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Jutta Mikkola: Hello, everyone, and welcome to Stora Enso's Third Quarter Results Presentation. I'm Jutta Mikkola, Head of Investor Relations, and I'm joined today by Hans Sohlstrom, our President and CEO; and Niclas Rosenlew, our CFO. The theme for today is good progress in a challenging market environment, which indeed we have done. We'll start with Hans, who will walk us through the key highlights and strategic focus areas. After that, Niclas will take you through the financial performance, and we'll wrap it up with the main takeaways and key focus for the rest of the year '25. Once we are done, we'll open the floor for your questions. Thank you for being here with us today. Hans, over to you. Hans Sohlstrom: Thank you, Jutta. In the third quarter of 2025, despite ongoing challenging markets and subdued demand, we remain focused on the areas within our control, driving progress where it matters most. However, before looking more closely at the third quarter highlights, I would like to announce changes in Stora Enso's Group leadership team. Micaela Thorstrom has been appointed Executive Vice President, People and Legal, General Counsel, as of 1st of January 2026. Micaela has been part of our group leadership team since 2023, serving as Executive Vice President, Legal and General Counsel. Furthermore, Niclas Rosenlew, our Chief Financial Officer, will assume additional responsibilities and represent the Communication and Brand organizations on top of his current duties. I want to congratulate both Micaela and Niclas for their new and extended roles. Then we are ready to look more closely at the quarterly highlights. We have taken important steps to build a stronger and more competitive Stora Enso. A major milestone in the quarter was the completion of the divestment of approximately 175,000 hectares of forest land in Sweden, representing 12.4% of our total forest holdings in Sweden. The transaction with an enterprise value of SEK 9.8 billion, equivalent to approximately EUR 900 million and in line with forest book value, strengthens our balance sheet and improves our financial flexibility. The deal includes a long-term wood supply agreement to Stora Enso. This strengthens our cash flow and reduces net debt, which is a key priority for us. We also made progress on the strategic review of our remaining 1.2 million hectares of Swedish forest, including the assessment of a potential demerger and public listing. This review is central to unlocking further value for our shareholders, as well as strengthening our growth and business focus in both forest and renewable packaging businesses. We'll share updates as that process moves forward, aiming at Capital Markets Day later this year on November 25. On profitability, we continue to act proactively to improve margins. These measures are essential as we navigate challenging market conditions and subdued consumer sentiment. Adjusted EBIT for the quarter was EUR 126 million. Excluding the EUR 45 million impact from the Oulu consumer board ramp-up, profitability would have been comparable to the same quarter last year, reflecting a stable underlying performance despite persistent market headwinds. And finally, on sustainability, we launched a science-based framework together with IUCN to advance nature-positive forestry practices. This is an important step towards our long-term environmental goals. As we all know, market conditions have been challenging. Therefore, we have intensified our actions to improve profitability. But it's important to emphasize that these efforts are not new. We have been acting on these priorities for a good while now. Since 2023, we have been very clear on our strategic focus; improving profitability, driving performance and shaping the portfolio for long-term strength. This has been our new way of working proactive, not reactive, so we can stay ahead of market turbulence and rapidly changing global trends. On fixed cost reduction, we launched significant cost-saving programs in 2023 and 2024, totaling over EUR 230 million of savings. These include structural efficiency measures, site closures and divestiture across business areas and the group. Operational efficiency has been another key focus. We have implemented FTE reductions, cut external spend and driven value creation initiative across the whole company to streamline processes. Building a strong performance culture has been critical. More than 4,000 improvement measures have been identified with around 800 initiative team leaders, meaning that thousands of our employees are actively driving continuous improvement and cost savings initiatives across the company every day. We have also strengthened cash flow and working capital discipline, reducing operating working capital by about EUR 700 million and improving cash flow from operations. Going forward, we remain committed to disciplined capital allocation. Finally, on portfolio actions. On top of earlier closures and divestments, we completed the sale of 12.4% of our Swedish forest assets and continue the strategic review of the remaining assets in Sweden. At the same time, we are ramping up Oulu consumer board line and De Lier corrugated site to secure cost efficiency and competitiveness. This approach gives us resilience and flexibility. By acting early and decisively, we have not just reacted to market challenges, we are shaping our future and positioning Stora Enso to thrive in a rapidly changing world. And with that, let me give you an update on the Oulu consumer board line ramp-up. Stora Enso's new consumer packaging board line at the Oulu site in Finland has entered the production ramp-up phase earlier this year. While the project remains on track in terms of its original time line and the EUR 1 billion budget, the ramp-up process has progressed slower than initially anticipated, resulting in production volumes somewhat behind the original schedule. Nevertheless, we remain focused on reaching EBITDA breakeven by the end of 2025, which continues to be an achievable target. However, due to the slower-than-expected ramp-up, the EBIT impact for Q4 is now projected to be higher than previously anticipated, estimated at about EUR 15 million to EUR 35 million. Consequently, the full-year EBIT impact is expected to be in the range of EUR 120 million to EUR 140 million. It is important to emphasize that the Oulu investment is a long-term strategic move that will deliver substantial value for Stora Enso over time. This transformation of the Oulu site into a state-of-the-art consumer board production facility is a cornerstone of our strategy to lead in renewable packaging. This investment is not just about near-term volumes, it is about building a competitive platform for the next decade and beyond. As the ramp-up continues, we remain confident that Oulu will become a key driver of profitable cost competitive growth and a benchmark for sustainable packaging innovation. This year, we have seen some remarkable recognition for our design and innovation. Winning the Red Dot Design Awards 2025 underscores our ability to combine aesthetics, functionality and sustainability in everything we create. Our craftsmanship was showcased on the global stage at the World Ski Championships where we designed official medal boxes crafted from renewable materials, fully recyclable and even featuring braille for accessibility. This is not the first time we have been recognized by Red Dot. Earlier this year, we also received the award for our collaboration with Marimekko on a scalable, recyclable gift packaging portfolio. One of the most exciting milestones is our contribution to Atlassian Central in Sydney. Once completed, it will be the world's tallest hybrid timber tower, and the heart of this achievement is massive timber solutions. It's a powerful demonstration of how engineered wood can transform urban skylines while reducing carbon emissions. Closer to home, October brought us the Finlandia Prize for Architecture for our new headquarters at Katajanokan Laituri in Helsinki. This award celebrates not only architectural excellence, but also our leadership in sustainable building practices. Together, these achievements highlights how innovation and responsibility go hand-in-hand in shaping the future of construction. That concludes our review of the key highlights for the quarter. And I'll hand over now to Niclas, who will take you through our financial performance. Niclas Rosenlew: Thank you, Hans, and hello, everyone. During the third quarter, as Hans already mentioned, our own actions resulted in good progress in a market with subdued demand and low consumer confidence. Delivery volumes were relatively low, particularly in containerboard and biomaterials. Sales increased by 1% to EUR 2.3 billion, mainly due to the contribution of the Junnikkala acquisition and the consumer board line ramp-up at the Oulu site. While market conditions continues to be volatile with low demand, we focused on the areas within our control. On that note, adjusted EBIT for the quarter was EUR 126 million. And as Hans mentioned, excluding the EUR 45 million impact from the Oulu ramp-up, profitability would have been comparable to the same quarter last year, reflecting a stable underlying performance despite persistent market headwinds. This we can see clearly when looking more closely at the EBIT bridge for Q3. Overall, adjusted EBIT decreased by EUR 49 million compared to last year, primarily due to the ramp-up of the new line in Oulu. As said, Oulu had a negative impact of EUR 45 million. In the other bar, where you can see the Oulu impact, you can also see the absence of a EUR 10 million insurance compensation that was received last year in the Wood Products segment, along with some other smaller movements. Looking at the other components, the picture is relatively stable. Given how volatile the markets have been, we are quite pleased with this, as it reflects the result of disciplined execution of our strategy and profit improvement actions. Price/mix contributed positively with EUR 12 million, partly offset by a smaller negative impact from lower volumes. Variable costs were flat as higher fiber costs were offset by lower energy and chemical costs. Fixed costs decreased by EUR 30 million, driven by strong cost control and lower maintenance compared to last year. And FX had a negative impact of EUR 20 million. If we then turn the focus to cash flow, despite the challenging market environment, we managed to safeguard profitability and improve cash generation. Cash flow after investing activities turned positive as expected, following the gradual completion of the investment phase in Oulu. I want to note that in this picture, which shows the operational cash flow after investing activities, the proceeds from the Swedish forest divestment, so the 12% divestment are not included. These proceeds were received in Q3, but they are recorded further down in the cash flow statement under divestments. And on that note, let's take a look at the net debt. Net debt decreased by almost EUR 800 million to EUR 3.2 billion during the third quarter, reflecting the positive impact of the forest asset divestment. The ratio of net debt to the last 12 months adjusted EBITDA is now at 2.7x after being above 3 for most of the past 2 years. As the intensive strategic CapEx phase of the last 2 years nears finalization and profitability gradually improves, net debt levels and the ratio are expected to improve further. Operating working capital to sales was around 8%. That is at similar levels to the last few quarters. We intend to keep operating working capital at these lower levels and decrease it when possible. So, let's move on to the segment performance. Starting with Packaging Materials, where we continue to implement value creation actions during the quarter to mitigate the impact of the challenging market conditions. Sales declined mainly due to slightly lower consumer board prices and adverse currency effects from a weaker U.S. dollar. Adjusted EBIT decreased year-on-year by EUR 37 million, primarily due to the adverse impact coming from the Oulu ramp-up. In addition, fiber costs remained high and logistics expenses and trade tariffs increased, adding further pressure on profitability. These headwinds were, as said, partly offset by value creation initiatives. As order inflow weakened further during the quarter, we continued to manage capacity and cost levels in line with demand. In Packaging Solutions, we had a similar development, with market headwinds being offset by own actions. Sales increased slightly, with improved product mix offsetting a small decline in volumes. Adjusted EBIT increased year-on-year, supported by higher sales and improved margins driven by value creation initiatives. Despite persistent overcapacity, actions to enhance product and customer mix, combined with continuous cost efficiency improvements helped protect margins. So moving from packaging to Biomaterials. In Biomaterials, market conditions stabilized at low levels during the third quarter. Demand for hardwood pulp strengthened in both Europe and China, while softwood pulp demand in Europe remained weak. Sales decreased driven by lower prices and adverse currency movements, somewhat offset by higher volumes. Adjusted EBIT decreased year-on-year, primarily due to lower prices, but as said, stabilized at low levels. Cost reduction measures also helped mitigate part of the negative market impact. If we then move on to Wood Products, protecting margins has been a key priority mitigating the increase in raw material costs. Sales increased, driven mainly by higher prices and stronger volumes for sawn wood. However, EBIT declined, primarily due to increased sawlog costs in Central Europe and the absence of last year's EUR 10 million insurance compensation, which affects comparability. That said, price increases and value creation initiatives helped cushion the impact and protect margins. The construction market remained weak overall, but we did see improved demand for both traditional wood products and building solutions compared to the previous year. In Forest, sales increased, driven mainly by higher volumes and wood prices. However, EBIT declined slightly due to slightly higher costs. So in sum, Forest continued its stable and strong performance. I'll now hand it back to you, Hans, for the key takeaways and our focus for 2025. Hans Sohlstrom: Thank you, Niclas. Today, we have focused on profit, performance and portfolio, 3 pillars that guide our actions as we navigate a challenging market and position Stora Enso for long-term success and improved profitability. Profitability and cash flow remain top priorities, supported by company-wide initiatives in sourcing, operational efficiency, commercial excellence and cost optimization to ensure resilience and agility. We are finalizing the strategic review of our Swedish forest assets, including evaluating a potential separation and public listing to unlock value and sharpen our focus on core businesses. At the same time, we are ramping up production and leveraging the EUR 1 billion investment in new packaging board line at our integrated mill in Oulu, Finland, strengthening our competitive position in renewable packaging and advancing our ambition to lead in sustainable solutions. These actions are critical steps towards delivering shareholder value and navigating in tough markets. We look forward to sharing more at Capital Markets Day on the 25th of November in London. Thank you for listening. And we are now ready to take your questions. Operator: [Operator Instructions] Our first question will come from Cole Hathorn with Jefferies. Cole Hathorn: Could I start with the cost positioning that you -- well, the improved costs in the Biomaterials and Packaging Materials division. The cost per tonne has come down. You talk about efficiencies. Are we right to assume that this is your internal actions that have supported the lower cost per tonne rather than lower pulpwood or wood costs feeding through into the business sooner? So that's just the first question, if it's internal actions. The second one is around the Packaging Materials business and particularly consumer board. We've got a lot of oversupply in the market. And I'm just wondering how Stora Enso is thinking about that strategically. You are the market leader. How do you think about improving operating rates as you ramp up Oulu versus the price dynamics of the market? Are you still considering, or are you evaluating capacity out in the industry? Hans Sohlstrom: Yes. Thank you very much, Cole. So first of all, about the cost improvement actions, they are internal actions throughout the whole company. And we have started this very proactive systematic work on reducing our cost base, both variable as well as fixed cost since 2 years back. We are going to give some updates about this in the CMD on the 25th of November, some tangible examples of the way we are working, but it's significant cost reduction results throughout the whole company. And this is not a project. This is our new way of working. This is a continuous improvement work. It's our new culture where basically we have identified over 4,000 profit improvement actions throughout the whole company in every unit, every middle, every single part of the organization. And we have 800 project initiative team leaders working on these. So, we have thousands of people actually actively working on cost improvement actions and profit improvement initiatives as we speak. It's not a project. It's our new culture, and it's a continuous way of working. When it comes to your question, Cole, about consumer board, we know that there is in Europe alone, 1 million tonne of higher cost consumer board capacity than our most expensive, most highest cost line. We also know that we have in consumer board, the most cost-efficient capacities in Europe today. So currently, we don't have any plans to consolidate or close capacity. I'm sure there is considerations in our industry for those who have negative cash flow, for instance. Cole Hathorn: Then maybe just as a follow-up. I'd like some color on what are you seeing from a demand and order book perspective? And could you give some color between containerboard? And then within consumer board, what you're seeing the difference in kind of the traditional folding boxboard as well as your liquid packaging? Hans Sohlstrom: Yes. So first of all, year-to-date, we have increased our top line by 5%. So, we are growing as a company. And also in the last quarter where demand was rather subdued, we grew 1% and we are quite determined to continue growth. We have invested in growth in the Oulu consumer board line, as well as also we have the De Jong corrugated site, which is in a ramp-up phase still. So, thanks to earlier investments, we have cost competitive state-of-the-art capacity that we are ramping up in order to ensure also continued growth for the future. And when it comes to consumer board versus containerboard, I would say that our operating rates in containerboard are quite high. And as you also know, from a global supply and demand perspective, especially kraftliner, which is our strength, our core area in containerboard, that is actually a market where the global supply and demand situation is the best. The market is the tightest. And when it comes to consumer board, we have very cost-efficient, high-quality capacity that we are currently utilizing and then also ramping up in Oulu. Operator: Our next question will come from Andres Castanos with Berenberg. Andres Castanos-Mollor: Can you please help me understand why did you book a gain of EUR 140 million with the forest asset sale, if this was a sale that was done in line with book value? And also, what is your current view about the deferred tax liabilities associated to the historical appreciation of the assets that you sold? What will be the treatment in your view? Niclas Rosenlew: Sure. And it is a bit of a complex accounting issue, but the sale of the 12% was in line with book value. And there was a portion in the book value, which is deferred tax liabilities. As you said, the sale was tax-free according to local tax rules. We sold the company, not the assets. And therefore, from an accounting perspective, we then kind of canceled the deferred tax liability and that portion was then going into the P&L. So it's more of an accounting technical topic. Operator: Our next question will come from Charlie Muir-Sands with BNP Paribas Exane. Charlie Muir-Sands: There's been quite a lot of talk in the industry about falling pulpwood prices and some mixed messaging around log pricing. I just wondered what you're seeing specifically yourselves at the moment and how soon you would anticipate it manifesting, in your opinion, if there are movements? Secondly, I appreciate you're going to give us an update on the possible forest spin-off at the Capital Markets Day. But can you share any early thoughts on what you see as the relative pros and cons of making such a transaction? And then just on De Lier finally. The ramp-up there, you haven't quantified what the profit drag is unlike Oulu. I wondered if you could put any numbers around that? And also, is the constraint for the De Lier ramp-up technical? Or is it that it is constrained by market demand conditions? Hans Sohlstrom: Thank you very much, Charlie. So first of all, wood costs have come down in the Nordics, both in Finland and Sweden since the peak in the summer. However, before they are visible in our P&L, there is a time lag. And actually, in the beginning, there is a negative impact because the inventory values of our wood inventories comes down. But there will be with a time lag of a few months, there will be, of course, a positive impact of lower wood costs in the Nordics. Concerning the forest, the Swedish forest spin-off, 1.2 million hectares in total. I would say that the clear plus is -- and that's also one of the main objectives, shareholder value creation. I mean, we clearly see that now after the sales of 12% of our Swedish forest land, the total value of all our forest holdings is EUR 10.50 per share. And the whole idea here is to unlock value for our shareholders, as well as also being able to focus on the very different businesses of creating value and profits in a forest business, as well as creating value and profits in industrial activities, renewable packaging and biomaterials businesses. Regarding the De Lier markup, the bottleneck is the market. So it's demand. We are gradually increasing volumes there. But of course, in an oversupplied market, it takes time. Charlie Muir-Sands: Got it. So far, you've not identified any cons in terms of the possible price spinoff. Hans Sohlstrom: Can you think about any, Niclas? Niclas Rosenlew: I can't immediately at least. We'll think about it. Operator: Our next question will come from Pallav Mittal with Barclays. Hans Sohlstrom: Very quiet. Maybe we take the next question then. Operator: Our next question will come from Andrew Jones with UBS. Andrew Jones: Can you hear me okay? Hans Sohlstrom: Yes. Andrew Jones: Excellent. A few of my questions have already been answered, but just a bit of color on 4Q first of all. You mentioned that the fixed costs were down EUR 38 million in 3Q, mainly on seasonality. I'm curious like how much of that should come back in 4Q? And taken together all the other moving parts on costs, I'm guessing that the wood costs don't make that much of a difference in the 4Q given the lag. But can you talk us through like wood, energy, some of the other moving parts as to how you see costs evolving into the fourth quarter? And then separately, I've just got a question on FBB sales to the U.S. I mean, is that profitable now? Like how should we think about margins on sales there? Have you changed your sales mix as a result of the tariffs and the currency moves? Like how are you looking at the different markets for your boxboard at the moment? Niclas Rosenlew: All right. Andrew, I'll take the first one. So fixed costs, very much as we said and we've said before, I mean, we are working a lot on cost scrutiny. And this is nothing new. We've been on it for some time, but there's still a lot to do. So, not commenting specifically now on Q4, but even kind of further out. And that absolutely will continue. Specifically in Q4, we continue with the normal maintenance. Maintenance stops should be roughly similar cost to Q3. And then on wood cost specifically, very much, as Hans said, we have seen some downward trend. And now we talk about the Nordics, Finland, Sweden. It's different in Central Europe. But again, very much as Hans said, it comes with a delay and we talk about a quarter or 2 or so. When it first goes into the inventory valuation, inventory value actually goes down. It has a slight negative impact on the short-term result. But then, of course, over time, it should start to help the result. So in that sense, it takes a while and don't expect any major impact or positive impact in Q4. Well, I mean, logistics has gone up a bit, chemicals down a bit, energy down a bit. So it's a bit more of a mixed bag. Andrew Jones: So flattish sounds like the interpretation. Niclas Rosenlew: Flattish, yes. Well, again, not commenting specifically on Q4, but more what we've seen up until now and in Q3. Hans Sohlstrom: And when it comes, Andrew, to your question about folded boxboard and the U.S.A., I mean, we have been increasing prices in folded boxboard sales to the U.S. We have been able to compensate a clear majority of the 15% import duty. But on the other hand, of course, also, as we know, during this year, the U.S. dollar has weakened against the euro quite significantly. We are making positive margins on our business to the U.S., but very thin margins. That's where we are today. However, having said that, I do want to underline that if you consider our packaging materials, our board grades, our main board grades, so consumer board various grades as well as kraftliner and then I exclude recycled fiber-based testliner because that's a very local business. But if you look at consumer board and kraftliner, it's good to remember that the U.S.A. is a 4 million tonne net exporter around the world of these products. So if profitability of sales to the U.S. is challenged, there are also other opportunities around the globe to develop businesses. So, I think one of my favorite sayings is that every challenge is an opportunity. You need to also find the new businesses and the new opportunities, but we have not given up on the U.S. We continue to develop our business there. But of course, in order to improve margins, we need to increase prices further. Operator: Our next question will come from Linus Larsson with SEB. Linus Larsson: First, just to double check here, so we're not missing anything on Biomaterials. It was sequentially somewhat better in the third quarter, although prices were lower and I think your volumes were lower as well. So if you could just maybe elaborate just a little bit about what happened in the third quarter? I think we may have touched on part of it already. And just to make sure that we're not missing anything, any benefits which might not be there in the fourth quarter, please? Niclas Rosenlew: Yes, I'll start at least, Linus. And I mean, what we saw in Q3 was a stabilization at low levels and so stabilization. So, I would say no major movements there, volume, price that I can think of at least in terms of what to miss now going forward. Hans Sohlstrom: If I can build on that, Linus, so I think it's important when you consider our Biomaterials business. So, our market pulp business, we have -- the majority is cost-efficient eucalyptus from Veracel and Montes del Plata, as you know very well. And they are among the world's most cost-efficient pulp mills in the first quartile when you take, for instance, Safra's cost competitive -- cost capacity competitiveness considerations. So, great cash machines in every situation. And then the market pulp mills we have in the Nordics, so Skutskar in Sweden and Enocell in Finland. They are producing specialized niche pulps. So Skutskar, the majority is fluff pulp, where we are clearly the largest producer in Europe. Most of the fluff pulp in Europe is imported from the U.S.A. So it's a specialty pulp grade. And also in Enocell, we are gradually increasing the amount of specialized pulp grades, among others, unbleached kraft pulp for electrotechnical end uses and other special niches where you can get a better price compared to the volume grades. So, that perhaps also explains somewhat our position in Biomaterials. Linus Larsson: And if you compare the various units within Biomaterials, is there a material profitability difference in, say, the third quarter? Or are they all doing pretty well? Niclas Rosenlew: Again, we haven't really split out the profitability of every mill. I mean, as we've commented before, I mean, we very much look at -- I mean, each and every component, mill needs to be profitable, goes without saying, deliver positive cash flow. But of course, as Hans said, I mean, the South American operations are kind of absolute cost leaders. So no answer, Linus. No direct answer, at least. I hope it's okay. Hans Sohlstrom: Building on that, I would say that based on this product differentiation and specialization in the Nordics, I'm pretty sure that there are lots of pulp mills in the Nordics producing standard volume grades that are not doing as well as we are doing. Linus Larsson: That's helpful. And then just one more follow-up on Oulu. And maybe if you could just briefly touch on or give an update on your commercial plans for the output from Oulu, 750,000 tonnes, that's a big amount of paperboard. Where will you allocate those volumes? And have plans possibly changed from your original plans? Hans Sohlstrom: Well, Linus, first of all, I think it's important to remember that the line will be, as we have said from the beginning, fully ramped up and in full capacity in 2027. So also next year will be a year of gradually increasing production and sales volumes. Quality is good, really good. We have received very good customer feedback. It's also important to remember that that Oulu is not producing only folded boxboard. It's also producing CKB, for instance, where there are only 2 producers in Europe. We are producing CKB on 3 production lines, and then there is a competitor producing on only one small production line. So it's not only folded boxboard. We also have some other consumer grades in the Oulu production unit. Then also, I want to remind everyone that Oulu is not only for us an increase in carton board capacity because we are also transferring carton board volumes from our liquid packaging board mills, for instance, Skoghall into Oulu, which gives us an opportunity to grow in liquid packaging board. So basically, Oulu is providing opportunities for us to grow in all the product areas we have within consumer board, both carton board, liquid packaging board, food service board and so on. And when it comes to our sales plans, so, of course, I mean, our job is to maximize profitability. Our job is not to follow a certain plan, but to maximize profitability in every situation. And therefore, as we discussed before, it's clear that the margins in the U.S. because of the 15% import duties are thinner than what we anticipated before the tariffs came in place or the plans for import tariffs came in place. And we are actively looking to maximize profitability by optimizing our market mix and our customer mix as well as product mix. So, we really look to place those volumes wherever we can maximize profitability and value. Niclas Rosenlew: So it's not any board, it's the best board. Hans Sohlstrom: Well said. Thanks, Niclas. Operator: Our next question comes from Pallav Mittal with Barclays. [Operator Instructions] Pallav Mittal: Can you hear me? Hans Sohlstrom: Yes, we hear you, Pallav. Good to hear you. Pallav Mittal: Sorry about that. Some technical issues at my end. A couple of follow-ups on some comments that you've already made. So firstly, on Oulu, I appreciate all the commentary that you have made and clearly, volumes you have highlighted are currently running behind schedule. So, what gives you confidence that you are still on track to reach full capacity by 2027, especially given the overcapacity issues in Asia? And then secondly, in the third quarter, EBIT, you have almost 30 million-odd fixed cost savings, and these are your cost savings program over the last couple of years. Can you help us understand how much of those 2 programs is already in the numbers so far? And how should we think about further improvement in Q4 and also in 2026? Hans Sohlstrom: Yes. Thank you very much, Pallav. So if I take the first question and Niclas, the second one. So first of all, Oulu, I mean, we are ramping up. And I would say that especially the last months have been very encouraging in terms of optimizing the production processes there. And that gives us really confidence that we will be able to reach the full capacity from a production perspective in 2027 as we have forecasted. Then, of course, with a relatively weak oversupplied market that also, in a way, restricts the speed of ramp-up and ramping up the volumes. Then you mentioned China. We were just last week in China. We know that what is happening in China is that, for instance, there is a lot of the local folded boxboard, which is called Ivory board, taking market share from higher cost recycled fiber-based grades, so what they call Duplex there, which we call testliner in Europe. We can see similar trends in Europe, folded boxboard, virgin fiber-based top quality carton board, taking market shares from recycled fiber-based white-lined chipboard. You can, for instance, with our folded boxboard, you can basically with 30% lower basis weight, you get better characteristics, product folding characteristics, printing characteristics, a cleaner sheet, better looking board than with white-lined chipboard. So, we see also migration there from the European 3 million tonne annual white-lined chipboard market into carton board. And in China, there is a 6 million tonne of white-lined chipboard or Duplex market that is gradually being substituted with the local folded boxboard. So, we cannot only look at the specific product segments as such. There is also important movements happening between these product categories. But now over to you, Niclas, for the second question. Niclas Rosenlew: On the costs, so what comes to the previous programs, more than EUR 200 million, they are done. But as I said earlier, we are very active in terms of looking at our competitiveness, our cost base throughout. So, we'll continue with scrutinizing fixed costs. We'll continue with scrutinizing variable costs. We have, as discussed earlier, we have the programs with more than 4,000 initiatives, 800-plus initiative owners and they continue. And they are now -- it's not a program. It's more of a culture. And that we intend to keep up and if anything, speed up. At the same time, -- as you know, we made a big organizational change in the summer, 1st of July. We have 7 P&L responsible BAs, 22 P&L responsible BUs. And then we moved some of the functions to cut across the company. And now there, we are taking the next step and looking at how do we make this new kind of construction to make all it so more efficient. And there's been some articles or some press picking up on some of our actions we are doing across, but that's just some of the actions we are doing a lot under the hood. And that's the whole idea. These are not programs per se, but we are day in, day out looking at how we make sure that we are competitive and create value for our customers. Operator: Our next question comes from Lars Kjellberg with Stifel. Lars Kjellberg: I got thrown out earlier due to power cut. Not helpful, but back on again. So essentially, a couple of questions for me still. Coming back to wood markets. Obviously, there's been an exceptionally tight market now in the Nordics. Now the industry certainly from the pulp and paper industry is not running full. Prices are starting to get a bit. But what is your thinking in an upturn in this market again in terms of the wood supply that is available? And in that context, coming back to what you said earlier, Hans, about maximizing profitability. can you operate everything, including your new assets from a wood supply standpoint on a competitive level? The other thing that you mentioned earlier was disciplined capital allocation going forward. I just wanted to understand what does that mean? You put in a lot of money on growth. You continue to talk about growth. And if I'm looking at some of the markets you serve, in particular the consumer packaging, there's no growth in this market since 2016. The volumes are the same. So, how should we think in that context, your focus on growth versus what's happened in the market and in the context of capital discipline what does it really mean? And the final point then. Holmen earlier today talked about stable generally prices on consumer boards for the contract business. But if you try to go after new volumes, there's a tremendous amount of pricing pressure. So the question is, what are you finding on that incremental volume that you're trying to place relative to the contract business in terms of pricing pressures? Hans Sohlstrom: Yes. Thank you very much, Lars. I'll let you take the second question, but a couple of comments. First of all, starting from your last question about pricing, yes, we see consumer board prices or board prices in general, stable. When we are now introducing our own new volumes to the market, very much we gain business, we gain volumes with yield advantage. Our folded boxboard, for instance, from Oulu has a 30% to 40% yield advantage compared to white-lined chipboard or SBS, some of the other board grades. So also with a higher price point for folded boxboard, you can basically prove to customers that the total cost of ownership goes down when they move to our grades instead of what they are using currently. Then regarding -- and also one point on growth. If you look at Stora Enso during the last 10 years, you will notice that our core packaging business has been growing an average 5% per year. That's the growth we can demonstrate since 10 years back in our packaging business. So yes, our top line has been about unchanged, around EUR 10 billion, but we don't have basically any printing papers anymore and we have a significantly bigger packaging business. So, 10 years ago, packaging and printing papers were roughly equal size, representing almost 40% of our total turnover each. And today, packaging is representing 60%, whereas printing paper is almost 0. When it comes to the wood costs and the supply and demand situation for wood in the Nordics, I think that we have seen here this year that the wood costs have reached the pain point, the pain levels. There has been significant curtailments in pulp capacity without mentioning any names of our competitors, but there have been very long curtailments, showing that when you are producing standard volume bulk pulp grades, it doesn't make sense to run at these higher wood cost levels. So, I think the proof is in the pudding, and we have seen that these levels basically forces the volume producers of pulp to take curtailments and shutdowns, extended shutdowns. And as I said, since the summer, we have seen wood costs now moving downwards. But then over to you, Niclas, for the other part of it. Niclas Rosenlew: Yes. So Lars, on capital allocation, and this is something we'll come back to as well in the CMD, but as we all know, I mean, we've had over EUR 1 billion CapEx now for a couple of years. This year, we'll go down to some mid-700s and likely down from there somewhat. We've done a lot of work internally, thanks to great efforts by the team to kind of create -- really kind of categorize our assets, run for cash assets, key growth assets and so on. And we see that we can become more disciplined by just doing internally being very structured, having criteria, return criteria, of course, but also other criteria for where to allocate the capital when talking about CapEx. So, there has been a lot of work going on recently on this, and we'll come back and explain a bit more what it means in detail. But CapEx is now on a downward slope. And as Hans said here earlier and as you know, we have made quite significant investments. Oulu is one, of course. De Lier, De Jong is another. And now going forward, we, of course, need to show the results of these and reap the benefits of them. So, essentially kind of no major CapEx kind of initiatives here in the near horizon. We have what it takes essentially to -- sorry, we have what it takes to grow essentially. Lars Kjellberg: Yes. So in '26, what does that mean for CapEx? What do you think you're going to land roughly? Niclas Rosenlew: Let's come back to that. As you know, we are typically in the beginning of the year in connection with Q1. We'll give an idea of next year, but down from where we are this year. Operator: We have reached the end of the time for the Q&A session. I shall now hand back to Hans Sohlstrom and CFO, Niclas Rosenlew, for closing remarks. Hans Sohlstrom: Well, thank you very much for your attention. Thank you for joining this call. And just -- we are powering ahead. We are focusing on profit, performance, as well as our portfolio to maximize shareholder value. That's our ultimate goal to create the best possible value to our shareholders. Thank you very much. Looking forward to meet with you then in the next quarter. Bye-bye.
Operator: Good morning, ladies and gentlemen, and welcome to the Live Oak Bancshares Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference call over to Greg Seward, General Counsel and Chief Risk Officer. Please go ahead. Gregory Seward: Thank you. Good morning, everyone. Welcome to Live Oak's Third Quarter 2025 Earnings Conference Call. We are webcasting live over the Internet, and this call is being recorded. To access the call over the Internet and review the presentation materials that we will reference on the call, please visit our website at investor.liveoakbank.com and go to the Events and Presentations tab for supporting materials. Our earnings release is also available on our website. Before we get started, I would like to caution you that we may make forward-looking statements during today's call that are subject to risks and uncertainties. Factors that may cause actual results to differ materially from our expectations are detailed in the materials accompanying this call and in our SEC filings. