo to held for sale in the third quarter and the noncash impairment charge of $36 million was recorded in other gains and losses, somewhat lower than the $40 million to $45 million that we had indicated previously. We expect to close this transaction in the fourth quarter and then the annual net operating impact of Intelliflo is insignificant to the overall Invesco operating results. Given Intelliflo is the U.K. subsidiary, the loss is not a taxable event. As such, we anticipated the effective non-GAAP tax rate for the third quarter to be closer to 29%. The effective tax rate for the quarter was 11.2% as we were subsequently notified late in the quarter of a favorable resolution of a certain tax matter, including the reversal of a reserve for uncertain tax positions which had a significant impact on our third quarter non-GAAP effective tax rate. For the fourth quarter, we estimate our non-GAAP effective tax rate will move back to the 25% to 26% range, excluding any discrete items. The actual effective rate can vary due to the impact of nonrecurring items on pretax income and discrete tax items. Andrew also noted that the sale of a majority interest in our India asset management business is expected to occur in the fourth quarter, potentially at the end of October. Post closing, given we will retain a minority interest India's AUM, which is near $15 billion and future asset flows will not be reported in our results. In addition, India's operating results will no longer be reported as part of Invesco's overall operating results including the associated revenues and expenses. Our 40% share of the joint venture's net income will be reported in equity and earnings of unconsolidated affiliates going forward. We currently expect $140 million to $150 million in cash proceeds from the sale. I'll wrap up on Slide 9. As I noted earlier, we continue to make considerable progress on building balance sheet strength. During the third quarter, we repaid $260 million of the $1 billion in bank term loans used to fund the $1 billion repurchase of preferred stock held by MassMutual earlier this year. The $260 million repayment reduced the 3-year term left to $240 million. And as I noted earlier, we're in a position to repay the remaining balance by the end of this month, leaving only $500 million [ in ] the 5-year maturity term loan. The full impact of the $14.8 million reduction in the preferred dividend was realized in the third quarter and the go-forward run rate preferred dividend is $44.4 million per quarter. The $14.8 million reduction is now earnings available to common shareholders. We also continued common share repurchases in the third quarter buying back $25 million or 1.2 million shares during the quarter. We intend to continue a regular common share repurchase program going forward and expect our total payout ratio, including common dividends and share buybacks to be near 60% this year as well as in 2026 as we continually evaluate our capital return levels. The partial repayment of the bank term loan improved our leverage ratios for the quarter with the leverage ratio, excluding and including the preferred stock, improving to 0.63x and 2.5x, respectively. Going forward, we expect this ratio to continue to improve as we repay the term loan and redeem the $500 million senior note maturing in January. To conclude, the strength of our net flow performance and diversity of our business is evident again this quarter, driving strong revenue growth. This, combined with well-managed expenses resulted in significant operating leverage and a sizable improvement in our operating margin. We're pleased with our progress on building a stronger balance sheet. And we are committed to driving profitable growth, a high level of financial performance and enhancing the return of capital to shareholders. With that, I'll ask the operator to open up the line for Q&A. Operator: [Operator Instructions] And the first question comes from Bill Katz with TD Cowen. William Katz: Okay. Thank you very much. I excuse my voice this morning. Maybe it's on the QQQs. I'm sort of curious if you could maybe put any kind of meat on the bone a little bit around where you are relative to the quorum or the approval rate and the development with the SEC in terms of re-categorizing and reclassifying where you're going to account for the marketing spend. Does that raise the probability of getting to the required vote to make the shift? Thank you. Allison Dukes: We can't give you details on where we are relative to the quorum or the approval rate, but as we noted in our disclosures, we're very pleased with the progress, and it's an overwhelming majority that's voting in favor of the fee change. We're pleased. It's not unexpected that these things take a lot of time, especially for a fund as large and widely held as this one. It takes a little more time to get to the quorum, but we're pleased with the progress we're making. On the second question, as it relates to the marketing expenses, no, there's nothing in that that really changes anything, to be frank. This is entirely related to the comments from the SEC on the proxy, some of the language changes, putting that back through an accounting review, and we determined this is the most accurate and appropriate place to reflect those marketing expenses. Going forward, I don't think it really has any impact whatsoever on how people are thinking about the proposal. There's no change at all to operating income. Again, it's still approximately four basis points, and the way the marketing expense will work is as disclosed in the proxy filing, which is a discretionary amount of marketing expense within the range that we provided in the proxy. Operator: Our next question comes from Brennan Hawken with BMO Capital Markets. Brennan Hawken: It's just a follow-up on Bill's question. I understand that you guys are using a proxy voting firm to help drive participation. I just want to confirm, is that considered a marketing expense of the fund, and is there any sort of spend threshold where over that it starts to become an operating expense for Invesco? Allison Dukes: Yes, we are using a proxy solicitation firm, and it is considered a marketing expense of the fund. Those expenses are accrued in the fund. I don't foresee that happening with those expenses bleeding over into operating expenses for Invesco. There can be some timing differentials in terms of how we accrue within the fund, month to month, versus just timing, I would say, on fund expenses versus operating expenses for Invesco. Right now, I do not see that as being a risk to Invesco's operating expenses, especially if we continue on the path to the meeting on December 5 as scheduled. Brennan Hawken: Got it. Okay. Thank you. This might be a little granular, but I'm going to give it a shot anyway. I understand that there's three proposals in the proxy vote. Are all three proposals progressing similarly, or is there any divergence in between one, two or three? Allison Dukes: No, there's no divergence. They're all progressing similarly. I think that is a very granular question. There's one in particular everybody's focused on, but fair question. No, I think it's all progressing consistently. Operator: The next question comes from Glenn Schorr with Evercore. Glenn Schorr: So your fixed income flows have been pretty good. Your performance is very good. There has obviously been some volatility around the potential of lower rates and the potential of credit issues rising. It has been a while since any of the channels had to deal with that. I am curious what you saw in October and things like bank loans. More importantly, in general, given the global nature of your flows, what you expect on a go-forward basis just across the fixed income platform. Andrew Schlossberg: Sure. Let me start. We did not see any material implications from some of the events you described in October. We're continuing to see real strength in our fixed income business. It's a $680 billion platform, it's up from $625 billion at the start of the year. That's come through mostly organic growth. We've had over $30 billion in platform-wide fixed income flows. We mentioned in the prepared comments that's really been broad-based. Our SMA platform in the U.S. has probably been the strongest piece here in the United States. But overseas, we've seen a good movement out of some shorter duration strategies into some longer duration strategies, global bonds, investment-grade bonds. We're seeing that pick up materially in Asia and EMEA. We continue to go from strength to strength. I'd say some of the bank loan flows were a little weaker at the back end of the quarter, but it continues. We continue to be a leader in that space and continue to do well in the bank loans and also in CLOs. Anything you want to add? Allison Dukes: No surprise and no secret. Markets have been a little bit jittery on the credit side in the month of October. I do think we see some softening, maybe some outflows on the bank loan side in the month of October. We'll see how this plays out as we continue to try to evaluate if this is a rather specific risk or something broader-based. I would say nothing notable. Overall, we continue, as Andrew said, to see things perform pretty well. In particular, the strength in our CLO platform and some of the launches across the third quarter and the demand coming into the fourth quarter still remains high. Andrew Schlossberg: And investment performance is pretty strong across the whole platform. So as demand picks up, as some of this cash starts to potentially move off the sidelines, we should be well positioned. Operator: Our next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: I was hoping you could maybe unpack the two divestitures you made -- earlier that you mentioned, both on the Intelliflo side as well as the JV in India. Maybe one, with the use of proceeds, obviously, you guys have been deleveraging, and there's more to do there, but maybe talk a little bit about capital return priorities as you look out over the next 12 to 18 months. As we start to look out into 2026, what are the implications maybe for expense growth on the back of those divestitures? Allison Dukes: Sure. Maybe I'll take that in a couple of different directions. Let me start with India. India, as we noted, we're expecting proceeds there of $140 million to $150 million. Maybe just a little bit of color getting to kind of what's the impact on some of the expense, and I'll say operating income trajectory from there. India is a business that, from a revenue perspective, runs around $13 million a quarter. Expenses run around $7 million a quarter, call it, operating income of roughly $6 million a quarter. As we noted, that will come out of our operating income results, and we will reflect that 40% ownership below the line in equity and earnings going forward. The AUM of about $15 billion in the flows will no longer be reported in those results either. Intelliflo, we're expecting, as I noted, about $100 million in proceeds. That's before any potential future earnouts. We expect that one to close later in the fourth quarter. That one, operating income runs anywhere from breakeven to $1 million or $2 million loss a quarter. Call it very negligible