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of today's call. Information about any non-GAAP financial measures referenced, including reconciliation of those measures to GAAP measures, can also be found in our SEC filings and in the presentation materials. I will now turn the call over to Chip Mahan, our Chairman and Chief Executive Officer. James Mahan: Good morning, all, and BJ is going to kick us off. William C. (BJ) Losch III: Good morning, everybody. Let's get started with a big shout out to all of Live Oakers and our customers on Slide 4. We're proud to be recognized as the #1 SBA 7(a) lender for 2025 and by an impressive margin. Not only did we provide over $2.8 billion of loans to small businesses, but we also increased our production by 44% over last year, and our market share increased from 6.4% to 7.7%, and yet we still have plenty of room to grow in the program. Turning to Slide 5. We know what we are good at, and we're keeping the main thing, the main thing by ensuring our existing vertical lending and deposit gathering activities are our #1 priority. This performance is top of the class from a growth perspective. Loan production up 22%, loan outstandings growth up 17%, customer deposit growth up 20% and PPNR up 24%. These results reflect the hard work all our teams have done to create outcomes that are more consistent and sustainable over time. That's our goal. To ensure our profitable growth trajectory continues over the medium term, we are extending our customer product offerings by adding checking and small dollar SBA loan capabilities. Both of these efforts launched in early 2024. And in a little over 18 months, our teams have made significant gains in winning customer checking relationships and serving more small business borrowers. On the checking front, we ended the quarter with $363 million of checking balances or 4% of our total deposit base, up from only 2% this time last year. This increase is even more impressive when you consider that our total deposit base grew 17% year-over-year. We have about 1/3 of our new loan customers opening a checking account with us each quarter, and we expect that percentage to increase as we add more capabilities such as merchant services. At the beginning of 2024, only roughly 6% of our customers had both a loan and deposit relationship with us. Today, that percentage is 20%. All this is leading to deeper relationships with customers, better insight into customer cash flows and meaningful reductions in the cost of deposits, both now and over time. On the small dollar 7(a) front, what we call Live Oak Express, production is ramping up meaningfully and will continue to do so. These loans are also very desirable on the secondary market and are leading to a nice gain on sale increase. We are continuing our efforts to make it simpler, easier, faster and more efficient for our people to serve our customers. And in Live Oak Express, we will be piloting an AI-enabled loan origination solution to do just that, which will significantly improve our speed to close for the borrower and the efficiency of our process from the lender all the way through to servicing and loan operations. The tangible result of our efforts is showcased on Slide 6. As you can see, the true earnings power of the company is strong in PPNR, revenue and pretax income on both a quarter-over-quarter and year-over-year basis. We continue to be very focused on building more consistent and sustainable profitability. Healthy revenue growth continues and with appropriate supportive expense growth, operating leverage is strong. With credit impacts moderating in line with our expectations, a significant improvement is evident in our pretax income results. In short, our momentum continues with more to come. So with that, Walt, how about running through some of the financial highlights. Walter Phifer: Thanks, BJ. Good morning, everyone. Diving into the quarter on Page 8. Our Q3 earnings per share of $0.55 increased 8% linked quarter and almost doubled compared to Q3 of 2024. This outstanding growth was aided by the 7% linked quarter and 24% versus prior year increase in core operating leverage that BJ just highlighted as well as a lower quarterly provision expense. The 7% quarter-over-quarter improvement in core operating leverage was driven by a 6% quarter-over-quarter increase in net interest income, aided by $551 million or 5% linked quarter in loan balance growth and 5 basis points of margin expansion to 3.33%. On the growth front, our small business and commercial banking lenders as well as our loan support teams continue to generate high-caliber loans while replenishing their pipelines. Our deposits business continues to fund the bank in an extremely competitive market. As BJ mentioned, we continue to be encouraged by the momentum in our 2 focused initiatives of growing noninterest-bearing business checking balances and originating small dollar SBA 7(a) loans via our Live Oak Express product. Quarterly provision expense was $22 million and was lower for the fourth consecutive quarter. Our reserve and resulting quarterly provision expense continue to be driven by strong loan growth and our navigation of the small business credit cycle that we have discussed over the past few quarters. Lastly, on the capital front, we successfully raised $100 million with our inaugural preferred offering, generating quality Tier 1 growth capital to support our growth aspirations. Next quarter, we will have another earnings and capital accretive event with Apiture agree to sale, which will result in a $24 million onetime gain while also removing approximately $6 million of annual pass-through losses from our income statement. Page 9 provides a financial snapshot of our Q3 earnings results on the top left with quarter-over-quarter demonstrated improvement across all major profitability and growth metrics highlighted on the bottom left. I'd like to briefly highlight 2 other items on this page. The first being the bottom right corner of this slide, where we capture notable noncore items each quarter as they arise. Specifically, in Q3 of 2025, these items collectively had an estimated negative impact of approximately $1.5 million on our reported earnings. The second item is the tax expense line. Similar to last year, we had seasonal increase in the third quarter effective tax rate that was driven by compensation-related accounting treatment in the tax calculation. Slide 10 highlights our loan originations by vertical and business units. A few things to note here. As shown on the right-hand side of the page, our Q3 2025 loan originations totaled approximately $1.65 billion, an 8% increase linked quarter, driven primarily by our Commercial Banking segment. Production momentum in 2025 remains strong across our spectrum of verticals with approximately 2/3 of our verticals originating more production year-to-date in 2025 than they did in year-to-date 2024. Lastly, the bottom right of the page highlights the linked quarter-over-quarter and year-over-year loan portfolio growth trends by lending segment, with both segments providing double-digit year-over-year growth rates. Slide 11 illustrates quarter-over-quarter loan and deposit balance growth, highlighting the strong consistent growth trends on both fronts. Our total loan portfolio grew approximately 5% linked quarter with year-over-year loan balances increasing approximately 17%, outstanding durable growth that you don't often see across the current industry landscape. The approximately 3% linked quarter increase in customer deposits was consistent with Q2 2024's customer deposit growth rate, while our year-over-year customer deposit growth rate was an outstanding 20%. As you can see in the second half of 2024's growth rates on the bottom of the page, we typically experience a slower seasonal growth rate in the second half of the year on the customer deposit front and expect the second half of 2025 to be no different. Year-to-date growth in customer deposits has primarily been driven by our consumer and business savings products as we remain competitively priced in the market to support our aforementioned loan growth and via our business checking growth, which we highlight on our growth trends on Page 12. We saw a nice ramp in business checking in Q3 of 2025, with checking balances increasing 26% linked quarter to $363 million. Our total low-cost deposits, including noninterest-bearing checking balances as well as low-cost collateral construction and loan reserve accounts, now totals approximately 4% of our total deposit basis, a 2% -- or 2x increase year-over-year. As BJ highlighted, adding noninterest-bearing deposits to our primarily competitively market priced customer deposits and wholesale deposit portfolio is substantially accretive to our earnings profile. These deposits not only enhance our margin efficiency, but also strengthen the overall resilience of our funding mix with deeper customer relationships. As such, they remain a key strategic priority for us as we head into 2026 and beyond. Net interest income and margin trends are highlighted on Slide 13. In Q2 of 2025 -- sorry, Q3 of 2025, we saw our quarterly net interest income increased $6 million or 6% linked quarter and $23 million or 19% compared to Q3 of 2024. Our net interest margin also expanded another 5 basis points to 3.33%, our third consecutive quarter of margin expansion, aided both by growth as well as continued deposit repricing as highlighted on the bottom of the table in the middle of the page. As the Fed cut in September, and we expect more cuts to come in the very near future, perhaps as early as next week, here is a general reminder of how this impacts our net interest income and margin trajectory. The first is we have an asset-sensitive balance sheet with approximately 2/3 of our loans being variable and tied to either SOFR or prime. The second is our funding base is predominantly in liquid savings accounts, short-term customer CDs and broker deposits. Since the Fed began easing last December, our blended savings cumulative downward beta is approximately 44%. This is largely a result of us not pricing to the top of the market while the Fed was tightening. And as such, we have blended the top of the market reprice down towards us through 2025. Ultimately, we monitor both deposit market and funding levels closely, ensuring that we continue to support our loan growth appropriately while also adjusting pricing to support margin aspirations and profitability. Our current outlook is that the Fed cuts 25 basis points in October and December of 2025, followed by 3 additional 25 basis point cuts in March, June and September of 2026. Yet Fed forecasts vary and as such, we so do net interest income and margin outlooks. We evaluate a gauntlet of forward-looking scenarios to assess the potential tone of net interest income and margin outcomes. And generally speaking, larger or more frequent Fed cuts provide more margin compression in the near term, while flat interest rates less cuts and less frequent cuts provide more margin opportunity. Ultimately, assuming that the deposit market is rational and reprices appropriately, our margin typically recovers relatively quickly due to the short-term nature of our funding base. Ultimately, what really matters, however, is not simply the margin but the net interest income generated. And our net interest income performance is more resilient due to our strong growth. To drive this point home, over the last 6 years, 24 out of 26 quarters experienced stable or growth in net interest income despite our net interest margin peaking at 4% and valuing at 2.56% over the same time frame. Moving to guaranteed loan sale trends on Slide 14. The secondary market continues to provide consistent earnings while acting as a good source of recycled liquidity. We added some depth to this page this quarter to provide insight to our gain on sale composition and to highlight the accretive contribution we are already realizing from our small loan SBA origination efforts. Our quarterly gain on sale remains primarily driven by our typical larger SBA loan sales, which have provided a consistent $13 million to $15 million a quarter of gain on sale at an average premium in the 106 to 107 range. We've now had 2 consecutive quarters of USDA loan sales, which is encouraging, yet ultimately, the timing and execution of these sales is driven by the completion of the underlying projects, rate environment and investor demand. Similar to my comments on growing checking balances, our focus on ramping our Live Oak Express origination is providing immediate results with our small loan SBA sales providing for $12 million in year-to-date gain on sale, approximately 4x or $9 million more compared to year-to-date 2024, while also providing for approximately 20% of our year-to-date total gain on sale compared to only 8% in year-to-date 2024. To help ramp this product going forward, we remain focused on both filling the top of the funnel through partnerships and lender referrals while also leveraging AI to make the origination and servicing more efficient for our people and our customers. Expense trends are detailed on Slide 15. Q3 reported noninterest expense of $87 million decreased approximately $2 million or approximately 2% linked quarter. We remain focused on supporting our growth via good costs while also working to improve efficiency. This renewed focus on growing revenues faster than expenses and improving operating leverage really began back in the third quarter of 2023. You can see the results of that focus on the right-hand side of this page with loan production, core operating leverage and revenue growth, all significantly outweighing our expense growth as compared to the third quarter of -- comparing the third quarter of 2025 to the third quarter of 2023. We are keenly focused on improving both our customer and employee experiences, embracing the automation and AI wave across our entire business and enhancing our current technology stack, all with the resulting goal of creating internal and external raving fans, improving efficiency and providing for a solid mature foundation that will support our growth. Turning to credit. Slide 16 provides insight into the portfolio with a view of key credit ratio trends in the table at the top with visualization of over 30-day past dues, nonaccruals and provision trends on the bottom. Our over 30-day past dues remained low for the fourth consecutive quarter with $16 million or 14 basis points of our held-for-investment loan portfolio past due as of September 30. The amount of nonaccrual loans increased to $85 million or 73 basis points of our unguaranteed held for investment loan portfolio in Q3. Nonaccrual balances remain very manageable as our servicing team continues to support SBA customers impacted by the small business credit cycle. Provision expense of $22 million improved in Q3 and was influenced by strong $551 million quarter-over-quarter loan growth, what we often refer to as good provision and portfolio performance. While quarter-over-quarter provision will fluctuate based on growth and portfolio activity, we remain comfortable with our reserves. Last page for me on capital -- our capital strength was bolstered in Q3 of 2025 with our preferred issuance as shown on Page 17. The $100 million issuance added approximately 90 basis points of total risk-based capital and approximately 70 basis points of Tier 1 leverage, excellent Tier 1 growth capital. Our equity method investment in Apiture will provide for an additional capital accretive event in Q4 with Apiture's recent sale closing in October. In addition, the removal of approximately $6 million of pass-through losses going forward will largely help fund the annual preferred dividends on the preferred issuance. Thank you again for joining this morning. And with that, I'll turn it back over to BJ for his closing comments before we head to Q&A. William C. (BJ) Losch III: Great. Thanks, Walt. Momentum is building. We're focused on the biggest and best opportunities, and we're modernizing our activities to take full advantage of the AI-driven possibilities that are right in front of us. So with a big thank you to all Live Oakers and our customers, let's take some questions. Operator: [Operator Instructions] Your first question is from Dave Rochester from Cantor. David Rochester: Can you just -- just to start with credit. Can you give a little more color around the increase in the NPAs this quarter and talk about the new default trends as well? And then just on charge-offs, I would imagine you're expecting those to decline, but if there's any reason why those remain elevated, I would love to hear. Michael Cairns: Yes. This is Mike Cairns, Chief Credit Officer. Happy to take that. So I look at this quarter as just a continuation of where we were last quarter. Fortunately, not all credit metrics always move in a perfectly linear way. So we saw some nonaccrual balances tick up a little bit, but still a very manageable balance there and not -- this all kind of came from our SBA portfolio. Nothing caught us by surprise. These are loans that we've been tracking and are related to similar the stress that the small business owners have faced over the last few quarters, which we've talked about quite a bit. So I think about nonaccruals as far as balances, not all nonaccruals are created equally. So when you look at default count, it's also up as well, but not in a dramatic way. The other things I look at are past dues. So with an SBA portfolio as large as ours, having 14 basis points worth of past dues is something I'm incredibly proud of and how our team has managed that. To me, that's an indication that our servicing team is on the portfolio and taking care of it. Reserve levels came down. So not all nonaccruals turned into charge-offs to your question. And so while that has ticked down, we still have really healthy coverage on the portfolio. I feel good about where we are in reserves. And so there's a lot of economic uncertainty out there that has been discussed by other banks. And what we control is -- or what we focus on is what we can control, sound underwriting, which we continue to have. I talked about that last quarter, and we continue to focus on not stretching on credit quality, which we have not done and heavily servicing the portfolio. So for example, we are now going through our annual risk rate process for the entire SBA portfolio, and we will have a servicing team member and a credit officer assessing the risk rate for every meaningful balance within that portfolio. And that's above and beyond our day-to-day servicing that we do, which is interacting with our customers, collecting financial information, spreading that, talking through that with our customers and doing site visits. So a lot of hands and eyes on the portfolio. And I think as I sit here today, I think what we're finding is that while there has historically been a little bit of a cycle in the SBA industry, our small business owners have remained relatively resilient in the face of that. David Rochester: Appreciate that. And then how are you thinking about the potential for an extended government shutdown and what that can do for -- on both the loan side in terms of loan growth and then credit. And when do things start to potentially get rough? What are you guys worried about on this front? Walter Phifer: Hey, Dave, this is Walter Phifer, CFO. I'll start on the loan growth side and secondary market side and then Michael can jump in on credit. Unfortunately, government shutdowns is something we've had practice with over the years. So we have a pretty extensive playbook that we pull out when these things happen. And the first and pretty much kind of the initial action that we take any time there's a potential for a shutdown is we look at our pipeline, especially our SBA loans and start to pull PLPs to reserve that SBA funding. Coming into this shutdown, we've -- our team really pushed in September. We had about $900 million of PLPs pulled so that we can continue to operate business as usual and get that capital out to the small businesses. So from a growth standpoint, that feels really good. Now obviously, the longer the shutdown, you kind of get in through the end of the quarter. The PLPs there, a bunch of run out and then Michael and his team will assess bridge loans as appropriate. The other big impact for us is on the secondary markets. Now we typically don't sell any of our loans in the first 30 to 45 days of any given quarter. So right now, we haven't seen an impact at all of the current shutdown. Once the shutdown ends, we -- the secondary market opens up pretty quickly and we get our loan sales out, we settle. I'd say right now, the shutdown extended past Thanksgiving. That may impact us here in the near term in the Q4 in terms of secondary market sale execution. But once the market opens, we get back out there and we'd catch up later in the quarter or going into Q1 of next year. David Rochester: Appreciate all the color there. Maybe just one last one, if I could. Just switching gears to the AI enhancements you've been talking about in terms of processing times and whatnot. Can you just quantify what those benefits could be? And then it sounds like you guys just overall look very favorably at what AI can do to the expense base and how you can potentially keep that more stable. If you could just talk about that a little bit, that would be great. Michael Cairns: Sure. The history of Live Oak and the gentleman sitting next to me is one of innovation and looking at what's coming down the pike in terms of technology, technology enhancements and the art of the possible. And AI, we think, could be bigger than any of the meaningful step changes in technological advancement from the Internet to cloud computing. They were big. We think AI is even bigger. And so what we're doing is we're spending a significant amount of time educating our people on all the tools available. So developers are all using cursor and understanding how to code in AI. But the rest of our organization is learning to use prompts and build agents for specific processes. And we have people in our insurance group that are literally building their own agents to automate a lot of the follow-up that we have to do with insurance companies to ensure that our borrowers have the appropriate insurance. And that's being done at an individual level, not just an institutional level. And then Renato Derraik and his technology team are way out in front of what a lot of others are doing, and we're building significant Agentic AI solutions, both in-house and with partners to drive across the company. And I think a unique opportunity that we have at Live Oak is that we are growing so fast. I think there's a lot of both excitement and trepidation about what AI might do and how that impacts the employee base and what that means for them. And I think because we have so much growth opportunity over the next several years that what that will mean is AI will help the productivity of our people over time and maybe we have to grow our employee base and our expense base a lot less to generate the same level of revenue as opposed to maybe some others, particularly in our industry that aren't seeing nearly as much top line growth and have to use AI to reduce cost. And so I think our operating leverage because of our use of AI could exponentially grow our profitability while also making our -- make it easier for our people to do business, have more capacity to serve customers and make the customer experience far better. So the world of opportunity is endless out there, and we're already working on capturing a lot of it. I know I've talked a long time, but very excited about this. I did mention we're doing a lot of piloting, particularly around our loan origination platform, starting with our small dollar loans and looking at a platform that is completely AI-driven and incredibly, incredibly easy to use all the way from the lender back to servicing and operations. And so a little bit more to come on that, but that's just one example where we're already ahead and putting major things in practice that are going to help us over the long term. David Rochester: Sounds like that will be a pretty solid competitive advantage for you guys. Operator: Your next question is from Tim Switzer from KBW. Timothy Switzer: First question I have is on the trajectory for the margin. We're reentering the rate cut cycle. And I think you guys are long-term beneficiaries from rate cuts as long as assuming we get a steeper yield curve. But assuming we get 1 or 2 more in the back half of this year and maybe another one next year, how does that impact the near-term NIM? And then maybe what's the time line for when we start to see it rebound and inflect back higher? Walter Phifer: Hey, Tim, this is Walt. I'll jump in on that one. I think you got to leverage a lot of the comments I made kind of earlier. I think if you look at kind of the models you see out there, I think they were perfect coming into this before there's an October cut. Now there's an October cut, so you have to kind of flush that through. But from a margin specifically, being an asset bank, you see some margin variation with -- and you take that plus our growth, it limits what you do in terms of quickly repricing deposits. We tend to take the approach of we see where the market goes and then we slot ourselves appropriately to make sure that we can continue to fund that growth, but obviously help with profitability from kind of long -- as you think about when it recovers, I mean, I think if you look at the past few years and any time we've had the Fed ease, it's pretty quickly, right? And I think you can see even on the page on 13, kind of in the middle of that page, you saw the same thing where NIM compressed and then it recovered pretty much next quarter, start to grow again and got back there within a year. And that's really a testament to, one, our deposit team as well as our treasury team, but as well as our kind of our short-term funding nature. So most of our CDs and our brokered deposits are within a year in terms of near kind of terms. So it recovers pretty quickly. But again, as I mentioned, I kind of reorient you to net interest income and growth, right? BJ always has this saying that you can't spend margin, that kind of always stuck with me. And at 3.30% margin -- 3.33% margin is pretty healthy. And if you can grow your net interest income quarter-over-quarter despite that margin kind of variation, that's a fantastic story in my mind. So we kind of think about that margin but also think about on the net interest income side. Timothy Switzer: Got you. That was very helpful. And I also want to ask about kind of the competition you're seeing broadly in the SBA space with, I guess, the government shutdowns impacting things. You obviously have the credit cycle that seems to be hitting some of your competitors harder than you and all the rule changes that were implemented, I guess, almost 2 quarters ago. So have you seen easing competition at all? And has that created some opportunities for you? William C. (BJ) Losch III: Yes. Tim, this is BJ. The way I would describe it is this is what we do. This is how we grew up, and we know the SBA market, we think, better than anybody. And we've seen tons of things. We've seen SOP changes. We've seen government shutdowns. We've seen nonbank lenders come into the market. We've seen nonbank lenders go out of the market. We've seen big banks try to do SBA. We've seen them pull out of SBA. All the while, all we're doing is growing the number of verticals and the number of customers that we serve through the SBA. So we don't believe that we have a peer in SBA lending. We will see different pockets of competition in different verticals and some competitors are better than others in those verticals. But by and large, we actually just control what we can control in terms of making ourselves better all the time every day. And so I think, obviously, it's showing up in our results and in our numbers, and we'll continue to do that. Timothy Switzer: Got it. And then the last question I have is, it seems like previously most of your commentary around the credit performance was that it was pretty broad-based and more related to certain vintages rather than industries. But now that we're a little bit longer time for the kind of the impact of tariffs and everything else going on, have you seen any industries that are maybe struggling or under a little bit more pressure than others? William C. (BJ) Losch III: Yes. I think, Tim, on the tariff side, really very little, I'd say. It's a little bit more, yes, the rise in rates and the vintages from '21 and '22 showed some significant stress. I think where we see more stress than not -- and by the way, it's not broad-based across all of our verticals. It's a handful is where they don't have as much pricing power, yet their cost of goods sold are going up. And so the struggle of trying to just maintain profitability, and that's where we've seen a little bit of stress. But as Michael kind of talked about, there isn't anything that is surprising us at this point. We kind of know where that tension is. And everything is kind of performing relative to our expectations. Operator: Your next question is from David Feaster from Raymond James. David Feaster: I wanted to talk about the kind of the credit and tech side in one sense. You talked about maintaining strong underwriting and that you guys are going to be going through the risk weighting, updating some of those. I'm just curious, given the broader uncertainty and pressures that we're seeing, again, you talked about the tariffs and all these different things. Have you adjusted underwriting standards or your criteria at all? And then using technology and AI, is there -- we talked about the growth side and improving profitability, but is there opportunities to use tech or AI or whatever it may be to help underwriting or earlier credit identification and just kind of help mitigate the credit risk? William C. (BJ) Losch III: Yes. Hey, David, I'll start. Michael, I'm sure will jump in. On underwriting standards, to be pretty consistent with our customers so they understand kind of -- and our lenders so that they understand what we're interested in and what we're not. With that said, though, there will be times when we'll modify the credit box, let's say, for instance, we'll say we really want to require direct management experience or direct operating experience in a certain vertical if we're going to end credit in that vertical. That's an example of how we might "tighten" underwriting is to make sure that we have borrowers that are going to be able to operate their businesses successfully. So we're constantly tweaking that across our 40 verticals, and we've always done that. And I think that, that will continue. In terms of AI, absolutely. So for instance, one of the things that we're looking at in pilot from a new loan origination and servicing platform is the ability to actually ingest documents and have them read by AI and started to do spreads and create a credit memo. So imagine we've got all this documentation from an HVAC company. And AI is ingesting all this information specifically on this HVAC customer in a certain market. But at the same time, it's going out and using Copilot or ChatGPT to actually build a business analysis around what that market looks like, what the demand in the market looks like, what the overall industry doing and how it's performing, how that looks relative to the financials that we're ingesting, how that looks like relative to our existing HVAC or service contractor portfolio that we have in credit. That's what we're piloting. Those are the types of things that we're looking at in terms of using AI. So it doesn't replace the human aspect of reviewing all that. But in terms of streamlining the ability to analyze, do data entry, ingest information, do competitive analysis and understand trends, it's going to be incredibly impactful for our ability to get loans closed, approved, not approved, and it's just going to make us a lot better and give customer a lot better experience. David Feaster: Okay. That's helpful. And then I was hoping you could maybe elaborate a bit on the government shutdown and kind of how all this works. I appreciate your commentary on this already. But it sounds like assuming that this gets figured out pretty quickly that you think that you're still going to be able to kind of sustain this pace of organic growth quarter-over-quarter. I mean, does that imply that the SBA works through the backlog of loans pretty quickly once we get back up and running? Or do you backfill maybe some of that gap with more conventional lending in the short term? Or just do we -- is it kind of just a timing issue and maybe this quarter might be a little bit weaker and we see some slippage into 2026? Just kind of curious how you think about all -- there's a lot of uncertainty. So just any help on how you think this kind of plays out is helpful. Walter Phifer: Hey, David, it's Walt. I'll start. I think you -- from the SBA's perspective, once the government opens, they're pretty quick to catch up. I don't really see if it wraps up here in the next, call it, week or 2, I really don't see an impact really government shutdown driven on our SBA growth or production for the quarter, largely because of pulling the PLPs towards the end of September, like I mentioned... David Feaster: You might want to explain what pulling the PLP. Walter Phifer: Yes, pulling the PLP. So the SBA has a certain amount that they'll allocate each year in terms of funding. Pulling the PLP reserves, it's -- every SBA loan has an SBA PLP number. It's a reservation for that funding from the SBA program. So you can't originate an SBA loan without that SBA number, that authorization. So -- but you have to be a preferred lender, yes, that's PLP, preferred lender program to find acronym, which I'm known to use quite a bit of acronyms. But yes, from -- David, from kind of growth standpoint, really don't expect much of a change here in the last quarter if they wrap it up here in the next, call it, week or 2. I don't think we'll need to tap into the conventional side. That's always something we do for a much more extended shutdown if we run out of those kind of SBA reservations, and that's where Michael and his team come in, and we'll look at small short-term bridge loans. But overall, this is, like I said, unfortunately, something that we've kind of gotten used to on how to deal. And the other -- last thing I'd say is we have government relations manager that sits up in D.C. Her name is Dawn Thompson, she's fantastic. She lets us know kind of what's going on, as it's going on. So we kind of feel like we are always kind of in the know on how things are progressing, and she's keeping us up to date daily at this point. David Feaster: Okay. That's helpful. And then maybe just kind of staying on some of the exciting parts about the business. You guys -- I wanted to get an update on kind of where we are with the embedded finance build-out, how that's going and the growth potential there? And then just maybe on -- you guys are kind of ahead of the curve on most things. How do you think about -- like just given the market expansion of stable coin, how do you expect to play there? Are there opportunities like just kind of curious what you guys are looking at? Is that a potential opportunity for some deposit growth for you all? Just want to touch on those 2 topics. William C. (BJ) Losch III: Sure. David, it's BJ. So embedded continues to be built out, and we think it's one of our moonshots. So something that really could be meaningful over the next 3 to 5 years. We did do a pivot on how we were building it out earlier in the year. We were doing a lot of in-house building. But again, with AI and what's going on in the marketplace, and we found a partner that was quite a bit ahead of where we were, and we thought that we could leverage that partnership to accelerate our embedded banking growth. So we kind of moved to a different platform, which slowed down our pipeline building in terms of relationships. But we've got one live. We've got several in the hopper. And we think over time, we'll talk about that a little bit more. I'd rather actually put points on the board from an embedded banking perspective and then tell you about it as opposed to tell you it's coming. So that's kind of where we are on embedded. It's still very much on our road map. On stable coins, it's very interesting. We have a new Board member, Patrick McHenry, who you would have seen in press release that when he was in Washington and Congress, he was incredibly involved in the GENIUS Act and what's going on with stablecoins. And so we kind of have an inside view, so to speak, of what's going on, how that could impact things and what -- how people are looking to use it. So we are actively studying how we would participate in stablecoins, and we want to stay ahead of that curve as much as we can as it continues to evolve. Operator: [Operator Instructions] And your next question is from Steve Alexopoulos from TD Cowen. Bill Young: This is Bill Young actually on for Steve. Just to circle on the credit mini cycle topic one more time. In recent quarters, you've spoken of being more aggressive on getting ahead of problem loans and writing them off with more aggressive charge-offs in your book. And we did see a bigger step down in net charge-offs this quarter despite the increase in NPAs. So can you speak to your visibility on kind of the future loss trajectory and your confidence level in terms of how far ahead you've gotten on these issues so far this cycle? Michael Cairns: Yes. I think that -- it's Michael here. I'll take that. So I think in past quarters, we had discussed the fact that we had changed our philosophy on being more proactive in charging off loans. Our special assets team is -- in spirit with the SBA program does everything that we can to help our business -- our borrowers navigate whatever challenges are in front of them. So we will hold on with our customers longer than most and do everything we can to help. In the past, we had held some of those in nonaccrual and not charged them off. We changed our philosophy. We're charging them off when we feel like it's past the point of getting back to repayment quickly. While even though those loans are not charged off, they're not out of mind. We track those loans. We still work with our customers. But -- so I would say that we are right on top of where we should be as far as charge-offs. We'll continue to be proactive in dealing with that and not let them linger on our balance sheet. But I think we're doing a good job there. Bill Young: Okay. Great. And then it was nice to see the return on tangible common equity return back to double digits this quarter. So can you just maybe lay out what you see as kind of a sustainable path for returns can move to in the next year or 2? Michael Cairns: Yes. I think, Billy, what we talk about a lot here is getting to a 15% and 15%, which is consistent and sustainable 15% returns on equity with 15% or more EPS growth a year. And to do that, you've got to make sure that your business model can sustain that kind of performance, which means doing things around the checking portfolio to provide more of a balance for your funding costs. It is always having growth initiatives like Live Oak Express that are going to incrementally move your fee income line up further. It looks like expense discipline and a moderation of credit. All of those things, the senior leadership team talks about constantly is how do we get back not only to those levels, but consistently build a business model that stays at those levels. And so I'm highly confident that we're going to be able to get there in the near term, near medium term, let's say, over the next 18 to 24 months. Bill Young: Great. And my last question, with your pending Apiture sale and some activity among your peers such as MVB with their Victor sale, as you think about Live Oak Ventures and some potential percolation of activity in Silicon Valley, are you beginning to see a bigger opportunity in the near term to harvest some of your investments? Michael Cairns: I'll talk a little bit about ventures, our ventures portfolio specifically, but Chip knows more than any of us about broadly what's going on in ventures. So I'll let him talk about that. But Apiture was one of the 2 largest portfolio companies that we had in our ventures portfolio. And obviously, we just exited with a nice gain there. The other largest that we have is Greenlight Technologies, which is a fantastic company. The other ones are smaller and still in growth mode. And so I think Apiture was probably kind of the largest in terms of harvesting. And the portfolio will probably stay the way it is for quite some time. In terms of -- in terms of exits, I think that we'll continue to incrementally add venture portfolio companies as we continue to look at new technology that we want to use inside the company. That's always been what we use Live Oak Ventures for. And so you'll probably see more of that from us. But Apiture was probably the largest exit that you'll see in a while. Chip, what are you seeing more broadly? James Mahan: Well, I think most of this relates to Canopy. We look at probably 4 companies a day in Canopy. So that gives Live Oak a sneak peek before anybody else if there's anything interesting there that we may want to invest in. I would say that the euphoria of the pricing in that business after COVID has reinstated itself with artificial intelligence. Venture firms are throwing enormous amount of money at these companies where they're fundamentally pre-revenue. And we're trying to take a bit of a circumspect view there because as you know, at Canopy, we raised $1.5 billion from 70 banks and our bank LPs are right there by our side as we look at interesting opportunities on a daily basis. Operator: There are no further questions at this time. I will now hand the call back over to Chairman and CEO, Chip Mahan, for final comments. James Mahan: As always, thanks for attending, and we'll see you in 90 days. Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Good day, everyone, and welcome to the Arca Continental Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of IDEAL Advisors. Please go ahead. Melanie Carpenter: Thanks, Nicky. Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review their results for the third quarter and the first 9 months of 2025. Their earnings release went out this morning, and it's available on the company website at arcacontal.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; and the Executive Director of Planning, Mr. Jesus Garcia. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance. And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So please go ahead, Arturo. Arturo Hernandez: Thanks, Melanie. Good morning, everyone, and thank you for joining us today to review our results for the third quarter and to share some important recent developments. Let's begin with our consolidated results. I'm pleased to report another quarter of solid execution and sequential progress across our territories, even as the broader economic environment remains challenging. Our teams continue to navigate market headwinds with agility and discipline, driving robust profitability. Total consolidated volume declined 1.8% in the quarter, while consolidated revenues grew 0.5%, supported by effective portfolio mix and revenue management, partially offset by unfavorable FX impacts. Consolidated EBITDA grew 1.2% in the quarter, reaching a margin of 20.4%. This achievement marks a significant milestone with third quarter EBITDA margin at its strongest point since the acquisition of our U.S. operation in 2017. These results underscore our relentless execution, the strength of our portfolio and our continued focus on driving profitable growth. Let me expand on the results across our geographies. In Mexico, unit case volume, excluding jug water, declined 2.9%, largely reflecting the impact of heavy rains and below-average temperatures across much of our territory. Despite this temporary weather-related pressures, still beverages grew 2.2%, led by tea, juices and nectars and energy drinks, capitalizing on the positive momentum in the supermarket channel. Coca-Cola Zero continued to outperform delivering sequential double-digit growth, supported by the introduction of the new 450-milliliter format, which continues to resonate with consumers seeking convenient and affordable options. Santa Clara brand continues to deliver strong performance in Mexico, achieving double-digit volume growth rates, supported by robust momentum in flavored and specialized milk. We continue to gain value share in the value-added dairy category, reflecting the strength of our innovation and disciplined execution. Net sales grew 2.8%, with average price per case, excluding jug water, up 6.4%, underscoring our strong revenue management capabilities. EBITDA decreased 3% in the quarter, resulting in 23.9% margin, reflecting our disciplined commercial execution and solid revenue management capabilities in a softer demand environment. In South America, total volume declined 0.6% in the quarter, primarily due to softer performances in Ecuador and Argentina. This was partially offset by growth in Peru. Total revenue declined 13.6% and EBITDA was down 1% with a margin of 18%. This quarter reflects a steady though cautious progression of the recovery that began in the first half of the year with meaningful variation across countries. Collectively, our South American operations are advancing through a period of disciplined stabilization, setting the stage for more balanced and sustainable growth ahead. In Peru, total volume increased 2% in the quarter, supported by a stable economic environment and resilient consumer demand. Growth was broad-based across categories, led by sparkling up 1.7%, stills up 1.9% and water at 4.8%. Our core brands, Coca-Cola, Inca Kola and Sprite delivered strong growth, up 1.2%, 1.6% and 8%, respectively. Volume recovery remained consistent across channels with convenience stores leading the way up 22%. Supermarkets showed a sustained rebound while traditional trade maintained solid momentum, supported by our effective price pack and cross-category strategies, further enhanced by our digital capabilities. Turning to Ecuador. Volume declined 1.2%, reflecting softer market conditions and a fragile yet gradually improving macro environment. Even so, our team remained focused on executing our fundamentals and driving performance in the areas within our control. We sustained our value share in NARTD beverages, driven by continued growth momentum in still beverages, up 3.6%. In the sparkling category, Coca-Cola Zero once again delivered solid growth of 2.2%, while Fanta and Fioravanti grew 6.2% and 3.6%, respectively. The water segment rose 3%, showcasing the strength of our diversified portfolio. We also continue to refine our price pack and channel strategies, drive the adoption of returnable packages and invest in targeted market initiatives to strengthen our long-term position. Year-to-date, we have installed more than 17,000 cold drink units, further enhancing our market coverage and reinforcing execution at the point of sale. In Argentina, volume declined 5.6% in the quarter, reflecting the near-term effects of the country's economic adjustment. Nevertheless, we gained value share across NARTD categories, supported by our sparkling portfolio and our continued focus on affordability and returnable packaging initiatives. While volatility remains, our disciplined execution and agile commercial approach positions us well to capture growth as conditions normalize. Our beverage business in the United States delivered another strong quarter, sustaining solid momentum and achieving robust operating results. This marks our 30th consecutive quarter of EBITDA growth. Adding to this momentum, our U.S. team was recognized as the best Coca-Cola bottler in the world, receiving the prestigious Candler Cup. We are proud to be the only bottler to have earned this award twice, underscoring our operational excellence and market leadership. These impressive milestones reflect our team's consistent execution and the strength of our business model. Solid performance this quarter was driven by effective management of our price pack architecture, disciplined cost controls and continued focus on maximizing the value of our most profitable packages. Net revenues rose 3.5% this quarter, with the average price per case up 4.8%, supported by our strategic focus on boosting promotional efficiency through our trade promotion optimization digital platform. Volume for the quarter declined 1.3% and transactions grew 0.1%. Key performance highlights included a 5.9% increase in our low-calorie portfolio led by Coca-Cola Zero, Diet Coke and both Diet Dr. Pepper and Dr. Pepper Zero. In the stills portfolio, Monster, Fairlife, Core Power and Smartwater continued to post sequential growth, supported by robust brand execution. Notably, EBITDA increased an outstanding 9.7%, representing a margin of 17.2%. And an important update on our digital agenda, our e-commerce business continued to deliver strong results, driven by enhancement in our eB2B capabilities and outstanding execution in the e-retailer space. I'd like to close our U.S. update by sharing our excitement for the 2026 FIFA World Cup and our role as whole city supporters for the Dallas and Houston venues. Through this partnership with the World Cup Organizing Committee, we will actively support the city's legacy programs and showcase our brand through targeted initiatives that engage fans and local communities. Our Food and Snacks business delivered a resilient performance posting a low single-digit sales decline for the quarter. While facing top line challenges, our team remained focused on profitability through effective price management, portfolio optimization and operational efficiencies. In line with our broader sustainability objectives, we continue to advance the clean label initiative across our U.S. Snacks portfolio. This includes the removal of artificial colors, flavors and preservatives as well as the simplification of ingredients lists. These efforts exemplify our commitment to transparency, product integrity and long-term consumer trust. And with that, I will now turn the call over to Emilio. Please, Emilio? Emilio Marcos Charur: Thank you, Arturo. Good morning, everyone, and thank you for joining our call. As Arturo highlighted, the same factor that influenced our performance in the first half of the year continued to play a significant role in the third quarter. Macroeconomic environment remained challenging and weather conditions were still unfavorable. Even so, we have a sequential improvement in volume for most of our operations, demonstrating strong team performance despite challenges. The improvement in volume, together with our solid revenue growth management capabilities and disciplined approach to expense control resulted in an expansion of our consolidated EBITDA margin. Let me offer further insight into our financial results. In the third quarter, consolidated revenues increased 0.5%, reaching MXN 62.9 billion. Revenues for the 9 months of the year rose 6.6% to MXN 183.4 billion, mainly driven by an effective pricing strategy. On a currency-neutral basis, revenue rose 3.8% in the quarter and 3% year-to-date. During the quarter, SG&A expenses rose 1%, reaching MXN 19.4 billion. Despite the contraction in volume, SG&A to sales ratio was fairly in line with third quarter '24 at 30.8%, reflecting our continued commitment to operational discipline. In the quarter, gross profit increased 1.2% to MXN 29.5 billion, while gross margin expanded by 30 basis points due to a solid price pack architecture and solid hedging strategy. For the quarter, consolidated EBITDA increased 1.2% to MXN 12.8 billion with a 10 basis point margin expansion reaching 20.4%. In the 9-month period, EBITDA grew 6.1%, reaching MXN 36.6 billion, while EBITDA margin decreased by 10 basis points to 20%. On a currency-neutral basis, EBITDA rose 2.6% in the quarter and 2.2% as of September. Net income in the third quarter reached MXN 5.3 billion for an increase of 3.5%. Net profit margin increased 20 basis points to 8.4%. Now moving on to the balance sheet. As of September, cash and equivalents totaled MXN 32.3 billion, while total debt stood at MXN 63.9 billion, resulting in a net debt-to-EBITDA ratio of 0.62x. In our most recent Board meeting, it was approved to distribute an additional dividend of MXN 1 per share to be paid on November 5. Combined with the ordinary dividend of MXN 4.12 distributed in April and the extraordinary dividend of MXN 3.50 paid in June, we will reach a total dividend of MXN 8.62 per share. This reflects a payout ratio of 75% of retained earnings and a dividend yield of 4.3%. Total CapEx reached MXN 11.8 billion, representing 6.4% of sales. Investments were primarily directed towards expanding our production capacity, ensuring that we are well positioned and sustained future growth. We also continue to enhance our distribution and commercial capabilities, which are key enablers for our long-term strategic plan. Looking ahead, we expect market volatility to continue throughout the rest of the year. We remain confident in our business strength and ability to create value despite challenging conditions. We will continue managing expenses carefully to drive profit and sustainable growth. That concludes my remarks. I will turn it back to Arturo. Please, Arturo. Arturo Hernandez: Thank you, Emilio. As we reflect on this quarter, our disciplined execution enabled us to protect volumes, sustain market share and maintain profitability even in challenging conditions. Furthermore, as we marked the third year of our collaboration agreement with the Coca-Cola Company, this partnership continues to deliver on its core objectives while unlocking new opportunities through a broader portfolio. At the same time, we are staying proactive on regulatory developments and pursuing strategic initiatives, ensuring our readiness to capture growth when market conditions improve. By balancing resilience with agility, we're positioned to deliver a strong and sustainable performance across cycles and continue creating long-term value for our shareholders. We are focused, ready and energized to capture the opportunities ahead. Thank you for your continued trust and support. Operator, please open the line for questions. Operator: [Operator Instructions] We'll take our first question from Ulises Argote with Santander. Ulises Argote Bolio: My question is related to the margins in the U.S., right? So another quarter with positive surprises there. I was just wondering if you could give us some color on what continued to be the main drivers there and the main levers despite that slowdown in top line that we're seeing. And maybe just to pick your brain on how sustainable do you think these trends are going forward? Arturo Hernandez: Thank you, Ulises. Well, first of all, we have to say that we're very satisfied with the profitability in our U.S. business, considering also that we faced many challenges in that market. As you know, third quarter, we grew EBITDA, in dollar terms, close to 10%. And our margin is above 17%, which we -- again, we're very pleased with that. The drivers behind it, as we've said before, our pricing capabilities and also the management of promotions. We're looking forward to combine this premiumization of our portfolio with also a price architecture that would cover all segments, considering, again, the economic dynamics. We've also worked on efficiency projects. And I would say that our OpEx ratio has shown this operational discipline. We expect that also to be sustained. There's some efficiency projects underway. And in fact, one of the most important ones will not be fully captured in '26, the Wild West project that we call, which is the restructuring of supply chain in some of our plants and warehouses in the U.S. We also are looking at input costs in '26. They're expected to rise due to inflation, but we do have also a strong hedging strategy. I will ask Emilio to expand on that part. But in general, I would say that we are very confident for '26 to sustain our current margins. Emilio, why don't you expand on our raw materials and hedging situation? Emilio Marcos Charur: Yes. Thank you for your question, Ulises. Yes, for this year, as we have mentioned, we have over 97% of our LME needs in U.S. and 48% Midwest premium portion for this year and 79% of high fructose needs. And we started to hedge for next year. For 2026, we have 95% of our LME needs next year and 20% of Midwest premium. So that will allow us to together with what Arturo already mentioned, to consolidate the levels -- the margin levels that we have this year, and we expect it to reach those levels -- at least those levels for next year. Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. Thiago Bortoluci: Arturo, question on you for Mexico, right? How should we read the combination of negative sparkling volumes with returnables losing participation in your mix? And if I may expand, the reason I'm asking this is because the big debate today in the space is clearly how much of the drag is structural versus temporary issues, namely comps, weather and another few. So it would be very helpful to hear your perceptions on how you're seeing underlying elasticity, affordability, price pack performance and overall performance by channel. And again, if we can read anything between your volume print and your packaging performance in the quarter, especially in the context where weather conditions didn't help. Arturo Hernandez: Thank you, Thiago. Let me start by giving the context of the consumer environment in the third quarter in Mexico. As you said, this is a combination of not very favorable weather, increased rainfall, cooler temperatures. It was very, very unusual. Rainfall was probably 40% higher than usual in the North of Mexico, even more than that, maybe in some cases, just doubled and tripled in the West regions for us. So temperature has also affected volumes and consumption and traffic throughout the quarter. There was also the economic dynamics where activity slowed down and any activity really was driven by exports rather than domestic demand. So internal consumption has been reduced and special retail activity and traffic weakened. I would like to think that, that is also temporary, not only weather, which would naturally be different as we think about next year. But in terms of the economic weakness, we believe that as we gain greater clarity around trade rules and tariffs and the relationship with Mexico and the bilateral trade with the U.S. that will enhance Mexico's competitiveness and will provide even formal job creation and with that, domestic consumption. If you look at returnable packages, well, the main reason is that supermarkets were basically the only channel that grew volume in the third quarter, and that was driven mostly by intensified promotion, considering the current situation. But we're going to be pursuing our strategy of affordability going forward in Mexico, which means entry-level packages, both returnable and nonreturnable packages. And the 235-milliliter, 12-ounce 250 ml one-way packages. The 450 milliliter that probably you've seen in the market, one-way, very important for us. The multi-server fillable format, what we call the universal model. All those strategies will continue to move forward as we face these challenges. So that is -- it's hard to isolate the effect of weather and the economic situation, but we are convinced that those are the main factors. Our execution in the market continues to improve and our leadership in the market as well, which we believe that's the most important part. Operator: Our next question comes from Ben Theurer with Barclays. Benjamin Theurer: I wanted to get a little bit of how you think about pricing going forward. I mean, obviously, we know about what's in the proposal in terms of taxes for the different categories. But as we think about raw material inflation you face and what you usually pass on, what is your strategy going to be towards the end of the year and then into next year? How should we think about pricing? How much is needed for the taxes? How much would you do on top of that? And what are kind of like the sensitivities you're looking at as it relates to your volume if you were to raise those prices? Arturo Hernandez: Yes. Thank you, Ben. First, let me talk in general about our pricing strategy, which really has not changed. And I think under this market conditions, it's demonstrated that these capabilities do work very effectively of increasing prices in line or above inflation in every business unit. This requires not only this very advanced pricing tools that we have designed jointly with the Coca-Cola Company, but also leveraging the trade promotion models, which operate at a local level. So I think, for years, we have demonstrated these capabilities, which, as I've said, if there is one fundamental capability that consumer goods companies need to get right now or the future is precisely revenue management. So for us, it's combining affordability and also a premiumization strategy, as I said before. We will continue to monitor those pricing dynamics and make sure that we are competitive in the marketplace. And then going specifically to your point about taxes and Mexico. Well, this tax that we are expecting to be implemented for '26 would require us to pass through the impact via prices. And as you know, we've done that before, actually 12 years ago. And we have estimated that, that increase would be in the range of 8% to 10% probably. And that we would have to add inflation after that, considering that we want to remain competitive in terms of margins in '26. So we don't know exactly what the elasticity would be, but there's certainly going to be an impact in volume for next year. We have some of the learnings of past elasticity patterns following similar adjustments in 2014. But at the same time, we have so many things that work in our favor in the Mexico market going forward. I mean there are reasons to believe that we're going to be able to mitigate part of that impact. And there are many factors. I mentioned before, the impact of unfavorable weather this year. We also face this difficult economic situation. We expect normalization next year, considering the challenges we faced with brand retaliation that you know about some product constraints in our supply chain, particularly Topo Chico in '25 and the opportunities to keep deploying our digital capabilities that are still going to be rolled out, some of the new features and very particularly, the incremental demand that would be driven by the major events in Mexico and the U.S., the FIFA World Cup. In Mexico, we're also going to have the 100th anniversary of Coca-Cola in Mexico. So there are so many things that will work in our favor considering that certainly, it's going to be a challenging volume situation as we pass along these -- the tax that has been imposed, but that's going to be imposed. Operator: Our next question comes from Felipe Ucros with Scotiabank. Felipe Ucros Nunez: A quick question on the taxes in Mexico. Of course, not great news getting this tax increase. I was wondering if you can comment on a couple of things. The first one is the differences between this tax and the one that we saw 12 years ago. No tax for beer were changed. So the gap between soft drinks and beer, I guess, is changing. And I'm wondering if you can comment on what type of impact you would expect through that differential. And whether it's material for us to monitor it or you think the occasions are so different that it's really not a concern. And then the second question related to this is, it looks like there's more serious incentives in place to move the consumer towards no-low options. So I'm wondering if you can talk about how this may change profitability and returns for the business in the long run, if at all. And I'm talking about there's differences on the price per unit of sweetening from sucralose and sugar, perhaps there's a margin differential between the different presentations and concentrating price -- concentrate pricing might also be different. So just wondering if there's going to be like a change on the profitability of the business in the future from the change to no-low categories. Arturo Hernandez: Thank you, Felipe. Well, to the first part, we really don't anticipate an impact from any difference in the tax treatment of other categories really. We're looking at the dynamics within our own industry for sure. And in this case, as you saw, we really have a commitment to reduce the calories in our portfolio going forward. And this is not something that is new or that is improvised by the system. We've been, for years, developing and promoting options with less sugar and with no sugar in Mexico and in other markets. So now what we intend to do is to offer more proactively our broader portfolio, a more balanced and lower-calorie portfolio. And those are part of the commitments we've made with the government as we discussed the implementation of the tax. So as part of that, we also want to promote competitive prices and affordable Coca-Cola Zero packages, particularly. This, as you know, has been a great innovation in our portfolio. Coca-Cola Zero continues to grow, and we will connect that also even to the FIFA World Cup next year. Coke Zero will take center stage in many of the campaigns connected to the World Cup. In terms of profitability, we don't think that, that will really affect overall profitability going forward. Felipe Ucros Nunez: Great. That's very clear. And if I can do a second one on sales in Mexico, they did very well. And it's another quarter with the same categories, tea, energy and juice doing very well. So I was wondering if you could talk a little bit about what you're doing there and why the category is behaving differently from others during adverse weather. Is it that the elasticity for this category is a little different? Or it's more a case of things that you're doing at the micro level? Arturo Hernandez: I think it shows the opportunity that we have to grow these categories. As I said before, energy and juices and sports drinks and tea, they're underdeveloped really in the Mexican market. So we have proved that we can be successful in those categories as well. I think that's very important as you look at the story of Powerade in the last 15 years. And now you see Santa Clara, which I mentioned, also, it's a great success story. Tea grew 22%. Juices grew 6%. Monster continues to grow. So I think it's interesting to see them grow even under very challenging conditions, which means the great opportunity that we have to increase the per capitas of these categories that they don't compare very favorably to more developed markets like our own U.S. market. So it's very promising to see them grow even under a more challenging conditions. So we're excited about those possibilities and especially that we can be leaders in those categories as well as we've also demonstrated. Operator: Our next question comes from Rodrigo Alcantara with UBS. Rodrigo Alcantara: Arturo, Emilio, nice to hear from you. I want to go deeper into some of the comments about the commitments regarding -- with the government, right, ahead of the tax discussion, right, in the conference, the government and the Coke system hosted a couple of days ago. As you mentioned, there were some commitments in relation to this trend of increasing low-carb categories, et cetera, et cetera, right, like namely the reduction of commitment to reduce by 30% caloric needs of your products in a period of, if I'm not mistaken, 1 year or something like that, right, in addition to other commitments, right? So the question here would be how much of a challenge or deal in your view is implementing this, right? How are you implementing this? And possibly linked to the previous question is as a result of implementing this, we may see some impact on margins or profitability, which I think you already said no, right? But I mean just to confirm that, that would be the main question. And the other one, just because this is the one that we're receiving from investors as we speak. We have seen macro numbers in Mexico at the margin not looking as good as we may decide, right? Retail sales in September quite weak. So I mean how would you think 4Q would be shaping up in terms of volumes looking from a consumer demand perspective in Mexico? That would be my question. Arturo Hernandez: Thank you, Rodrigo. Talking about the taxes and also the commitments, as I said, this is really not new for us in terms of the commitments that we made with the government, with Congress. This is part of this plan to strengthen our caloric reduction innovation. And this has been around for years. So plan builds on the calorie content that we've actually been testing in the market for a long time in the Coke portfolio. So here, what we're going to do is just continue the migration. So those commitments are actually part of our own strategy in the last few years and also part of the promotion of Coke Zero that has been our strategy as well. But I think the most important takeaway of those commitments is how we remain committed to be part of the solution and how we've been able to have a dialogue with the government and stakeholders and how this collaboration really highlights our ability to engage constructively with the government and adapt to the frameworks and advance really our journey towards a more sustainable and health-focused portfolio because we really share with the government the need to advance in reducing obesity rates in the country. So we want to be, again, part of that solution. So I think that's main takeaway that we are -- that all this story about tax implementation concluded with a very constructive dialogue and conversation with government. And then talking about volumes and profitability, there is -- our concern is not really that this transition to low-calorie or no-calorie version is going to impact our profitability. Obviously, the impact will come from the volume decline that will be the result of the elasticity in these categories. But again, as I mentioned, looking forward in 2026, we have many things to be positive about as we compare with '25, where we've had so many negative factors combined with -- for the performance that we are seeing so far and that we expect to continue to see throughout the end of the year. So that is why, aside from our ability to pass through the tax and pricing in a smarter way, promoting the packages that we believe are important to protect, I think also we have these mitigating effects that I mentioned before, including our promotional activities, the FIFA World Cup and also the uplift we've seen from the deployment of our capabilities that we've been talking about before. So all in all, I think we're good positioned to mitigate that impact. Operator: We will move next with Lucas Ferreira with JPMorgan. Lucas Ferreira: Sorry to insist on the [indiscernible] topic. And just comparing and contrasting 2014 with the situation guys you will face in 2026, what sort of the tools do you think the company has now enhanced to mitigate the impact and mainly talking about price pack architecture, but also the sort of more developed relationship with Coca-Cola company, better partnership, I would put it this way. And if you can speak about -- generally about your, let's say, market share expectations for next year. If you think this is a situation, obviously, a challenging situation, but at the end of the day, could help you even expand your share. So how to think about that? And also, if I may, a quick follow-up on the very short term, obviously, second quarter for Mexico was already better in -- sorry, third quarter better than second. If you expect to end the year at a better note, how sort of the latest news are coming regarding consumer demand and traffic on the floor, et cetera? Arturo Hernandez: Thank you, Lucas. Well, first of all, talking about the tax and the learnings from 2014, increased prices double digit at the time plus inflation. I guess it was around 12%. We had a 3% volume decline approx, a little less than 3% in 2014 and -- but the volume decline was sequentially better throughout the year. I mean we started with a strong decline in volume in first quarter. By the end of the year, there were -- volumes were pretty flat that year, which means there's kind of a psychological impact as well in that elasticity. Now I think to your point about how are we better prepared. I think we've developed our RGM capabilities in this last 12 years quite a lot. We have a stronger leadership in the marketplace. And as you mentioned, we have a stronger partnership with the Coca-Cola company to jointly navigate through this situation, which is not only about passing along the prices, but also what are we going to do in the market to sustain leadership and increase our presence. So what are the things that works in our favor is that the price -- the tax is designed as a peso per liter. So that means for more premium-priced products, it's going to be a less percentage increase as compared to, let's say, value products out there, brands in the market. And thinking about the fourth quarter, well, the environment will remain very challenging. Again, we are continuing to focus on things that we can control, which are basically 3 pillars: disciplined execution with very targeted campaigns. We have very well-designed campaigns to be implemented in this final part of the year. We're launching especially higher impact marketing campaigns for the Gen Z consumers and also Share a Coke and Christmas that kind of deepens the connection of our brands with consumers as well. We continue to double down on our affordability initiatives, as I mentioned before, with entry packages and with single-serve packages that also provide affordability. And we'll start also deploying all of our efficiency initiatives and playbook in this next quarter and throughout' '26, which means reducing cost to serve as we have redesigned new service models. And a number of other projects like lightweighting, improvement in distribution logistics as well. We have an organizational restructuring that mostly addresses agility and clarifying roles, but also it's going to bring more efficiency. So there are a number of things that will help us mitigate this adverse environment. Operator: Our next question comes from Álvaro Garcia with BTG Pactual. Alvaro Garcia: Arturo, I have a question on Texas. I was wondering if you can comment on potential changes to SNAP benefit in Texas and how that might impact demand for your products. And just general commentary on sort of Hispanic consumer and just the consumer environment in general into next year ex World Cup would be very helpful. Arturo Hernandez: Thank you, Álvaro. Yes. Well, we are currently assessing the potential implications of those SNAP benefit changes in our portfolio. It's not -- we don't anticipate a significant impact, but it's something that certainly we're monitoring and looking at consumer trends and consumer demands and especially paying attention to the segment that this is going to impact the most, which is mostly the take-home segment. So we -- at this point, on the impact, we don't have a specific number to provide. But we continue to believe that's important to give consumers the freedom to choose what groceries they want to purchase for the family with the SNAP benefits, but we're still assessing the implications. What I can tell you about the U.S. market dynamics is that we have seen a sentiment among low mid-income and Hispanic consumers that has declined this year. Rising cost of living or interest rates probably, that's been softening spending. If you look at, for example, our value channel in the U.S., that grew almost 4% year-over-year. It's gained some mix. And also that's related to some of the border tensions we've seen this year, fewer people crossing. And Hispanic traffic has declined more sharply in retailers, even in Walmart Hispanic outlets as compared to the non-Hispanic stores. So total retail traffic did fall in this third quarter convenience stores only. Again, club and value saw traffic growth. So that tells you about how the dynamics are playing out. So what we have adopted is, as I said before, this premium strategy -- this dual strategy of premiumization with brands like Topo Chico or Smartwater for some consumers, for the higher income consumers and the introduction of a packaging architecture that addresses the pressure in that middle and lower-income segments in the U.S. market. And for sure, we're going to capitalize the FIFA World Cup events that are going to start actually this year. These major events include the tournament itself next year, we're going to be hosting 24 of the 104 matches in our 4 cities in Mexico and the U.S. We're the Coke bottler with the highest of matches in the tournament and 16 of those are going to be in our U.S. market. So we'll capitalize on all the activities surrounding the World Cup and also the celebration of the 250 anniversary of the independence of the U.S., we're going to be part of that as well next year. Operator: We will move next with Alejandro Fuchs with Itaú. Alejandro Fuchs: I wanted to shift gears and ask you one about South America, especially Argentina and Ecuador. I know it's a very uncertain scenario, right, but I want to see what your expectations going forward, maybe in the next 12 months. We're seeing volumes coming down, but margins going up. So I want to see how you see the business on the ground talking to the teams and what would be kind of the expectations if we should continue to see volumes being pressured or maybe profitability normalizing a little bit. Arturo Hernandez: Yes. Thank you, Alejandro. Let me start with Argentina. As you've seen, we've been facing a very challenging macro environment in the third quarter, rising uncertainty and some of the indicators deteriorating. And that has impacted the lower income segments of consumers and those provinces with high public employment. Unfortunately, we're in a market with high public employment. So we saw the steepest impact of this situation with consumption falling between 6% and 7% in general as compared to the central regions, which were -- had a less significant impact. So our year-to-date performance was still ahead of last year. But certainly, the trend is not very favorable. What we're doing is we're balancing our pricing discipline and affordability and our operational efficiency to stay competitive in this highly dynamic market. What's been important for that are, again, our pricing tools, our promotional tools to align prices with inflation. Our affordability and our playbook for things like Tapipesos promotions, tactical pricing on nonreturnable formats as well. Returnable is very important in Argentina. As you know, it's the highest mix of returnable in all of our markets. And to protect margins, we've been implementing very strict cost control measures. We are also launching new products and continue to innovate in some of the stills category. So we expect Q4 to outperform the third quarter as we expect a gradual improvement. But certainly, we're going to continue to focus on efficiency initiatives to protect margins. If we look at the context for margins in Argentina, we're going to see some upward pressure in some of the expenses related to payroll, particularly, but we're going to have efficiency in other concepts that will offset these pressures. Raw materials, we expected them to rise, driven by inflation. But we had the acquisition of the second sugar mill in Tucumán that is going to mitigate the impact of input cost for us. And I think that's also going to be very important going forward. If we look at Ecuador, and the dynamics in that market, also a difficult environment, mostly challenged by rising insecurity. The economy actually grew in the third quarter in Ecuador, but declining oil production and increased costs have resulted in some new policies like the elimination of the subsidy on diesel fuel and things like that. So -- but retail remains active despite this complex environment in Ecuador. And I think it's important to see how our business, and this is the same case for, I would say, all of our markets in this very difficult third quarter have demonstrated very strong resilience, improving in the case of Ecuador, profitability in the third quarter and outperforming the industry's volume decline in the year. So here, affordability also is going to be important. The execution of our point of sale with new cold drink equipment. That's also a very important in Ecuador. And how we leverage our new service models to enhance customer experience and also to bring efficiency to our go-to-market strategy. So stills categories is an opportunity and deployment of digital as well in Ecuador. So under this challenging environment, again, we're able to effectively protect the profitability for '26 in Ecuador. We are expecting OpEx to grow above inflation, and this is mainly due to the increased depreciation and diesel costs that I mentioned. And -- but some of the pressures will be partially offset by the optimizations that we have planned for our service models, our go-to-market models and some other adjustments. So PET are expected to rise in '26 with freight cost. Sugar is expected to be in line with the '25. So there's going to be some margin pressure considering all these factors, basically the removal of the subsidy, but our focus will be to protect our '25 margin in '26. Operator: Our next question comes from Renata Cabral with Citi. Renata Fonseca Cabral Sturani: It's a follow-up about Mexico. I would like to ask you if you can give some color in terms of competitiveness and how the brand has been reacting to the current environment for volumes and the company has been sustaining shares? And if you can provide some color on the performance in the channel strategy, the traditional channel versus the modern trade if they are different in terms of one is better than the other in the current environment? Arturo Hernandez: Thank you, Renata. Well, in terms of channels, the traditional channel received part of the impact and the decline in consumption this quarter, also convenience store reduced traffic. The only channel that actually increased volume in the quarter was supermarkets. And as I mentioned, was mostly driven by intensified promotions and more competitive pricing. So I think that's a natural consequence of the economic dynamics. But most importantly, we are strengthening our leadership in the marketplace, even considering that we have a price gap versus our main competitor versus rebrands as well. We did have an impact on our share of market with the first half of the year as a result of the retaliation of our brand that you know about. But that really has been solved, and now we're back to the position of leadership that we've had before. Operator: We will move next with Henrique Morello with Morgan Stanley. Henrique Morello: So I would just like just to explore the margin performance in Mexico. As you saw another quarter of compression on a year-on-year basis and at higher levels if compared to the last quarter, right? So if you could dive deeper on the dynamics behind the margin decline this quarter, perhaps beyond the volume decline? And if anything changed from last quarter? And how do you expect the margin to behave in Mexico going forward when you look at your hedge positions right now? Arturo Hernandez: Thank you, Henrique. I will turn that over to Emilio to respond the question. Go ahead, Emilio, please? Emilio Marcos Charur: Yes. Thank you, Henrique, for your question. Yes. Well, in Mexico, basically, there's several factors that affected the margin -- EBITDA margin being the one, the decline in volume as we have explained already. But there are also some changes that Arturo already mentioned. One is the mix of channels. The traditional trade was more affected by the rainfalls during the quarter compared to supermarkets. So channel mix change and also presentations. The mix of single-serve also declined in the quarter. So that was basically the main impact for the margin -- EBITDA margin in Mexico. . For the rest of the year, we've been working on expense control. You also can see that throughout the year, we've been improving our sales -- OpEx to sales ratio every quarter. So internally, everything that we control, we are looking in every efficiency that we can implement in all the operations. So in Mexico, we've been able to mitigate part of the volume decline impact talking about the margin. So for the full year, we're expecting to maintain -- at least maintain the current levels of EBITDA margins for the region. Operator: We will move next with Axel Giesecke with Actinver. Axel Giesecke: Just a quick one. Given your healthy balance sheet position, are you considering further M&A opportunities? And if so, which regions are you looking forward into? Emilio Marcos Charur: Thank you for the question. Yes. Well, as you know, there's -- talking about capital allocation, that's one of our main priorities. Well, as we have mentioned, number one is investing in our operations, and then we just announced an additional dividend. But yes, M&A, as you know, we continue to evaluate, basically, opportunities in U.S. and Latin America. So we have a very strong balanced position in order to close any opportunities. But in the meantime, we've been able to find another avenues for inorganic growth that we are on line with our core business, such as the recent acquisition that we announced, the Imperial, the vending and micro market business in U.S. But we keep exploring opportunities, basically, within the Americas. Operator: We will move next with Fernando Olvera with Bank of America. Fernando Olvera Espinosa de los Monteros: I just have one, and it's related to Mexico. Arturo or Emilio, how are you thinking about CapEx next year and the potential tax increase? Any insight on this would be helpful. Emilio Marcos Charur: Thank you, Fernando, for your question. Yes, regarding CapEx, well, as I mentioned, as of September, we reached MXN 11.8 billion, representing 6.4% of sales. We were expecting to invest around 7%. That's what we mentioned at the beginning of the year. The [ 6% ] of those CapEx are in Mexico and U.S. But at the beginning of the year, when we saw a slowdown in volume, we have postponed some initiatives this year. So ratio OpEx -- CapEx ratio will be around the same level that we have right now, 6.4%, instead of 7%. So we just adjusted some of the CapEx that we were expecting for this year without compromising our long-term growth strategy. So we remain committed to the strategic investment that we have for our capabilities and expanding our capacity and distribution, but I would say in a slower pace than we expected at the beginning of the year. Fernando Olvera Espinosa de los Monteros: Okay, Emilio. And thinking -- I mean, considering that the increase of the excise tax was just announced, I mean, how do you expect CapEx to behave in Mexico next year? I mean, is it possible that you keep postponing some projects for 2027 or... Emilio Marcos Charur: There are some projects that we started and we need to continue in order to be ready for the volume in the next, let's say, 2, 3 years. So there's some of the CapEx that needed to keep going to be ready in 2, 3 years. But the short-term ones are the ones that we are just postponing and see how the volume behave and then we'll decide if we continue with those next year or if we go and move it to 2027. So we expect around 5% to 6% maybe in Mexico CapEx to sales. Operator: This concludes today's Q&A portion. I would like to now turn the conference back to Arturo Gutierrez for closing remarks. Arturo Hernandez: Thank you. We really appreciate your time today and especially your ongoing commitment for company. So please reach out to our investor relations team for any follow-up questions you might have. Look forward to speaking with you again next quarter. Have a great day. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Hello, and thank you for joining the Stewart Information Services Third Quarter 2025 Earnings Call. [Operator Instructions] Please note today's call is being recorded. It is now my pleasure to turn the conference over to Kat Bass, Director of Investor Relations. Please go ahead, ma'am. Kathryn Bass: Good morning. Thank you for joining us today for Stewart's Third Quarter 2025 Earnings Conference Call. We will be discussing results that were released yesterday after the close. Joining me today are CEO, Fred Eppinger; and CFO, David Hisey. To listen online, please go to the stewart.com website to access the link for this conference call. This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss some non-GAAP measures. For a reconciliation of these non-GAAP measures, please refer to the appendix in today's earnings release, which is available on our website at stewart.com. Let me now turn the call over to Fred. Frederick Eppinger: Thank you for joining us today for the third quarter earnings conference call. Yesterday, we released the financial results for the quarter, which David will review with you shortly. I'd like to start today's call with a discussion of our perspective on current housing market conditions, followed by a review of our third quarter results and strategic progress by business. I am proud of our third quarter results. Our 19% revenue growth and 40% earnings growth reflect the efforts we have made to continue to grow the company even while facing prolonged headwinds from the historically low housing market we continue to be in. There continues to be both a blend of positive and negative economic headlines related to housing. In the third quarter, we experienced some rate relief, exiting September with mortgage rates around 6.35%. While there is some softening of rates in the third quarter, we did not see rates quite as low as the quick dip we experienced in September of last year, where rates hovered momentarily right around 6% and caused a flurry in purchase and refinance activity to close out 2024. I am more confident in the market's ability to improve over the next 12 months this year than I was last year at this time. The housing market continues to become a bit friendlier for buyers as inventory has been growing. Builders continue to offer incentives and an increasing portion of homes are being sold below list price, indicating the cooling of house price appreciation. We have also seen price improvement in more of the MSAs. That said, home prices still remain a hardship for many buyers as the median sales price of existing for homes sold is still increasing year-over-year, though at a lesser rate than we have experienced for most of '24. So far this year, existing home sales are hovering right around 4 million annual units as many buyers continue to sit on the sidelines awaiting less volatility in the macro market conditions and in anticipation of future rate cuts into the next year. September existing home sales data will be published later this morning. However, we expect around 1% to 2% increase in existing home sales relative to the third quarter of '24 this quarter. Looking ahead, we believe the housing market will continually to gradually improve over the coming year, and '26 will be the beginning of a transition back towards a more normal existing home sales environment, which we characterize as 5 million existing homes sold. From a commercial market perspective, we have benefited from and capitalized on recovery seen in the commercial real estate markets across various asset classes. We expect this recovery to continue into '26 and beyond. Given these market headwinds and volatility, we are proud of the results that we have delivered in the third quarter as they reflect our momentum. In the third quarter, as I said, we grew total revenues by 19% and adjusted earnings per share by 40% when compared to the same period last year. Our direct operations unit grew 8% in the third quarter relative to the same period last year. We see this as solid progress given that this business unit most immediately feels the effects of challenged residential housing market. Our direct operations leadership remains focused on the charge and growth share in target MSAs and micro markets, both organically and inorganically. They are also focused on picking up share in small commercial transactions that run through this business unit, and we are seeing real progress on that initiative with commercial growing 18% in direct this quarter. We continue to expect a significant portion of our future growth in this business to come from targeted acquisitions, and we maintain a warm pipeline of targets that will develop as the market signals a return to more normal market levels. Our National Commercial Services business delivered another solid quarter of growth. Success for this group is largely due to our increased penetration in the number of geographic markets and asset classes. We have brought on best-in-class talent, and we'll continue to invest in talent in this space to grow our share. Thoughtful investment in our talent will allow us to expand our network and deepen our capabilities in more geographies and asset classes in order to leverage the distinctive underwriting capability we currently have. We grew domestic commercial revenues by 17% in the quarter. And through the third quarter, we have grown domestic commercial revenues by 33%. I'm proud of our performance here as it really represents the momentum we have built for ourselves on the commercial front. The energy asset class continues to be a point of strength. data centers, hospitality and self-storage were also areas of growth for us in the quarter. We are focused on growing all asset classes and target geographies to expand our overall footprint. Our Agency Services business had another strong quarter with revenues up 28% year-over-year in the third quarter. This amount of growth is exciting for us when considering the overall housing market is near flat for the year. We are on a mission to grow this business through share gains in attractive states, onboarding new agents and wallet share expansion with existing agents. While we see growth across all states, there are 15 states that we are targeting for share shift and growth. We are seeing sustained growth year-to-date in agency in several of our target states, most notably Florida, Texas and New York. Our commercial initiatives with agents has also been a big part of our success, and we continue to build out momentum that we have made in recent years to our target agents to differentiate our services and better our offerings for agent partners. Our agent -- our Real Estate Solutions business delivered another strong quarter of results as well, generating revenue of 21% higher than the third quarter of '24. The increase was led by our credit information business. Our margins again improved sequentially and are now in the low teens range, which we would consider our normal range. We are focused on growing this business line by gaining share with top lenders and cross-selling our products as we leverage our improved portfolio of services. We expect continued progress in this business line as the market improves. Moving to our international operations. We are focused here on broadening our geographic presence within Canada and increasing our commercial penetration. In the third quarter of '25, we grew revenue by 21% versus '24 due to noncommercial growth of 12% and outsized commercial growth due to a handful of larger transactions. We believe we can build on our strong position in these markets and continue to grow share. Overall, we remain dedicated to strengthening our company through thoughtful geographic, customer and channel expansion in each business to set the company up for continued long-term success. I am pleased to share that in September, we announced an increase in our annual dividend from $2 per share to $2.10 per share. This is the fifth year in a row we have increased our dividend to shareholders. We continue to invest in ourselves and our shareholders as we pursue smart growth for each of our business lines. Thank you to our customers and agent partners for your continued trust. We are committed to doing our best to serve you with excellence. And I'd like to close by saying thank you to our employees for their dedication, loyalty and drive. It has been a privilege this year to visit so many of our office this year and see and experience the energy that you have all shared with me. It is contagious. We have never had a better talent as we do today. I'm so proud of how far we have come on our journey to become a destination for industry-leading talent. Earlier this year, we were recognized as a top workplace by USA Today. And in the third quarter, we were named by Forbes list of America's Best Employers for company culture. We also ranked in the business services category by Forbes of America as the Best Employer for Women in 2025. I want to thank you all for what you're doing to build upon the company's legacy and set up the company for enduring success. David, I will now turn it over to you to provide an update on our results. David Hisey: Good morning, everyone, and thank you, Fred. I would also like to thank our employees and customers for their continued support as we navigate the residential real estate market, which remains around 15-year lows. Yesterday, Stewart reported strong third quarter results with growth in both revenue and profitability. Third quarter net income was $44 million or $1.55 per diluted share based on revenues of $797 million. Appendix A of our press release shows adjustments primarily related to net realized and unrealized gains and acquired intangible amortization that we use to measure operating performance. On an adjusted basis, third quarter net income improved 41% to $47 million or $1.64 per diluted share compared to $33 million or $1.17 per diluted share in the third quarter of 2024. In the Title segment, operating revenues grew $107 million or 19%, driven by our improved direct and agency title operations. As a result, title pretax income increased $17 million or 38%. After adjustments for net realized and unrealized gains and losses on purchased intangible amortization, adjusted title pretax income was $61 million, which was $17 million or 40% higher than the prior year quarter. Adjusted pretax margin improved to 9% compared to 7.7% last year. On our direct title business, total third quarter open and closed orders related to commercial and residential transactions improved. Domestic commercial revenues improved $12 million or 17% across various asset classes, including data centers. Domestic commercial average fee per file was $17,700, which was similar to last year. Domestic residential average fee per file increased 6% to $3,200 compared to $3,000 last year as a result of higher purchase orders. Total international revenues increased $9 million due to increased volumes and large commercial deals. On agency operations delivered strong performance with gross revenues of $360 million, increasing 28%, primarily driven by improved volumes in key states, as Fred noted, and commercial. Similarly, net agency revenues increased $12 million or 25% compared to the prior year quarter. On title losses, total title loss expense decreased slightly due to our continued overall favorable claims experience. The title loss ratio for the third quarter was 3% compared to 3.8% last year. We expect our title losses to average 3.5% to 4% over the coming period. On the Real Estate Solutions segment, total revenues improved $20 million or 21%, primarily driven by our credit information and valuation services operations. The segment's adjusted pretax income was slightly higher than the prior year quarter. We continue to manage the higher credit information costs and are expanding and strengthening customer relationships. Adjusted pretax margin for the third quarter was 11.3%, which is better than the prior 3 sequential quarters. We expect our margins to be in the low teens as these relationships mature. On our consolidated operating expenses, our employee cost ratio improved to 27% compared to 30% last year, primarily due to higher revenues, while our other operating expense ratio was comparable to last year. Our financial position remains solid to support our customers and employees in the real estate market. Our totally cash and investments were approximately $390 million in excess of our statutory premium reserve requirements. We recently renewed and upsized by $100 million to $300 million, our line of credit facility, which is fully available. Total Stewart stockholders' equity at June -- at September 30, 2025, was approximately $1.5 billion with a book value of $52.58 per share. Net cash provided by operations improved by $17 million or 22% compared to last year. Again, thank you to our customers and employees, and we remain confident in our service of the real estate markets. I'll now turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question will come from Bose George with KBW. Bose George: So first wanted to ask about the strength in agent premiums. Can you -- it looks like you're continuing to grow there. Are you taking share? And if so, is that like coming from the larger players? Or just color on what's going on there? Frederick Eppinger: Sure. Great. So there's really 2 components of it. So in the res side, what we're seeing, particularly within the 15 states we're focused on, we're seeing pretty good share shift. And I think this quarter, we saw about a 16.5%, and again, primarily in those targeted states and both -- it's pretty interesting, also deepening of penetration with existing. Part of it is because our -- we now can service all the states, and there's a bunch of things about our technology that's a little bit better than it had been historically. The second thing is this quarter, we had a little bit of really good traction on commercial. We probably grew commercial 40% in the agency channel. And again, that's been -- if you've heard me talk about -- historically, we were very good in, say, the New York area for commercial agents. But outside of New York, we weren't as good. Our service wasn't as good or capable. And now it's been a big push for us over the last couple of years, and it's really taken off. So again, I feel like both the commercial strength, and that will do with both a lot of the bigger agents that have more commercial, although we're doing commercial with smaller agents, too. But that -- those 2 pieces, kind of the geography piece and then the focus on commercial-oriented agents and providing better service outside of New York is really the 2 things. I'd like the traction on both right now. It's good. Bose George: Okay. Great. And then just sticking to the commercial, can you talk about the pipeline into year-end? How is that looking? And how much is office starting to contribute as well? Frederick Eppinger: Yes. I feel good about it. So you see our order stuff, I feel good about the commercial. The pipe is good. Again, we've had a heck of a year. It's been -- I think we're up whatever it was 35%. And for large accounts, we're probably up 39%, the larger centralized commercial. And the growth has been pretty broad by class. Office has not been one that's been -- had significant growth for us. And I don't see that necessarily changing. But pretty much -- it's interesting. Most every other class is pretty good. So I feel good about the breadth of it, as a percentage has gone down, which is good. Probably 5, 6 quarters ago, I mentioned how we really -- the energy was a growing portion, and it's now evened out as we grow in other categories. But I feel pretty good about the back half. Now the comparisons for us, I have to sit down and think about the comparisons. We took -- we started taking off about 5 quarters ago and the fourth quarter of last year was very strong for us. So we'll see how that plays out. But if you look at, as I said, our orders and our -- I look at what's in the pipe, I feel very good about the fourth quarter. Bose George: Okay. Great. That's helpful. And then just one more quick one. The investment income line was a little bit lower than last quarter. Anything to call out there? Because I assume the rate cut was late in the quarter. David Hisey: Nothing significant. I mean, we will have some variability with short-term rate cuts because that's where all the escrows and everything are invested. So I think you may be seeing a little bit of that, but we haven't seen a whole lot of impact so far. And so far, the balances have been able to offset the rate cuts, but we'll just have to monitor that going forward. Operator: Our next question will come from Jeffrey Dunn with Dowling & Partners. Geoffrey Dunn: I wanted to follow up on the expectation for a low teens margin in RES once relationships mature. Is there a critical revenue level that goes with that expectation? Frederick Eppinger: No. I mean, again, what -- in the RES services, that's low teens, and again, what I said for the last couple of calls is we had that hiccup in the beginning of the year because of the rate increase -- the large rate increases that came kind of late from the data players, and we were kind of migrating those rate increases into our contracts as well as kind of we changed the way we did some of the pricing to more value-added approach with them. And so we had to catch up a little bit. And what I've said is once that kind of works its way into the system, we'll go back to what we've been doing in the last couple of years, which is that low teens margin. Where it gets a lot better, again, I think that's kind of the normal rate. Where it gets a lot better is when the market comes back, right? Because a lot of our services businesses are tied to volume. And there's leverage from the normal -- more of a normal flow of business, and so I think in a $5 million purchase market kind of experience, that will get to mid-teens. We'll get into the 14%, 15% instead of the 12% area. And so it's kind of a direct line of improvement from here to there above the 12% is what I would say. But again, they're all -- it's like a lot of businesses, right? It's got a fixed variable portion and you've got to -- the growth helps a lot with the margins in those businesses. David Hisey: And Jeff, the other thing is that if you just look at the sequential, so we sort of bottomed at like 7% something in fourth quarter of last year, and then we've been slowly getting back up to the low teens. And so that's what we're talking about, right? It's having worked through all that and now being at the level that we would expect. Frederick Eppinger: And it was really about the data contract opportunity. It wasn't really the volume or anything. It was really just a onetime event, which we -- as I said, we were going to recapture it. We just had to get it built into our contracts. Geoffrey Dunn: Okay. And then just following up on the NII question. Can you just remind us how you think about the sensitivity to that NII line 2 Fed rate cuts? David Hisey: Yes. Jeff, we don't have the same FA where they do the 25 basis point because our rates are negotiated. And so we've been able to -- we haven't had a direct drop with our rates because we were never at like money market. And so really going forward, it's going to be the offset of, do the rates get cut because rates are going down. And then how does that compare to balances, right? So as volume comes back, balances grow. And so I think it's probably better to think about interest income being maybe more consistent over the next year, slightly down. But then it's really going to depend on those 2 dynamics. And once we see the effect of rate cuts for the rest of the year, we'll probably have a better perspective on that. Operator: It appears we have no further questions at this time. I'd now like to turn the conference back over to our presenters for any additional or closing remarks. Frederick Eppinger: Yes. Thanks for joining today. I want just to summarize where I think we are right now. So I believe that while the market is kind of still bouncing on the bottom, we're more confident looking forward over the next 12 months that we're going to start to see improvement. I think we're at the beginning of the improvement. There's enough indication that that's true. And the other thing I would say is, as a company, I feel very confident in our capabilities, and we're well poised to take advantage of that improvement. And one of the things that I think is kind of showing up nicely for us is we talked about at the beginning of the year, if the market didn't grow, what did we expect? We said, well, if the market doesn't grow, we believe we can generate about 10% revenue growth and about 20% earnings growth because of the improvements we've made in our operating model. And I think what we've done year-to-date is we've grown roughly 17% and about 45% earnings growth. And so it shows that we have some momentum in being able to grow in this market, and we're operating in a way that we get leverage from the growth. And I feel pretty good about that. And as the market improves, I think we are positioned to continue on that. Will it be as good as it's been in the first quarter? I don't know, right? The last 3 quarters are very good. It might even out a little bit, but I can tell you that we continue to have momentum in our ability to grow share and our ability to improve earnings. So I feel like even though the market I feel is relatively difficult, I think we're well positioned. So I appreciate people's interest and attention to the company. And again, I thank our employees for their commitment to what we're doing because I know how hard it is. So thank you, everybody, for your time and attention. Operator: Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.