to results overall. That would be removed entirely from our results. Total proceeds of around $240 to $250 million. In terms of our capital priorities, they remain balanced. We remain focused on improving the balance sheet, returning about 60% of our capital to shareholders, and investing in our own growth capabilities. We're getting to a place where we're starting to create more and more capacity for ourselves. We're pleased with the progress we're making on the balance sheet. I don't think we're totally where we want to be yet. We are seeking to continue to improve that leverage ratio, particularly while we have these strong operating cash flows that we have. I'm very pleased with the ability we have to pay down the remainder of the three-year term loan by the end of this month. That's all from operating cash flow and before any of these proceeds. These proceeds give us the flexibility to continue to launch new products going into next year. We're highly focused on our capital planning for 2026 and working with our teams across the firm as we think about what's going to drive revenue most aggressively going forward. It gives us flexibility to keep doing all of those things, investing in ourselves, creating flexibility on the balance sheet, managing these debt levels lower, and returning capital to shareholders. In terms of expenses next year, I'd say expect them to continue to be really well managed, and we'll certainly be giving you more color as we get into 2026. Operator: Our next question comes from Dan Fannon with Jefferies. Daniel Fannon: Great. So I guess another question on expenses just with regards to the Alpha platform and integration. We've got $10 million to $15 million, I guess, in the fourth quarter of ongoing implementation costs. Can you talk to next year in terms of the pace versus what we've seen this year? Ultimately, I think it's about reducing future cost growth. Can you give us kind of the end state as you think about what this integration will do in terms of how to think about long-term expense growth? Allison Dukes: Yes. As we noted, we are highly focused through the hybrid platform implementation on completing this by the end of 2026. There is aggressive planning underway right now. We do expect the pace of implementation and implementation costs to remain high throughout 2026 as we seek to move all of our assets onto the collective platforms by the end of the year. I would say, as we think about '26, and again, we'll give you more color as we get closer, we would expect some of the costs to modestly increase related to Alpha and the hybrid platform implementation. That gives us the opportunity to then start to look at what we decommission, how do we streamline our operating systems. I wish we could be turning off more along the way, but we have to complete a lot of these things before we can actually decommission and stop renewing certain other aspects of our overall operating platform. That really becomes a 2027 opportunity. I'd say it's certainly early to be giving guidance around 2027. What I will say is I expect these run rate expenses that are associated with the hybrid implementation to peak in'26, and then we will begin aggressively planning for how we streamline our operating platforms going into '27. Against that backdrop, and I'll reiterate this, I think you can look back over the last few years and see our overall expense base has been extremely well managed, even while we've been putting in these systems. It has been a heavy lift, and there has been cost associated with it. We've really been able to improve operating margin significantly against this. Revenue growth has helped, no question, but the expense base in particular has been very well managed along the way. We're not going to take our foot off the gas there. We've got real opportunity to continue to manage that going into the next few years. Andrew Schlossberg: Yes. And we're really pleased with the progress of the implementation on the hybrid solution since announcing the change in the spring. We brought on a pretty significant piece of the equity business onto the platform. It's, you know, things are going well in terms of the implementation and the teams working together. Operator: Our next question comes from Benjamin Budish with Barclays. Benjamin Budish: Maybe just another follow-up on the expense side. It looks like markets are constructive. Your flow profile has been looking increasingly healthy. If the QQQ vote goes through as it sounds like you're optimistic it does, there's going to be kind of even more flowing to the bottom line. So I guess, maybe just kind of -- again, following up on the last couple of questions. How are you thinking about variable expenses going into '26 and '27? Obviously, there is the [ ports and ] pieces you can control. But how are you thinking about opportunities to drive more operating leverage given the -- what looks like a healthy backdrop for top line revenues? Allison Dukes: Sure. I'll take that. I mean variable expenses, as we've noted in the past, they run about 25% for us. So that certainly is the first port of call, if you see pullback in revenue and it is where we see expenses really moving up as we see increases in revenue. So as we think about what that means going forward, I mean our focus is really on how do we keep managing, maybe we fixed expense base because the variable in many respects is what it is, and we're pleased for that to fluctuate up and down. The fixed expense base is where we spend a tremendous amount of time really looking at how do we continue to unlock value there and taking a hard look at every aspect of it. I think a lot of the work we've been doing over the last couple of years, and you're seeing the fruits of that is the simplification work. And where we can reduce redundancies and simply our operating platform across all of our investment capabilities by unifying teams, by looking at where we can be more global as a firm and a little less regional reducing some of the duplication that came with some of that structure in the past. Those are the opportunities we've had to continue to interrogate our fixed cost expense base, and we will continue to do that. That's really a part of our rigor now. And so as contracts mature, as opportunities arise, as people leave the firm, as markets change, we really look at how do we continue to simplify and collaborate better and collapse some of our platforms perhaps together so that we can go to market in a single fashion. And that's going to be -- that's work that -- it's in our blood now, it's in our DNA, and it's the work we're going to continue going into the next couple of years. Andrew Schlossberg: Yes, I think we -- clarifying our strategic priorities that we've shared with you over the past year or two has been helpful to energize the firm towards those. And while managing expenses in a very disciplined way, as Allison mentioned, also investing in the business, whether that's in the product line, our private market capabilities and distribution efforts, what we're doing in our ETF platform, we've been able to invest over the last 18 months on a net basis as well. Benjamin Budish: Really helpful. Maybe just one separate follow-up if I may. Andrew, I think you addressed one of the questions around credit more broadly. Just curious with the launch of this new fund with MassMutual, any specific feedback on that one? I know there's a healthy component of direct lending in there. And just in terms of distribution, maybe remind us what the sort of rollout looks like, whether it's wires versus RIA, how should we see things start to flow in? Andrew Schlossberg: Yes, no problem. The fund -- we repurposed a legacy fund that has about $250 million in assets in it, and we'll get an infusion for MassMutual as well. So it's starting with a decent asset base, it has a good record. And it's going to be targeting all of those U.S. wealth management clients that you mentioned. So traditional financial advisers, RIAs, et cetera. We've only been in market for a couple of weeks. So it's a little too early to say with regard to where progress is. But I will say the notion of it being dynamic, meaning it cuts across all sides of the credit spectrum, the ability for it to leverage both the strengths of Barings and Invesco. And it's well priced and relatively liquid. I think those are all attributes that we've heard soundings from the wealth management marketplace that they're looking for a little more of a one-ticket solution. And that's how we're putting it into the marketplace and we'll report on it as we go forward, and we're already working on product too. Operator: Our next question comes from Patrick Davitt with Autonomous Research. Patrick Davitt: Another follow-up on the expense question. Sorry if I missed this and all the discussion. But I think non-comp, in particular, was still well below expectations in 3Q. So is that a good run rate to think about how things are tracking in 4Q at least? Allison Dukes: Yes. Thanks. I would say I think non-comp, probably a little low in the third quarter. It could be a touch higher in the fourth quarter. I think we typically do see some seasonality when you think about marketing expenses and the professional services, some of the things that come in there at year-end. So it's not significantly higher, but I think I would expect non-comp to be modestly higher in the fourth quarter very modestly. I think comp to rev is probably -- or compensation expense as you think about compensation as a percentage of revenue, it's probably the one that's maybe a bigger driver as you think about just the fourth quarter and the overall year compensation is highly dependent on revenue. We'll see how the fourth quarter shapes up. But it's probably -- so far this year, we're accrued to about 43.4% year-to-date. We really manage it on a full year basis. I think it's probably something in the 43% context. It could be a touch under 43%. That's how I would think about fourth quarter expenses overall. Patrick Davitt: Great. And then as a quick broader follow-up, I guess you mentioned a bunch of active ETF launches. Any sense of AUM into those kind of products more coming from existing products or existing wrappers, cannibalizing existing wrappers or do you sense that it's actually new AUM in the system? Andrew Schlossberg: Yes. I mean, it's a couple of billion dollars. So it's not unmeaningful. It's hard to tell exactly where it's coming from. I'd say the strategies we brought forward have been a combination of new strategies and some that are existing strategies in another format. So -- and most of it has been actually in new strategies. So I think it's incremental growth, quite frankly. It's similar advisers, though. So the higher net worth advisers that we work with across private markets and ETFs in general are interested in those active ETFs, too. But our expectation is that this is very early and it will develop over time and that it's not just a U.S. phenomenon. I think this is something that the world is kind of acknowledging that. The ETF vehicle has some significant benefits. And it's a good vehicle for both passive strategies and active strategies and things that are hybrids of the two, which