Operator: Good day, and welcome to the Lindsay Corporation Fiscal Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Randy Wood, President and CEO. Please go ahead. Randy Wood: Thank you, and good morning, everyone. Welcome to our fourth quarter and full year 2025 earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I'm extremely pleased with our fiscal year 2025 results. I'm proud of our team for demonstrating resilience in the face of challenging market fundamentals and a volatile macroeconomic environment. Double-digit revenue and operating income growth in both our businesses, combined with execution of our key strategic initiatives, enabled us to achieve record earnings and earnings per share for the year. Our fourth quarter performance was marked by revenue growth in our Irrigation segment, driven by double-digit increases in our international Irrigation business as South America, the Middle East, North Africa and Australia all delivered strong results. In North America, low commodity prices and weak crop receipts continue to negatively impact demand. We also saw a large reduction in storm damage volume versus prior year, impacting whole goods orders and aftermarket revenues in the quarter. We also dealt with the wet summer that impacted our run time hours. Pivot analytics data indicates irrigated hours across the core Midwest markets of Nebraska, Oklahoma and Texas were down over 20% versus prior year. Our Global Road Safety Products business delivered strong results, underscoring the resilience and demand in this segment. However, this performance was offset by lower sales and a decline in global leases within our Road Zipper business. Turning to our outlook. We expect North American irrigation headwinds to persist. Near-record yields will be offset by low commodity prices and weak crop returns, and the effect of trade disruptions will continue to weigh on customer sentiment. Increased government support may create a safety net, but we don't expect this to drive significant market activity. We anticipate demand for irrigation equipment in North America to remain suppressed until the outlook for commodity prices and overall net farm income meaningfully improves. Internationally, we're encouraged by the early signs of recovery we're seeing across several key growth markets, particularly Brazil, where demand for irrigation equipment remains stable. However, high interest rates and ongoing credit constraints will continue to present market headwinds in the near term. We continue to execute international irrigation projects during the quarter including the $100 million project in the Mid East, North Africa region that we expect to complete in our first quarter of our 2026 fiscal year. During the fourth quarter, we also began delivery of an additional $20 million project in the region which we also expect to complete in the first quarter of fiscal 2026. Looking ahead, we continue to see other compelling opportunities within our project pipeline, particularly in the MENA and other developing regions. These project opportunities remain a long-term growth opportunity for our business as the region continues to adopt mechanized irrigation to address food security and GDP diversification. We are pleased at the momentum we have and been able to generate and expect to realize additional project volume during fiscal 2026. In our Infrastructure business, we expect to see growth in Road Zipper System leasing and road safety product sales this fiscal year due to ongoing implementation of the IIJA and the introduction of new products. The Road Zipper System project sales fund remains active but we do not anticipate a large project will exit the funnel in 2026 to offset the $20 million project delivered in fiscal 2025. We do see the potential for several smaller projects to fill a portion of this gap. The large capital project at our Lindsay, Nebraska facility is going well, and we've activated our new state-of-the-art automated tube mill, providing increased safety, efficiency and throughput. We recently began construction of our next-generation galvanizing facility, which will provide us with industry-leading capabilities and increase capacity. Our initial plans, anticipated completion of this contract by the end of the calendar year. However, with the expanded galvanizing scope, we anticipate this work will be completed by the end of calendar year 2026. Innovation leadership continues to be a strategic priority and a core piece of our growth strategy. During the quarter, we advanced our position as a leader in precision irrigation with the introduction of TowerWatch. This is the first new product introduction on our Smart Pivot platform that allows customers to diagnose machine falls at individual towers. In testing, this reduced troubleshooting time by up to 75%, enabling growers to save time and maximize yields and profitability. This solution is a direct response to voice of the customer feedback we've received and helps our growers make faster decisions, strengthening their field net user experience. We continue to leverage capabilities like the new TowerWatch to differentiate and increase penetration of our technology portfolio. This has allowed us to surpass 150,000 total connected devices while delivering 20% year-over-year growth in annual recurring revenue. Entering fiscal 2026, we remain dedicated to investing in opportunities and technology advancements that will continue to drive growth and extend our leadership position. Before I turn the call over to Brian, I'd like to take a moment and acknowledge his upcoming retirement. Since joining Lindsay in 2016, Brian has played a pivotal role in strengthening our financial foundation, promoting transparency and shaping an organization that's become recognized for excellence. Under his leadership, we've achieved record earnings performance, maintained a consistently strong balance sheet and laid the groundwork for continued growth across our businesses. While this retirement marks a significant transition, we're pleased that he'll continue to serve as a consultant through 2026, helping ensure a smooth transition. On a more personal note, I'm deeply grateful for Brian's partnership and friendship. On behalf of all of us at Lindsay, thank you, Brian. We wish you the very best in your well-earned retirement. I'm also pleased to formally welcome Sam Hinrichsen, who will join us in November and transition to the CFO role with Brian's departure in January. Sam brings strong financial leadership experience, investor engagement and will be instrumental in continuing our focus on disciplined execution and creating value for our shareholders. Now I'll turn the call over to Brian for a review of our financial results. Brian? Brian Ketcham: Thank you, Randy, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2025 were $153.6 million, a decrease of 1% compared to the fourth quarter last year. Net earnings for the quarter were $10.8 million or $0.99 per diluted share compared to net earnings of $12.7 million or $1.17 per diluted share in the fourth quarter last year. Total revenues for the full year increased 11% to $676.4 million and net earnings increased 12% to $74.1 million and earnings per share increased 13% to $6.78. These record results were driven by double-digit revenue growth and operating income growth in both Irrigation and Infrastructure for the year. Turning to our segment results. Irrigation segment revenues for the fourth quarter increased 3% to $129 million compared to the prior year. North America irrigation revenues for the fourth quarter decreased 19% to $50 million. The decrease in revenues resulted primarily from lower unit sales volume while average selling prices were up slightly compared to the prior year. Lower unit sales volume was due primarily to less storm damage replacement demand compared to the prior year, along with soft market conditions. Higher selling prices reflected the pass-through of tariff-related raw material cost increases. In international irrigation markets, revenues for the fourth quarter increased 23% to $79 million. The increase resulted primarily from higher sales volume in South America, increased project sales in the MENA region and higher sales volume in Australia. Markets in South America are benefiting from increased exports of agricultural products to China. In the MENA region, as Randy mentioned, we continued delivery of a $100 million project and began delivering a separate $20 million project during the quarter. Total Irrigation segment operating income for the fourth quarter was $17.7 million, an increase of 4% compared to last year and operating margin was 13.7% of sales compared to 13.6% of sales last year. For the full fiscal year, total Irrigation segment revenues increased 11% to $568 million. North America irrigation revenues of $273.8 million decreased 9%, primarily due to lower unit sales volume compared to the prior year. International irrigation revenues of $294.2 million increased 39%, primarily due to project sales in the MENA region and supported by higher sales volume in Brazil and other parts of South America. The unfavorable impact of foreign currency translation was approximately $9.5 million compared to the prior year. This marks the first time in company history that international irrigation revenues were greater than North America revenues in a fiscal year, highlighting the value of our geographical diversification. Operating income for the Irrigation segment for the full fiscal year was $97 million, an increase of 11% compared to the prior year and operating margin of 17.1% of sales was similar to the prior year. Infrastructure segment revenues for the fourth quarter decreased 16% to $24.5 million. The decrease in revenues resulted primarily from lower Road Zipper System project sales and lease revenues, while sales of road safety products were slightly higher compared to the prior year. The prior year fourth quarter included Road Zipper project sales that did not repeat in the current year. Infrastructure segment operating income for the fourth quarter decreased 37% to $3.5 million and Infrastructure operating margin for the quarter was 14.4% of sales compared to 19.2% of sales in the fourth quarter last year. Lower operating income and operating margin resulted from lower revenues and a less favorable margin mix of revenues compared to the prior year. For the full fiscal year, Infrastructure segment revenues increased 16% to $108.4 million. The increase was primarily due to higher Road Zipper System project sales and higher sales of road safety products while Road Zipper lease revenues were slightly lower compared to the prior year. Infrastructure operating income for the full fiscal year increased 39% to $26.3 million. Operating margin for the year was 24.3% of sales compared to 20.4% of sales in the prior year. Increased operating income and operating margin resulted from higher revenues and a more favorable margin mix of revenues compared to the prior year. Turning to the balance sheet and liquidity. Our total available liquidity at the end of the fourth quarter was just over $300 million, which included $250 million in cash and cash equivalents and $50 million available under our revolving credit facility. Our record earnings performance for the year, along with active working capital management, resulted in free cash flow of 122% of net earnings and included capital expenditures of $42.5 million. Our demonstrated cash flow generation further strengthens our balance sheet and positions us well to continue executing on our capital allocation priorities of investing in the business, balancing organic and inorganic investments and returning capital to our shareholders. During the quarter, we completed share repurchases of $8.8 million, bringing the total share repurchases to $11.5 million for the year. As I conclude my remarks, I would like to say that it has been a tremendous experience to serve as CFO of Lindsay. I'm deeply grateful for the talented colleagues. I've had the honor of working alongside and proud of all that we've accomplished together. I'm confident in Lindsay's continued success and in the team that we have built and I look forward to working with Sam Hinrichsen on the CFO transition over the next couple of months. And now with that, I will turn the call over to the operator to take your questions. Operator: [Operator Instructions] Our first question comes from Kristen Owen with Oppenheimer. Kristen Owen: Just understanding that there's a lot of uncertainty in your ag markets right now. I'm hoping you can outline just some of the catalysts that you're watching that are shaping your outlook for fiscal '26. And then my follow-up question is related. So just assuming that we are in this more cautious ag investment backdrop, what are the margin levers that you have at your disposal that you're thinking about for next year? Randy Wood: This is Randy. I'll take the first part and then have Brian cover the cost levers that we're actively managing. And from a market perspective, it really depends where you are. In Brian's comments, he talked about the geographic diversity of our business. And when you look at North America, obviously, anybody providing a narrative or commentary on North American market conditions, there's not a lot of tailwinds there right now. And we've been here before. We know how to manage through these cycles. And again, Brian will comment on some of that. But I think we're blessed right now to be a global company. And we're going to see half -- more than half of our revenues come from outside of the U.S. this year. So I think we've battened down the hatches. We manage responsibly in North America and the catalyst that we look for some of those customer sent indicators right now are approaching lows that we haven't seen since the pandemic. Farm income, there's not a lot of positive upside in trade or demand side of the equation to drive pricing. We do see some potential government support, which to me, as I've said, is a bit of a safety net that bridges guys to next year, but they're not going to invest that money like they would crop receipts and profits that they get from growing marketing and selling a crop. So in 2026, North American expectations are not for significant growth. We will probably bounce along the bottom of the trough. And again, we know how to do that. Internationally, Brazil is stable and maybe not at all-time highs, but still a very strong business for us. The project business continues to deliver. And as we've stated, 2026, should see us realize more project opportunity. Australia, New Zealand, the Asia Pacific region, we see some signs of a strong recovery there. So I think when you separate the mature versus the project business, we see 2 different narratives, Kristen. And right now, I think we're well positioned to manage through the trough conditions here and capitalize on the growth opportunities in those international markets. And again, ask Brian to comment on some of those cost levers. Brian Ketcham: Yes. Kristen, on the margin side, obviously, North America is softer, that's going to pressure margins, just like it did in the fourth quarter. But I think that the things that we have -- that we can manage, starting with price. And we've increased price with some of the raw material cost increases that we've seen. We always try to get out ahead of that when it comes to price, but maintaining pricing discipline going forward is going to be key to maintaining margins, managing the costs, as Randy has said. And then the other thing that is supportive of margins, we saw that in the last couple of quarters, and we expect to see that continue into 2026 is just the growth in our recurring subscription revenue, and that's high margin revenue, and it's really cycle proof. It's not -- farmers aren't going to decide not to invest when the market is down. It's something that is going to continue to grow. So those are a couple of things related to North America, primarily. And then in Brazil, we've seen as that volume is picking up we've seen some margin improvement happening in that market. Operator: Our next question comes from Nathan Jones with Stifel. Nathan Jones: Congratulations, Brian. And thank you for all the help over the years. I guess maybe just trying to set some expectations here for 2026. There's obviously some demand headwinds and some discrete comparison headwinds that you're going to have heading into 2026. We're clearly bumping along the bottom in North America. Is it your expectation for North America irrigation that will be somewhere close to flat in '26? Or should we expect to see that market be down overall given the lack of real catalysts there? I guess I'll start with that one and then I'll go to international. Brian Ketcham: Yes, Nathan, on the North America side, our expectation is volume will be down, maybe low to mid-single digits in 2026. But offsetting that, partially offsetting that is price. We do expect that the price increases that we put in place will carry over into the first 2 or 3 quarters next year. I think the other thing that I just mentioned is subscription revenue being up. So when you balance lower volume, higher price, higher subscription revenue. I think from a revenue standpoint, we're expecting to be more flattish for '26 overall compared to 2025. Nathan Jones: And then you probably actually with that, have some tailwinds on the margin side just in the North America business, particularly. Prices obviously drops through at 100% kind of margin carrying over from this year and subscription revenue is going to be higher margin. And you're going to have some benefits, I imagine from all of the upgrades that you've been doing within the manufacturing footprint. So could we expect that on a flat revenue number in North America irrigation your profit would be higher? Brian Ketcham: I would say our expectations would remaining -- having the operating margin be relatively similar to last year, we do have some additional depreciation coming on board in the Lindsay factory that in the short term, will put some pressure on margins. But as volume picks up in the future, that's where we'll see the benefit of those investments and our ability to respond quickly to market demand without adding a lot of costs. So in the short term, a little bit of a headwind on margins just because of the additional depreciation. Nathan Jones: Fair enough. I guess I'll just slug on in on international revenue. You obviously had a large project and a smaller large project to deliver in fiscal 2025. I think that the outlook for the project business is pretty solid, but there's always timing dependency on that. I mean is it possible that you could overcome the headwind from the lack of the Middle East project in 2026? Or is the starting point assumption for that in 2026 should be that revenue will be down in international? Randy Wood: Nathan, this is Randy. I'll take that one. And I think you used the keyword there. The potential is there to kind of lap that project and backfill with additional project volume that could be close to that revenue. But you're absolutely right. The timing is unknown and the project funnel for us. There's lots of moving pieces in many different parts of the world. And when one pops through, we'll be very clear in how we communicate when it's going to start, when it's going to stop, the magnitude of the project. And we do expect to have more news on that as we go into fiscal year '26 and continue through the year. But that potential does exist. Operator: Our next question comes from Brian Drab with William Blair. Brian Drab: Congratulations, Brian, and we'll talk more later when we're not on a public call, but congrats. I just want to follow up on Nathan's questions there and just the outlook for ag first and make sure I understood this. Your comments around volume being down low single digit to mid-single digit. Was -- that was a North America specific comment? . Brian Ketcham: Yes, that's right. Brian Drab: For fiscal '26? Brian Ketcham: For North America, correct. Brian Drab: Yes. Okay. Got it. And then I think that also I think Randy made the comment that you expect probably more revenue to come from the international business in irrigation in '26 relative to domestic? Is that -- did I hear that correctly? Brian Ketcham: Yes. That's our expectation today. We do see continuing improvement in the South America markets next year. We've seen some recovery continuing in Australia. But then as Randy referred to the project side of the business, we feel pretty confident that there's the opportunity to replace the projects that we've had in 2025. So our view right now is international revenues overall could be up slightly in 2026. We're not expecting to take a big step backwards. Brian Drab: Okay. Do you have to have an additional project hit in the EMEA region? In addition to the $20 million that you announced for that to happen? Randy Wood: I think, Brian, we would require and it doesn't have to be in the EMEA region or the MENA region. We would require some project volume coming through the funnel and starting to deliver in the year for that to be true. Brian Drab: Okay. And then can you put any more of a fine point on the revenue that you had from the $100 million project and in the quarter? And then how much of that carries over into '26? And then do you ship the whole $20 million on the additional project in the first quarter? Brian Ketcham: Yes. So on the $100 million project, we had been able to pull forward some of that into the second and third quarters of the past year. In the fourth quarter, we delivered, let's say, round numbers, roughly $10 million of that another $10 million remaining for the first quarter. And then of that $20 million project, we delivered about half of that in the fourth quarter. So the remainder will be in the first quarter. So first quarter comparisons on the project side year-over-year should be fairly similar with the 2 remaining projects. Brian Drab: Okay. Got it. So in total, $10 million from each of those in the first quarter is a good estimate. Brian Ketcham: Yes, I'd say in round numbers. Brian Drab: Okay. Got it. And then I'll just ask one more, if that's all right. On the infrastructure side, you said that the mix was weighing on margins in the near term. And I'm just wondering how do you see that mix playing out going forward and the margin dynamics related to that? Brian Ketcham: Yes. With the large project that we had in the second quarter this year, obviously, high margins drove the overall margins for the year above 24%. As Randy mentioned, we don't anticipate another $20 million project coming in 2026, but between some smaller ones and increase in leasing, we expect without the large projects, this business runs right around that 20% operating margin level. So a little bit of a step back, just with -- when you have a $20 million project that doesn't be -- or doesn't get replaced but still very solid operating margin performance is what our expectation is. Operator: Our next question comes from Ryan Connors with Northcoast Research. Ryan Connors: Congratulations, Brian. I want to start on the international side specific to Brazil. Randy, you mentioned credit constraints there. And that's something I wonder if you can expand on because there was -- you had a peer company actually come out and talk about some bad debt and raising bad debt reserve in Brazil, specifically for that. So can you just expand on that comment you made among credit constraints? Is that just on the impact on actual sales? Or is there -- are you seeing any of that actual credit loss issue as well? Randy Wood: Yes. I think our commentary wasn't connected to credit loss at all. I think we run a pretty tight ship when it comes to credit risk in Brazil. So yes, nothing newsworthy from our perspective there. I think the comments really relate to our customers' ability to access low finance rates to support irrigation and investments. And we do have the FINAME program and what we're seeing right now is total government funding for that program was up year-over-year, and that was launched in July. But at this point, we're really seeing like mid-single-digit utilization. So that money isn't getting through the system and into the hands of the growers. If you look at the -- and that program rate is about 12.5%. If you look at just the -- you go to the bank to get a loan for ag equipment, that rate is in that 20%-ish range. So I think that has some customers kind of taken that wait-and-see approach. There's an election next year, if they're anticipating additional support or funding, some customer might wait for that. But we also offset that with 3 crops a year, and what we know we can generate an incremental yield and returns for irrigation. So it creates a bit of a short-term headwind in the market, but there's still a lot of strong fundamentals for investment in irrigation. So we would still describe the market as stable, but we're not going to see some of the pop that you may expect because of the trade disruption, some of that Chinese demand may be shifting to Latin America and credit is, I would say, right now, probably the lead reason for that. Ryan Connors: Got it. Very helpful. And then one housekeeping for you, Brian, before I have a big picture question. But just you mentioned the capital project in Lindsay, extending out now towards the end of calendar '26. Can you give any update on the corresponding impact on the capital investment in dollar terms there associated with that? Or is that just the same dollars? Or are we adding dollars? Brian Ketcham: So we'll be adding dollars, Ryan. And our expectation for 2026 is CapEx of around $50 million. The scope of the project did expand and mainly due to the galvanizing investment where we've decided to increase the scope of that. So we will have elevated CapEx again next year, a little bit higher than what we had in 2026 or 2025. Ryan Connors: Got it. Okay. And then lastly, just -- so Randy, you mentioned a few times this idea that the grower does not spend the government support money the same way as profits. But I know there's a lot of lobbying going on right now for additional federal support. Is there any way that, that could be structured that would be more beneficial to manufacturers like Lindsay, anything the industry is working to include in that, that would be more beneficial? Or should we just think of any kind of federal benefits we see just don't really accrue to the company? Randy Wood: Yes. I think it's an insightful question, and my view would be -- and this is an opinion that it really doesn't matter how those funds are structured. I don't think it's in how they're worded or how they're administered or how you apply for them. That's not what drives the customer view on how that money is used. It's always been, from my perspective, kind of rainy day funds. That's money that we're not going to get next year. It's not part of money I earned growing, marketing and selling and shipping my grain. It's always going to have that perception that this is the rainy day fund money. So I don't see any administrative change in the programs that would change that customer perception. And I mean the number that we're seeing now is an incremental $10 billion. I know there's been a lot of talk about American and Argentinian beef this week, in particular, creating a bit of a stir and I'm confident that there will be some support for the farmers if they need it, as a result of some of the trade puts. It's just a matter of when and then how they invest it. But again, our assumption isn't that, that's going to be a windfall and that we'd see a significant change in market demand. In farm income this year, if you look at the number in around $180 billion, for both net cash farm income and net farm income. $35 billion of that is what we call ad hoc government support from some of the payments and the weather-related issues last year. So farm income being up this year, you'd expect should be supportive of the market from a fundamental perspective. And it's just not the case. And that again goes back to our view that the customers aren't going to invest those government payments the same way that they'd invest crop receipts. We continue to see that. Operator: Our next question comes from Jon Braatz with Kansas City Capital. Jon Braatz: And Brian, congratulations on your retirement. Wish you nothing but the best and enjoy the lake of the Ozarks. Randy, I just want to go back to Brazil a little bit. And maybe your view -- your commentary is it's stable, obviously facing some headwinds. Yesterday, I read where Banco Brazil (sic) [ Banco do Brasil ] in the second quarter took some -- saw an increase in rural loan defaults and so on. How would you view Brazil at this time, sort of the downside risk in Brazil versus maybe a stable environment? Randy Wood: I wouldn't view the downside risk is significant. And then again, I think you kind of combined the headwinds and the tailwinds. And certainly, there's more demand going there from China, in particular. So that bodes well. There's a currency overlay that's a little complex. And the credit thing. Obviously, we've talked a lot about -- creates a bit of a headwind. So stable is the best word, I think, that describes where the market is. I don't think we're going to see that huge upside from the increases in demand. But I also don't think that market continues to decline in any significant way. So we'll watch for signs. That's a market, that's a year-round market, not as seasonal as what we see in the Northern Hemisphere. So we'll know pretty quickly if things do start to turn, then we'll react to that. But right now, I don't project or foresee any significant downturn issues with the Brazil market. There's too much good news there. And again, the investments in irrigation, we know are going to support and prop up a customers' bottom line and allow them to grow more 3 crops a year, those fundamental market conditions for us really gives us a bit of a parachute there. Jon Braatz: Okay. And Brian, obviously, free cash flow was very strong this year. Working capital, very good. How would you view that in 2026? Do you see that similar type of potential? Or are we going to see a little bit less in terms of free cash flow? Brian Ketcham: Yes. I think the potential is maybe a little bit less next year. I think we've done a great job, particularly in inventories, inventory management this last year and maybe not the same kind of potential there. And then as I mentioned, our CapEx is going to be up close to $10 million compared to what it was this year. So probably not -- if you look historically, we've always been around that 100% free cash flow, but the CapEx obviously makes a difference. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Randy Wood for any closing remarks. Randy Wood: Thank you again for joining us today. We appreciate your interest and believe fiscal 2026 will be another strong year for Lindsay, and we look forward to updating everyone at our first quarter earnings call. Thanks for joining us. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson-UTI Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Michael Sabella, Vice President of Investor Relations. Please go ahead. Michael Sabella: Thank you, Rebecca. Good morning, and welcome to Patterson-UTI's earnings conference call to discuss our third quarter 2025 results. With me today are Andy Hendricks, President and Chief Executive Officer; and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's plans, intentions, targets, beliefs, expectations or predictions for the future are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the company's actual results to differ materially. The company takes no obligation to publicly update or revise any forward-looking statements. Statements made in this conference call include non-GAAP financial measures. The required reconciliation to GAAP financial measures are included on our website at patenergy.com and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, Patterson-UTI's Chief Executive Officer. William Hendricks: Thank you, Mike, and welcome to our third quarter earnings conference call. The performance of Patterson-UTI has continued to demonstrate resilience this year. And our teams have done a great job executing in a challenging environment and staying focused on optimizing our business in the areas that we can control. We are continuing to see success as we enhance our commercial strategies through additional service and product line integration and performance-based agreements, while at the same time lowering our cost structure, which is helping us to lessen the impact from moderating industry activity this year. Headlines over the past 6 months have highlighted cautionary signals, including oil supply growth from OPEC+, shifting demand patterns as trade policies evolve and overall global macroeconomic uncertainty. But the U.S. shale picture today is more constructive than many expected just a few months ago. Oil prices have fallen, but overall, have so far remained more resilient than many predicted, with long-term global demand growth continuing, and anticipated supply additions slower to translate into physical barrels than headlines have suggested. At Patterson-UTI, while the business environment this year has brought unique challenges, we are adapting with the market, both commercially and structurally, and we continue to generate healthy levels of free cash flow, while still investing to expand our technology edge. Our efforts and focus today center on driving improvements in our outlook for profitability and cash generation against a steady market backdrop. And each of our businesses are stepping up to this challenge. In the U.S., oil production does not yet fully reflect the impact of activity reductions over the past 6 months. And we believe current industry activity is already below levels needed to hold U.S. production flat. Any further activity reductions from current levels would likely result in additional pressure on future U.S. output, which could negatively impact global oil supply in 2026. On the natural gas side, the outlook as we move into 2026 appears to be favorable. Physical demand growth from LNG is now starting to come online, and our customers are beginning to make plans to satisfy the expected multiyear growth in demand, which is likely to require higher drilling and completion activity compared to current levels. Even as U.S. shale drilling and completions activity has moderated through 2025, our teams have delivered results that are far more resilient relative to prior periods of activity moderation. Our customers are sophisticated, and they are demanding innovative technologies from both our drilling and completions businesses, which is widening the performance delta among service providers. The increasing reliance on differentiated technologies puts Patterson-UTI in a strong position given the high quality of our operations. We expect this relative margin resiliency to continue as customers rely more on high-end service providers. Operationally, our teams are functioning at a high level in a competitive market. Our drilling team has seen activity stabilize, and our rig count today is slightly above where we were at the end of the third quarter. Our completion activity continues today at a similar level relative to where we exited September, and we expect completion activity will remain steady for most of the quarter, although typical seasonality is likely to impact the segment during the holidays. As the market steadies, we see opportunities in both our drilling and completions businesses to invest in technologies that are in high demand and short supply, with our expectation that any incremental investments will earn strong returns. As we prepare our 2026 budget, we are working with technology-focused customers on opportunities to deploy new technologies in both drilling and completions, and expanding our competitive edge should widen the advantage we believe we have over much of the industry. As we approach 2026, while we are not ready to give specific guidance for what we expect next year to look like, we are comfortable saying that we do expect lower capital expenditures compared to 2025. Even on lower CapEx next year, we expect to fully maintain the high demand portion of our fleet as well as invest in new technologies across our businesses, while still generating meaningful free cash flow for our investors. We remain committed to returning at least 50% of our annual free cash flow to shareholders through a combination of dividends and share repurchases. Moving to capital allocation. We are operating with significant flexibility, with the expectation for continued solid free cash flow and a strong balance sheet, giving us optionality for 2026 and beyond. Our leverage remains low, with net debt to EBITDA of just over 1x. We closed the quarter with $187 million in cash and an undrawn $500 million revolver. And the fourth quarter should deliver our strongest free cash flow quarter of the year, which should strengthen our capital flexibility as we head into 2026. We will continue to deploy capital only towards opportunities we believe will deliver high long-term returns, including the option to further accelerate our share repurchase program. Our U.S. contract drilling business saw activity stabilize as we exited the third quarter, and we expect this stability to continue through the rest of 2025. Recent revenue per day for drilling rigs remains in the low to mid-30s range. Our directional drilling business is performing exceptionally well, benefiting from strong service quality and new technology deliveries as well as further integrated offerings with both our drilling rigs and our drill bits. Today, we are focused on driving further improvement beyond relying simply on a recovery in industry activity. We are looking to expand our technology-driven commercial models by growing integration across our products and services and through additional performance-based agreements, as we also work to lower our costs. Our drilling team is delivering strong operational performance for our customers by utilizing our Tier 1 APEX rigs and our suite of proprietary Cortex digital services, including adaptive auto driller and predictive models, which become platforms for future artificial intelligence to enhance the quality of the service we are delivering for all of our customers. Our customers are seeing the benefits of using a Patterson-UTI rig and our suite of digital solutions and complementary services and products. The digital and technology package remains a key factor to delivering differentiated solutions for our customers, and the investments we have made have helped margins hold above what our drilling business has achieved in previous periods of activity moderation. Our Completion Services segment demonstrated strong relative performance in Q3, with activity holding steady compared to the second quarter. Our commercial team did an outstanding job managing the frac calendar and aligning us with high-quality customer base, while our operations team executed at an exceptionally high level. Pricing per horsepower hour in our frac business was steady compared to the second quarter, with lower sequential revenue, mostly a function of less sales of low-margin sand and chemical products. We also started to see benefit of cost reductions in the first half of the year. The completions market remains competitive, but our operational quality is proving to be a major differentiator. We recently set a record for continuous pumping for one of our customers in the Northeast, where we safely pump 348 hours straight on a single fleet. This record highlights the capabilities of our digital performance center in Houston to implement new operating techniques with the support of our local field teams. Our new proprietary EOS completions platform is advancing our technology edge through 3 primary products: Vertex automation controls, Fleet Stream and IntelliStim. This platform will allow us to further implement artificial intelligence and machine learning into the completions process. After successful deployment in the third quarter, we continue to deploy our Vertex automation controls across all company fleet, with projection for full deployment by year-end. This will allow us to implement closed-loop automation for all pump types to improve our operating efficiency and asset management, while delivering optimized completion designs for our customers based on real-time surface measurements. Fleet Stream will provide data visualization and analytics, a platform to acquire and analyze reservoir measurements and streamline data workflows for our customers and provide a new revenue stream for our Completion Services segment. Finally, in combination we worked on our drilling rigs and through modern machine learning, our IntelliStim reservoir technologies leverage artificial intelligence to provide real-time reservoir insights to better understand rock properties and optimize completion designs to maximize well performance. We see multiple ways to monetize our digital investments. We are already seeing the investments lower operating and capital costs through higher asset turns. Additionally, on the revenue side, we've already signed 2 customers to commercial deals for 2026, specifically for our EOS platform. And we think there is significant revenue opportunity as well as a path to create closer and more integrated long-term relationships with our customers. Our Emerald fleet of 100% natural gas-powered equipment remains in high demand, and we continue to strategically invest in new technologies that are driving accretive returns for the business. We've recently taken delivery of our first commercial direct drive pumps, which will allow us to deliver 100% natural gas-powered solutions for our customers with significantly less capital deployed relative to electric frac fleets. The direct drive pumps are scheduled to begin long-term dedicated work in the fourth quarter. We think recent advancements made in high horsepower direct drive natural gas engines have helped make this the most capital and cost-efficient solution for our business. Our Drilling Products business had another good quarter in North America, where our U.S. revenue per U.S. industry rig set another company record. Since we acquired Ulterra in 2023, we've seen a roughly 40% increase in U.S. revenue per U.S. industry rig, with a more than 10% increase in market share for our drill bit products on Patterson-UTI rigs. In Canada, we saw a strong recovery in revenue coming out of spring breakup even as total industry activity was slightly below expectations. International revenue declined, mainly in Saudi Arabia's drilling activity in that country slowed. Outside of Saudi Arabia, revenue was strong internationally, and we expect international revenue to increase in the fourth quarter. On the margin side, the quarter did see higher-than-normal bit repair expenses in July, which resulted in lower margins for the quarter, although margins recovered towards historical levels later in the quarter. Our fully integrated PTEN Digital Performance Center located in Houston is the backbone for the entire company. The digital center has been critical as we execute and optimize drilling and completion designs for our customers. The information that we can provide both our team and our customers has improved the efficiency of our operations and brought us closer to our customers as we strive to provide differentiated service. While U.S. shale activity has moderated this year, we have not stood still. We are focused on finding ways to make our business more competitive, even as industry activity appears likely to remain in a tight range for the foreseeable future. We're using this relative stability to prepare for what we think the industry will look like over the next several years, commit capital to the right areas and execute our own strategy to maximize shareholder value. We will continue to target profitable technology investments that we believe will drive strong cash returns for our shareholders, and we intend to be a leader across all of our business as shale evolves. I'll now turn it over to Andy Smith, who will review the financial results for the quarter. C. Smith: Thanks, Andy. Total reported revenue for the quarter was $1.176 billion. We reported a net loss attributable to common shareholders of $36 million or $0.10 per share and an adjusted net loss of $21 million. Adjusted EBITDA for the quarter totaled $219 million. Other operating expenses for the quarter totaled $23 million, of which $20 million resulted from the accrual of expenses associated with personal injury-related claims for incidents that occurred several years ago, partially offset by a favorable contract dispute resolution. Our weighted average share count was 383 million shares during Q3, and we exited the quarter with 379 million shares outstanding. During the first 3 quarters of the year, we generated $146 million of adjusted free cash flow. As expected, during the third quarter, we saw working capital benefits, and we expect working capital will be a tailwind again in the fourth quarter. During the third quarter, we returned $64 million to shareholders, including an $0.08 per share dividend and $34 million for share repurchases. Over the 2 full years since we closed the NexTier merger and Ulterra acquisition through September 30, 2025, we have repurchased 44 million Patterson shares in the open market. We have reduced our share count by 9% since that