I think will come in time. Operator: The next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Great. Maybe just right along that -- the last question from Patrick on the ETFs. As you expand those strategies and move more of that or I should say, as RIAs in particular, adopt the strategies, are you -- is that moving more into the ETF and index bucket? Or should we think about this over the long term as propelling growth in that ETF and index bucket? Or is that factoring into fundamental equities? Andrew Schlossberg: Yes. I mean, look, at the moment, it's -- we're seeing a lot of growth in the past in the index side of the business. The active side is kind of just getting going. I think you'll see it across the piece. And I don't think it's just going to be ETF wrapper. I think you're also going to see the SMA wrapper and then model portfolios, which incorporate a lot of ETFs, currently passive, but I think in the future active. You'll see all of those vehicle types grow, and the underlying investment capabilities will include all of the categories, you know, that we have outlined whether it's fundamental equity, fundamental fixed income and ultimately, maybe some of the alternative private assets, too. So I think you'll see it both in the vehicles that I mentioned being the expansive vehicles and I think across the capabilities. Fixed income has been a place where we've seen a good amount of growth in our ETF lineup, both passive and active. So equity is probably the one that needs to -- will pick up the pace here as we go forward. But fixed income has predominantly been where the flows have come. Brian Bedell: Great. Just a couple of housekeeping. On the India sale, is there a segmentation of where that $15 billion is coming out of in the categories? Just on the QQQ ETF, if that is approved on December 5, when would you expect that conversion to happen to the P&L, is it right, subsequent to that? Or do we have to get through more approvals and that's beginning of next year? Allison Dukes: Sure. So on your first question on the India AUM, that shows up on the China and India -- sorry, that shows up in the China JV and India AUM category. So you expect to see that $50 million -- $15 billion come out of that category. And then the second question -- that would convert immediately following the shareholder meeting. So assuming we have the quorum, once we have the quorum and the shareholder vote, requires both, in that meeting, then it would convert effectively the next day. Operator: Our next question comes from Michael Cyprys with Morgan Stanley. Michael Cyprys: Want to circle back to India. I was hoping you could speak to the sale of a majority interest. Just curious if you could elaborate what led to that decision. It's a major market where many are quite bullish on the long-term prospects. So why reduce the stake? Maybe you can elaborate a bit on your partner and just blend how you decided to partner with them, how you see them helping drive accelerated growth from here? Andrew Schlossberg: Yes. Thanks for the question. We've had great success with partnerships and alliances and JVs, notably the one we have in China over the last 22 years. And so we look at the Indian market and it's growth, but we also look at how local that market is. Us having a domestic business there and seeing the market trends and development that we're bullish about, finding a partner that in both financial institution as well as a large brand and a well-known local operator in the Hinduja Group was just a good combination and marriage together. It will allow us, as Allison said, to participate in the growth from a profitability standpoint, but it will also allow us to see that business grow and for us to participate hopefully with sub-advising assets into it, especially those assets that will be beyond the local Indian managed assets. So I think as global equities or global bonds come into that market and Invesco will be hopefully, the underlying manager of those strategies, and that's the expectation of the partnership. So it really was just a classic sort of 1 plus 1 equals 3 and an ability for us, as we mentioned, to really focus our resources and energy on a full basis in other areas and participate in the Indian market as it grows and develops. Michael Cyprys: Great. And then just a follow-up question on China, where you're seeing quite robust flows. I was hoping you could elaborate on the success that you're seeing there, the steps that you've taken to drive this improved momentum? What sort of demand are you seeing for passive versus active in China? Maybe remind us of the complexion of the business today. Gregory Ketron: Yes, sure. So, look, I think some of our success in China is a function of us being there for 22 years and staying committed and focused on developing a full-fledged retail asset management business there, which we have. And so the $122 billion in assets that we have under management there is an established platform, one of the larger ones in the market, a well-known brand, well thought of for its compliance and investment integrity. And so as markets improved and as demand has started to improve from those retail investors in the market, we're seeing the benefits of that. The business is pretty diverse. So as a reminder, it's about 30% equities, 30% bonds, 20% balanced and 20% money markets. And to your question on ETFs, I think it's around $12 billion or $13 billion now of ETF. It's a business we only -- or the JV only started in the last few years. The growth has been still largely in the active part of the business, but we're seeing a pickup in the ETF flows as well. And we're trying to meet that demand by launching new product, as I mentioned. So I think the ETF part will continue to develop as will their models area, as will the traditional equity business, it's really evolved over the course of those 22 years. And so as we're getting a little more favorable outputs from China in terms of the easing signals from the government or the pushing forward of consumption, less reliance on the property sector. And importantly, for us, the development in time of a retirement market there and a more robust capital market, we think that JV should continue to go from strength to strength. And just as a reminder, it's a domestic to domestic business exclusively. Operator: Our last question comes from Ken Worthington with JPMorgan. Kenneth Worthington: Okay. Great. So M&A is back in investor dialogue, given Trian's offer for Janus as you sort of reflect on Invesco in the industry, where has consolidation been successful and where has it fallen short? And given your balance sheet is strong, your fundamentals are strong, is it a good or a bad time for Invesco to think about M&A to further strengthen your position and kind of get to your strategic priorities more quickly? Andrew Schlossberg: Yes, thanks. We're -- we've been very focused on all the organic opportunities that we have inside the company. And hopefully, we demonstrated throughout this call in the last few quarters, of the progress that we're making. And we still think there's quite a bit of progress we can continue to make in time organically. The business is global. It's diverse. It's in the asset classes where there's demand and we continue to believe we can grow that organically. I think Allison mentioned the priorities that we have for our use of capital and what our focuses are at the moment. We want to continue to invest in ourselves, and we want to continue to improve our balance sheet. We'll keep our eye on M&A. We'll continue to keep our eye in particular in places like the private markets areas where we have a strong business today with $130 billion in assets but also expectations for future growth. So I don't think it changes much our focus and our dedication as a company. Operator: Okay. And back to you, Mr. Schlossberg. Andrew Schlossberg: Okay. Well, thank you. And in closing, we are unlocking value across the organization for the benefit of clients and shareholders. This includes looking at how we fundamentally operate leaving no opportunity unexamined as we strive to improve client outcomes, generate operating leverage and profitability, continue building a strong balance sheet and enhancing our ability to return capital to shareholders. We have resilient operating performance across many key value drivers. Our global footprint with a significant and unique Asia Pacific presence and a strong performing EMEA business, coupled with our scale and breadth of products positions us well to perform through shifting market dynamics. We continue to demonstrate that we have durable performance and reason to be optimistic about the future. We want to thank everybody for joining the call today, and please reach out to our Investor Relations team for any additional questions. And we appreciate your interest in Invesco and look forward to speaking with you all again soon. Operator: Thank you. That concludes today's conference. You may all disconnect at this time.
Sarah: Good morning and welcome to PayPal Holdings, Inc.'s third quarter 2025 earnings conference call. My name is Sarah, and I will be your conference operator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker, PayPal Holdings, Inc.'s Chief Investor Relations Officer. Please go ahead. Steve Winoker: Thanks, Sarah. Welcome to PayPal Holdings, Inc.'s third quarter earnings call. I'm joined by CEO Alex Chriss and Chief Financial and Operating Officer Jamie S. Miller. Our remarks today include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses as we see them today. As described in our earnings press release, SEC filings, and on our website, those elements may change as the world changes. Over to you, Alex. Alex Chriss: Thank you, Steve. Good morning, everyone, and thanks for joining the call. PayPal Holdings, Inc. is a fundamentally stronger company today than it was two years ago. Focus and execution have enabled us to drive a positive inflection across our business. Take transaction margin dollar growth, excluding interest on customer balances. We are on pace for 6% to 7% growth in 2025 compared to negative growth just two years ago. Revenue growth has accelerated in the past two quarters as a result of our deliberate strategy to focus on profitable growth. Operationally, we are winning new customers and deepening engagement across our existing base. We have reinvigorated unprofitable and underperforming parts of the business. We're leveraging our incredible brands to innovate and expand our addressable market beyond online payments. Thanks to our omnichannel initiatives, we've accelerated branded experiences TPV growth to be between 7% and 8% on a currency-neutral basis over the past four quarters. Our BNPL business is sustaining 20% volume growth quarter after quarter. Venmo revenue growth has accelerated 10 points compared to two years ago, while we have also continued to grow our user base. Our enterprise payments business has turned a corner, returning to volume growth and consistently contributing to company transaction margin dollar growth. We have delivered this acceleration in our business while remixing inefficient spend into growth investments and returning capital to shareholders. In