time. This is in addition to reducing net debt, including leases by nearly $200 million, and paying a dividend that is currently an annualized 5% of our share price. In our Drilling Services segment, third quarter revenue was $380 million and adjusted gross profit totaled $134 million. In U.S. contract drilling, we totaled 8,737 operating days for an average operating rig count of 95 rigs. Geographically, compared to the second quarter, activity was flat outside the Permian Basin, with Permian activity responsible for the sequential decline in our rig count. For the fourth quarter in Drilling Services, we expect an average rig count to be similar to the third quarter. We expect adjusted gross profit will be down approximately 5% from the third quarter. Revenue for the third quarter in our Completion Services segment totaled $705 million, with an adjusted gross profit of $111 million. We saw flat activity on a pump hour basis compared to the second quarter, with margins benefiting from improved operating efficiency and some cost reductions that were initiated in the segment during the first half of 2025. We saw improved efficiency as several of our larger fleets that saw gaps in the second quarter had more consistent schedules. Additionally, our power solutions natural gas fueling business saw an improvement as natural gas demand in the Permian continues to grow as customers look to take advantage of weak regional natural gas prices by using more of the commodity as fuel. Overall, completions revenue was lower on a decline in sales of low-margin sand and chemicals products. For the fourth quarter, we expect completion services adjusted gross profit to be approximately $85 million, with less seasonality compared to the fourth quarter last year. Third quarter Drilling Products revenue totaled $86 million with an adjusted gross profit of $36 million. Performance was strong in our U.S. and Canadian businesses, while international revenue was impacted by lower activity in Saudi Arabia, which is our largest international market. Margins were affected by higher bid repair expense in July, although they returned closer to historical levels by the end of the quarter. For the fourth quarter, we expect Drilling Products adjusted gross profit to improve slightly, with relatively steady results in the U.S. and Canada and higher revenue and gross profit internationally. As a reminder, roughly 70% of the revenue in our Drilling Products segment is generated in the U.S., with around 10% in Canada and 20% international. Other revenue totaled $5 million for the quarter with $2 million in adjusted gross profit. We expect other adjusted gross profit in the fourth quarter to be steady compared to the third quarter. Reported selling, general and administrative expenses in the third quarter were $62 million. For Q4, we expect SG&A expenses will be relatively steady sequentially. On a consolidated basis for the third quarter, depreciation, depletion, amortization and impairment expense totaled $226 million. And for the fourth quarter, we expect it will be approximately $225 million. During Q3, total CapEx was $144 million, including $47 million in Drilling Services, $81 million in Completion Services, $13 million in Drilling Products, and $3 million in Other and Corporate. For the fourth quarter, we expect total CapEx of approximately $140 million. Our full 2025 CapEx is now expected to be less than $600 million, even before considering the benefit of $33 million in asset sales we have realized through the third quarter. Our updated capital expenditure budget is lower than previously expected. We closed Q3 with $187 million in cash on hand, and we did not have anything drawn on our $500 million revolving credit facility, and we do not have any senior note maturities until 2028. Through the first 3 quarters of 2025, we have returned $162 million to shareholders through dividends and share repurchases. Free cash flow is likely to remain strong in the fourth quarter, which is expected to be our highest free cash flow quarter of the year. Our Board has approved an $0.08 per share dividend for the fourth quarter of 2025, payable on December 15 to holders of record as of December 1. I'll now turn it back to Andy Hendricks for closing remarks. William Hendricks: Thanks, Andy. I want to close the call with some comments on our company and the industry. I'm very pleased with our team's execution in the third quarter, where we are outperforming our competitors in many areas of our market. As well, we continue to make the necessary cost reductions to align the company with the projected levels of activity and maximize long-term free cash flow. This past year has been one of the most unique years since shale emerged as a major source of oil and gas over a decade ago. In many ways, the U.S. shale oil field services industry has outperformed each previous cycle. Our margins are holding up far better than what is typical in periods of activity moderation. Equipment bifurcation and capital availability is leading to disciplined behavior across our industry. And customer consolidation is leading to a more constructive environment at the high end of the oilfield services market relative to the overall market. Our third quarter results reflected a stabilization of industry activity as we exited the period. And absent normal seasonality in our completions business, we expect activity to remain relatively steady through year-end. We fully recognize and acknowledge that the macro outlook is a driving force and investment decisions. Lower commodity prices have slowed overall activity in the U.S. for the past couple of years. However, our business has remained resilient, and we are focused on investing in technology, maximizing our long-term free cash flow and returning cash to shareholders. And we think our strategy will create the most value for Patterson-UTI shareholders over the long term. There is much to be proud of with the way our teams are operating. But even as the outlook has stabilized, we are not content to simply wait for a market recovery. We intend to stay focused on our plan to maximize the value of our unique commercial model and technology offerings across drilling and completions. And we see evidence that customers are becoming increasingly receptive to more integration and performance-based pricing, as they too search for ways to improve their own returns. We are just at the beginning of realizing the benefits of that journey for the company. The goal for our business leaders is clear. We need to improve our position in the markets where we operate. We are confident that our teams are focused and up to the challenge, and we look forward to proving that out over the next year. As we start to prepare for 2026, what we see right now is another year of strong free cash flow. Our balance sheet is in great shape, our liquidity is strong, and we are operating with an extreme degree of capital flexibility. Our focus on capital allocation should allow us plenty of opportunities to use our free cash flow to maximize the long-term value for our shareholders, including through a potential acceleration of our share repurchase program. We are pleased with the quality of our operations, and we are confident that we can make our business even better. With that, I'd like to hand the call back to Rebecca, and open up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Arun Jayaram with JPMorgan. Arun Jayaram: Andy, I wanted to talk a little bit about completion services. One of the narratives we've heard from your peers is pricing trends continue to moderate even at the higher end of the market yet. You highlighted how your trends on a horsepower basis were relatively flat. I was wondering if you could maybe elaborate on what you think is maybe driving that differential performance there. William Hendricks: Listen, I think our teams are just doing a great job out there and executing in the field, some of the really high-end work that we've done with large simul fracs and trimul fracs. We're burning significant amounts of natural gas. We're delivering that natural gas to location. We're maximizing displacement of diesel in some cases or on full electric jobs or full Emerald jobs, providing significant amounts of natural gas and fuel savings. And everything that we have to convert natural gas is out and working. And so we don't feel a lot of pressure to reduce pricing from where we're at. Now as you know, the industry discussed, there's been some big tenders over the last few months. Some of those are still in process. But I think, overall, the industry is showing a lot of discipline from where we are right now as well. Arun Jayaram: Great. Great. And maybe, Andy, you could talk a little bit about your fleet renewal programs as we think about kind of 2026, you highlighted how you expect CapEx to be down at a corporate level. But talk to us about planned investments in Completion Services. It sounds like you're pretty excited about the direct drive pumps in that. So how should we think about fleet replacement for PTEN on a go-forward basis? William Hendricks: Yes, the 100% natural gas direct drive Emerald systems that we've just taken delivery of this quarter and just deploying. We're excited about what we believe is a better use of capital -- better allocation of capital and trying to provide 100% natural gas services out in the field. And so we're excited to have a number of those out working this quarter after shaking that technology down for the last 2 years. When it comes to 2026, we certainly haven't finalized the budget yet. But what you've seen us do over the last several years is invest at the high end without investing at the low end and just letting the lower end of the equipment just move away from attrition. We've reduced the overall horsepower we've had over the last few years, from 3.3 million at a peak, down to 2.8 million just by letting that lower-tier equipment go away. And so I think there's a chance we'll make some similar decisions next year. We haven't finalized that yet, but we're not investing at the low end. And I think that helps keep the market tight. And if we see more demand next year for more of 100% natural gas equipment, we'll continue to invest because we're getting good returns on that technology. Operator: Your next question comes from the line of Scott Gruber with Citigroup. Scott Gruber: Yes. So power is a hot topic and Patterson has expertise in running microgrids for drilling. So Andy, if we see the data center market pull more megawatts for on-site generation, do you think that opens an opportunity for Patterson to enter the power market within the oil field? How are you viewing that opportunity today? William Hendricks: We have significant technical expertise in power. We have our electrical engineering division that can engineer and manufacture microgrids. On any given day right now, we're producing around 500 megawatts of power across drilling and completions. We operate generators from 1.1 megawatt recips, all the way up to 35-megawatt turbines. And so we have a lot of technical expertise. But when we look at some of the opportunities as you get into the larger power structures, the AI and data centers are demanding, you're at the 200-megawatt plus. And some, they're up to 1 gigawatt of power. That's not a mobile power solution, that starts to look more like an EPC contract where you've had a lot of big construction going on. So we're focused on what we can do and where we can bring value. We've discussed with some of our customers, and still do from time to time, to rely power for them in their own operations and production. And if we think that there's a reasonable market there, then we'll provide power for them. But we're very focused on delivering free cash flow. We don't want to spend a lot of capital on things that we don't think are going to bring immediate value for shareholders right now. Scott Gruber: So the oilfield production power opportunity for Patterson is still kind of TBD. Is that the right way of saying it? William Hendricks: I would say we have discussions with our customers. These are customers that we're close to. But there's a number of companies that provide PowerForm already and have historically. So it's still a competitive market. If we think we can get a good return doing it, we'll do it. Scott Gruber: Okay. And then I wanted to ask a question on the completion side. I know you guys have made some real strides in developing frac optimization software. Can you provide some more color on this, expanding opportunity -- sorry, expanding offering. How many fleets are deploying optimization software today? And is this contributing to the improvement in segment performance despite the micro headwinds? William Hendricks: Yes. So we're excited about what the team has done in terms of digital on the completion side. So they rolled out the EOS platform, and that's an evolving platform that constitutes a large number of products both at the digital center here in Houston, but also in the field. And one of those products is Vertex automation for the frac operations. And so we've already rolled that out in the field and we continue to deploy, and it's going to be on all fleets by the end of this year. And when we say all fleets, our automation can work on our Emerald, electric Emerald, 100% natural gas direct drive. It can work on our Tier 4 dual fuel. So we're not limited as to where we deploy the automation. And as we've discussed with a lot of you, sometimes we're running blended operations with Tier 4 dual fuel and electric or 100% natural gas direct drive combined. And so our automation controlled software allows us to be able to work across all those platforms and combined situations as well. And we have a number of customers that that's what they want to do. And so we don't have any limitations on the type of equipment we're deploying automation on, and really excited about what that's going to do for us. It's certainly a product we'll be able to charge for. As I mentioned earlier, there's a number of products coming out of the platform that we believe we can monetize, and this is one of them. It's going to probably provide some improvement to overall reliability of equipment. It's going to help us differentiate on how we deploy fracs in the well, and excited about what we can do with it. Operator: Your next question comes from the line of Saurabh Pant with Bank of America. Saurabh Pant: Great. Good. Andy, maybe I'll start with a bigger picture question as you talked about macro uncertainty, things seem to have stabilized a little bit where we see where they go from year-end. But as you talk to the customers, Andy, right, be it on the drilling side and the completion side, how does that uncertainty manifest? I'm just thinking on the drilling side, do they want shorter-term contracts to give them more flexibility on the completion side, maybe this more frequent pricing reopeners as an example, right? How are these discussions going, just given the uncertainty in the environment? William Hendricks: So yes, as we mentioned, activity is stabilized where we're at right now. The rig count for us has come down this year. And -- but the pricing has held up pretty well. There is some pressure. It's a competitive market, but we're still in the low 30s on average. And so if you compare that to what has happened in previous cycles of moderation, we're certainly in a better position today than we have been in the past with an industry. The industry is showing good discipline overall. In terms of what our customers are saying, our customers are trying to keep their production up. And the wells that we're drilling, while we're becoming more efficient, are also becoming more challenging, both on the drilling side and the production side. We're drilling deeper wells. We're drilling longer laterals. And our customers are dealing in the Permian with wells that have a higher gas ratio. And so all those things combined to where our customers are trying to keep up the production. And even though we're in a softer commodity environment right now, they're trying to keep their production up for their shareholders. And I think that you're going to see continuing intensity for what we do grow, and we're getting requests to add more technology to be able to meet the needs. Saurabh Pant: Right, right. No, that makes sense. That makes sense. And I agree, by the way, with your views on the activity levels. They seem like we are right at or below maintenance level, right? So if you want to keep up your production, you're going to keep up your activities. Okay. Makes sense. And then a quick follow-up, maybe, Andy Smith, for you on the 2026 shareholder returns. I don't know you'll give the framework over time, right? But at this stage, how should we think about share repurchases? It's good to see you spend that up a little bit this quarter versus last quarter, but just maybe refresh us on the framework as we think about 2026. C. Smith: Yes. I mean, look, it's a little early to be talking about 2026 and what our plans are. We're just on the beginning of our budget cycle. And as we get through that, we'll finalize. And we'll give more color around that going forward. Again, we've kind of given you the backdrop of the market. We're very focused internally, again, on our performance and making sure that we can be as efficient as we can be. And that's really where our focus is today, and we haven't really focused yet on kind of what our buyback program might look like next year. Operator: Your next question comes from the line of Ati Modak with Goldman Sachs. Ati Modak: Andy, you talked about the production impact of the activity changes. But I'm wondering if you see anything in the cycle times or efficiencies across the value chain that could potentially impact the response expectation you laid out? William Hendricks: Well, I think that what we're seeing, where activity is right now, it has the potential to negatively impact U.S. production a little bit. And just voicing that if oil were to stay in the upper 50s for a little while, that probably bring U.S. production down further. And if you're going to bring U.S. production down further next year, well, the next reaction is, you're going to have a commodity price reaction. And I think there'd be nervousness in the market. So I think it'd be self-adjusting and self-correcting. So when I think about the long term, I think we're in really good shape from a fundamental standpoint. We may have some changes in commodity prices over the near term, that may affect some activity levels. But over the long term, I think the fundamentals are still good. We're still seeing long-term demand for oil growth over a multiyear period. And the U.S. has to be part of that production as well. It has to be part of that equation. The discussion for OPEC+ to bring on physical barrels, they haven't really brought as much in terms of physical barrels as has been discussed. And I think that's baked into what we're seeing, too. So I think there's still a balance that we have right now between supply and demand. So -- and we see that with some of the decisions that our customers are making too. And like I mentioned before, we have customers that are trying to maintain production for their shareholders, but also balance capital spending in a little bit lower commodity environment. But we're staying relatively steady in our activity levels as a result of that. We have customers that are wanting to deploy more technology. They're willing to pay us for it. And to help them with their efficiencies in how they drill wells and how they complete wells in order to maintain their production. Ati Modak: Got it. So for '26, when you are guiding to steady activity levels but also highlighting that gas could drive some, is that -- should we think about that as gas potentially driving upside to that steady expectation? Or is that offsetting some softness in oil? William Hendricks: I think there's upside in gas activity next year. I don't think it's right away in the first quarter. I think that as we see more physical demand from LNG next year, that we've already been doing a lot of frac work in areas like the Haynesville. And there is -- there are wells that have gas behind the valves right now and ready to go. And so I think they're going to address the immediate physical needs in early '26, but eventually, it's going to drive activity later in the year. And I think that's upside for us even if oil is holding steady next year. Operator: Your next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: Two questions from me. Maybe I'll start with -- when we think about sort of RFP season and thinking about what E&Ps may or may not do next year, how are you guys thinking about pricing in the completion market next year? As I'm just sort of thinking about what margins may look like on a year-over-year basis. Any color you can provide around that? William Hendricks: I think that what you'll see is that most of us have already gone through a lot of the tenders that you're having to go through right now. And so what we're saying for projections in the fourth quarter have kind of already locked in some of that pricing. And there could be a little bit of movement in next year. But as I said, everything that we have that converted natural gas today is sold out, and there's still demand for equipment that can burn natural gas because our customers are getting a good fuel savings out of that. So I don't see pricing as a huge headwind. Are things still competitive? Sure. And if there's any white space in the calendar, which we all know happens from time to time, and we have to fill some dedicated work with some short-term spot work, maybe we take a little bit lower price to do that in the Midland Basin or something like that. But overall, I don't see like a huge headwind on the pricing because I think that the work is relatively steady outside of fourth quarter holiday slowdown. Stephen Gengaro: Great. And the other question just sort of ties into the capital allocation strategy. How do you think about -- you obviously have a view on the market, things seem to be stabilizing. But how do you think about capital returns versus balance sheet strength? And what sort of signs do you look for to give you confidence in accelerating or continuing to return capital in a market that has kind of disappointed us for 6 or 7 straight quarters? C. Smith: Yes, Stephen, this is Andy Smith. So as we look at it, again, our -- making sure that we have the equipment in both -- in all 3 of our major lines of business that is top of the market is probably the most important thing that we think about when we're thinking about capital. And then it really becomes what is the cadence of adding that equipment? What is the cadence of making sure that we're rightsized for the opportunity set that's out there? What are we looking at beyond that in terms of our balance sheet leverage? I don't think that we have any issues right now with leverage, to be honest. I'm very comfortable with where we are. And so that hasn't been as much of a focus, but then we look at the return to shareholders and whether or not we want to over step kind of our 50% commitment to our shareholder base. So that's kind of the order of operations. We will continue to high-grade our fleet. I mean, look, there are technology changes in all of our businesses over time. They won't be super lumpy, I don't think. They'll be pretty -- I think they'll be sort of pretty consistent over time, but we will continue to make sure that we're providing the best equipment and the best services out there because, again, we've had a lot of questions about pricing on this call, and pricing is going to follow performance. And we started the call today with a point that we're focusing on the things that we can focus on. And really, that's performance. I think we performed well in the field, and we did very well we have this quarter. And we have, for the past several quarters, and I think we will continue to, then pricing won't be quite the issue that it is if we were just thinking about this as a commoditized equipment business. So I really think that -- we don't have concerns around our balance sheet, if that's part of your question. I'm not concerned with where the leverage is from a capital allocation standpoint. And I think within our free cash flow, we have lots of opportunity to make sure that we're still providing the best services and the best equipment to our customers that we can. William Hendricks: Stephen, I'm just glad that we've committed to give back 50% of our free cash flow to shareholders, and we're on track right now to where it's almost 60% for the year. When we look at these capital allocation decisions, as Andy mentioned, we have opportunities for new technology, and we'll look at each of those on a project-by-project basis. And in some cases, it makes more sense for us to invest in these new technologies in drilling and completions versus buying back the shares. But we're certainly committed to at least 50% to shareholders, and we're running ahead of that right now. Operator: Your next question comes from the line of Derek Podhaizer with Piper Sandler. Derek Podhaizer: Andy, I just wanted to go back to Scott's question. I fully appreciate your views and discipline around power and what you can bring to the table currently. But just maybe -- can we have an EcoCell update? I know typically, that's replacing a diesel generator on the rate with the battery. But just given the outlook for this type of technology, are there potential opportunities outside of oil and gas for EcoCell within your subsidiary of Current Power? William Hendricks: Derek, so I think there could be, and we've had some of those discussions. I think for us, though, the way EcoCell is packaged, it's designed for hazardous environment operations and drilling. It could fit in a production environment. You don't need all those qualifications just to put it next to a data center or an industrial application. We're certainly open and our teams continue to explore those possibilities. Again, when you get into that space of EPC construction and you're over 200 megawatts and approaching 1 gigawatt of power, you're competing with a lot of different companies out there. And sometimes, when it's an EPC project like that, it's big, the winner is essentially the lowest bidder, and that doesn't necessarily bring value for us. And so we're going to focus on things that we think can produce strong free cash flow. So it's designed for as well as a variable load because drilling rig surges as you engage the draw works or you engage the pumps in ways that industrial applications don't see. And so we've written custom software to manage that. So it's just a little bit of a different configuration and setup versus what you do for industrial applications. Derek Podhaizer: Got it. That's very helpful. I wanted to ask a question around drilling. So you talked about Permian being a soft spot here, but obviously pockets of strength, specifically in the gas basin. So just thinking about the rig count, it's up a little bit from where you are, you're going to be steady. If you think about the upside to rig count next year, whether that's gas or even the Permian recovering, how should we think about the required OpEx or CapEx invested back into these rigs that have been sidelined? And just thinking about what that could mean for the future margin expansion once we've rolled through all this contractor and all this pricing and then you're on actually I'm going to reinvest back into these rigs that have been sidelined for quite some time now. Just maybe some updated thoughts how we should think about that with your rig count today. William Hendricks: Yes. We haven't done any of that math recently, but I can tell you, historically, when we reactivated a rig, it's been several million dollars to get a rig reactivated from a capital standpoint. And so we would take that into account any agreement that we're working out. But the other is that as we have some of these discussions with E&Ps for what they're going to need over the next couple of years, they're also wanting more technology on the rig, more capacity on the rig, longer laterals, deeper Haynesville gas, things like that. And so that's going to drive some larger conversations, but it's also going to drive larger day rates. And so we will look at them on a project by project basis like we always do when we restart a rig. And if we're adding more technology than we normally would or we're doing structural upgrades, then we'll get paid for that at a high return as well. Operator: Your next question comes from the line of Keith MacKey with RBC. Keith MacKey: Just wanted to start out first on the drilling services guide for Q4. I talked about a 5% decline in adjusted gross profit, though, on steady activity levels. So can you maybe just give us a little bit more color in terms of the drivers of that 5% decline? Is it more seasonal? Or is there a continued kind of lowering in average pricing on the rigs or something like that? William Hendricks: There's a little bit of decline in the pricing in general. It's relatively steady in terms of activity from where we are today, but we have seen a decline in the overall industry rig count and our rig count since the beginning of the year. So a little bit of a softening in the market that we're dealing with. But my expectation is going forward after Q4 outside of some seasonal things that we have in Q1 to be relatively steady. Keith MacKey: Got it. Okay. And Andy, just wanted to follow up on the last question about the rig technology and the incremental capacity that E&Ps are looking for. Can you give us a few examples of the types of things that your customers are asking you for as they look to drill longer wells in various areas across the U.S.? William Hendricks: Yes, we could talk about a few of those points. So first, the easy one is structural. So as we drill deeper wells in the Western Haynesville with the laterals that they're drilling, the casing loads are getting bigger, so the structural capacity is moving up from, say, what we've had over the last decade, which has been a 750,000-pound rig in general for the industry, up to 1 million pounds. And so we're seeing those request for the structural upgrades. But we have E&Ps that are wanting that as well for the Delaware where we're drilling deeper and longer laterals and they're using more drill pipe and they want to stay efficient, not have to lay down the drill pipe. So they want that structural capacity to be able to rack back more pipe just for those efficiencies in the Delaware. So it's a combination of the 2 and for those different plays, but it's a similar rig style and similar engineering that we have to do for that as well. The other piece is automation. I'm really excited about what's happening in the areas of automation and what our teams are doing with artificial intelligence. I'll just let everybody know, we had an update with the Board this quarter on all the different artificial intelligence projects that we're doing in the company, and we've let those grow up from our engineering teams and drilling and completion, and excited about the way they're looking at things. And when we say artificial intelligence, for us, it's not necessarily your traditional large language model that everybody uses on a daily basis. We do a lot with artificial intelligence and machine learning. And we feed data into our systems from our data science teams to allow our models to learn how wells have been drilled so that we can take that forward into the field and deploy those automation and machine learning models onto the equipment, whether it's drilling or completions, and so that the equipment can now function at a higher level with more efficiency, which improves reliability, longevity of the equipment and also brings benefit to the E&Ps as well. Operator: Your next question comes from the line of Jim Rollyson with Raymond James. James Rollyson: Andy, you've been through a lot of cycles and I think you've talked about a little bit on this call, this cycle has definitely been a bit different than typical cycles. And in that, I'm kind of curious, as you think through '26, '27, historically, we come down in a pretty violent manner. And when U.S. land balances, it kind of comes from both drilling and frac, and you ultimately get pricing leverage again after you've had -- they go in the wrong way for you. And this cycle has kind of played out differently in that pricing has held up better, there's a lot of technology you've kind of discussed. And I'm just curious, as you think through once we hit the bottom and the gas rig count starts to go up and oil rig count eventually starts to recover to replace production, how do you think about how this cycle unfolds? Because I'm assuming frac probably has better chance of getting pricing sooner just because [indiscernible] but then you've got the technology kind of benefits coming on both sides. So maybe lay out how you -- in your world, how you think this plays out as we get to the other side of this kind of dip. William Hendricks: Thanks, Jim, and thanks for reminding me that I've seen a lot of cycles. I appreciate that this morning. Yes. This one has been an interesting one where it's really been about 2.5 years of activity coming down across drilling and completions for various commodity reasons. And so we've had to look and say, okay, what's happening next, how do we adjust the company and the structure for where we are, where we think it's going. And we continue to do that. So even though we're saying we think activity is relatively steady from here, we continue to look at the structure of the company and make sure we're rightsized for where we are and where we're going. With it coming down in the pattern that it has this time, I think there's a chance that the reverse look similar, but there could be a little bit quicker inflection on the gas side. But either way, we see upside from where we are, whether it's continuing to adjust our company for where we are in the market or upside from gas activity later in '26 and '27, we still see upside. So we think we're in a great position. We've got strong balance sheet, lots of flexibility with the cash and continue to deploy technology and get paid for it. And so even though it's -- we're in this -- what do you want to call it, a softening market or moderating market or however you want to describe it over the last period, we're still upbeat about where we are and where the company is in the market. James Rollyson: Got it. That's helpful context. And then maybe lastly, just on the kind of digital suite that you laid out in the completion side that you've already started putting on, and I think you mentioned every fleet will have it by the end of the year. Maybe some goalposts around what is like the revenue and profit opportunity in that space if you get a high rate of customer adoption? Just when you think about how that maybe offsets the general activity trend that we've seen as we go forward. William Hendricks: Well, I think it's still early days. And on the completion side, we're still signing some contracts to do that and providing those digital services for next year. On the drilling side, it's millions of dollars a year in revenue that we're generating off the digital. We rolled out our Cortex operating system years ago, and we continue to add applications to that on the drilling side. And now those applications, through our data science team, are incorporating artificial intelligence, will be layered into those as well. And so that's just going to enhance the productivity of those applications. So I think it's still early days in the technology journey. We've built out the infrastructure. For those of you that have come to see our PTEN Digital Performance Center, you know we've made the investment. We've got the platform. And so now we've got teams that are building on top of that. And we're talking software. This is not heavy capital in terms of an investment, but yet there's revenue upside for us. Operator: Your next question comes from the line of Dan Kutz with Morgan Stanley. Daniel Kutz: So just wanted to ask on the kind of nameplate Emerald fleet side. I think last quarter, you guys that you had over 225,000 horsepower of capacity. And then you flagged the latest direct drive delivery at the end of this last quarter. Could you just update us on what kind of the Emerald fleet size is at the that latest delivery? William Hendricks: It's around that 250,000 level right now. We've still got some more of those Emerald 100% natural gas that are being delivered this quarter. We're deploying them this quarter and still have some more coming in, but it's still around that level. In the overall horsepower, which I think is even more interesting. Like I mentioned earlier, we had, had as much as 3.3 million, but we brought that down to 2.8 million. And I think there's others in the market that are doing similar. And that's why I'm constructive on the market for completions and pressure pumping just because I think that overall horsepower continues to come down in the market. Daniel Kutz: Great. And maybe just to close that out, after everything that has been ordered or you're still waiting for delivery. After all that's delivered maybe by the end of this quarter, what's kind of the capacity of the Emerald fleet at that point? William Hendricks: It will be a little over 250,000, and we'll update you on the next call when we have all those numbers. Daniel Kutz: Okay. Great. Understood. And then maybe -- you guys have already shared a lot of this, but maybe just to kind of ask directly if you could juxtapose some of the differences between the Emerald electric fleet and the direct drive fleet just on a relative basis, the build costs and maintenance costs, kind of fuel and operating costs, operating efficiencies and maybe a lot of that remains to be seen as you guys deploy the direct drive fleet and actually get the real-time data. But yes, wondering if you could just, at this point, how are you thinking the 2 types of technology would perform and the relative kind of build and maintenance cost between the 2? William Hendricks: Sure. Let me just explain it this way, and I'll give you some high-level round numbers on it. So our Emerald electric is performing really well in the field. We have customers that want to use that. We actually grew the amount of horsepower in our Emerald electric this year because we had customers that wanted to move from standard frac size to simul-frac and trimul-frac with the electric. When we do that, you also have to increase the power supply at the well site. And so we've gone from, for instance, on one job, a single 35-megawatt turbine up to a 35-megawatt turbine and combine it with some smaller turbines as well to generate enough power to run larger frac spreads than what we would normally do with a 35-megawatt turbine. The turbines are expensive. 35-megawatt turbine is generally talking about capital costs deployed in the field in the $40 million to $45 million range. And then when we put the smaller turbines out there as well, you're in the $15 million to $20 million range per turbine. So you're talking about a lot of capital costs tied up just on power, and you're also competing in the market for that power with everything that everybody else has talked about and where power is going to go over the next couple of years. So it's not just capital costs, but you're competing for those types of power-generating devices as well. When we look at the 100% natural gas to drive engines, and these are high horsepower engines, 3,600 horsepower. So it's a new technology that's being deployed versus other technology that may have been deployed in the past couple of years. We're excited about this. This is a great supplier, a well-known manufacturer of the engines and the transmissions and then we spec out the rest of it, including our own control systems on it. And we think that with our control systems on it, we can help manage it. When you look at the overall capital cost versus an electric with the turbines, I don't have the actual numbers and differentials in front of me, but it's certainly lower. Our teams have done all the work on that. When you look at the OpEx, the OpEx for a natural gas director of engine is going to be higher than in diesel, but the overall OpEx or 100% natural gas direct drive engine, in our projections, is lower than trying to maintain both electric pumps and the turbine generators at the same time. And so overall, when we look at the amount of capital deployed, you're talking about 25%, maybe 30% reduction in some cases to get the same amount of horsepower at location where you're still burning 100% natural gas. Does that help? Daniel Kutz: That was very helpful. Operator: Your next question comes from the line of Sean Mitchell with Daniel Energy Partners. Sean Mitchell: Can you hear me okay? William Hendricks: Yes, Sean. Sean Mitchell: But keep on hit it on the drilling guide, but I want to turn to the completion got a little bit trying to better understand the typical seasonal slowdown in budget shortfalls and hoping you guys might be able to offer some color on this? At this point, do you have any fleets which have been idled, where you know that fleet will go back to its prior customer in the first half of '26? And maybe any way you can frame the magnitude, that might be helpful. William Hendricks: So we haven't idled any fleet per se. And the way -- the best way I can describe that is quarter-on-quarter, we're still working the same amount of horsepower pumping similar horsepower hours in field, but we've grown some fleets to do more simul-frac and trimul-fracs. So there's been a shuffling of horsepower around to different places. The fleet count, at the end of the day, is really kind of hard to judge. It's not such a great metric because of the fluctuation in fleet size as we do more simul-frac and trimul-frac. And I think you'll see companies like ourselves where the actual horsepower per fleet grows a bit because we're doing higher intensity fracs. We're doing more volumes on pads, things like that. So -- but we -- to sum it up, we are working the same amount of horsepower, pumping similar horsepower hours quarter-on-quarter. So we didn't really stack any technology. C. Smith: Yes, Sean, I'll just add to that. When we look out at the fourth quarter and try to predict seasonality, I mean, we're giving a little bit of -- we take an assumption around kind of what we think we'll see in terms of some downtime around the holidays, maybe potentially some downtime around some weather. And sometimes it's better, sometimes it's worse. And so it's -- you just -- as you go through the quarter, you just have to kind of play it as it comes. Sean Mitchell: Yes. Maybe one more. Just as you talk about a lot of technology, some exciting stuff in the industry today, how much of the improvement initiatives that you're seeing are self-directed versus kind of maybe being requested or suggested by your customers? William Hendricks: I think it's kind of even balanced. We've got customers that request certain things, but we've also got a lot of smart engineers in the company that say, hey, if I deploy machine learning in this way, then we can do this, and it's going to improve our ability to drill a longer lateral or manage how we pump a stage into a well. And so I think it's a mix of both. Operator: Your next question comes from the line of Don Crist with Johnson Rice. Donald Crist: Andy, I wanted to first applaud you for sticking to your guns and which I'll do is a core competency, and not chasing the latest fad as some of your competitors, including very large competitors are doing. But in that vein, I kind of wanted to ask a question about M&A. We've seen a lot through the E&P side and investors keep on asking all the analysts, is there going to be another wave of M&A on the oilfield service side. And a lot of us don't really see it. But do you see some of your larger competitors that are chasing the power side actually freeing up some of that equipment that could be attractive to you all in the future, to where you could, number one, stick to your core competencies, but go into another kind of M&A transaction that would be accretive in the future, possibly overseas? William Hendricks: Okay. There were several different questions in that one, but let me try to take some of that. So first off, I'll say, we don't have to do any M&A. We're really happy with where the company is today, the cash production profile that we have with the company, the technology deployment that we're doing. So there's nothing that we need to do. We've got great segments that are doing great work and strong competitors in the market today and leading in a lot of areas. So happy with what we have. In terms of some consolidation, I think that, let's say, on the completion side, there's probably still some room for some smaller companies to get together. And I think that would shore up some of the completions market if that happens over time. When you look at drilling, it's already a disciplined market. And so not really anything to do there. And so -- we just don't see a lot. And we've looked at a lot of things. We tried to see if there's anything out there similar to Ulterra. We really like the profile of that company, where it's relatively low CapEx compared to our bigger businesses that are heavier in CapEx. And we like what we've done there, and that team is doing a fantastic job. But we're happy with what we have. We don't have to do anything. C. Smith: Yes. Don, I would just add. As it relates to some of our current competition or industry participants that would be pivoting away from maybe their core businesses, I kind of find that hard to buy today that there would be a wholesale pivot. And so to the extent they would be selling anything out of their sort of fleet, it's probably not going to be at the level of technology that we'd want to participate in or want to buy. So I think probably the likelihood of that is pretty low. Donald Crist: Would that include some international operations? Like I know Bakers sold something to Cactus recently and there may be some other opportunities there. Would something to get a stranglehold on the Middle East be kind of attractive to you all? C. Smith: Well, I mean I think we'd certainly be interested in looking at it. But I don't put a high likelihood of anything being separated out in terms of our core businesses right now that would come across our [indiscernible] that we probably look at. Operator: At this time, there are no further questions. I will now turn the call back over to Andy Hendricks for closing remarks. William Hendricks: Well, I want to thank everybody who dialed in this morning. It was a really strong third quarter for us. I want to thank all the men and women at Patterson-UTI across all of our segments for everything they're doing and all the great results they had in the third quarter. And just want to say thanks, appreciate it. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Jonas Gustafsson: Good morning, everyone, and a warm welcome to this 2025 Q3 release call for Hemnet Group. My name is Jonas Gustafsson, and I'm the Group CEO of Hemnet. With me here on my side today at our headquarters in Stockholm, I have our Chief Financial Officer, Anders Omulf; and our Head of Investor Relations, Ludvig Segelmark. As usual, we will go through the presentation that was published on our website this morning during today's session. I will kick it off with a summary of the main highlights during the third quarter and a few exciting updates regarding strategic initiatives and planned product launches soon to come. Thereafter, Anders Omulf will cover the financial details before I will come back in the end to wrap up this session. As always, there will be opportunities to ask questions at the end of the presentation. Today's session will be moderated by our operator, so please follow the operator's instructions to ask questions through the provided dial-in details. So with that, let's get started, and let's move on to the next slide, please. Despite a continued challenging property market, Hemnet demonstrated strong ARPL growth and resilience in the third quarter. Net sales decreased by minus 1.5% on the back of low Q3 listing volumes. ARPL, average revenue per listing grew by 21% in the third quarter, driven by a continued increasing demand for Hemnet's value-added services, where conversion towards Hemnet premium continues to be the main driver. Paid published listings were down with minus 19.2% in Q3, reflecting a challenging Swedish property market with continued high supply levels, extended sales cycles and continued pressure on the housing prices. Around 4 percentage points of the volume decline was attributed to a new business rule introduced in Q1 2025, allowing sellers to change agents without buying a new listing that is impacting the year-on-year comparison negatively. EBITDA declined by minus 5.9% to SEK 195.4 million as the low listing volumes lead to lower net sales and lower fixed cost leverage. Today, we announced new strategic product initiatives to strengthen Hemnet's role throughout the sales process. The aim with these new initiatives, which include a new commercial proposition where you pay only when you sell is to help sellers and agents to fully realize the value of Hemnet, which we think leads to a better chance of a successful property transaction. I will come back to these initiatives later on in the presentation. Now let's turn to Page 3 for a quick look at the financial performance. Net sales amounted to SEK 367 million, down with minus 1.5% compared to the same period last year, driven by a significant decline in listing volumes during the quarter. EBITDA decreased by minus 5.9% to SEK 195 million. The decrease was driven by the lower listing volumes, which drove lower net sales and reduced fixed cost leverage. The EBITDA margin amounted to 53.3%. We are pleased that we're able to deliver a high margin despite low volumes. Anders will break down these profitability dynamics in more details as we move on in the presentation. Now let's turn to Page 4 for a look at the property market and the listing volumes. On the left-hand side on this slide, you see a combined chart showing published listings per quarter and yearly as well as the year-on-year change between quarters. Published listings decreased 19% year-on-year in the third quarter, reflecting a property market with high supply, longer sales cycles and continued price pressure, leaving many customers hesitant to enter the market. The most recent buyer barometer from Hemnet gives further support to the sentiment, indicating that more consumers now expect prices to fall compared with last month. At the same time, lower interest rates, stabilizing inflation and the easing of mortgage regulations planned for April ‘26 could gradually help increase activity. Listing duration, the average time it took for a property to sell on Hemnet during the last 12 months increased by 18% to 52 days compared to 44 days in Q3 last year. Anders will break down the financial effect of the longer listing duration later on in the presentation. Around 4 percentage points of the volume decline was attributed to a new business rule introduced by 1st February 2025. This new business rule allows sellers to change agents without buying a new listing. It's important to remember that our published listing number follows a specific definition and differs from general market numbers. The negative listing development is challenging, but it's more important to remember that property market can be volatile, and we've been through the similar development in the past years. Just look at 2023. Let's move on to the next slide and provide some additional color on the supply situation and how that impacts the current state of the market. We do get a lot of questions on the state of the property market and how new published listings relate to transactions and total supply. Therefore, I wanted to take this opportunity to provide some color on what we are seeing and visualize it in a few graphs to eliminate some misunderstandings. We continue to see a high supply on Hemnet, but the growth rate has started to come down during the past few months. In September, in 2025, our supply grew by 2% year-on-year compared to 22% the same month last year. With that said, we're still at aggregated supply levels on the platform that is 50% higher compared to 3 years ago. The supply of Hemnet and how it moves is a function of a number of different factors. The supply increases with new listings as new listings are down the last 12 months compared to the previous year, that has a negative effect on the supply. The supply decreases with transactions as transactions are up during the same time period, that also has a negative effect on the supply. The supply follows the sales duration as average days on the platform increases, so does total supply. Average listing days on a last 12 months basis in Q3 were 18% higher compared to last year, which obviously has a significant impact. In addition to these fairly straightforward effects, there are other factors like renewals, like relistings and where we are in the new property development cycles that also impacts the overall supply levels. Now let's look a bit on how this has looked over time on the next slide. The number of new listings have exceeded the number of market transactions on Hemnet since 2022, which has built up a large supply of unsold properties during this time, which is visible on the top graph. As you also can tell clearly from the same graph, that trend has started to reverse during 2025. This is a natural correction after a few years of increasing supply. Looking at the history, we've seen the same similar patterns historically. You can also see from the bottom graph that listings and transactions over time follow the same seasonal patterns, but that the relationship between the 2 can differ quite a lot in the short term. To summarize, supply coming down from aggregated levels is positive for the property market. Lower supply signals a more healthy market where more transactions are taking place, while it is also supportive for the price development. Now turning to Page 7 to look at the ARPL development in the third quarter. ARPL grew by 21% in the third quarter. The ARPL growth was mostly driven by a strong demand for our value-added services. The conversion rate to higher tier packages continued to increase during the quarter and 3 out of 4 sellers on Hemnet now shows either Hemnet Plus, Hemnet Premium or Hemnet Max. This highlights the strength of our offering and that our customers see clear value in investing for increased visibility and impact. Our newest package, Hemnet Max, introduced earlier this year is a natural step for sellers seeking maximum exposure. The product is showing strong performance per seller. So let's look a bit on the performance on Hemnet Max. So please move to Slide 8. As mentioned, Hemnet Max continued to show strong product performance, while adoption is still at low levels. In Stockholm County, for example, homes advertised with Hemnet Max that were sold between April and August received more than 70% traffic compared to homes advertised with Hemnet Premium. Moreover, the Hemnet Max homes also got more engagement on the listing and on the average generated a much higher bid premium. We have launched a number of key initiatives to drive Max adoption going forward, including further enhancement of product features and scaling up the marketing of Hemnet Max towards agents and property sellers. We continue to work with the product, and we look forward to it being an important growth driver for Hemnet in the coming quarters and years. Now turning to Page 9 for some other exciting news. Today, we are very happy to be able to announce a set of new strategic product initiatives to help sellers and agents to fully leverage Hemnet's potential. Looking at property transactions in Sweden, we have a large opportunity as Hemnet to increase the value of the Hemnet investment for agents and sellers. We know that ensuring visibility throughout the entire home selling journey is an important part of achieving the best possible outcome. For example, data shows that listings visible on Hemnet from the start of the sales process have a higher chance of a successful sale with homes published as upcoming on Hemnet on average, selling 5 days faster than those listed as directly for sale. To help sellers and agents fully leverage Hemnet's potential, we're announcing 2 strategic initiatives today. First of all, a new success-based product offering. Since 1st of October, we have had a live pilot where we are testing a new commercial model where sellers pay only when a property is sold. Second to that, we're also announcing new strategic partnership with franchisers and brand owners that want to recommend Hemnet as part throughout the entire sales process. Now let's move to Slide 10 to talk a bit more about the ongoing pilot. So we're announcing a new commercial model to further lower the threshold for sellers to list on Hemnet. We launched a pilot test for a new commercial model on 1, October, where sellers pay only when the property is sold. The new model aims to lower the barrier for sellers to advertise on Hemnet from the start and will be a part of our strategic partnerships, and I'll elaborate a bit more on those on the next slide. This is a highly demanded model from both sellers and agents as it becomes a risk-free for the seller and easier for the broker to recommend the most suitable package for the client. We share the risk with the seller to maximize the chances of a successful sale. And we do this because we know that Hemnet works. It is still early, but the initial response and the initial feedback and collected data from the pilot has been very supportive and very strong. with sellers showing increased willingness to list on Hemnet with the new model. We plan to roll out the new model as part of the strategic partnerships during 2026. Now let's move on to Slide 11 to elaborate a bit more on the strategic partnerships. The second exciting announcement that we have to make today is our new strategic partnerships. Hemnet will offer all franchises and brand owners that want to recommend Hemnet as partner throughout the entire sales process, the opportunity to enter into a strategic partnership agreement. The aim of the strategic partnership is to help home sellers and agents to fully realize the value of Hemnet to enhance the chance of a successful property transaction. It is also a way for Hemnet to strengthen the relationship on an HQ level, meaning headquarters. The new commercial model will form a part of this strategic partnership, along with increased visibility, increased brand exposure, increased traffic and increased lead generation and new product features. We very much look forward to being able to speak more about these news and what they will mean for Hemnet and our partners as they are being rolled out over the coming months. Moving on to Slide 12 for some additional launches and product news. We continue to accelerate the pace of our product innovation. Within short, we're launching Hemnet Insights, a new AI-powered analytic tool providing agents with valuable market data as part of their Hemnet business subscription. We're confident that this will be a very useful tool, and extremely appreciated tool for agents across the country, and we're excited about the launch. During the quarter, we improved our CRM functionality, which makes it possible for us to strengthen communication and add more value to both homebuyers and home sellers on the platform. Moreover, by the beginning of next year, we will also launch a new enhanced offering for property developers that is better suited to their needs. We have also launched a marketing partnership with hitta.se, where both our listings and valuation tools are now being integrated. Lastly, our increased marketing investment during the year have begun to show results. We are seeing positive development in key brand metrics with spontaneous brand awareness increasing 11 percentage points year-on-year in Q3. And according to Orvesto survey data covering May to August 2025, Hemnet remains Sweden's third largest commercial website, reaching close to 2 million unique visitors per week with a slight year-on-year increase of 0.4% compared to last year. This is particularly encouraging given the weaker market conditions. All in all, we continue to accelerate product innovation, invest in marketing and build for the future, and it's yielding results. With that, I will hand over to Anders for the financial update, starting with Page 13. Anders, please take it away. Anders Ornulf: Thank you, Jonas. Let's turn to Page 14 directly and the financial summary. Let me begin with an overview of the third quarter of 2025. Net sales for the third quarter were SEK 367 million, a decrease of 1.5% year-over-year. This demonstrates strong resilience. We managed to maintain revenues despite published listings dropping by almost 20% in the quarter. It's a testament to our business model holding up across market conditions, much like we saw in the first half of the year 2023 before bouncing back the second half year. Key driver, of course, sustaining revenue was ARPL growing 21% year-over-year. This was supported by continued strong demand for our value-added services for home sellers, Hemnet Plus, Premium and Max. This underlines the value our platform delivers to home sellers also in a challenging housing market. In addition, our B2B segment had a strong quarter with a growth of 1.5%. We will discuss the B2B segment in more details on the next slide. Another noteworthy point is the average listing time, which on a rolling 12-month basis increased from 44 days in Q3 2024 to 48 days in Q2 2025 and now 52 days in Q3 2025. The year-on-year effect of a longer listing time is negative SEK 9 million in revenue and the sequential effect of 4 additional days from Q2 to Q3 is also SEK 9 million. To smooth out seasonal variations, we recommend tracking ARPL growth on a rolling 12-month basis as shown on Page 4 of the presentation. Turning to profitability. EBITDA came in at SEK 195 million, down 5.9% development in more detail later on. The EBITDA margin for the quarter was 53.3%, which is 2.5 percentage points lower than the margin in Q3 2024. This decline is mainly due to fixed costs that cannot be fully adjusted to offset the 9% drop in listing volumes. One important component in the margin development is compensation to real estate agents. When expressed as a percentage of property seller revenue, this ratio increases quarter-on-quarter from 30.1% in Q2 to 30.9% in Q3, driven by further improvement in both recommendation rates and actual conversion to value-added products. Looking at the effective commission compared to Q3 2024, it rises from 29.4% to 30.9%, higher commission reflecting a substantially stronger underlying improvement of our [ VAS ] products. And as always, the effective commission is a variable component and tends to fluctuate somewhat between quarters, making it more suitable to measure over longer periods. Free cash flow last 12 months was SEK 808 million, a 36% increase year-over-year. This robust cash generation underscores both the scalability of our business model and our strong profitability even in a very soft housing market. Our operations continue to convert a high portion of revenues into cash, highlighting the quality of the earnings. We continue to uphold a strong financial position. Net debt leverage ended the quarter at 0.5, an improvement from 0.6 in Q3 last year. This low leverage provides us with flexibility going forward. The reduction is particularly encouraging given our active capital allocation strategy. As you know by now, we expanded our share buyback program from SEK 450 million to SEK 600 million this year following the mandate approved at the AGM. We have been returning capital to shareholders while still maintaining a conservative balance sheet. At first glance, the headcount increase of 13 may appear notable. However, it is important to take into account the technical nuance that helps explain the development. A higher number of employees were on parental leave during Q3 '25 compared with the same period in 2024. In addition, the organization has been selectively strengthened primarily within product and tech. With that overview, let's turn to the revenues by segment and take a closer look at the Q3 figures. Moving into Slide 15, which breaks down the revenues by customer group. Since we focus the seller -- very much on our seller revenue so far, let's turn the attention to our B2B segment, which grew by 1.5% despite the continued challenging and cautious market environment. Revenues from real estate agents increased by 2% to SEK 26 million and property developers contributed SEK 13 million, up 14% year-on-year. These gains reflect strong engagement for our prioritized customer segment, and it's particularly encouraging to see both an increase in listings and an uptake in VOS products for property developers, leading to a double-digit growth. However, advertising revenues from other advertisers declined by 8% to SEK 16 million, reflecting a softer display advertising market. This was again driven by broader macroeconomic headwinds and lower impressions as a result of reduced listings volumes on the platform. Overall, an uplift for the B2B segment, marking it the strongest quarter this year. With that, let's move to the EBITDA bridge to dive deeper into the Q3 figures. On Slide 16, we show the year-on-year development of EBITDA. We have already covered what has driven the top line for the quarter, so let's turn to costs. As mentioned, EBITDA declined by 5.9% compared to the third quarter of 2024. Agent compensation increased in absolute terms, driven by strong recommendation and commercial levels despite net sales declining by 1.5%. And again, remember, ARPL grew 21% in the quarter. Looking at costs, expenses were higher than last year, mainly driven by increased marketing investments. We continue to raise our ambition in external brand building activities, and we have also increased tactical digital marketing efforts. In addition, higher pace in product development resulted in higher consulting costs. In total, fixed OpEx, excluding personnel costs increased by SEK 9 million. Personnel expenses increased somewhat, reflecting wage inflation and larger headcount. However, this quarter was -- we also benefited from a reversal of a bonus provision, which explains why personnel costs as a total were slightly lower compared to last year. The other cost category remained fairly stable, although slightly higher capitalized development costs reflect the higher product development activity. Overall, the minus SEK 19 million listing effect naturally mirrors our revenue and profit development and puts pressure on the margin. That said, taking a step back, it's encouraging to see the resilience of the underlying earnings capacity. We're not afraid to continue investing in marketing and product development, even though the total cost increase remained relatively modest at around 9%. In total, this adds up to an absolute EBITDA decline of minus SEK 12 million year-on-year. Moving on to Page 17 and some spotlight on the cash flow. Starting on the left-hand side, our rolling 12-month free cash flow continued its upward trend and exceeded SEK 800 million. Cash conversion remains strong, supporting both reinvestments in the business and capital returns to shareholders. In the middle, you can see the development of our share buybacks. During the third quarter, we repurchased shares worth approximately SEK 149 million. In volume terms, we acquired 560,000 shares, reflecting the lower share price during the period. This is part again of the SEK 600 million mandate approved in May. And finally, on the right-hand side, our net debt stood at SEK 427 million, corresponding to 0.5 leverage, well below our target of 2x. In summary, continue to accelerate investments in marketing, product development while delivering strong cash flow, gives us the flexibility to keep executing on our strategic priorities and maintain attractive shareholder returns. With that, I want to hand over to Jonas for a summary on Page 18. Jonas Gustafsson: Thank you, Anders. Let's move to the summary slide on Slide #19. To summarize the third quarter and the news that we announced today. First of all, we saw continued pressure on new published listings in Q3. The weak volumes negatively impacted both net sales and EBITDA. Second to that, we had a strong ARPL growth of 21%, and we continue to show resilience in a difficult property market. Thirdly, we announced 2 new strategic product initiatives that will aim to help sellers and agents to fully leverage Hemnet's potential, and I'm extremely excited about the impact this will have on our business in 2026 and onwards. All in all, we continue to act decisively. We're working faster. We're working smarter, and we're working with a continued focus on innovation. By doing so, we're strengthening Hemnet's position for the benefit of buyers, sellers and agents alike. With that, let's open up for the Q&A. Operator: [Operator Instructions] The next question comes from Will Packer from BNP Exane. William Packer: Three from me, please. Firstly, could you help us think through the strategic rationale of pivoting your revenue model now? You had a very strong track record over the last 5 years. Paying a bit later does bring in new risks such as arguably low inventory quality and revenue recognition headwinds. Can you just help us understand why now? Secondly, thanks for the initial details on the agent partnerships. Would you consider listing exclusivity as a part of that partnership? Or do you think the regulator wouldn't allow it? And then finally, as has been well flagged, inventory is down significantly in the quarter, 19%. Could you help us understand what cyclical market dynamics versus inventory share loss? So for example, Boneo claimed Q3 listings and the market were down high single digit for Q3. What do you think market listings are down? Jonas Gustafsson: So we'll take them one by one. And on the split ship in, and I'll start. So with the sort of the new model from a commercial perspective that we now are piloting, I think this is, to a large extent, based on discussions and feedback that we've had with agents that we've had with sellers. And it's especially sort of important, the reason for testing this out right now is the fact that we have a -- the market dynamics have changed, and we've seen them gradually changing driven by a few different factors. I mean one is related to the high competitive situation that you see on supply. Number two is driven by the fact that you have longer sales periods that we also spoke about. And I think it's one dynamic that is important and that has changed over the last 5 years is that you now see a pattern where a seller of a property typically sell before you buy. That is creating a different market dynamics. What we want to achieve is to ensure that you use the full value of Hemnet. And a way of ensuring this is that we're now testing this new model, and it's conditional to the fact that you would list directly on Hemnet. We know that we have a model that works. We know that we have an extremely efficient platform. We're the market leader. But at the same time, we need to adopt to the changing market conditions. And I think this is something that will be highly appreciated. It will help us to drive volumes. It will help us to strengthen the relationship with the agent industry that is so extremely important. So that's number one. Number two, related to the agent partnerships. We elaborated a bit on the different components as part of these strategic partnerships. And as it goes, by definition, this is a partnership. So obvious when you go into a partnership is that you want to find mutually beneficial wins. So this is a win-win partnership where we see an upside, but we're also going to help our friends out there who wants to be a part of this agreement to help them to sell more properties and help them to gain market share. And when it comes to exclusive listings, I think having exclusive listings totally depends on how you would do it, but it's obviously something where you would need to look at the regulatory dimensions very closely. And that's something that we will explore going forward. Thirdly, when it comes to volumes, so I think -- the sort of -- if you start with the minus 19%, which is our starting point, I think we clearly laid out both in the CEO letter in the presentation that we conducted earlier that parts of this 4% is driven by a business rule change that is impacting the year-on-year figures from a Hemnet perspective negatively in Q3. And it's important to remember that the numbers that was published by Boneo without knowing them in detail, I think if you look at the market and how it defines sort of the volume development, it is not like-for-like compared to Hemnet. The business rule change, I'm pretty sure that the numbers from a market perspective would not capture the relistings and the effect that the 4% had on our numbers. So that is also explaining it. Then I think there's a number of different factors, right? And it is the low demand in general. It is the duration of the sales cycles that is impacting. And also, the way I understand those numbers is not taking into consideration impact from new property developments. So there's a lot of different factors. And the most important thing for Hemnet is to ensure that we remain as the #1 player in Sweden. We want to ensure that the listings end up on Hemnet. And eventually, they do. We've seen that in 2024, and you know the numbers that we published in July, we had 89% market share in 2024. That has moved up and down. In 2023, it was 90%. In '22 and '21, it was 86%. In '20, it was 90%. So market shares tend to move with the market dynamics. So it's difficult to make a full assessment, and there are so many different type of market shares that you could define, whether it's content market share, whether it's new published listing market share, whether it's sold market share. For us, it's most important to ensure that the properties end up [ atonement ] eventually. Anders Ornulf: I can just -- maybe it was a good overview, Jonas. Maybe I can just add that of course, when it comes to our dominant position that we will -- we take that into a very deep consideration before signing any contracts. So as we have always said around that question, it's a very important question it has to be with the position we have. Operator: The next question comes from Yulia Kazakovtseva from UBS. Yulia Kazakovtseva: This is Julia Kazakovtseva from UBS. I have 2 questions, if that's okay. So my first question would be about volumes. So you said that 4 percentage points of the 19% decrease in Q3 was driven by the change in the business terms. Could you please give us the estimate of this impact for Q2? And my second question would be about the new pilot scheme where sellers only pay once the property is sold. So just thinking about the process and the mechanics of this. So if a seller lists their property, but it remains unsold after, let's say, a few months, and they decide to eventually remove it from Hemnet, will they still be required to pay for this listing? And then in this situation, if this happens and then eventually if the property is transacted somewhere outside of Hemnet after this, what's your position here? Would they still need to pay for this or not? Jonas Gustafsson: I'll start off and then Anders, please fill in. So when it comes to the volumes, you're absolutely right, Julia. 4% is connected with the change in terms of the business rule. The 4% that we saw in Q3, if you look at Q2, that number was also 4%. So you should sort of consider the same levels in Q2 as in Q3. So hopefully, that covers the first question. Second to that, when it looks -- when we look at the new product proposition, First of all, we're testing right now. So we don't know the exact scope, the exact terms and conditions of this pilot. We're extremely satisfied with the initial results that we've seen, the reception that we've had from both sellers and especially from agents, it's been very, very positive. When it comes to the specific case that you asked for, obviously, something that we need to detail out. But the current hypothesis and that hypothesis is very strong, is that if you take one listing as an example, you would use this new business opportunity, meaning that, first of all, you would list directly on Hemnet with this new proposition and just play with the thought that it would not be sold for 3 months or whatever period you decide, and it would be taken down. If it's then selling on off Hemnet, if the property has been taken down, you would still need to pay for it. So we will track individual properties and ensure that we get the money for it. The terms and conditions would be that you have used and you have leveraged the marketing power of Hemnet being the most or the leading and the strongest property platform in Sweden. So therefore, you should pay for it. So that's the hypothesis. With that said, it's one of the things that we're testing. But I think otherwise, it would be a way too large risk, and we don't want to cannibalize on our core business. That is a key component in deciding this new proposition. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: I have a couple. So just starting with this new initiative with success-based product offering, how is that going to work with the other product that you have, which is pay when listing is removed because that doesn't seem to make much sense anymore if you go live fully with this. Jonas Gustafsson: Obviously, just repeating the same message that we said before, this is a pilot we're testing. And as part of this pilot and making the full assessment of this new product proposition, we would also look at the totality and the full scope of our portfolio. Current hypothesis is that the pay later if removed, that product would remain. However, and I'm sure there will be questions going forward around this as well, is obviously what price point we would price this new proposition at. And that's something that we're testing and you could expect potentially a differentiation from PL when it comes to the new product. Hopefully, that's helpful, Georg. Georg Attling: Yes, it is. And just second question on the ARPL slowdown here. It's 14 percentage points lower than Q2. if you could just help with the components to this. I mean the price effect should be similar, if not higher than Q2. So I guess mix is really the main reason for the delta helpful for -- with any details would be helpful. Jonas Gustafsson: Please take it. Anders Ornulf: The main explanation is actually tougher comps. So last year, 1st of July, we launched a new compensation model. So a very high uptick to [indiscernible] and now we are lapping and meeting those. So remember, ARPL growth is a growth figure year-on-year, right? So -- and we called out on the call that [indiscernible] is actually growing, continue to grow. So even though we continue to grow, the ARPL growth actually slowed down, as you called out here. So the main reason to answer your question is actually tougher comps. Georg Attling: Yes. And then tougher comps in terms of mix, right, because of the steep increase in premium in Q3 last year. Anders Ornulf: So the uptake between Q2 and Q3 last year was a lot higher than Q2 and Q3 this year. Operator: The next question comes from Giles Thorne from Jefferies. Giles Thorne: The first question was back on the PO sale new commercial model. And the elephant in the room for Hemnet for the past 6 months, maybe 12 months has been buy in the free-to-list model. So it'd be interesting, Jonas, to hear you talk on how the pay on the new commercial model will directly deal with that competitive threat. The second question was a bigger picture question, and it's on agent compensation. And I suppose, Jonas, it'd be useful to hear your case with this new partnership model as to why that amount of capital being allocated to the agency base is still the best thing for Hemnet's long-term interest. I appreciate that's a much bigger, harder question to answer, but it's certainly something on a lot of people's minds. And then the final question was on the open letter that we all saw over the summer from one of your largest shareholders, which called out many things, but in particular, how you're allocating capital your shareholder remuneration. So maybe Anders, some comments on any changes you intend to make on the back of that pressure. Jonas Gustafsson: Thanks, Giles. I'll start, and we'll take them one by one. And Anders, please help me, and I think you are the best one to ask the last question, but let's take it off. So when it comes to this pay on sale, I think the most important reason for us elaborating and testing this pilot now as we speak is that there are -- the market dynamics have changed. And I think I've been repeating this message over the last months since I've had the privilege to be the CEO of this company is that there's a few market dynamics right now where you have an all-time high supply where competition in the supply segment and in the own sales segment is tougher than it's ever been before. Second to that, it takes much longer time to sell a property today than it used to do 3 years ago. If you just look at the average sales duration, that was hovering around 25 days 3 years ago. Now on the last 12-month basis, it is 52 days. That has changed the sales process, the way the agents work and the way the sellers think. Thirdly, which is important is the fact that you now sell before you buy. So what we see right now with the data is that roughly 70% of all property transaction happens in sort of in a way where you sell before you buy. That used to be the opposite. So that used to be 30%. So the market dynamics have changed. This means that we want to ensure that we adopt our product proposition towards the market rather than the competitive situation to ensure that we become relevant, we remain relevant throughout the entire sales process. We know that we have a platform that works. We know that if you list on Hemnet from the beginning, the likelihood of a successful transaction and successful transaction covers everything from finding the right buyers, ensuring that you get reduced sales cycles and maximizing the bidding premium. Those 3 factors are improved when you use Hemnet the entire way. So that is a way -- and that's our hypothesis of using this. And given sort of the market situation, we want to lower the entry barriers for the sellers. We want to help the agents from the beginning. And we think that this product is going to make the difference here. We think it's a very strong proposition that will get listings earlier on Hemnet, more listings and it will help sellers to make better transactions. I think that should cover the first question. When it comes to the second question, it was a bit difficult for me to hear. But I think the question is around agent compensation and how that is related to the new strategic partnerships. But please clarify if I misunderstood it. Giles Thorne: Yes. It was -- it's at heart, a very simple question, albeit probably quite a difficult answer, which is you pay away a lot of your value to this large pool of important stakeholders. And for a very long time, that served you very, very well. But now there are open questions about whether that is the best use of your capital. So it was a question for you, Jonas, to make the case of why this is still the best use of your capital and perhaps use the new strategic partnership as a way of illuminating that case. Hope that's clear. Jonas Gustafsson: Yes. Perfect. So I think when it comes to the agent compensation, I think that has served us well. I think it continues to serve us well. It's strengthening the relationship with our most important ambassadors in the market, and that's individual agents. I think it's fair. And I think I fully understand where you come from, it's a substantial part of our P&L on the cost side that is related to compensation, but it's also helping us to build very strong relationship and mutual beneficial opportunity for both Hemnet and for the agents. When it comes to the way you understand this, Giles, but I think -- I mean, the agent compensation and the compensation model, that is a contractual and transactional relationship between Hemnet and the franchise owners. We see large opportunities of also strengthening our relationship with the HQs, the ones that has a central role and in many cases, a very important influence. And creating opportunities also on HQ level is important. And what we haven't spoken too much today about is also the individual agents. I think Hemnet in the past has been very strong with the franchise owners. We need to remain strong there, but we should also strengthen the relationship with HQs, and we should become better friends and become more supportive to the individual agents. So it's the full slate that we're thinking about. Then thirdly, the open letter from GCQ. Anders, would you like to elaborate around our view when it comes to the capital allocation? Anders Ornulf: Sure. Of course, we saw the letter and the shareholders' input is very important for us. It's one very important piece of the puzzle. But we stick to the current capital allocation strategy that we will continue to distribute excess cash through buybacks on an arm's length basis via Carnegie. On a personal view, I think not, I think it's a good success story for Hemnet since the IPO to be consistent with the buybacks and not taking bets on share price from time to another. So that's the answer. Giles Thorne: So Anders, you won't change the cadence or the pace of buybacks depending on share price moves? Anders Ornulf: No. Operator: The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: What development do you expect for staff costs and other costs at Hemnet in 2026 and 2027? Jonas Gustafsson: Anders, would you like to take that? Anders Ornulf: Sure. We don't know since we haven't decided, but what we said in the beginning of the year is that we will continue to grow this company. We will invest in marketing and talent and the product, and we will continue with that. Last year, we had a fixed OpEx growth of 30%. We said then that you will not see that this year. And now after 9 months, we are at around 15%. So all else being equal, you should expect us to continue that. But to be fair, the details has not been decided and the best way to look at it is to look at the current run rates. Jonas Gustafsson: And I think just to kick in an open door, we like operational leverage, and that's what we're going to plan for also for the next year and after that. Thomas Nilsson: Okay. And one second final question, if I may. Looking at your growth targets of 15% to 20%, how much do you think this will come from structural price raises and how much will come from promoting higher-priced packages? Jonas Gustafsson: We remain committed, and we think that the growth ambition of 15% to 20% is important. I think what we've said is that in the past, I think the largest price hikes days for Hemnet, those days are over, and we need to work on value-based pricing. And when I talk about value-based pricing, we need to ensure that we deliver products that the customers are willing to pay for. And I think this quarter, Q3, but also what we saw in Q2 and Q1 is a testimony of that. We do see that the product mix and the BOS penetration is the main driver. It is not prices. Operator: The next question comes from Ed Young from Morgan Stanley. Edward Young: Two questions, please. First of all, you've mentioned about further enhancements of Max. Should we read that as small sort of iterative additions to the Max package or perhaps a bit more of a rebalancing of the relative benefits across the package structure, so potentially including elements like free renewals? And then you've also talked about increased Max marketing. How receptive do you think agents have been able to be to these messages about the value of Max in a sort of difficult market backdrop? Or do you think their interest and ability to upsell packages will also be reliant on picking up when the macro also picks up? Jonas Gustafsson: So on the first one, I think when it comes to the enhancement of Max, I mean, Max is still a baby. It's been around for 6 months. So it's still young. We are continuously testing new features. We're elaborating with the price point. We've been running different campaigns. There are campaigns live now in the larger cities to just learn. So we're still in data collection mode. I think we need to look at a few maybe potentially bigger things as well going forward. And per your point, classifieds. So it's all a relative game comparing the features of Max also towards premium and others. But I think -- I mean, I don't think that you should continue to decrease the proposition of premium and Plus. This is all about ensuring that you improve features when it comes to Max. So that's something that we continuously work on. Anders Then I think, would you like to take the second one? Anders Ornulf: I didn't get that to be fair. Jonas Gustafsson: Sorry, can you take it again, Ed? Edward Young: Sure. I was just saying you're talking about increased marketing behind Max. I was just wondering, do you think that agents have been receptive to those messages? Or do you think ultimately that in sort of in the difficult macro backdrop? Or do you think that you need macro to pick up for them to sort of have more space if they're under pressure? Is it really a priority for them to push that? Is the macro impact an important part of the backdrop there? Jonas Gustafsson: Thanks, Ed. I can take it, Anders, and then you can fill in sorry. So I think -- I mean, it's a very good question, Ed. I mean, I think if you look at the actual product performance, and we showed a few highlights with 70% more traffic, 50% higher premiums, 50% more lift, things and engagement up. So I think those are fantastic results. I think that when it comes to Max, obviously, it is priced at a 50% premium versus Hemnet premium. And I think that has been part of the challenge in getting a quick adoption given these current market conditions. The key -- the sort of -- the way this business works to a large extent, is the fact that conversion follows recommendations. So it's all about ensuring that the individual agents recommend Max to a larger extent. That's really the main lever that we have to pull. And I think these marketing investments that we refer to is to a very large extent, B2B marketing, so investing in communication, investing in roadshows, investing in getting the message out there. But I think the sort of the Max adoption to some extent, is held back given the current market conditions. Operator: The next question comes from Eirik Rifdahl from DNB Carnegie. Eirik Rafdal: I got a few at the end here. Just to start on the strategic partnership. Are you configuring or looking to configure the commission model as well to kind of drive more agents to push this offer with pay when sold? Jonas Gustafsson: Simple answer is no. We're not looking to adjust the compensation model. Obviously, kicking an open door, everything, you would understand this. But obviously, I mean, we would pay a commission towards the agent if the property is sold and only so. So that's the part of it. But that's also one thing that we're obviously testing. Eirik Rafdal: That's very clear. And Jonas also you stated that the initial feedback and data from the pilot has been supportive and sellers showing increased willingness to list on Hemnet with the new payment option. Have you also seen increased willingness to jump on Max on the back of this? Jonas Gustafsson: What we've seen is that I wouldn't comment on Max specifically because the numbers are still quite low, but we see that there is a willingness to recommend higher tier products and higher than we have today. So that has been part of the reason why we see a very positive response. Perfect. Eirik Rafdal: And just a final question for me, which is a bit more big picture. What's your overall thoughts right now on AI risk, particularly on the back of the Silo ChatGPT integration announced a couple of weeks back? Jonas Gustafsson: I mean if you look at AI, and I'll take the big picture answer. I mean we're actively looking at how to best integrate AI into our operations to enhance user experience and internal efficiency. Up until today, our efforts internally, we focused a lot on our valuation pool. But obviously, we follow and see what is happening. And I think the -- so and the ChatGPT integration last week are very relevant and interesting. So we continue to look at that, and that's something that the team is looking at it, and we're exploring those opportunities. We want to be part of this when this takes off and when it gets to Europe. Operator: The next question comes from Annabel Hames from Deutsche Bank. Annabel Hames: Just one from me. Can you give more color on why the Max package uptake hasn't accelerated given the data that you have on product performance and investment? Is it purely just a lack of understanding from sellers? Or is it something you eventually consider having part of the commission model for agents to help uplift that uptake? Jonas Gustafsson: I think I mean taking a step back, Hemnet Max is something that would help us in '26, '27 and '28 and will be an important component to continue to drive ARPL growth. We're still in the learning phase. Please remember the last time the Hemnet launched a new product was back in 2019. So this is not something that we do on a sort of on a quarterly basis. And I think -- I mean, sitting here today and being a part of this earnings call, the key driver of what is actually driving ARPL growth in Q3 2025 is Premium and Plus, and that was introduced in 2019. So this is a long-term bet. I think when it comes to why the adoption has not picked up faster, I think parts of it is sort of related to what Ed asked about before. There is tough market conditions right now that I think has been holding back the MAX penetration. That's just a fact. And second to that, I think the awareness, this is the numbers that we show to you guys today are very, very strong. Now it's -- we have a lot of things to be done at our communication department. We need to be out there and spread the dos. Operator: The next question comes from Nicola Kalanoski from ABG Sundal Collier. Nikola Kalanoski: So firstly, interesting news regarding the new model. I appreciate that this is just in pilot mode so far, of course. But just to understand the mechanics of this. Will the cost of the listing ad be automatically deducted during the settlement with the banks when a home transaction closes? Or will the seller have to pay as they've done previously, that is just paying a regular invoice to Hemnet? Jonas Gustafsson: So the simple answer is that what we're testing right now is that the payment method and the payment flow would be very similar to our current products, meaning that would be a separate bill. However, I mean, if you look ahead, and that's a question about product development and integration towards our partners, I think sort of having the Hemnet cost being deducted in the overall settlement, that's also an interesting opportunity. But what we're piloting right now is the first stage. Nikola Kalanoski: Yes, that's crystal clear. And just another thing to clarify. I believe you mentioned earlier during this conference call, some changed market dynamics, which I'm sure we're all familiar with. But I reacted a little bit to you saying that competition in the supply segment and -- or sorry, competition in the on sale segment is tougher than it's ever been before. I just want to make sure, does this refer to there being competition among home sellers trying to sell their home or competition between Hemnet and other marketplaces, right? Jonas Gustafsson: Thanks for allowing me to clarify that if that was unclear. What I meant and clearly meant is that if you look at the on sale segment, supply levels are at record high levels, meaning that if you're a home seller, the competition to sell your property is very, very high. So it's a question about supply/demand to put it simple. Do you follow me, Nikola? Nikola Kalanoski: Yes, absolutely. I was just looking for a clarifying Operator: The next question comes from Julia Kazakovtseva from UBS. Yulia Kazakovtseva: Just one small follow-up for me. What's the current penetration of the pay later feature at the moment? I mean, the number of new listings. Anders Ornulf: It tends to fluctuate a bit, and we've commented before that it's been around 40% to 50% since launch, and it might be -- I haven't looked at it today, but it might be a little bit lower today. Jonas Gustafsson: Hovering around 40% but it goes with seasonality. So around 40% to 50%. Operator: The next question comes from Eirik Rifahl from DNB Carnegie. Eirik Rafdal: It's Eirik again. Just a quick follow-up question because we've been kind of discussing the perception of the max value and the perception of the value you guys create overall. And one thing is the perception that the agents kind of know of your value. But do you have a feeling that they understand the relative value between you and for instance, [indiscernible], I mean, on the numbers we're tracking and looking at, you guys are reporting all-time high time on site today of 52 days, but [indiscernible], at least on our numbers, is north of 120 days, so more than 2x what you guys can deliver. Do you feel that the agents kind of understand this in this market that it doesn't really help them to go there and kind of try to avoid going on Hemnet? I mean I think obviously, it's a mix. I think we have we have more work to be done and continue to educate the market around that. And you're absolutely right. I mean Hemnet is a much more efficient and much stronger property portal when it comes to ensuring that you sell your property quickly and fastly. With that said, I think this is something that we're continuously work on. And I think I've been talking a bit about how we invest in our sales force. The main reason for investing in our sales force is that we need boots on the ground to be out there, help the individual agent to understand the fantastic value that Hemnet is delivering. And also what we did in Q3 was to lift up Marcus to become my management team. And I think becoming closer to the agent, becoming closer to the industry is it's a strong rationale of why we're doing that and not only because Marcus is a fantastic salesperson. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Jonas Gustafsson: Thank you, everyone, for joining the call today and for a lot of good questions. We ran slightly over time. But with that said, we'll conclude today's session, and I wish you a fantastic day. Thanks.