total, we are on pace to deliver at least 15% non-GAAP EPS growth this year. All of this gives us confidence in the business's longer-term growth potential and ability to deliver high single-digit transaction margin dollar growth and non-GAAP EPS growth in the teens or better over the longer term. I'm also excited to announce that we are initiating a dividend. Our overall capital allocation priorities remain the same. We will continue investing first and foremost in our business's growth and transformation. We see this dividend as strengthening our overall capital return program, working in conjunction with our ongoing share buybacks. Our free cash flow generation and balance sheet are strong and give us ample room to both deploy capital to drive growth and return capital in a disciplined way to shareholders. Put simply, this is the new PayPal Holdings, Inc., built for faster, more profitable growth. Our strong foundation, differentiated competitive advantages, and clear strategic direction position us to capture a massive and growing addressable market. With building execution momentum, we are driving innovation at a remarkable pace and scale. This makes us exceptionally well-placed to win into the future. Turning to our third quarter performance, we delivered at or above the high end of our guidance range for transaction margin dollars and EPS. Importantly, our TM dollar growth continues to come from multiple areas of the business, including branded experiences, PSP, and Venmo. Non-GAAP earnings per share increased 12%, reflecting the flow-through of our transaction margin performance. The strength of our two-sided platform is evident in how customers are choosing to deepen their relationship with us. Monthly active accounts grew 2%. When you look at transactions per active account growing 5%, excluding PSP, you see the real story. Customers aren't just signing up; they're incorporating PayPal Holdings, Inc. and Venmo into their daily lives. This engagement depth makes us a valuable partner to merchants and will drive sustainable, profitable growth. Now I'd like to discuss the progress we are making in our four strategic growth drivers: winning checkout, scaling Omni, and growing Venmo, driving PSP profitability, and scaling our next-gen growth vectors. As you can see on slide four, PayPal Holdings, Inc.'s TM dollar growth, excluding interest, has not only accelerated, it is coming from a far more balanced mix across our business. This is important to appreciate the strategy underpinning the value our teams are working to create. Compared to last year, win checkout's contribution increased, and PSP, Omni, and Venmo's contributions are a multiple of what they were in the past. This is a direct result of the work we have done to build more holistic, healthier merchant relationships, to scale our omnichannel presence, and to monetize Venmo. The innovation and momentum across the company are increasingly visible, as you have seen in our recent announcements and as you will hear today. I plan to move quickly so that we can go deep in a few key areas like BNPL and Venmo, while also leaving ample time for Q&A. Let me start with branded experiences, which covers our first two growth drivers: online and in-store branded checkout. Our strategy is to meet our customers everywhere they shop, whether online, in-store, or agentic. We are focused on delivering the best checkout experience so consumers can pay how, where, and when they want. It means they can pay online with PayPal Holdings, Inc., Buy Now, Pay Later, Venmo, crypto, or soon a partner wallet through PayPal World. It means they can pay in-store with a PayPal Holdings, Inc. or Venmo debit card, BNPL, or Tap to Pay. It also means building for a future where consumers can pay through AI agents powered by Google, OpenAI, Perplexity, and others. Last September, we launched PayPal Everywhere in the U.S. to move beyond our legacy in online branded checkout into an omnichannel world. A year in, and the results show our strategy is working. Branded experiences TPV grew 8% on a currency-neutral basis in the quarter. This includes PayPal Holdings, Inc., Buy Now, Pay Later, Venmo, and our debit card programs, and is the single most important metric to track the progress on transformation from an online payments company to a commerce company. We need to be available everywhere a consumer wants to make a purchase. This is about more than being present across channels. It's fundamentally expanding what PayPal Holdings, Inc. means to our customers and the total spending we can capture. Historically, PayPal Holdings, Inc. was synonymous with online retail payments. Today, we're evolving the way consumers pay for all of their commerce needs, moving beyond retail into services, subscriptions, bills, everyday expenses, and more. We're now playing for a much bigger addressable market. Our confidence in the financial impact of this strategy comes from the flywheel effects we see across our ecosystem. When customers start using PayPal Holdings, Inc. or Venmo offline with our debit card, their online activity increases as well. ARPA goes up, profitability improves. In Q3, our PayPal Holdings, Inc. debit card actives transacted nearly six times more and generated nearly three times the ARPA of checkout-only accounts. We see a similar pattern with BNPL. Its use drives an uplift in overall activity and engagement. The data clearly validates our strategy and gives us confidence to increase our growth investments. Most of our product initiatives, plus our marketing investments over the past year, have started in the U.S. It's worth examining our U.S. proof points as they demonstrate the potential for our business as adoption scales internationally. For example, in the third quarter, we reached 10% branded experiences volume growth in the U.S., more than double our growth the same quarter a year ago. That acceleration comes from two things: growing omnichannel adoption and sustained improvement in the U.S. online branded checkout trends, supported by our improved experiences. We have the right set of drivers and initiatives in place. Now our focus is on adoption and investing to amplify our impact. As we move into 2026, we will be leaning more into these efforts and expanding across key international markets. Let me address online branded checkout in more detail. TPV grew 5% in the third quarter on a currency-neutral basis. That's solid growth, especially with the choppy global macro trends we continued to see this quarter. Given the competitive intensity online, we know more work is needed to close the gap between our performance and overall e-commerce growth. Our strategy moving into next year centers on three priorities: continuing to scale our redesigned checkout experiences, improving how we are prioritized across merchants, and importantly, driving biometric adoption. We are also leaning into new verticals and geographies that expand our addressable market and avenues for growth. All of this will be complemented by a consumer value prop with a highly competitive rewards program aimed at increasing frequency and selection rate. We also have a powerful growth lever with Buy Now, Pay Later and Venmo, which I'll discuss further shortly. This year, we've made significant progress deploying our redesigned pay sheet experience, which now covers close to 25% of our global checkout transactions. We're moving quickly, but untangling a decade or more of legacy integrations is complex and taking more time than planned. In the cohorts where we are now optimized in the U.S., we continue to see close to one point conversion improvement. This gives us confidence. It's a win, not if we see more benefit from this monetization. At the same time, it's critical that we keep improving PayPal Holdings, Inc.'s prioritization across merchants and scaling biometric login, both of which have been proven to increase conversion. On the prioritization side, we are focused on scaling upstream messaging on product pages, driving adoption of our payment-ready API that allows merchants to target high-converting PayPal Holdings, Inc. users when they land on their site, and improving PayPal Holdings, Inc.'s placement at checkout. Improved prioritization and presentment are powerful. In testing, when our Buy Now, Pay Later options are presented upstream on a product page, we see a nearly 10% lift in branded checkout volume on average. That improvement drives incremental sales for our merchants and customer loyalty with repeat use for PayPal Holdings, Inc. Within biometrics, we are focused on scaling biometric login, including passkeys, and driving mobile app adoption, which enables seamless authentication during checkout. In ongoing testing to date, these authentication efforts, when paired with the redesigned pay sheet we've been scaling, have shown improved conversion between 2% to 5%. Consumers benefit from a mobile checkout experience that is second to none, while merchants see a higher customer satisfaction and sales. It's a win for both sides of our network. The bottom line, the initial results we have seen to date in the U.S. make us confident we're on the right path and have the right initiatives in place, both to drive acceleration and increase growth investments as we move through next year. Now that I've covered some of the foundational work underway, let me dive deeper on two important growth levers that I mentioned: BNPL and Venmo. The shift towards Buy Now, Pay Later is a fundamental change in how consumers want to pay, and we are extremely well-positioned to capture this shift. In the markets where we offer BNPL, our solutions are available nearly everywhere PayPal Holdings, Inc. is accepted. It's a reach and scale that's hard to replicate. This quarter, BNPL volume continued to grow more than 20%, with particular strength in the U.S. This puts us on track to process close to $40 billion in BNPL TPV in 2025. Monthly active accounts climbed 21%, and our net promoter score globally is 80. People love this product. We have everything we need to win this market. We are investing to transform our BNPL business from a payment option that consumers discover in the PayPal Holdings, Inc. Wallet after they made a purchase decision into a customer acquisition channel. This means moving to the beginning of the shopping journey through marketing and upstream presentment so that consumers know they can increase their purchasing power with BNPL. This focus and investment will expand our right to win in BNPL and further accelerate growth. We are also expanding BNPL to new geographies and introducing new product offerings, both online and in-store. We have successfully expanded BNPL into Canada and extended payment terms in Italy and Spain to up to 24 installments. After proving the model in Germany, we brought Buy Now, Pay Later (BNPL) in-store to the U.S. through the PayPal Holdings, Inc. mobile app, seamlessly connecting online and offline shopping. We are building the future of flexible payments, and we're doing it at scale. Moving to our Venmo business, Venmo isn't just another payment app. It's the money movement platform of choice for the next generation. One of the things that continues to set Venmo apart is its