Kristopher Doyle: Good morning. I'm Kris Doyle, Vice President of Investor Relations and FP&A. Welcome to our earnings call for the third quarter of 2025. Before we begin this morning's call, I'd like to remind you that today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed. Please refer to the page titled Forward-Looking Information in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Visteon's website. You can download them at investors.visteon.com if you haven't already done so. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We scheduled the call for 1 hour, and we'll open the lines for questions after Sachin's and Jerome's prepared remarks. [Operator Instructions] Thank you again for joining us. Now I'll turn the call over to Sachin. Sachin Lawande: Thank you, Kris, and good morning, everyone. Thank you for joining our third quarter 2025 earnings call. Visteon delivered another quarter of strong operating and financial performance, demonstrating the strength of our business while continuing to execute on our long-term strategy. Sales for the third quarter were $917 million, coming in slightly below our expectations, primarily due to the impact of the unplanned production shutdown at JLR. Excluding this impact, sales were broadly in line with our forecast. We had good visibility into customer production schedules going into the quarter, and while there were some minor puts and takes across programs, they largely offset each other. Year-over-year, we continue to see strong momentum in our cockpit electronics business with solid growth in Europe and in the Americas. This was offset by lower sales in China and for BMS in the U.S. due to the anticipated headwinds from the challenging macro environment for global OEMs in China and for electric vehicles in the U.S. Adjusted EBITDA was $119 million, representing a margin of 13%, and adjusted free cash flow for the quarter was $110 million. We are maintaining our full year guidance, which Jerome will walk you through in more detail shortly. On the sales side, we're trending below the midpoint of guidance as a result of several temporary industry headwinds. Importantly, despite these headwinds, our adjusted EBITDA and free cash flow are forecasted to remain strong, supported by continued operating discipline, commercial execution and the impact of our cost reduction initiatives. From an operational viewpoint, the team delivered very well. We launched 28 new products, improved our profit margin through productivity measures and secured $1.8 billion in new business during the quarter. We continued to build momentum with our product portfolio, winning multiple large display programs and adding another high-performance SmartCore customer in China, strengthening our position in the emerging AI-based cockpit systems trend in the industry. We also resumed capital returns to shareholders with the payment of our newly initiated quarterly dividend with more capital returns planned in the fourth quarter. Turning to Page 3. Our Q3 sales came largely in line with our expectations, excluding the temporary production shutdown at 1 customer in Europe. In North America, cockpit electronics continued to perform well and came in ahead of expectations. The impact of tariffs on customer demand remained minimal, and we benefited from the ramp-up of several recently launched programs with OEMs, including Ford. BMS sales were down significantly year-over-year with GM and Stellantis, reflecting the very different environment for EVs in 2025 compared to 2024. Our retail EV demand surged ahead of the expiration of the $7,500 tax credit. Production levels remained steady as OEMs work through the elevated dealer inventory. Sequentially, BMS sales came in modestly higher. Overall, in the Americas, strength in cockpit electronics helped partially offset the year-over-year decline in BMS sales. In Europe, our sales were flat year-over-year. We saw solid gains in cockpit electronics and ICE hybrid as well as battery electric vehicles across multiple customers, including Mercedes EQ and Renault R4 and R5 EVs, the Puma Transit and transporter vehicles from Ford and the Peugeot 208 and 2008 vehicle models that offer a choice of powertrains. Our sales in Europe also benefited from our recent engineering services acquisition, partially offsetting some of this strength was the production downtime at JLR, where operations were halted for the entire month of September, due to a cyberattack impacting our Q3 sales by approximately $12 million. In the rest of Asia, excluding China, we continue to make progress on our strategic initiatives to diversify our customer base and expand into the 2-wheeler market. In Q3, sales benefited from ongoing traction in the 2-wheeler market and from the recent launch of our digital cluster program across multiple car lines with Mitsubishi. Offsetting these were declines in vehicle production at a few of our customers in the region. In China, third quarter sales declined year-over-year as expected, primarily driven by negative vehicle mix with Geely and the ongoing market share loss of global OEMs, partially offset by new product launches. On a sequential basis, however, sales remained stable, supported by key programs, including the new Buick GL8 with GM, Toyota Corolla, and the cockpit domain controller with Geely. We believe this performance represents a baseline level for our China business, from which we expect to return to growth in the coming years. Turning to Page 4. We launched 28 new products across 10 different OEMs in the third quarter, underscoring the market fit of our product and technology portfolio as well as our program execution capabilities. These launches spanned a broad range of vehicle segments and geographies and were featured on several flagship vehicle models, reinforcing the trust our customers place in our ability to execute and deliver these complex systems. Some key highlights include an audio infotainment system on the Ford Super Duty and a multi-display system for the Chevy Corvette at GM. Large displays are becoming key requirements in all regions. We launched a new dual display system on the Renault Boreal, which is a C-segment SUV based on the Dacia Bixter for markets outside of Europe with first launch in Brazil. In 2-wheelers, we launched digital clusters across 3 models with TVS in India, our first with this OEM. TVS is the third largest 2-wheeler manufacturer in India, with annual sales of about 3 million vehicles. This is also the first introduction of an all-digital cluster by this OEM, highlighting the growing trend of digitalization in the 2-wheeler market. In Commercial Vehicles, we introduced a SmartCore-based cockpit system for off-road construction equipment with Volvo that enables advanced features, such as dig assist for excavators and load assist for wheel loaders that delivers high excavation accuracy in a fraction of the time compared to conventional methods. These systems use multiple sensors and highly accurate GPS technology to run sophisticated software algorithms on our proven SmartCore platform. Lastly, we launched an upgraded SmartCore cockpit domain controller on the refresh Zeekr 001 luxury electric vehicle. The 001 has been a successful vehicle for Geely with over 300,000 sold since its introduction in 2021, and the latest version will be offered in 6 countries in Europe besides China. New product launches with customers such as Geely and Cherry remain central to our strategy for returning to growth in China. Our Q3 launches illustrate the fit of our products for not only the passenger car market, but also 2-wheeler and commercial vehicle markets. Year-to-date, we have now introduced 65 new products, reflecting our continued focus on innovation, and disciplined program execution. Turning to Page 5. Q3 was another strong quarter for new business wins, and we now expect to close the year at greater than $7 billion, higher than our initial target of $6 billion. Year-to-date, we have secured $5.7 billion in new business awards, which is up from $4.9 billion in the same period last year, with wins across 21 unique OEM customers. The product mix is led by displays, which represent more than half of our total awards so far this year, as carmakers seek to refresh and differentiate the cockpit experience, even on existing vehicle platforms. Importantly, we also secured $2.3 billion in new SmartCore digital cluster and infotainment programs despite a relatively slow quoting environment, as carmakers adjust to rapidly changing market dynamics. The strong performance reflects the strength of our product and technology portfolio, which continues to lead the auto industry and help us in expanding into two-wheeler and commercial vehicle markets. On the right side of the slide, you can see a few examples of notable wins this quarter. We won a panoramic display with a European OEM covering both hybrid and battery-electric models launching in mid-2028. This is our first win with this brand and the display will initially debut in the European market with later expansion into other major markets. Another significant win is for a large dual driver and passenger display for a premium luxury brand. Our product integrates to OLED panels under a single cover glass, featuring switchable privacy for their display. Our competitiveness on technology and cost supported by our in-house design and manufacturing capabilities were critical factors in securing this business. In Asia, we continue to expand with the world's largest OEM, winning a digital cluster program for an affordable performance model, another step in deepening our relationship with this key customer. And in China, we secured a SmartCore high-performance computer program with Cherry, which will enable AI capabilities to enhance the cockpit user experience. Cherry is one of China's leading domestic OEMs and also a leading exporter of vehicles. The product will initially launch in their plug-in hybrid SUV models, followed by the next generation of battery electric vehicles. This represents our second HPC win in China, the first was with Zeekr. And when these 2 programs launched in the second half of 2026, they will be the most advanced systems globally, setting a new benchmark for next-generation cockpit products. Turning to Page 6. Just a few years ago, electric vehicles and China were seen as the 2 most significant growth drivers for the industry. However, that has changed quite rapidly over the past couple of years, and the industry reality is very different today. EV adoption outside of China has progressed more gradually than many had anticipated, and recent policy changes in the U.S. present additional challenges. In China, the large number of car brands operating in that market has triggered a fierce price war that has raised on for the past couple of years and resulted in notable changes in OEM market share. On the technology front, artificial intelligence has overtaken SDV as the most exciting technology trend with Chinese OEMs leading the industry in early adoption of this technology. In response, we have taken deliberate steps to broaden our strategic initiatives to address the air pockets in our growth trajectory created by these industry dynamics. I would like to take a few minutes to share how we are thinking about these evolving industry trends and the progress we are making on our broader growth initiatives. Carmakers outside of China are launching new vehicle models that offer a choice of powertrain, ICE, hybrid and battery electric and with larger displays and advanced cockpit electronics. This is especially the case in Europe as carmakers prepared to compete against Chinese imports. We are seeing strong interest in our large displays and latest SmartCore technology for these new vehicles. In the third quarter alone, we launched 5 new cockpit electronics programs for OEMs in Europe and China and have 5 additional SmartCore systems under active development with OEMs in Europe and Asia, with launches starting in Q4 of 2025. We are also making progress with Cherry, where we will launch our first display program in early 2026 for the European market. This initial program served as a strategic entry point, enabling us to expand our relationship with Cherry during the third quarter in the China market with another new business win. Artificial intelligence has the potential to significantly enhance the user experience delivered by cockpit systems. AI-enabled cockpit is an emerging technology trend, and Visteon has positioned itself well with the introduction of the high-performance version of SmartCore and cognitoAI framework, the first of its kind in the industry. In Q3, we secured our second high-performance compute win, this time with Cherry, joining Zeekr as key initial customers for this exciting new technology. We have discussed previously our initiatives to broaden our opportunities by focusing on underrepresented car OEMs in Asia, while expanding into adjacent transportation markets of 2-wheelers and commercial vehicle OEMs. We are also expanding our product portfolio with new in-house developed products, such as the App Store and cameras for ADAS applications. In the third quarter, we made solid progress. We launched an app store with Maruti Suzuki in India, our first launch of this product, which now supports over 100 apps that are available for download. We are also working with 2 additional OEMs for the launch of this app store in their vehicles in 2026. We also launched multiple products in the 2-wheeler and commercial vehicle markets, which have already highlighted earlier in the call. Year-to-date, roughly 25% of our new business wins are tied to our strategic growth initiatives, a key reason we now expect to exceed our original new business win target by at least $1 billion. Overall, we remain confident in the long-term prospects for the business. In addition to our top line opportunities, we continue to expand margins, generate strong cash flow and deliver best-in-class returns on invested capital. With that, I'll hand it over to Jerome, who will walk you through the financials in more detail. Jerome? Jerome Rouquet: Thank you, Sachin, and good morning, everyone. Consistent with recent quarters, we again delivered a strong operational and cost performance as well as a robust cash generation despite sales being slightly lower than originally expected. For the quarter, sales were $917 million, a 6% decline from the prior year. We continue to see strong growth in cockpit electronics across the Americas and Europe, along with higher engineering services revenue on a year-over-year basis. As expected, this was more than offset by lower battery management system sales in the Americas and reduced sales in China. However, what we did not expect was the negative impact of JLR unplanned shutdown for the entire month of September, which represented a little over a point of sales. Adjusted EBITDA for the quarter came in at $119 million underscoring our continued focus on operational execution and disciplined cost control. Adjusted EBITDA margin was 13%, benefited from our ongoing efforts in product costing and productivity. We did have net positive nonrecurring items this quarter, which contributed approximately 0.5 point to the margin. Adjusted free cash flow was $110 million, driven by a robust EBITDA performance as well as favorable timing of cash flows. During the quarter, we paid our first quarterly dividend, marking an important step in continuing to return capital to shareholders and reinforcing our commitment to a balanced capital allocation strategy. We closed the quarter with $459 million in net cash, giving us the flexibility to continue investing in the business, pursuing technology accretive acquisitions while delivering shareholder returns. Turning to Page 9. Sales for the quarter were $917 million, down $63 million year-over-year. Customer production volumes remained essentially flat, while growth versus market was negative 5% for the period. Growth over market came in below our expectations this quarter, driven by a combination of factors. First, production mix was a headwind. Several of our key customers, including Geely and others saw increases in overall production volumes, but not on a specific vehicle lines where we have content. This diluted our growth over market performance. Second, as we have discussed, JLR was another headwind. Sales with JLR were on track to outpace the customer's production before the shutdown, which impacted the contribution to growth over market. Customer recoveries, primarily tied to prior semiconductor cost increases, reduced sales by approximately 2% year-over-year, as those input costs continue to decline. Normal annual price reductions to customers were around 1%, consistent with our historical average. FX provided a modest benefit in the quarter. Adjusted EBITDA for the quarter was $119 million, flat compared to the prior year. However, adjusted EBITDA margin improved by 90 basis points, reflecting strong performance in product costing and productivity, the benefit of onetime items as well as contribution from M&A. These gains were offset by the flow-through impact of lower sales. Net engineering as a percentage of sales was 6.3% for the quarter and includes the recent engineering services acquisitions we have made over the last 12 months. Excluding the acquisitions, our net engineering expense remains in the 5% range, slightly lower than our original expectations for the quarter. We continue to leverage our platform approach and best cost footprint while advancing multiple initiatives to improve engineering productivity. At the same time, we are investing in strategic engineering capabilities, including AI applications to support our upcoming high-performance compute launches in China and the development of cognitoAI. Adjusted SG&A was 4.9% of sales, reflecting a healthy balance between ongoing cost controls and targeted investment in key teams and technologies to support future growth. Our normalized margins remained in the mid-12% range, and Q3 provides another data point illustrating the run rate of the business. The sustainable margin performance continues to be driven by the cost initiatives we have undertaken, including product costing, engineering productivity, platform-based product development, and AI-driven process improvements while continuing to invest in the business. Turning to Page 10. Visteon generated $215 million of adjusted free cash flow through the first 3 quarters of the year. We continue to benefit from a robust level of adjusted EBITDA, converting EBITDA to cash at a 56% rate, still above our 40% target when excluding the working capital inflow. Trade working capital was a net inflow, reflecting lower sales and strong collections, partially offset by higher inventory levels associated with the unplanned shutdown at JLR. Cash taxes were higher compared to last year, driven by continued improvement in profitability across most jurisdictions as well as the timing of cash payments. Net interest remained a positive contributor as interest income earned on our cash exceeded the interest expense paid on our debt. We also had an outflow this year related to our 2024 annual incentive program, which was paid in 2025 and at higher levels than the prior year, reflecting the strong financial and operational performance in 2024. In addition to this payout in the first quarter, other changes this year, including U.S. pension contributions and the timing of various other cash flows. Capital expenditures were $88 million, representing 3.1% of sales and were slightly below our full year expected run rate. In the first 3 quarters of the year, in addition to ongoing investments supporting customer programs, we continue to invest in several vertical integration initiatives, as I have mentioned on previous calls. These initiatives allow us not only to improve our product costs, but as well to derisk our supply chain while controlling more of the technology that goes into our products. In the quarter, we paid our first quarterly dividend approximately $8 million. We ended the quarter with $765 million of cash and a net cash balance of $459 million. In the fourth quarter, we plan to increase our capital allocation to shareholders. In addition to our recurring quarterly dividend of $0.275 per share, we will return additional capital through share repurchases. We currently have approximately $125 million of authorization remaining under our existing program and anticipate retiring between $20 million and $30 million of shares during the quarter. We may go beyond that range on an opportunistic basis, depending on market conditions. This puts us on track to complete the program by the end of next year, consistent with the plan we laid out during our 2023 Investor Day. Turning to Page 11. Our current outlook remains within the range of our previous guidance. On sales, we are now tracking below the midpoint of the range, closer to approximately $3.75 billion, reflecting the latest customer schedules. First, we are incorporating a reduction in battery management system sales following the elimination of the 7,500 EV tax credits in the U.S. We expect this headwind to persist into 2026. Second, we have incorporated some continued level of production disruptions at JLR throughout mid-November. Under normal conditions, JLR contributes approximately $10 million to $13 million in monthly sales. Finally, we are also adjusting our outlook for our largest customer, Ford, due to some scheduled downtime resulting from their aluminum supplier plant fire. We believe the JLR shutdown and scheduled downtime at Ford with an estimated impact of $30 million to $40 million are temporary in nature and do not reflect the underlying run rate of our business. Focusing on Q4, we anticipate a modest sequential increase compared to Q3. We expect to benefit from new program launches and higher customer production volumes, which we believe should more than offset the incremental headwinds from the aluminum supply disruption and lower BMS sales. The impact from JLR is expected to be similar in both quarters. For growth of the market, we anticipate improvement in the fourth quarter compared to Q3 despite some of the near-term headwinds. For the full year, we currently estimate growth of the market will land in the low single digits. This is below our previous expectations, largely due to the factors I've outlined already, namely production mix where customer volumes have increased, but not necessarily on the platforms we support, a decline in battery management system volumes in Q4 and temporary headwinds from JLR and the disruption caused by the aluminum supplier fire. Our adjusted EBITDA is trending towards the high end of the guidance range. We anticipate Q4 EBITDA margins to be in the mid-12% range, consistent with the run rate we have delivered for the last 3 quarters. Adjusted free cash flow is also trending towards the high end of our range, if not slightly higher. CapEx is trending closer to $140 million, slightly lower than originally anticipated, despite our ongoing investment in the business in sourcing activities and the expected purchase of land for a second manufacturing location in India to support our growing business there. We continue to actively pursue vertical integration opportunities, and our CapEx includes investments this year in several areas, including magnesium injections, display manufacturing and camera assembly. Our outlook illustrates the operational and commercial discipline we continue to deliver on with adjusted EBITDA and adjusted free cash flow, well above our expectations coming into the year despite more modest sales performance than expected. The work we've been doing to win new businesses, expand margins, vertically integrate and generate more cash provides a great foundation for the long term. Finally, I would like to flag a developing risk for both Visteon and the entire automotive industry related to recent trade restrictions imposed by the Chinese government on Nexperia, a supplier of transistors, diodes and other discrete semiconductors to Visteon and the entire automotive industry. The trade restrictions prohibits Nexperia from exporting components outside of China is limiting sales within China and could disrupt production similar to what we experienced in 2021. We understand that Nexperia is currently working to obtain an export license, which has historically taken approximately 45 business days, although details remain uncertain. We hold approximately 30 days of inventory for most affected parts and are actively working to mitigate direct risk to Visteon by qualifying and procuring compatible parts through brokers and distributors. The indirect exposure is hard to estimate as Nexperia components are widely used across the industry and could materially impact customer production schedules. At this stage, it is uncertain whether this risk will materialize or what the impact would be, and accordingly, this risk is not factored into our guidance for all 3 metrics. Turning to Page 12. Visteon remains a compelling long-term investment opportunity. We expect to benefit from higher demand for more digital content in the cockpit regardless of powertrain. Visteon is well positioned for long-term top line growth, margin expansion and free cash flow generation, while our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities. Thank you for your time today. I would like now to open the call for your questions. Operator: [Operator Instructions] Your first question comes from the line of Luke Junk of Baird.. Luke Junk: Sachin, maybe to start with the forward-looking question. You mentioned in the script, your expectation of returning to a cadence of growth in China. I'm just wondering, how should we think about that into '26, especially through the year and especially thinking about the materiality of the CDC wins into the back half of 2026. Sachin Lawande: Yes, Luke. So if you think about our business in China, right, it has, as we discussed, stabilized in Q3, and we expect that to continue into Q4, and there are launches in China in starting Q4, but also more into 2026. I think we have about 20 new model launches happening next year, but it is predominantly back half loaded, especially with those 2 high-performance compute SmartCore launches, which have also very high value. We expect to be able to outperform customer vehicle production in China next year. Now today, as we stand, I think S&P Global is forecasting customer production volume in China to be lower next year, but I believe it's still too early to call that. And I think there will be some changes. I'll no more be in China next month, and we'll have much better visibility into it. But overall, our expectations are that we would be returning to a growth over market performance back in China next year. Luke Junk: Got it. And then for my follow-up, just circling back to Nexperia, Jerome, I appreciate your comments on the direct impacts. What about the indirect and just latest intel on what your customers are telling you what their production-related risk might be? Sachin Lawande: Yes. Luke, I'll take this and maybe just provide some more context. Jerome already discussed a bit in his prepared remarks, but I think this is a question that might be on everyone's mind. So let me just take this opportunity and give you more context. So Nexperia is NXP standard parts division, right? It used to be part of NXP. And, therefore, in automotive, was widely used given how NXP was prevalent in automotive, got sold to Chinese investors in 2017 and then eventually, this company, Fintech Semi, acquired it in 2019. And I would say about 60% of their business is in auto, and they make very, I would say, inconsequential, but very needed components, things like transistors, MOSFETs, diodes, right? And virtually, every single automotive electronics component has one or more of these parts in use. So that's the usage situation. Now what happened was on account of this issue between Nexperia, the Chinese owners and the Dutch government and the actions that were taken on September 30 by the Dutch government, that has kind of resulted into this escalation between the governments now it's become a little more of a diplomatic role. The short of it is from October 4 onwards, supply from Nexperia China essentially stopped. And that's going into all of these automotive components that I mentioned. Now as Jerome mentioned, they've taken this -- or applied for an export permit, but I think this will require more of a government level intervention and resolution, which could happen any moment. I know that -- and this is also, I think, public information that the Commerce ministers of both sides are in talks to try to find a solution. So we're hopeful that this is imminent and gets resolved. Now specifically about the impact of most suppliers tend to hold anywhere between 2 to 3 weeks of parts inventory on hand and maybe another week in transit and at the OEMs. So we're already into the third week now. And therefore, the criticality of this with every passing day will become higher. Now Visteon has had, since the last semiconductor crisis, a higher level of semiconductor parts inventory, just learning from our experience. And I would say that we probably have a little more cushion than our peers in the industry. At the same time, we are looking for alternate parts and also redesigning some of our products to be able to accept parts that are not strictly pin-to-pin compatible. However, all those things do take some time and that cannot be turned very quickly like what we might be required to do, if within the next week or 10 days, the supply does not resume. So we are hopeful that this thing will be resolved in that time frame, and we will not be required to impact our customers' production. But I believe, regardless that Visteon is probably not going to be the first 1 to impact our customers, given where we stand with our inventory and our ability to find alternate parts. Hopefully, it just gives you a little more context. And this is a developing story. So we will have to just watch this space very closely. Operator: Your next question comes from the line of Itay Michaeli with TD Cowen. Itay Michaeli: Just curious if you can comment on just how some of the shifts in revenue and some maybe slipping into 2026, others maybe being more kind of onetime in nature is maybe influencing your thinking on the 5% CAGR target through 2027 as well, how we should think about BMS directionally into 2026. Sachin Lawande: Yes. Let me take this first, And then I'll invite Jerome to add anything that I might have missed. But when we think about 2026, although it is too early to really be specific, let me share some of the puts and takes as we see right now. First of all, S&P Global is forecasting vehicle production at our customers to be down next year, 3% to 4%, mainly in North America and China, but I do expect that to be revised as many of our customers that have been impacted by all of these things that we have discussed on the call will likely try to recover that cost production next year. So we will have to, again, wait and watch how this develops, but my expectation is that it won't be as negative as S&P Global has the outlook today. Now when it comes to the 2 main headwinds we have faced this year, namely China and BMS, they will play out differently as we go forward. So first, China, as we discussed also in our prepared remarks, we'll start to come back to growth, based on the launches that we discussed, including the high-performance compute launches. And this growth will continue going forward into 2027, as we have additional launches coming in on top of the ones that I just mentioned. Now with BMS, we will have to still wait and see how this develops, but at least in 2026, our expectation is that given the headwinds that EVs faced, especially in the U.S., I expect our BMS revenue to continue to see some decline next year. and then maybe stabilize from that point. And we will have, at that point, also better comps as we go into 2027, and we expect that to be on the path for modest growth, and later in 2028, we also have our first power electronics products that launch. So our strategy for BMS and our electrification in general is to track with the market. We expect the market to increasingly outside of China, take a multi-energy approach when it comes to vehicle powertrains. And yes, the growth expectations have been calibrated significantly lower compared to where we were a couple of years ago. We still do believe that after this lapping that the locker hopefully by 2027, we expect electrification to also continue on a modest growth trajectory. Now as we think about '26 and '27, the other big factor, the 1 that we have discussed previously is our launches with Toyota, and we have several launches more than a dozen launches that are sort of split between 2026 and 2027. And therefore, the full year impact will be most felt in 2027. And that's where we see that step growth occur in our revenue as we go forward. We'll be talking a lot more about this on our fourth quarter call as we usually do, but I thought I would share with you some of the things that we see as we stand today. Itay Michaeli: No, that's super helpful. As a quick follow-up, congrats on the new business booking momentum this year. Is $7 billion sustainable, Sachin, next year and beyond? Or maybe there's some onetime [ ones ] in there this year? Sachin Lawande: No. So let me first explain how -- what's the reason behind it so that there's a better appreciation for what we are seeing and how and why we think that higher levels would be sustained. So the main driver of our wins, even last year, and certainly this year, has been our success with displays, and the investments that we've been making since 2018 have continued to put us in a very strong position when it comes to more complex, larger displays for automotive. Now this has helped us win new business, especially in U.S. and Europe, at a time when coating activity has been lower than normal, especially for electronics. And the reason for that is that the OEMs in these regions have been adjusting or have been forced to adjust their new vehicle launch plans in response to the sudden in their outlook of EVs. Now in Asia, the OEMs there don't have this situation. And therefore, we are seeing opportunity for our full suite of products, including the cockpit electronics products. And therefore, we are winning SmartCore and SmartCore HPC are currently in Asia. Now I expect these OEMs in Europe and U.S. to resume sourcing activity for the electronics are very soon as well, because otherwise, they will be noncompetitive, especially against the Chinese counterparts. So -- and that's what's reflected in our wins this year. If you look at Q3 year-to-date, about 40% of the wins were Europe or 25% in the Americas and then Asia made 33%. And on top of that, and this is really what is the reason why I think this is going to be sustainable, our initiatives with commercial vehicles and 2-wheelers have also contributed to a higher new business win growth. In fact, this year, I think we have more than doubled our new business wins in absolute dollar value over last year. And prior to that, it was a very small portion of our overall business. So all of these, I think, are sustainable. And as we have demonstrated this year in an environment that is pretty challenging, we seem to be able to win more than our fair share of the opportunities out there, it just speaks to the strength of our product portfolio and our cost competitiveness. Operator: Your next question comes from the line of Dan Levy, Barclays. Dan Levy: Jerome, I wanted to start with a question on the margins. And maybe you could just talk about the one-timers. And when we just add up everything for the year, how much is it -- what's the right jumping off point when we're going to start to do our bridges into '26? And then the other thing that I think that's relevant here is we know there's been a number of EV programs that have been delayed, canceled, and there's going to be some OEM recovery payments to suppliers. Maybe what is the magnitude of potential recoveries down the road? Jerome Rouquet: Yes. Thanks for your question. The margins, I would say, have been very strong throughout the year. We've pretty much always exceeded our -- or let's say, the consensus or our guidance from a margin percentage standpoint, Q3 was no different. We were at 13%, even when you normalize this, we were at 12.5%, so slightly above what we had indicated in previous quarters. I think the strength of the margin is coming from all the initiatives that we've been working on for the last few quarters. And it is largely around product costing. We spent a lot of time making sure that our products are competitive in the market from a cost standpoint that includes 1 theme that we've talked a lot about, which is vertical integration. We've also spent a lot of time on productivity in manufacturing, but as well in engineering, especially with AI, which has recently helped us as well to be pretty efficient on the engineering side. So if you step back and look at our margin, we'll be able to finish the year with margins that are slightly over the midpoint of our guidance. And in fact, we'll be close to $0.5 billion in EBITDA for the full year, that includes about $30 million of one-timers. We've had about 25 in the first half of the year and 5, so it was lower, 5 in this quarter. These recoveries are generally related to, as you mentioned, lower program volumes that we've seen or various recoveries on, for example, inventories that we had in excess because of, again, a volume being lowered -- program being lower term volume. So that is kind of the main reason. So I would definitely back that out as we would go into 2026. Now equally, there's always some level of recoveries from -- in that nature as we go into any year. Sachin Lawande: Yes. Maybe I can help also provide more context because our exposure and to EVs is very different than many of our peers because we are essentially, for now at least, really focused on electronics. And the CapEx and other requirements for EMS is significantly different as compared to, say, a traction inverter or something that is very specific to NAV. So in the grand scheme of things, our investments and, therefore, recovery are much smaller as compared to what you might hear from some of our other competitors or peers. Dan Levy: Great. As a follow-up, I wanted to ask about your Toyota exposure. And I know this is a question that's come up in past calls, and I think the number is something like 10% of revenue potentially in '27 or '28, whatever that maybe? Jerome Rouquet: '28. Dan Levy: Yes. Maybe you could just talk about the launch cadence ahead and the line of sight and the confidence that this will ultimately start to become a dominant piece of the revenue that could offset maybe any continued mix headwinds, which may linger? Jerome Rouquet: Yes. No, I'll take that one. So you're absolutely right. We've been obviously very successful with Toyota in terms of business wins recently. And we have a pretty gradual set of launches as we go into '27, and it's going to increase, obviously, numbers as well in dollar terms. So for '25, we'll launch 2 programs overall; in '26, 5; and then in '27, 7 programs. So that shows you a little bit the acceleration that we have as we go into '27. And that's the reason why we've been talking about 10% of our sales going into '28. So it's a fairly significant ramp based on what we've won recently. I think the good news as well with Toyota is that we keep on getting very good engagement with this customer, and there are still opportunities. So obviously, that would go beyond '28 and further, but it's been a very successful story for us. Sachin Lawande: I think we need to maybe just give you more context on the opportunities even beyond this. And having said that, with these launches, 2028, we expect as we said earlier, about 10% of revenue, but these are essentially 2 product lines that we currently are engaged on, right? It's the cluster and displays. And we have opportunities even within those 2 product lines to get on other vehicles. This is still less than 50% of their vehicle platforms and models. So there's still plenty of opportunity for growth. On top of that, we are engaged with them on discussions regarding electronics, right? And given my prior comments about how we see the industry rapidly evolving to use of more and more advanced software-driven features, and AI becoming a very dominant theme or a trend, I think we are very well positioned to support this customer, this OEM in their ambitions with respect to addressing some of the gaps that they have in their portfolio. So for us, this represents much more than just the immediate the 2028 sort of horizon opportunity that we have discussed. So we will continue to explore more opportunities as we go forward. Operator: Your next question comes from the line of Mark Delaney of Goldman Sachs. Mark Delaney: Thanks for the comments on the various product opportunities and your thoughts on the market environment. I'm hoping you can help better contextualize what that all means for consolidated growth in the coming years as you consider share gains with certain Asia ex-OEMs, Axia ex-China OEMs. You were working through the backlog, given the booking strength you're seeing, executing on some of these AI opportunities, but then also some of these headwinds like in BMS and customer mix. And as you put that all together, how is the company tracking relative to the $4.15 billion revenue target you previously discussed for 2027? Sachin Lawande: Yes. Again, I think we will not necessarily specifically comment on '27. We will do that beginning of next year, primarily because we need to get a better handle on the underlying volume assumptions, as we discussed there's a lot of moving parts there. But having said that, we are making really good progress with all the initiatives that I have mentioned on this call and previously as well, starting with Toyota. As Jerome just mentioned, we have these launches. We really have to execute these launches well, which I have no reason to doubt that we would be doing anything otherwise. But the other 1 that I would like to highlight that also really contributes to our growth in 2027 is the launch in '26 with Honda. This is the 2-wheeler opportunity that we have previously mentioned fairly significant. And then on commercial vehicles, we have there's opportunities that are with TRATON, which is the commercial vehicle group constitutes MAN, Scandia and the sub in the U.S. as well as Volvo trucks, which are launching in 2027. So we have, in '27, the situation where China starts to grow. We have this BMS headwind kind of just lapped at that point. So the comparison should be good. And then all these new launches that are kicking in. So we would expect to be in a good position, but we -- I do want to just caveat investing this volume expectations, we need to get a much better handle on, and that's what we will be focused on between now and end of the year. Mark Delaney: Helpful context. And my second question was on BMS and thanks for all the commentary and discussion you already provided there. I did want to understand profit implications for Visteon in that product area over the next couple of years. And given what you articulated around volumes in relation to what customers are now planning for their EVs, how is Visteon operating that business? And is this something that can remain profitable even if BMS sales are at low levels in '26, and maybe in '27 as well? Jerome Rouquet: Yes, I'll take that, Mark. BMS still represents about 5% of our sales. So it's still a significant contribution in terms of product line. Margins are similar to other product lines. So there's not a major difference. Obviously, the more volume we have, the better. But it's not going to be, let's say, a mix impact that we'll see as we go forward. Operator: Your next question comes from the line of Joe Spak of UBS. Joseph Spak: I just -- maybe just to quickly follow up off the last point because it was headed down a similar path. So that suggests BMS is like, again, you said, I think, 5%, so call it roughly $200 million. So just in terms -- so investors could get properly calibrated, like do we think like it's a couple of point headwind and is where sort of things bottom out for '26? And I know it's sort of highly fluid, but like what's your sort of preliminary thinking there? And then related to the -- another topic which came up, which is receiving payments for volume, should we expect that you receive some payments for these BMS shortfalls as well? Or have those already started? Sachin Lawande: Yes. So I think maybe answer the second question first. So for the BMS shortfall, we do anticipate recoveries that, that would be either part of the product piece price or as lump sum as we go forward. Some of that has been reflected in the price already, by the way. So we will continue to monitor the volume and adjust and go back as necessary. And so in terms of the volume itself, we're still looking at the latest information that's coming in from GM, and you have also seen what they have publicly stated. So we believe that it's probably somewhere between 10% to 15% or maybe even up to 20% down sequentially. So we'll have to see whether it recovers in the second half, but in the first half, we do expect to see a drop. And then it will depend on how the underlying demand really holds, right? Because we will be in an environment where for the first time, there are no incentives to drive the behavior. I mean, at the same time, we all know that OEMs will continue to offer their own, but to what extent is yet to be seen. So our expectation in what we would tend to model would be somewhere around 20% to be a little conservative. Joseph Spak: 20% down in '26 versus '25. Sachin Lawande: Correct, correct. Joseph Spak: Okay. And then, Sachin, the second question, a little bit bigger picture, but I recently saw you posted about, I think, what you called the intelligence era versus sort of the software era. And I'm just curious to get your thoughts about how your customers are thinking about AI, maybe by region and how Visteon is positioning themselves for that to benefit? And what type of time frame are we really talking about here? Because some of your customers have to put it bluntly, history been fairly slow to adopt some of these technology changes. Sachin Lawande: And you are starting to see this really kind of become more distinct when you look at China and then the rest. So the way we see, and we are already very deeply engaged with the Chinese is that AI is coming in, in 2 ways, right? So end-to-end ADAS are AI-driven. Today, most of the ADAS uses AI, but it's not end-to-end AI. So that's one big change. The second is AI as a smart assistant for the cockpit. That's the one that we are initially more focused on, and the two wins that we have talked about, one with Zeekr, the other is now with Cherry are for this SmartCore HPC that will bring this AI-based smart assistant for the cockpit. And if you may remember, we talked about our cognitoAI. It was also featured in our CES earlier this year, is the first framework, software framework of its kind that enables you to run AI -- Gen AI models in the car, not in the cloud. And you see many references today to having whether it is Gemini, Google, Gemini AI or something else, but these are essentially cloud applications that limit how extensive that AI-driven functionality can be offered. But in China, we see that already happening. In fact, the 2 launches that I mentioned earlier, next year will feature these AI models, probably from DeepSeek initially. And then on the -- with respect to the rest of the regions, we are seeing a lot of interest in Europe, as you can imagine. But for Europe, the difference that we're seeing is sort of redoing the whole cockpit system to be able to be built on top of AI, they're thinking of AI as an accelerator. So imagine an ECU that you bring in with minimal changes to existing cockpit domain controllers, that would enable them to offer some level of AI-enabled features. So it's not as expensive as what the Chinese would be able to offer, but it is still better than nothing. And that is seen as a stepping stone towards a full-blown AI-driven cockpit. So we are really focused on both those opportunities. One minor thing that is still very relevant that I would like to highlight, it's interesting to note that when you look at the entire cockpit and what the programs in China are doing, they tend to use Qualcomm silicon. But for the AI box as an accelerator that tends to be more NVIDIA. And so we are in the process of really developing solutions for both those architectures, which is kind of unique. I do not expect much activity in that regard from all competitors, especially outside of China, and that should position us well to take advantage of this emerging trend. Operator: Your last question comes from the line of Colin Langan of Wells Fargo. Colin Langan: Just to follow up, trying to get all the puts and takes on the -- some of the commentary going forward. I mean if I think about you mentioned sort of battery management will be a drag into next year. It sounds like that could be about 1 point. I assume that there's good news from the reversal of maybe some of the volumes from JLR and the aluminum disruption, any way to frame maybe the 2-wheeler and commercial market help, and I guess the biggest factor as we look year-over-year, you commented that China will turn positive. Is that going to be the biggest sort of help to improving growth over market as that reverses? And any way to frame what kind of drag that was to this year's growth? Sachin Lawande: Yes. So the 2 big tailwinds we face next year; one is China, obviously; the other launches, by the way, in the rest of the markets, primarily commercial vehicles and 2-wheelers. So these are kind of net new programs that we will be introducing. So in terms of the growth of our market, we expect China to be positive, and we expect rest of the market to also be positive as a result. Jerome Rouquet: And in terms of headwinds this year that will reverse into next year, largely because of JLR and nonetheless, we've assumed so far in this year, a revised outlook $30 million to $40 million of impact. So you would expect that to be a positive as we go into next year. Colin Langan: And how bad has the China drag been on this year's growth though? Jerome Rouquet: We generally are estimating that it's about a 5 percentage point impact. So again, it highlights the fact that excluding China and I would say as well, excluding BMS, our cockpit business has been pretty strong in -- mostly in Europe and the Americas. Colin Langan: Got it. That's very helpful. And then as we think about margins into 2026, you did note that the $30 million of recoveries is high. What is the normal level that we should be thinking about? Is that -- is half of that normal? And then what other drivers outside of the higher volume? Or is it really margin expansion is going to be volume driven, or are there any other cost cutting that we should be thinking about into next year? Jerome Rouquet: Yes. So in terms of the -- your first question, I would say half of that is probably a normal run rate. And it's generally balanced with potentially negative one-timers as well that we may have. But I would say 50% is probably a good ballpark number. In terms of margin drivers, so we've constantly improved margins as we move forward, even with volumes that were slightly down year-over-year. So we'll continue to do so. I think some of my previous comments in terms of why we've achieved good margins in '25 will still be valid as we go into '26. So volume is definitely going to help, but it's our cost. It's our constant focus on productivity, being engineering, manufacturing as well as product costing. And we will start to see pretty significant positive as well as we go into '26, but as well '27 from vertical integration as we are accelerating these initiatives. Kristopher Doyle: Thanks for participating in today's call. I'd like to quickly point your attention to Slide 24, in which we highlight several Investor Relations activities for the fourth quarter. If you are interested in learning more, please contact our Investor Relations team. Thank you. Operator: This concludes Visteon's Third Quarter 2025 Results Earnings Call. You may now disconnect.