user base, young, affluent, digitally native consumers who are shaping the future of commerce. With nearly 100 million total active accounts growing mid-single digits, Venmo has tremendous scale in this attractive demographic. We have a deliberate, sequenced strategy that's changing how these users engage with Venmo. At the core is maintaining our leadership as the best P2P platform in the market, attracting more funds into the Venmo ecosystem, driving omnichannel spending, and seamlessly integrating commerce into the Venmo app. We are already seeing results. Venmo is at a clear inflection, with TPV growing 14% in the third quarter, continuing to accelerate from 12% in Q2 and 9% in 2024. Pay with Venmo just hit a milestone: $1 billion of TPV in September alone, and Pay with Venmo monthly active accounts grew by nearly 25% in the quarter. We hit a new record with our Venmo debit card, which attracted 1 million first-time users in Q3, thanks in part to our college partnerships. Monthly Venmo debit actives grew by more than 40%. This has resulted in overall Venmo monthly active account growth accelerating to 7% year over year to nearly 66 million monthly active accounts. From a financial perspective, Venmo is on pace to generate $1.7 billion in revenue this year, excluding interest income. That's up more than 20% and a 10-point acceleration from two years ago. Under the surface, we are also changing our revenue mix and growing in high margin areas. Over the past two years, we've doubled Pay with Venmo and Venmo debit card revenue. Not only can Venmo become a more significant revenue driver as it scales, but it is also accretive to transaction margin. Here's what makes this so compelling. We're still in the early innings of monetization. Today, Venmo's average revenue per monthly active account sits at just over $25. While over 90% of Venmo's users engage with P2P, only 5% to 10% are using our debit card or Pay with Venmo, and less than 5% have set up recurring funds in. For the subset of accounts engaged across P2P, debit, and Pay with Venmo, which is still small today, ARPA is about 4x higher. For accounts that are also bringing funds in through direct deposit or instant add, ARPA is 6x higher. In other words, the upside on Venmo's revenue is a multiple of where we stand today. The good news is that adoption is accelerating. For example, new users today are adopting our debit card at nearly 4x the rate they were two years ago, giving us massive runway as we continue driving attachment of these high-value products. This is one of the reasons why we are investing in our college partnerships and introducing unique, personalized rewards that drive multi-product adoption and encourage balanced spending within the Venmo ecosystem. We're also expanding Pay with Venmo into new high-value use cases like our built partnership for rent payments. At Investor Day, we discussed growing Venmo revenue to more than $2 billion by 2027, and it's clear that the team's execution will allow us to deliver well beyond this over time. Taken together, these businesses, online branded checkout, BNPL, Venmo, and Omni, drove branded experiences TPV growth of 8% on a currency-neutral basis. Moving to our PSP business, our PSP volume growth accelerated to 6% from 2% last quarter, demonstrating that we are accelerating growth after rebaselining. This growth is profitable and contributed to transaction margin dollar growth in the quarter. We are doing this by continuing to build holistic relationships with merchants. Value-added services like payouts, adaptive payment optimization, and FX as a service deliver real, measurable value, including improvements to authorization rates and cost reduction. We're seeing merchants not only willing to pay for these capabilities, but actively requesting more of our services as they begin to recognize the benefits for their business. As we continue to expand our unified enterprise payments platform globally, we are bringing these margin-accretive services to new merchants from day one. We expect accelerated growth in this business as we expand the adoption of value-added services across our existing customer base and launch with Verifone as our first omnichannel solution provider in Q4, strengthening our position in the PSP market. While we accelerate growth in branded experiences and PSP, we are also aggressively innovating in agentic, ads, stablecoins, and digital wallet interoperability through PayPal World to establish avenues for future growth. I'll highlight just a few of our recent developments. We continue to partner with leaders across the agentic space, including Perplexity earlier this year, and in September, we announced our expansive multi-year partnership with Google to create new AI shopping experiences. This morning, we announced a significant partnership with OpenAI to expand payments and commerce in ChatGPT, including adding PayPal Holdings, Inc. branded checkout for shoppers and payment processing for merchants using instant checkout. This is a big win for PayPal Holdings, Inc. and our customers. Today, we also announced our own agentic commerce services, which help merchants sell through multiple AI platforms, including Google, OpenAI, and Perplexity. Merchants will have one integration to access consumers through multiple LLMs. Agentic commerce will take time, but we do believe consumer behavior will shift. PayPal Holdings, Inc. is building for that future. Finally, I'm very excited to share that PayPal World is officially in its pilot stage, and the first test transactions are happening this week. I'm proud of the progress that we've made this quarter, from partnerships to new product innovations to continuing to strengthen our profitability. With that, let me turn it over to Jamie to go into the financials in more detail. Jamie S. Miller: Thanks, Alex. Moving to slide 10, PayPal Holdings, Inc. delivered another quarter with good execution and real momentum across the underlying business. TPV and revenue growth both accelerated by 2 points from the second quarter. Transaction margin dollars, excluding interest, grew 7%, continuing the momentum we built through the first half. The drivers of that growth have been broad-based, led by strong credit performance, branded checkout flow-through, improvements in PSP profitability, and Venmo monetization. Growth across these areas was partially offset by higher transaction losses in the quarter. The diversification and quality of this growth is a meaningful improvement from where we were at the start of the company's transformation. We have clear opportunities to build on this progress with investments that strengthen our competitive position and drive durable, profitable growth. Moving back to third quarter financials, non-GAAP operating income grew 6%. Strong operating income, share buyback, and a favorable tax rate more than offset headwinds from lower interest rates, contributing to 12% growth in non-GAAP EPS. Adjusted free cash flow, which excludes the timing impact from the origination and sale of pay later receivables, was $2.3 billion or $4.3 billion year to date. Turning to slide 11, we are driving deeper, more active relationships with our customers. Monthly active account trends showed steady progress, up 2% year over year to 227 million. Transactions per active account, excluding PSP, which is a good proxy for engagement, accelerated to 5% growth. Moving to slide 12, total payment volume accelerated to 8% growth at spot and 7% on a currency-neutral basis to over $458 billion. We've moved branded experiences to the top of this slide to reflect the importance of this metric to our more expansive strategy and value creation. Looking across the product portfolio, we see encouraging signs that our initiatives are gaining traction and making an impact. Branded experiences TPV, which includes online checkout, PayPal Holdings, Inc., and Venmo debit, as well as Tap to Pay, posted another quarter of 8% growth. As Alex mentioned, U.S. branded experiences TPV growth accelerated to 10% in the quarter, benefiting from both omnichannel adoption and better trends in U.S. online branded checkout. While debit card and Tap to Pay spend represent a small portion of branded experiences volume today, they are growing rapidly, up 65% year over year, accelerating from last quarter. Venmo TPV growth accelerated two points to 14%, marking the fourth consecutive quarter of double-digit growth. On an online-only branded checkout basis, volume grew 5% on a currency-neutral basis. Compared to last quarter, there was less pressure on volumes from Asia-based marketplaces selling into the U.S. At the same time, this improvement was offset by pockets of softer consumer discretionary spending in Europe and the U.S. later in the quarter. Overall, we have seen relatively consistent growth in the number of checkout transactions, but basket sizes or average order value has decreased. While still early in a back-end loaded quarter, we've observed this trend continuing through October. We remain focused on the initiatives we can control. We're confident in our branded checkout strategy and the roadmap that our teams are advancing. The early results in the U.S. demonstrate that we're on the right path with our initiatives, including our redesigned experiences, Buy Now, Pay Later, and Pay with Venmo. We're laser-focused on execution across the three key areas Alex Chriss discussed: scaling our redesigned experiences, improving prioritization, and driving biometric adoption. All of this is increasingly complemented by a compelling consumer value prop that differentiates PayPal Holdings, Inc. and Venmo as one of the best, most rewarding ways to pay. While this work is complex and takes time, we fully expect to see our efforts build as we move through the next year and scale these initiatives. Pay with Venmo and Buy Now, Pay Later continue to outpace the market, taking share from other payment methods, growing 40% and 20% respectively. These results give us the confidence to begin making targeted investments in the fourth quarter that amplify the impact of these and other initiatives throughout the portfolio. Turning to PSP, which spans both enterprise and SMB processing, as well as parts of our vast portfolio like payouts, invoicing, and point-of-sale solutions, volume growth accelerated to 6% from 2% in the first half of the year. Our focus on prioritizing healthy, quality growth within our enterprise payments business is contributing to steady improvement in both revenue growth and transaction margin dollars. We expect to see ongoing improvement in the quarters ahead, supported by profitable frontbook business, our existing merchant base, and the attachment of value-added services. Moving to more financial detail on slide 13, transaction revenue accelerated to 6% growth on a spot basis to $7.5 billion. Other value-added services revenue grew 15% to $895 million, driven by another quarter of strong performance in consumer and merchant credit. We've also been encouraged by growth in customer balances and the impact of our initiatives designed to encourage customers to bring more funds into the ecosystem. While lower interest rates are still a headwind, a portion of this impact has been offset by higher balances. We continue to be pleased with the quality, diversification, and performance of our credit portfolio. In September, we took another step forward in line with our balance sheet light model for credit, externalizing a portion of our short-term U.S. pay later receivables with Blue Owl Capital. We ended the quarter with $6.4 billion in net loan receivables, down 8% sequentially. Transaction take rate declined by three basis points to 1.64%, driven largely by product and merchant mix as well as the impact of foreign exchange hedges. This decline was an improvement relative to last quarter and included less impact from foreign exchange hedges and enterprise processing. Online branded checkout take rates continue to be relatively stable year over year, reflecting our transaction and merchant mix as well as our focus on profitable growth. As I mentioned earlier, TM dollars ex interest grew 7%. TM dollar growth included a one and a half point headwind from higher volume-based expenses, largely transaction loss provisions resulting from the temporary service disruption in August, which primarily impacted Germany. There was also a slight benefit, less than one point, from the Blue Owl pay later externalization I referenced earlier. Setting aside the impact of loss provisions related to the August service disruption, we've seen an improvement in transaction loss rates relative to last quarter. Non-transaction related OpEx increased 6% as we continue to actively manage our cost structure while reinvesting in key growth initiatives. Non-GAAP operating income grew 6% in the quarter to nearly $1.6 billion. Moving to capital allocation, as you saw in our materials and heard from Alex, I'm excited to share that we are initiating a dividend as part of a disciplined capital allocation strategy. Our strong free cash flow generation and balance sheet give us ample room to both deploy capital for growth and return capital to shareholders. In general, we continue to target about 70% to 80% of our free cash flow for capital return, with the vast majority going to buyback. The dividend serves as a complement to our existing buyback plans and will be calculated based on a 10% payout ratio relative to net income. This quarter, we completed $1.5 billion in share repurchases, bringing share repurchases over the past four quarters to $5.7 billion. Finally, we ended the quarter with $14.4 billion in cash, cash equivalents, and investments, and $11.4 billion in debt. Moving to guidance on slide 14, following another quarter of strong financial performance, we are raising our full-year guidance for TM dollars and non-GAAP EPS. For the fourth quarter, we expect currency-neutral revenue growth in the mid-single digits. We expect fourth quarter TM to be between $4.02 billion and $4.12 billion, which represents about 3.5% growth at the midpoint. Excluding interest on customer balances, we expect TM dollars to grow by about 5% at the midpoint compared to 7% year to date. Setting interest rates aside, there are a few factors to highlight that impact our fourth quarter outlook. First, we have seen strong credit outperformance over the past year, driven by good execution from the team, as well as a more benign loss environment. We expect to see year-over-year comparisons start to normalize more in the fourth quarter. Second, given the performance of some of our key initiatives, we see an opportunity to lean into our competitive differentiation with additional investment to drive faster growth over time. In the fourth quarter, we will begin increasing investments designed to drive product attachment and habituation. Some of these investments are linked to volumes and therefore recorded as contra revenue, impacting TM dollars and designed to drive additional growth over time. Other growth investments, such as global brand awareness campaigns, typically sit within marketing and non-transaction OpEx. Lastly, on TM, our fourth quarter guide assumes some deceleration in branded checkout growth relative to our third quarter average. From a volume perspective, the most important weeks and months of the quarter still lay ahead. That said, we are planning prudently given recent spending trends and the uncertain macro backdrop. We are also cognizant of lapping strong consumer spending in the fourth quarter of last year. Moving to OpEx, we are planning for low single-digit non-transaction OpEx in the quarter and expect about 3% growth for the full year. We expect to deliver fourth quarter non-GAAP earnings per share in the range of $1.27 to $1.31, up 7% to 10%. For the full year, we are raising our transaction margin dollar guidance by $100 million at the low end and $50 million at the high end to a range of $15.45 to $15.55 billion, which represents 5% to 6% growth. Excluding interest, we expect transaction margin dollars to grow between 6% to 7%. We are raising our full-year non-GAAP earnings per share guidance to a range of $5.35 to $5.39, growing at 15% to 16%. Our guidance continues to project approximately $6 billion in share buyback and full-year adjusted free cash flow of approximately $6 to $7 billion, which excludes the timing impact of the origination and sale of pay later receivables. I'd like to wrap up by thanking the PayPal Holdings, Inc. team for their hard work and execution this quarter. We are making tangible progress across the business, and the foundation we're building positions us well for continued growth ahead. With that, back to you, Alex. Alex Chriss: Thanks, Jamie. We are operating from a position of strength. The results you're seeing are proof that our strategy is working. We built a more balanced, profitable growth engine across branded experiences, PSP, and Venmo, and that's exactly what we set out to do. We're investing in high-impact growth initiatives that will move the needle and future-proofing the business with critical partnership, while simultaneously returning value to shareholders through our buyback program and our newly launched dividend. We've moved this business from defense to offense, from stabilization to acceleration. We know exactly where the opportunities are, and we are laser-focused on executing our strategy. With that, Steve, let's go to Q&A. Steve Winoker: Before we open the lines for Q&A, I'd like to ask everyone to limit themselves to one question so we can get through as many of your fellow analysts as possible. Sarah, please open the line. Sarah: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tien-Tsin Huang with J.P. Morgan Payments. Your line is open. Tien-Tsin Huang: Hey, thanks a lot. Good morning here. I just want to ask about agentic commerce. It's a popular topic here at Money2020, and I'm not sure how to ask it, Alex and team, but maybe I'll just rapid-fire a few, if you don't mind. Has agentic commerce changed PayPal Holdings, Inc.'s strategic priorities in any way? What's your right to win? Can you fully fund investments here without sacrificing your incremental margins? Of course, you've announced a lot of key partnerships like OpenAI today, Perplexity, Google, et cetera. Do you have the coverage you need to drive ubiquity, or is there more work to do on the partner front? It seems like there's a lot of talk about collaboration, and you guys are definitely in the center of all that. Just love to hear your thoughts on all of that, if you don't mind. Thanks. Alex Chriss: Love it. Thanks, Tien-Tsin, and hope you're enjoying Money2020. We've got a good contingent there as well. To hit on a few of those, first, from a prioritization, from a priority question, not really, right? Our strategy we've laid out very clearly is that we want PayPal Holdings, Inc. to be available anywhere and everywhere that consumers want to pay, and we want merchants to be able to sell to consumers anywhere and everywhere. We've talked about this even back at Investor Day, where we laid out we want it to be online, we want it to be in-person, and we want it to be agentic. Agentic is just an evolution of this strategy. In terms of our right to win, we actually think we're extremely well-positioned to win here. Let me just lay out a couple of the different components. First, on the merchant side, merchants are going to need to figure out how to integrate with each of these LLMs. That's hard because there's multiple LLMs that are out there. Whether you're a large enterprise or a small business, you really don't have the bandwidth to go figure out how to integrate with each and every one of these LLMs, make your catalog available, understand the identity and fraud protection that comes with each of these different elements. What we announced today was our PayPal Holdings, Inc. agentic commerce services, which enables merchants to integrate once with PayPal Holdings, Inc., a partner that they've known and loved and integrated with for years, and be able to orchestrate their services to every LLM that's out there so that they get full coverage of consumers. That is a huge win for merchants. We give them seller protection. We give them the ability to scale across all the different LLMs. From the consumer standpoint, we're, again, very well-positioned. We've got the largest wallet ecosystems that are out there, and our ability to give consumers the trust, the safety, the buyer protection, and the ability to get access and make purchases on any of the LLMs they want to is a huge win. They get to use the wallet that they know and love and have a great end-to-end experience, which includes not only the purchase through the LLM, but also then all of the things that happen afterwards, whether it's package tracking or customer service or returns. That's, again, a big win for consumers. For the LLMs themselves, it would take over a decade if they wanted to go and try to build the same kind of merchant ecosystem of the head, the torso, and tail of merchants that PayPal Holdings, Inc. has established over the last couple of decades. Instead, they get to partner once with us and get access to tens of millions of merchants with identity authentication, fraud protection, and payment processing on a global scale. We really feel like we are connecting this ecosystem together. It will take time for agentic to eat into overall purchasing, but if you think about it, we want to meet customers where they are: online, offline, agentic, and PayPal Holdings, Inc. is in a very strong position there. As far as investments, Jamie, do you want to hit on that? Jamie S. Miller: Sure. These partnerships do entail some level of investment, whether that's in product and tech or around co-marketing, things that really drive usage and habituation around the product. I mentioned in my prepared remarks that we would be reinvesting, begin reinvesting some of our margin dollars in the fourth quarter to really amplify some of our product initiatives. Between the push into agentic and that, some of those investments are likely to be a near-term headwind to how fast transaction margin dollars or earnings grow next year. We are really excited about understanding what's working and really putting our dollars behind that and the core business, in addition to really advancing our initiatives across the business on things like agentic. Alex Chriss: The last part of your question was ubiquity. We obviously feel like we've got the largest breadth of merchants. We obviously have the largest breadth of consumers. Now with the partnerships, we've already announced OpenAI, Perplexity, Google. As we look to partner with any of the LLMs that are out there, we think we've got actually quite good scale and ubiquity across the ecosystem. We are very well-positioned to win as agentic commerce continues to evolve. Sarah: The next question comes from Harshita Rawat with Bernstein. Your line is open. Harshita Rawat: Hi, good morning. I want to ask about branded. I know you highlighted some headwinds and the 5% growth number. You highlighted some kind of deceleration in the fourth quarter. I'm also thinking you have some benefit from Pay with Venmo and the Buy Now, Pay Later promotion in the holiday season. Going back to the Investor Day, you laid out the path to branded acceleration. I know it's not linear. How should we think about just the overall path from here? Should we focus more on slide four, right, that you highlighted, which is very helpful, which focuses on more diversified drivers of growth? Thank you. Jamie S. Miller: Yeah, Harshita, maybe I'll answer that in two parts. I'll talk about fourth quarter and then really talk about the broader investor framework. We've had consistent mid-single digit growth in branded checkout for multiple quarters now. For the quarter, we've seen really good momentum across our growth initiatives with Buy Now, Pay Later, with Pay with Venmo. We've seen continued U.S. growth at higher rates as well this quarter. When we got into September, we began to see macro-related deceleration, and that is both in the U.S. and in Europe. I talked about it in my prepared remarks, but really a relatively consistent number of transactions. We're seeing basket sizes just trade down, average order value being down, particularly in retail where consumers are just being more selective. That behavior has continued into October. Obviously, it's really early in the fourth quarter. The holiday season is very back-end loaded. It's something we're watching. We did call out, and you're right, our guidance assumes a rate of growth lower than that of third quarter. When you look at that macro, and I pivot now to talking about the broader framework, we've seen very good progress. I think what I'm most excited about is we know what's working, and we're really doubling down against that. Alex has talked a lot about Buy Now, Pay Later. We've talked a lot about Pay with Venmo. Importantly, year to date in the U.S., our growth rates are higher than what we saw year to date last year in the U.S. We're really seeing nice progress. That macro piece of it, whether it's tariffs or some of this deceleration, is offsetting our progress. We set those 2027 targets, assuming a consistent consumer macro environment. Ultimately, that's how we'll measure progress against that. What I am excited about is we have scaled our initiatives in the U.S. first. Where we see progress, we've got real confidence as we scale outside of the U.S. and internationally. I think we've invested in the right products. We're seeing customer adoption and engagement around the things we've talked about, in addition to things like omnichannel initiatives and places where we get other halo effect. The investments we're making are really predicated on our confidence and our ability to continue to build on our progress as we get through the next couple of years. Sarah: The next question comes from Dan Dolev with Mizuho. Your line is open. Dan Dolev: Hey, guys. Great results, as always. Just wanted to ask a quick question in a very, very short follow-up. On Buy Now, Pay Later, huge momentum here. Can you maybe give us sort of the lay of the land, like how you view, Alex, the industry? Who are you gaining share from most and in what territories? I just have a super quick follow-up for you, Jamie, on the investments next year. If there's any way to quantify that, that would be great. Those are my questions. Thank you. Alex Chriss: Great. Thanks, Dan. Look, we're very excited about BNPL. We see this as one of those generational shifts that's happening now. We're seeing not only in the results, but also just as we talk to customers, particularly a younger generation is moving more and more towards debit and BNPL as the way that they want to make purchases. We think we're incredibly well-positioned to win there. As you said, we're seeing good growth. We're actually seeing growth across the board. U.S. MAs are up 21% in Q3. TPV continuing to grow pretty consistently over 20%. This is a product that people love. An NPS of 80 is quite incredible. From a strategy and a share perspective, we think we have something unique. We have a brand that people know and love. We have a global scale. Not only seeing good gains in the U.S., but we continue to expand our global footprint. It just expanded to Canada within the last week or so and continuing to expand the offerings across the board and across Europe. We're also moving to where customers want to pay as well, not just online, but moving in store. We started in Germany and are now expanding that in the U.S. We really see BNPL as one of those growth drivers for us. The other big shift that I would want you to be aware of is most of our BNPL, and again, we're on track to do $40 billion or so of TPV in 2025. Most of that has come almost after they've chosen the PayPal Holdings, Inc. button choice. For many customers, that's actually too late. They want to make a choice upfront when they're making that purchase, and they want to see what that payment could look like if it was split into a few payments. Strategically, we're now meeting our customers where they are, and think we have a really exciting expansion opportunity to be upstream in presentment. Again, with a brand that people know and love, with a product that they're already familiar with and using, when we get upstream into some of these purchases, we think we have the opportunity to continue to accelerate. Very, very excited with BNPL and something that we're going to invest in to win over the next few years. Jamie S. Miller: Dan, with respect to the second part of your question, it's early. We are still working our 2026 plan, and we plan to take you through that on our February earnings call. When you look at the types of investments that we're talking about, these are targeted really around product attach and habituation. Things like merchant co-marketing, cashback offers, and rewards, and things around better placement and presentment drive right back into the business and around growth. We'll have some more information for you on that in a couple of months. Sarah: The next question comes from Sanjay Sakhrani with KBW. Your line is open. Sanjay Sakhrani: Thank you. I want to dig into the really strong growth momentum at Venmo, where the revenues have been consistently growing 20%. Alex, you mentioned sort of the multiplier of upside from here. Could you maybe map that out for us in terms of how we should think about the growth rate you've posted recently and what you could do next year and beyond, given all the different initiatives you have in place inside of Venmo? Alex Chriss: Yeah, thank you. We, Sanjay, are equally excited about the trajectory that Venmo is on. Let me just pull back and talk a little bit about where Venmo was a couple of years ago and the contours of where we're moving. Venmo a couple of years ago was an incredible P2P product, a brand in the U.S. that was a verb. It was the way a younger, very valuable demographic was moving money amongst themselves. That was a very strong starting position. The challenge was we really weren't meeting customers where they are. Money was moving from a P2P perspective, but if you were splitting a meal, you couldn't actually pay for that meal in person. You had to use a different instrument. We've expanded what Venmo means to this demographic. We're now meeting them where they are and enabling them to make purchases in person, online, move money between each other, as well as starting to think about different experiences that they're having together. I'll touch on that in a minute. If you look at what that means, it means that not only are we continuing to grow our active base, so MA is up 7% year over year at 66 million. That's very strong. Now we're starting to see real penetration into two of our monetization levers. Debit card MAs are up 43%. Pay with Venmo MAs are up 24%. This is starting to drive ARPA up. ARPA is up mid-teens year to date. When you put all of that together, I still feel like we're just scratching the surface. If I look at us versus peers from an ARPA perspective, we are a third to a quarter of what I believe our potential is over time. We're starting to now see really good adoption of the cards that we're putting in, the debit card and Pay with Venmo. All of the trajectory is moving in the right direction. What you're going to start to see on top of that is new products and services coming in. The way that we've talked about it is Venmo is a social product. It's the product that you're using oftentimes with other people. You look at the announcement that we made yesterday with Built to be able to make rent and mortgage payments. Oftentimes, this is a demographic where they're making rent payments because they're living with others. They were using Venmo after the fact to move money across. Now we're enabling them to make their rent payments and split their rent payments upfront with that kind of partnership. You are going to see more of those types of things from us over the coming months as we start to think about all of those experiences that this incredible demographic is using to be able to move money across. We think we are just scratching the surface of the ARPA that is available. We have good proof points of the monetization levers of debit card, Pay with Venmo, and now we are expanding into other experiences where folks can go. Our go-to-market campaigns are working as well. You have seen the success of the college partnerships that we put out that drove over 1 million FTUs of debit card in Q3 alone. We are really, really excited about where this is going. It is starting to bring in very, very valuable merchants as well. Whether it is eBay or Ticketmaster, Sephora, Taco Bell, DoorDash, TikTok, these are all merchants that really want access to this demographic. Venmo is the best way to get access to them. We are just getting started, excited about the growth trajectory, and we expect this to continue well into the future. Sarah: The next question comes from Darrin Peller with Wolfe Research. Your line is open. Darrin Peller: Hey, guys. Thanks, and congrats on the OpenAI and the dividend announcements. I just want to touch on the exit growth rate of the year for a minute. I know you're guiding 2% to 5% for transaction margin growth. Maybe the puts and takes of what that could compare when you think about trending into 2026 and how we should think about next year in the context of the exit rate. I know you talked about investments being made, obviously, for all these initiatives. How does that impact our thought process on operating leverage and just overall investment EPS potentially for our next year as well? Whatever you can comment. I know it's early. Thanks, guys. Jamie S. Miller: Yeah. Good morning, Darrin. I'll stay away from giving 2026 guidance, but I will give you some color on the fourth quarter transaction margin dollars and what we expect to see there. You know, to some level, we've got some impact from interest rate cuts coming in the fourth quarter. In the credit business, we've got tougher comps. You may remember that we really got that business back to growth in the fourth quarter of last year, and we just have tougher comps coming into the fourth quarter this year. I mentioned some level of investments in growth initiatives as well. With what we're seeing on macro, you know, we want to be prudent in terms of how we guide there. Across the portfolio, the product initiatives, I think what's probably important to call out is that some of this goes through transaction margin dollars. Other parts go through OpEx. Things like investment in product and tech and brand marketing, things like that go through OpEx. As we work our plan, you know, we work across all of that to really get to the right mix as we get into it. We'll take you through more in a couple of months, but hopefully, that's some color for you. Alex Chriss: Hey, Darrin. I want to, without going into the details for next year, I do though want to set a mindset for us because this is what we're thinking about internally. You know, I've mentioned, and we've talked about it so far on this call, a couple of big shifts that we see in the market. I want to call that out. We see three pretty significant generational shifts right now. One is a massive shift to digital wallets, and this is globally. The second is a real shift to Buy Now, Pay Later. Again, a younger generation that's now moving the way they're spending. This, we think, can start to take share away from credit cards and be the way that this new generation is going to start to pay. The third shift we've talked about is towards agentic commerce. These are all three massive shifts that can recast the entire commerce landscape. We think we're extremely well-positioned in all three of them. If you look at digital wallets, we have leading wallets such as PayPal Holdings, Inc. and Venmo we just talked about, and we have our expansion into PayPal World, which continues to connect wallets around the world. In Buy Now, Pay Later, we just talked about upstream presentment. We talked about the expansion and the trajectory we have there. We've talked earlier about agentic commerce and the shift that's happening in our ability to lean in and win. The mindset that we have from a company is these are generational shifts that we are well-positioned and we must win in. We are going to invest appropriately. Those investments may very well lead to some near-term headwinds in how fast transaction margin dollars and earnings grow in 2026. We'll come back with more details as we think through that. Our goal is to win these markets and set ourselves up for faster, durable growth in the future across all of commerce. I just wanted to set that tone. Sarah: The next question comes from Jason Kupferberg with Wells Fargo. Your line is open. Jason Kupferberg: Good morning, guys. Thanks for taking the question. You obviously had a nice beat here on transaction margin dollars in the quarter. It seems like the branded business came in right in line with your expectations. The OWAS revenues were quite strong. I wanted to just unpack the sources of transaction margin upside in the quarter a bit. If you can give us a relative sense on how much of that upside came from the credit products versus some of the other drivers, and then just any quick comments on how you see cadence of additional penetration of the new checkout experience moving beyond the 25% level as we move into next year. Thanks. Jamie S. Miller: Thanks, Jason. Good morning. Really, when you look at third quarter transaction margin dollar performance, we had meaningful contribution across each of branded checkout, Venmo, PSPVAS, and credit. What's important there, and we really tried to highlight this in our prepared remarks as well, is that we've got nice diversification not only on the revenue side, but on the margin sources. I think that's demonstrative of that. Alex Chriss: Yeah. On the penetration, we've talked a little bit about it. Just to set the tone, we really started in the U.S. We now are roughly 25% of global transactions. Even under that 25%, though, about half are actually optimized. We're really working through how do we nail the overall pay sheet improvement, the biometrics that we're starting to put together. When all of that comes together, the pay sheet and the biometrics, we're actually seeing conversion rates increase 2% to 5%. We know we have a winning product. It just is taking time. I'm as impatient as anyone. I want to see this move as fast as we can. We're talking about bending the curve on over half a trillion dollars of spend, and it's just taking time to get there. We have confidence, as Jamie mentioned earlier, U.S. branded checkout is growing faster year to date than it did in 2024. We know the experiences are working. We're now rolling it out in Europe. We expect that to continue through 2026. In the meantime, we're leaning into BNPL growing north of 20%, Pay with Venmo growing north of 40%. We know that overall in branded checkout, we're on the right path. It's just taking time. Sarah: The next question comes from Will Nance with Goldman Sachs. Your line is open. Will Nance: Hey, I appreciate you taking the question. I wanted to dig in a little bit on the BNPL volumes. Just a couple of questions here. I guess first, if you could just quantify some of the run rate financial impacts you're expecting on the Blue Owl offloading, just any help with the geography of those impacts on the P&L if we think about that going forward. Maybe a big picture question on the BNPL growth. Obviously, very strong. I think you've said in the past that the branded numbers or the branded volumes are roughly 40% U.S., 60% international. Do the BNPL volumes skew meaningfully differently? Any color on what you're seeing from a geographical perspective in terms of adoption and penetration of branded volumes in BNPL? Thank you. Alex Chriss: Yeah. Let me take that second part, and then Jamie can lean in. BNPL, right now, we're looking at less than 30% of originations in the U.S. This is still a very global business. It's one where, as I mentioned earlier, what we're excited about is really an expansion of our strategy into upstream presentment. We think that's going to be a big, big shift and opportunity for us, as well as a change as we start to expand into omnichannel. Being able to move Buy Now, Pay Later into in-store, you know, it's interesting. The dynamics of how we're seeing people shop is it's not just hard lines of in-store or e-commerce. There are a lot of people that are shopping on their phone and then wanting to pick up in-store, and that's where they get the opportunity to do their Buy Now, Pay Later purchase. All of this is coming together in a holistic product. Again, we're seeing the flywheel effect of BNPL as well. When somebody starts to leverage BNPL, there's a lift in engagement. Their TPV is up 35%, and we start to see their ability to use us for all purchases. This is, you know, it's very interesting just to see the dynamics of purchase behavior. I think in the past, as e-commerce and commerce in general was evolving, there were much harder lines. What we're seeing from customers now is they want to pay when they want to pay. Sometimes it's pay now. Sometimes it's pay later. Where they want to pay, online, in-store, or agentic, and how they want to pay, whether it's with their friends, whether it's with crypto, whether it's the wallet from their home country. We now have a strategy that enables us to meet them everywhere they are. Exciting trajectory there. Again, you're going to see us lean in even more into BNPL over the coming years. Jamie S. Miller: Yeah. With respect to the first part of your question on Blue Owl, we had a small impact in the quarter, but that was net neutral to operating income, which both raised margin a bit, but also was offset in OpEx. With respect to 2026, there's a small impact to 2026 OpEx in terms of increasing the run rate. Alex Chriss: Hey Sarah, let's make time. I know we're past the top of the hour, everybody, but let's make time for one last question if we can. Sarah: Thank you. Your last question will come from Timothy Chiodo with UBS. Your line is open. Timothy Chiodo: Great. Thank you. I think we've covered some great numbers on the BNPL business today. I was hoping we could round it out with a few more, and this would help us in comparability to some of the competitors in Affirm and Carta. I was hoping you could give a little bit on the mix of paying for versus some of your longer-term pay monthly loans. Also, maybe touch on the loss rates. What I think investors really want to get down to is balancing those losses and potentially more favorable funding mix for the repayment. What really is the transaction margin dollar net take rate per unit of BNPL volume so that we can compare that to metrics like RLTC as a % of GMV for Affirm? Thanks. Jamie S. Miller: Good morning, Tim. You've packed a lot into that, so I'm hoping I remember it all. Let me start with sort of thinking about unit economics on the core product. First, with respect to what type of product is it, most of this is paying for, pay monthly. We've got about an average turn on the portfolio of Buy Now, Pay Later of about 40 days. When you think about that compared to peers, the duration of the portfolio is a much higher turn than maybe some of the others you look at. Secondly, as we price it, our economics are on par or better than our peers. The thing I'd really point you to here is when we look at Buy Now, Pay Later, we do run it at the business level, but we look at it much more holistically at the total branded checkout or PayPal Holdings, Inc. level around how do we habituate and engage our consumers around the brand and across the brand and drive sustained lift or a halo across that with Buy Now, Pay Later adoption. It just drives stickiness. We really see. Alex Chriss: to 40% sort of incremental usage of branded checkout, and that stays with us as the consumer continues to spend with BNPL. We're expanding through new geographies, as Alex mentioned, really focused on driving consumer experience and marketing dollars. Hopefully, that gives you a little bit of color as to how to compare. Steve Winoker: Hey, Alex. Any final thoughts before we wrap? Alex Chriss: Thank you, everyone, for your questions. As you can hear from us, it is an exciting time at PayPal Holdings, Inc. We mentioned some of these significant generational shifts, and that makes it exciting to be at the forefront and a leader in this space. We have got the right plan. We are making great progress and delivering results along the way. I look forward to updating you as we continue to make progress. Take care, everyone. Jamie S. Miller: Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.