Operator: Welcome to the PowerCell Group Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Richard Berkling and CFO, Anders During. Please go ahead. Richard Berkling: Good morning, and a warm welcome to this quarter 3 report on what is a very busy day on the Stockholm Stock Exchange with a lot of companies making their presentations. So we're extremely happy to see that many joining us at PowerCell. So we have closed quarter 3, and we are quite happy with the outcome. Previously, in quarter 1 and quarter 2, we reported with the headlines of steady pace through rough waters in quarter 1, which actually gave a good description on how quarter 1 played out. Quarter 2 had the headline steady pace through improving waters, really showing that we saw improvement in the market. And now the third quarter, what is describing the headline is the steady growth and solid margins, which actually described the company quite well where we are at the moment. We saw good growth in quarter 3 compared to 2024, up 90% compared to last year. Year-to-date, it is up over 50%, which is quite encouraging. Gross margin is continued to improve, although not on record levels, but we have talked about this before that we see volatility over the quarters. Also encouraging to see that the rolling 12 months revenue remained over SEK 400 million, which is the top line momentum we want to have in the company. Also encouraging that we protected the EBITDA in a way that we are still positive overall [Technical Difficulty]. Can you hear me? Anders During: Yes. Go ahead, please. Richard Berkling: I was kicked out for some reason. So continued positive EBITDA on rolling 12 months, also very encouraging. This is one of the focus areas we had for PowerCell. I would say, since the beginning, we need to show a breakeven level also in the early stage of this technology shift. So this is quite interesting. Anders will go more into details on this. We managed to leverage on the fixed cost base and drive growth and then despite having a slightly lower quarterly volume. So we're really happy with this progress that we can now show. Also some orders in quarter 3, although I would have expected or hoped for more, but it's also quite volatile in this market. What is encouraging is that we are continuing to see more OEM orders in the marine sector, where we now broke into the bulk carrier segment with the first -- world's first bulk carrier to GMI Rederi in Norway. So quite encouraging to see how the quarter was playing out. What we are in is a time of very focused execution where we also see then a quite good tangible process. I would say that the middle section here, where we talk about the operational resilience, is what is most important to me. We managed to provide a positive EBITDA on rolling 12 months because we are now in delivery mode. We are now actually tomorrow shipping the final shipments to our large Italian marine OEM, which means that we have completed deliveries of all those orders. And now in quarter 4, we are ramping up the final production assembly and will complete delivery to Torghatten up in Northern Norway with a large 2x 6.4 megawatt ferry installation, which means that we have now actually managed to build a company that is industrially stable. Starting production as we did in April this year is always something that you need to ramp up and industrial stability doesn't come for free. So the fact that the organization has been able to pull this off, deliver high quality on time or even before time, is something that is a very important quality mark for PowerCell. So the focused execution is something that I think that we should talk more about the PowerCell. Quite often, we talk about growth and we talk about the innovation of the company. But being an industrial credible partner is something that is going to win the orders going forward because with the OEMs that are placing the trust in new technology, they also need to place the trust in a very, very stable partner. So this is something that we're quite happy to be able to provide and also report. We also see, as we said, repeated demand around the Marine System 225 that we introduced last year in June. And that has been a very strong commercial success based on the fact that it is world-leading when it comes to performance, when it comes to energy density and when it comes to the value it creates for the customers that put this into operation. And then for PowerCell, once again, the operational resilience that we were able to start production and work on productivity, efficiency protecting the gross margin, which is extremely important for PowerCell going forward. So the combination of this is something that I'm quite happy to be able to report. With this, I would like to hand over to Anders on the numbers, and then I will come back and talk more about the outlook and how this connects into the broader context. Anders During: Thank you, Richard. I will take the opportunity to just run through the numbers. I think these numbers, after having listened to Richard, are in a way that, of course, the 19% growth is something to notice. I remember us saying in the beginning of this year and even at the quarter 4 report last year that we would find some more stabilization between quarters. And I think the third quarter is another evidence for that the more even, let's say, turnover in each quarter is there to stay for the future. Gross margin is slightly up. That is -- I mean, to the volumes we have and to the product mix we have when we sell, the variation of 6 percentage in a single quarter is not for us anything that is unexpected. It's more important to look at it when we get to the accumulated numbers and understand why the changes are there. EBITDA, I think, it goes without saying that we are happy with only being at minus SEK 2 million, given that we have taken SEK 5 million in provisions for the reorganization that we have announced. And I think the burning platform, and that what everyone is more concerned about listening to us today, is the operating cash flow. I think we have been quite explicit in the report describing what has happened in the first 3 quarters this year. I think that having listened also to now Richard saying that we're in final deliveries of immediately one of our larger orders ever and then continuing final deliveries of the second one, everyone can understand what that will do to cash flow as we progress into the future quarters of this year and the beginning of next year. So we go on to the accumulated numbers. We look at this point basically on the gross margin. Everyone recognized from the second quarter that we had a large deal with Bosch that brought in a lot of gross margin to us, given the fact that we were selling IP. And of course, for the remainder of this year, we will still see, on an accumulated level, a very high gross margin based on that deal. That is a level that, if I would guide anyone on this thing, may not be contained over the near future. We hopefully get back there later on. But short term, in each quarter, that level will not be maintained. I think it's important to also see that if we look at -- Richard mentioned operational leverage, you can claim a lot of things about what different things derives from. But one thing is certain that given the turnover we had last year, given the turnover this year and the change, excluding for all unusual items in the different accumulated book numbers are about SEK 88 million. And that for us feels very strong, acknowledging that at least half of it, when you make comparison, derives from the deal we made in Q2 with Bosch. But still, it's a very impressive for us at least change in how we manage profitability and earnings in the company. And as I mentioned and as I've highlighted to the right in this picture, background being given and everything that we feel completely comfortable about is that we have passed a lot of what has been described as the reason for building up working capital, and we also come to a stage where we can see that we are delivering and what follows with that. So moving on to the next one. It is basically saying that we feel comfortable having a stable path. We grow 30% plus in our industry. If you went back 5 years, I guess, that would be viewed as very humble. If you flip it around and say that this is an industrial company in an earlier stage of the market, it's a number that I feel that we are very comfortable with. And also that we have brought on rolling 12 months EBITDA to a positive number of SEK 21 million, and that makes us feel comfortable for the future as well. Having said so, I will leave it back to Richard for the continuation of the presentation. Richard Berkling: Then also reminding you on the upcoming reports, quarter 4 report February 4, 2026, and then quarter 1 report in 2026 on April 23. So then if we look at the segment highlights and what is building up the result and the business at the moment, we see good commercial traction in Marine, all subsegments. We saw the order from GMI Rederi, which was quite encouraging because that is, as we said, the first break into the bulk carriers. We need to mention then the IMO decision or postponement of decision last week. It was a disappointment to the industry. Many put their trust in the fact that the IMO would regulate the net zero tariffs on a global scale. However, in Europe, we already have in place even stricter regulations. So to me, I'm not too surprised that they delayed it because it takes time to change industries in a technology shift. So you will always have resistance. So hopefully, a year from now, they will have a resolution that is signed that is perhaps a bit more easy to adapt for the operators. But in the meantime, we continue to see a strong demand from especially Europe, but a lot of interest globally as well. Power generation, we were quite happy to yesterday report that Zeppelin Power Systems placed an order for 2 different systems implemented in Europe. The fact that they are now exploring to different applications is quite interesting because power generation, as we have pointed out, we believe that power generation will be the largest segment going forward. The difference from marine is that we have still not seen a trigger where an OEM is putting a stick in the sand and said, now we do this. But we are seeing a more clear commercial landscape emerging for backup power and peak shaving applications. There is a lot of discussion on data centers. Of course, we have a quite close collaboration with parties out there. But as I said, we have not seen the trigger where somebody is really putting a stick in the sand and say, now we do this. So we try to contribute with that. We try to challenge the industry, and I will have later on in the presentation some more news on what we will do in that segment. In aviation, we continue the certification process with ZeroAvia and other aerospace partners. They're not the only one who are in certification process. What is quite encouraging is that now ZeroAvia actually have delivered their first systems to customers, and they will be put in operation in 2027. So now we have a deadline on that one, which is really, really encouraging. This is the first information we have seen from them on when this will be put into operation. What we also have seen is that we have now industry validation that our strategy with the medium temperature PEM, which is our next-generation fuel cell stack is the good enough step for larger turbo aircraft in the next generation. So more interest in our collaboration together with Honeywell on the Newborn platform, which is already materialized in the commercial agreement in marine. But for aviation, the fact that we can do with the medium temperature is a technology step that is really valuable to PowerCell because that's where we have invested our position from a technology perspective. Going once back to the operational leverage. One reason why we are able to show this rather good underlying progress when it comes to operational leverage is that we have had for 2025, a strategy to consolidate. And we have consolidated to be able to accelerate. We have consolidation of product platforms. Previously, it was a bit fragmented, which was a risk for a company like PowerCell because you might end up in doing projects everywhere. Now since the introduction of MS 225, we have seen now a serious delivery, which you see in the bottom there. Start of production in April. We now have more than 100 systems in order and in the pipeline. As we said, we are completing the delivery to our Italian shipyard this week, tomorrow, which, of course, is one of the reasons why we have been tying up working capital to the extent that you have seen in the report. Now when we move on to delivery to the Norwegian ferries up in Bodo that is just one more proof point on how well the consolidation strategy have worked, which is also seen in the gross margins of PowerCell. But then in quarter 3, we also reported a change in the management group, which is also a consolidation of the organization. When building up a company like PowerCell, we changed more or less everything in the last 4 years, building up technology portfolios, product portfolios, operations, marketing, sales. I wanted to have a large management group to be able to cover all the aspects of PowerCell. Now we are more mature. We now see a more clear path towards growth. And then we need to have a more streamlined operational management team, which is also why we have consolidated the organization. So this is to increase speed and acceleration and also clear out more accountability now when we actually will speed up everything we do. Anders talked about this before, the fact that we have growth without cost base inflation, I think, is really, really important. Many companies like PowerCell when they grow, they tend to overinvest and always scale up with more and more resources. We are actually going to run 2026 on a lower overhead cost base than we have had before, which is also one proof point of this consolidation strategy, which is also then, I would say, a mitigation to make sure that we can defend both EBITDA and EBIT breakeven on lower levels than most of our colleagues in the industry. So the strategy is, of course, being profitable and scale through discipline. This is something that is in the DNA of the company, but you always need to be there and protect it, especially when you grow. But we see now that we maintain a breakeven level at around SEK 400 million of top line revenue. So then looking at the product strategy and next-generation platform. This is now something we have had in the reports a number of times, but it's worth reiterating. We see that the Marine System 225 platform that was introduced in June last year has been very successful. I would say the most dominant product in the marine industry for fuel cells. Now we are complementing it with a CE marking in quarter 4, optimized for power generation segment, which is a very important proof point and a quality stamp for PowerCell. We continue to see interest in the methanol reformer, both cruise ships, service vessels [indiscernible] and but we also see a growing interest from power generation. The main value there is that you get more energy on a smaller energy storage footprint. So where we have backup power for potential data centers with hydrogen, you need 1/6 of the size, if the energy is stored as methanol. So there is a large interest in this technology from the power generation segment as well. Also availability of methanol is quite good in different regions of the world at a low cost. So this could be something that is enabling growth in areas where you don't have access to hydrogen. And then power generation. In quarter 4, we will have an enhanced product offering in power generation, more optimized for that segment. It is built on the Bosch collaboration that we communicated in quarter 2, to be able to attract more price-sensitive applications. And this is something that is quite important in a technology shift that willingness to pay between segments are different. Marine commercial, for instance, have much higher requirements on performance, quality, robustness, et cetera, which makes the product there more expensive. For power generation, we need to have something that is a bit less expensive. It's a bit more price-sensitive segment, and this is where we now will introduce a new product platform in quarter 4. And then as we said before, we have a strong interest in our next-generation fuel cell stack, which is, I would say, our guarantee for future earnings, which is quite valuable to PowerCell. So reiterating what we said before, the building of the strategic foundations for PowerCell is that we have a platform system and product readiness, the ability to actually have industrialized components because right now, we see growth with a rather short from order to delivery. The demand is a bit volatile, but when we see an order, it's rather short delivery time. And this is really important to us that we are able to meet that. This is also why we have tied up a bit more working capital than perhaps we would have liked, but that is a trade-off that you have to do as both CEO and CFO in a company like PowerCell. It's also important to have the industrial partnerships because the OEMs will drive growth in the industry. They are the Tier 1 to the end user, and they need to invest and be the guarantee of technology, not just as a delivery but also over the life cycle as a service partner. We support with service to them as the second tier. And then, of course, the fiscal discipline. This is really, really important for PowerCell. And we will protect breakeven at low volumes, more or less regardless of anything. So if we then look back to what we set out to achieve in 2025, this was part of what we have said as the focus areas for 2025. So one focus was to reach breakeven on rolling 12 months. We can check that one. We also had an ambition to continue to grow with OEM contracts because we believe that, that is what we give the most sustainable growth. Also, those customers put products in operation. So they are proven and tested and actually validated that they generate value to the end customer. That one with the 2 recent OEM contracts that we have signed in quarter 2 and quarter 3 is quite encouraging. We have said that we need to scale existing product generation. And this is also what has now been generating the growth and also the fact that we reached breakeven. We are doing this, while still investing into the next generation. And I think that the last sentence there is quite important that we are proud of the ability to balance innovation, industrial stability and leverage growth. It's quite easy for a company like PowerCell to optimize on either/or. But the fact that the company has been able to provide this and also that we have had the support from the Board to pursue this sometimes complex strategy is something I'm really happy about because it is not just giving us the fact that we have breakeven today on low volumes. But with the next-generation products, we are now also well positioned for what will happen in future earnings. So that balanced approach is something that I'm really happy about, and I'm proud that we have had the support from both Board but also the commitment and the, I would say, brilliant performance from our team, both in operation and innovation and technology and sales and marketing. So really happy with that progress because it's -- we need it. It's difficult to do business in any technology shift, but we have proved that we can do it and we can actually breakeven on very low volumes. So with that, we open up for questions. Operator: [Operator Instructions] Richard Berkling: Now I have to admit that I don't see the question. Let me see here. Here we are. Do you have any concrete initiatives in the data center area? We know that Bloom Energy and the situation in the U.S. is a question from [ Ari ]. Yes, of course, but as always, we cannot talk about things before they have materialized. There is a massive interest from the data center industry. And this is not only for CO2 emissions, but it's also for energy resilience. In many areas, the grid is full. So getting access to the grid, getting access to stable electricity is quite difficult. So replacing some of the old diesel generators with either fuel cells or something else is quite attractive for the data center operators. And they also have rather high margins on their own business, so they can do this. So we see a lot of commitments from the larger players. We met with some of them in New York during the New York Climate Week. But as I said, it is a combination of getting the whole value chain in position. You need to have supply of fuel, you need to have the grid access, et cetera. So finding the right balance point has been a bit tricky. But in quarter 4, as I said, we will come back with a more clear product offering and hopefully some clarity also in the potential that we see in this industry. So let me see here if we have more. Operator: [Operator Instructions] Richard Berkling: Anders? Anders During: Yes. Richard Berkling: Yes. We had a question, of course, on the cash position and how we see the end of the year and the beginning of next year, even though we don't make the detailed forecast, do you want to comment on that one? Anders During: I think it's without making forecast, which we will try not to do, but we would like to guide everyone reading the report as we understand that this is one of the key questions from a financial standpoint. And I think the efforts we have done in the first 3 quarters this year would -- either way you would have done it, accumulated more working capital. On top of that, we also spent money on those proceeds that we discussed during the share issue last year. And following what Richard just mentioned in the beginning of the presentation that we are in final delivery stages in 2 large projects. Obviously, those 2 large projects has terms and conditions included in them that indicates that once delivered, we get paid to not giving you any guidance, but with more stating that we feel comfortable about those dynamics. We are comfortable at this point in time. Richard Berkling: Very good. And then we had a question from [ Niklas Holmgren ] here. Once again, regarding the data centers, do you think you have the right product offering to make this a significant source of revenue for PowerCell over time? So far, it's been mainly SOFC manufacturers like Bloom Energy has been successful in this space. That is a very good question, and it requires some explanation. One reason why our technology, the PEM fuel cell complements the SOFC is that SOFC is a very stable installation. It doesn't take dynamic load well. So where we see a potential growing demand is for backup power and peak shaving because that's when you have the fast dynamic load that the PEM fuel cell is very strong with. The solid oxide fuel cell cannot do that because it takes a very long time to ramp up and ramp down. So there are different applications. So I think that the different technologies complement each other. And we believe that PEM fuel cells and the backup power peak shaving is a very relevant application for data centers because there are today very few areas globally where you can fully rely on grid access. So we believe that our technology will have a strong opportunity for the data center segment. With that said, as we presented here in the report in quarter 4, we will come back with a more clear product offering because we believe that the price point is slightly different from other segments. And we are now preparing an introduction of more targeted products to be able to capture that growth. So it's a very good question, and it gave us an opportunity to also explain the difference between our technology and the one that has been prevailing so far in this segment. Then also, we have a question on Torghatten. With Torghatten final delivery, can you comment on the service agreement with Torghatten? Yes, I can. Since we are completing delivery, we start delivery now in quarter 4 and will be completed in quarter 1. That means that for 2026, the service contract will be in place. It is a 10- to 15-year service contract that we will sign together with Torghatten. But the details of that contract, we need to come back to when it's signed because it's still under discussion. But of course, now when we are getting more large installations in operation with customers, the service side of PowerCell will be more interesting because now we will have a service revenue and a service opportunity that has been lacking before. And this is also one positive benefit of moving away from the early stages of project execution to more normal industrial applications and customers that put products into operational service. So it is both an opportunity for revenue, but also an opportunity to learn more and also show the industry how this works. So it's a good question. We had a question from Rakesh at Chevron Shipping. How do you expect the IMO Net-Zero talk failure to affect future orders? Well, since we didn't see any effects on the contrary that we had a positive effect because the IMO was not signed yet. This was just a proposal. It's been postponed now for 12 months. I think that the -- what we see now is that certain areas will wait. That is for sure, but I think that they waited anyway. So the segments and geographical areas where we see growth like Europe, that will continue because Europe already, as we said, have a more strict regulatory framework than what the IMO proposal was. So it's more likely that we see a continued hesitation in the U.S. for certain marine applications. But on the other hand, there are also those who want to accelerate because this is actually making business sense in certain areas already now. So we will continue to follow this and monitor, but we don't see any immediate impact on the order book or on the leads funnel that we are operating. I think that, that more or less concluded. We are now 1 minute past the deadline. So as always, thank you very much for listening in. We always encourage you to come and visit us in Gothenburg at the factory if you have time, regardless if you are a shareholder or if you are a financial analyst. So look us up, come visit us. And with that, have a nice day, and see you in February. Anders During: Bye-bye.
Operator: Good morning, good afternoon, ladies and gentlemen, and welcome to Besi's conference call and audio webcast to discuss the company's 2025 third quarter results. You can register for the conference call or log into the audio webcast via Besi's website, www.besi.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer; and Mrs. Andrea Kopp, Senior Vice President, Finance. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded and cannot be reproduced in a whole or in part without permission from the company. I will now hand the word over to Mr. Richard Blickman, Mr. Rich Blickman, go ahead. Richard Blickman: Thank you. Thank you all for joining. I'd like to remind everyone that on today's call, management will be making forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Forward-looking statements reflect Besi's current views and assumptions regarding future events, many of which are, by nature, inherently uncertain and beyond Besi's control. Actual results may differ materially from those in the forward-looking statements due to various risks and uncertainties, including, but not limited to factors that are discussed in the company's most recent periodic and current reports filed with the AFM. Such forward-looking statements, including guidance provided during today's call speak only as of this date. Besi does not intend to update them in light of the new information or future developments nor does Besi undertake any obligation to update the forward-looking statements. For today's call, we'd like to review the key highlights for our third quarter and 9 months ended September 30, 2025, and update you on the markets, our strategy and outlook. First, some overall thoughts on the third quarter. Besi reported Q3 '25 revenue and operating results within prior guidance in an assembly equipment market showing early signs of recovery. Order levels improved significantly Q3 '25 with bookings of EUR 174.7 million, increasing by 36.5% and 15.1% versus Q2 '25 and Q3 '24, respectively. For the quarter, revenue decreased by 10.4% and 15.3% versus Q2 '25 and Q3 '24, respectively, reflecting continued weakness in mainstream assembly markets, particularly mobile and automotive applications and lower hybrid bonding revenue. Operating income was at the high end of guidance, reflecting higher-than-anticipated gross margins and operating expense developments, slightly better than forecast. The improved order outlook this quarter was principally due to a broad-based increase in die attach bookings by Asian subcontractors for mostly 2.5D data center applications and renewed capacity purchases by leading photonics customers. We also noticed improvement in more mainstream electronics and automotive applications. A push out to Q4 '25 of certain anticipated hybrid bonding bookings limited even stronger order development during the call -- during the quarter. Besi's results for the first 9 months of 2025 reflected similar trends experienced in Q3 '25 with revenue of EUR 425 million and orders of EUR 434.6 million, decreasing by 6.4% and 6.5%, respectively, versus the comparable period of the prior year. In general, weakness in mobile and automotive applications this year has been partially offset by significantly increased die attach orders by Asian subcontractors for AI-related computing applications. Year-to-date '25, net income of EUR 88.8 million decreased by 27.6% versus the comparable 2024 period, primarily due to lower revenue, lower gross margins realized principally due to adverse ForEx effects, and higher interest expense net related to our senior note issuance in July '24. Liquidity remained strong with cash and deposits of EUR 518.6 million, at September 30, increasing EUR 28.4 million or 5.8% versus June 30 this year, due to cash flow from operations more than doubling versus the second quarter of this year. In addition, we completed our EUR 100 million share buyback program, October '25, and authorized a new EUR 60 million program with an anticipated completion date of October 2026. Next, I'd like to discuss the current market environment and our strategy. TechInsights currently forecasts assembly market growth of 1.8% in 2025, which is below last quarter's forecast of 9%, driven by a push out of the anticipated assembly upturn to 2026. Forecast growth is focused primarily on AI and data center logic and memory applications. TechInsights now expect cumulative growth in the period 2026-'29 of 42% based on continued advancements in AI use cases, new product introductions in the 2026-'28 period, and a cyclical recovery in mainstream assembly applications. We expect to exceed market growth rates given our leadership position in advanced packaging. The semiconductor market has shown signs of normalization with inventory to booking ratios improving from above 2 in 2022 to below 1.5 currently. In addition, interconnect unit growth has also rebounded, improving from a low of roughly minus 20% in October 2023 to approximately plus 7% currently. These indicators point to a more positive assembly equipment environment as we look ahead to 2026. Besi continued to make progress in its wafer-level assembly activities in the third quarter, securing new customers and orders for both its hybrid bonding and TC Next systems. Hybrid bonding adoption expanded with the placement of orders in the third quarter '25 by a new foundry customer. Progress also continues on integrated hybrid bonding production lines with internal operating 6 Kinex lines with 30 hybrid bonding tools. Future hybrid bonding demand is also supported by recent announcements from AMD and Broadcom in collaboration with OpenAI. In addition, high-level discussions with major memory players are ongoing as HBM4 assembly processes start to take shape. TC Next progress continued with the new order received from a fourth customer. The outlook for Besi's business in the second half of this year has improved based on third quarter order trends and continued order momentum to date in the fourth quarter. The improved outlook reflects increased demand for advanced packaging capacity necessary to support the rapid expansion of data centers, software and next-generation semiconductor devices required by the industry-leading AI players. Advanced packaging is one of the key ways to achieve AI system differentiation, develop innovative consumer edge AI devices and provide the most energy-efficient data center performance. Now a few words about our guidance. For the fourth quarter this year, we anticipate that revenue will increase by approximately 15% to 25% versus the third quarter of this year, due to increased bookings levels. Besi's gross margin is anticipated to range between 61% and 63%. Operating expenses are expected to increase by 5% to 10% versus the third quarter due primarily to higher R&D expenses. That ends our prepared remarks. I would like to open the call for questions. Sorry, operator. Operator: [Operator Instructions] Our first question comes from Didier Scemama from Bank of America. Didier Scemama: I just wanted to ask you a bit more about 2 things. The usual questions really. On the hybrid bonding and TCB Next side, maybe just give us a sense of your conversation with foundry customers, but also DRAM customers. How you're thinking about the bookings for those type of tools in the fourth quarter? And then also related to the point you made earlier on this recent announcement by OpenAI and AMD. We know that AMD has been a major customer of your hybrid bonding systems via TSMC. Can you tell us a little bit more about that whether the capacity is in place or whether you expect a material improvement in orders from TSMC to support that ramp? Richard Blickman: Thanks, Didier. If you allow me not to go into specific customers, I'm very happy to answer a bit more in general terms. First of all, the hybrid bonding adoption for logic is continuing quarter-by-quarter. And we see that with adding another customer with several machines. And also as we guide for the fourth quarter, we expect orders. One is a larger one, as we have discussed also in the previous call and that may be related to those end products, which you just referred to. At the same time, the adoption for HBM stacking is all pointing towards a critical evaluation year 2026. The big 3 in that market -- all 3 of them have publicly announced that hybrid bonded devices should be available in their program by the end of next year. So that will be, as we have expected for many years, 2026-'27, that should be the adoption time using this hybrid bonding technology with all its advantages versus the TC solutions, so reflow and clarity, we will share as quarters go on, and that should result in probably first orders for some initial capacities. The orders received so far, as we shared in previous quarters are from 2 of the 3, who are evaluating in many different designs using the hybrid bonding technology stacking the 12 and 16, and they even go up much further, simply to achieve data on a comparable basis, on performance and of course, on cost. So that's the bigger picture in those 2. Then the chiplet architecture, adding more different devices and different structures is also continuing. And we see ever more customers. So if you look at the total count now, around 16, having hybrid bonders for different type of applications, and all developing applications in early stages apart from the major volume in Taiwan and what we also discussed the capacity having been set up in the U.S. by one customer, but the others are testing, qualifying and publishing data on using the hybrid bonding. So that's for the hybrid bonding. If we look at TC Next, the key issue in TC are basically there are 2 issues. One is going to a fluxes solution. Our system is prepared for adding that to the system. And at the same time, more accuracy required for bond pad pitches below 20 micron. Recent additional data has been published by IMEC in Belgium, that on our system, successful products have been refloat down to below 10-micron bond pad pitch, even 7-micron bond-pad pitch. So that should fill the gap between the necessary hybrid bonding and the reflow process as the world is using today above 20-micron bond pad pitch. And as you can see, another customer has been added, they all prepare for those 2 criteria required for next-generation TC. Didier Scemama: Very well. As a follow-up, I just wanted to check also another thing. So my understanding is that this OpenAI AMD chip and let's forget the name of the customer, but it's 3, if not 2-nanometer design. So are you ready to ship your 25-nanometer accuracy system in support of that customer? And I've got a quick follow-up as well. Richard Blickman: Well, for hybrid bonding, the current, let's say, the majority of systems shipped so far is 100-nanometer accuracy. And the 50 will be shipped for evaluation, qualification towards the end of this year. And that is in preparation for design structures below 2 nanometers as we understand from customers. So that's still some time out. Today, it's all 100-nanometer basically the benchmark technology used for many applications and not just for 1 customer. So we will see in the course of the coming quarters, a broader adoption for different types of devices and one of them has been announced publicly and the MI450. There's also a next one above 500, and they all use hybrid bonding as far as we are informed. Didier Scemama: Perfect. And then my final question, Richard, at this time of the year, it depends sometimes it's in Q4, sometimes it's in Q1, you start to get a feel for some flagship smartphone design upgrades, which typically leads to orders for you guys? Any feel for what it could mean for the new models that come in the later part of '26. Could that be orders for you in Q4 or in Q1? Or is it too early to say? Richard Blickman: No. The typical pattern for these new models is ordering Q4, Q1 with then market launch in September. So delivery of systems in June, for qualification July, August. So we should understand much more in Q4 and when we released the numbers in Q1 end of February, where this is heading. So if you follow the public domain, there's a lot of information about what will happen in this next generation, probably different cameras, also foldable. That means different design of the infrastructure in these units, and that could lead to a next round. But also this year in the generation for 2025, many let's say volume related, but also slightly new versions in these modules in these phones have led to a very positive business, albeit at lower levels than at the peak years 2021, '22. So the key is to understand what really changes, our new machines required. And as soon as new machines are required, that means an extra round. Currently, you can simply conclude that a lot is being manufactured on systems already installed. And in many cases, retrofits have done the job in bringing successful the latest models to market. Operator: Our next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding your business with older customers, such as in the smartphone market, the autos market, et cetera. There seems to be some signs of life in the smartphone market. But the question I have is that will those signs of life translate into orders for you given that sometimes your orders are very much related to next-generation product and whether that needs to wait until the new product comes out next fall? Or is it likely to happen because of the volumes? Or is that too early to say because it can happen because of the volumes. And I have one quick follow-up. Richard Blickman: Some are related to volume. So with the success which we have read in the public domain recently, that means, yes, more volume and that means shortages in certain areas and that is definitely helping. But as you said rightly, the key is to understand what are the real changes for the next model. And that typically becomes more clear towards the end of Q4, Q1, and then we have a much better understanding is there next year, going to be a ramp in those applications? Or is it at similar levels? That's typically how it has developed over the past many cycles. Automotive, the developments in automotive are mostly at new power modules also quite complicated modules. They're all for hybrid cars. That's what we hear. Volume is still, yes, let's say, moderate, not any expansion to mention, but that is also clear from the announcements of the major customer in that space. So there you can say still the turn of tide is to be expected early next year. Let's hope so. But yes, our success is always in these new technologies. So automotive, we mentioned also last quarter, we don't see further decline. We see a stabilization, and we see new products where we are included also new technologies for instance, in soft solder in bonding those high-powered devices. So that's typically what the status is in automotive. Sandeep Deshpande: One quick follow-up on the comment you made in your opening remarks on TC Next. You said you've got -- you've got an order for another customer in TC Next, I mean can you help us understand totally how many customers you have on TC Next? And is this, I mean, based on how you are seeing it play out. I mean clearly it's early days yet, but could this become a major new revenue stream for you? Richard Blickman: Yes. Well, let's hope so that, that will be the case. That's what we are aiming at. There are 2, again, markets. You can say the logic markets, and that is where you first reach the smaller bond pad pitches, so below 20 micron. And that is where the concept the TC Next is aiming at the first place. But at the same time that system is uniquely capable to stack those dies in HBM application. And also it's prepared to add the units required for fluxless application. The development is in both directions. So time will tell. And as I said earlier, '26 is going to be a critical year for adoption of hybrid bonding in HBM stacking, depending on what -- how that split will be at some point for HBM4. Most will be as everyone expects in refill process DC, but there are different variations in those processes. As we all know, the 3 use a different process, but that's less critical. So the machine typically for HBM3 is not -- that's why it's in an early stage, but an important year ahead of us to see where these applications can lead to major volumes. Operator: The next question comes from Ruben Devos from Kepler Cheuvreux. Ruben Devos: I had one on photonics. These orders, are they tied to I guess optic pilots? Or are they for, let's say, the pluggables inside the AI data centers? And... Richard Blickman: Sorry, you had more part to your question or... Ruben Devos: Yes. Well, just a follow-up on the photonics like these customers have resumed capacity purchases, I understood. Like is it for new platforms? Or is really expansions on the installed base? Yes, that's the first one. Richard Blickman: Well, it's for pluggables. So the connectors in the data centers. And it's partly add-ons, but it's 5 customers as we explained in the previous quarter and they're all ramping up and very much on our systems. So we have a major market share in that area. So -- yes, we expect that also to continue in Q4 because it's all tied to data center expansions. Ruben Devos: Okay. Just thinking about sort of the mix shift that has taken place since, let's say, 2021 when you sort of had the peak in mobile, I think it was 40% of your business and 20% compute and now approaching the end of '25. How do you think of that mix from what you've seen already so far? And particularly now in Q3, you see more momentum with orders obviously up particularly the OSATs ordering. Like how would you characterize maybe that shift mix today? And do you see, in general, like how do you assess the investment appetite basically from the OSATs now for compute as what it was maybe a decade ago in mobile? Richard Blickman: That's a very good question. In a big picture, the world clearly for the last decade was very much focused on mobile. Every year, next generation, every 3, 4 years, a major, let's say, new, whether it's from 4G to 5G and before that 3 and then also the cameras and the movies and all that has been a constant driver. And that still is today. So you can expect the 6G, but also the connection to wearables. And what we haven't mentioned yet is the increasing development in wearables in the glasses. It started with Google glasses, now Meta glasses, where we are also very much involved. So you see that developing along -- yes, let's say, the development I would sometimes characterize in mankind using those devices. Now we are in an AI phase, and that's more data using, again, yes, data in whatever more intelligent ways. And that is shifting then the percentage of revenue. Already last year, 43% was related to computing and data center high-power computing as opposed to many years before that, it was somewhere in the mid-20s. So that's all a very positive development. We were, for many years, characterized that we were very much dependent upon the high-end smartphone cycles. Currently, that is far less. We have more -- we have major drive in the whole AI world and with different technologies. So we look upon it in that sense with continued engagement in the forefront of the development of communication devices. And then we have automotive, which has dropped to below 20%, which was the average level, somewhere between 15% and 20%. So that's in a broader brush how our business is developing. Operator: The next question comes from Charles Shi from Needham & Company. Yu Shi: Congrats on the pretty strong guidance for fourth quarter. Maybe I want to go back to the major hybrid bonding order you expected that could arrive in Q3, but now it looks like it's going to be a little bit later, given the push out. So the question was -- question is this, how much confidence you have in getting that particular large order in the current quarter because last time, I think, quite frankly, we were a little bit disappointed by the push out, but really hope that this time it's real and it's coming. Richard Blickman: Well, you can also qualify that a bit in our own success in building machines. So at the very beginning, the throughput time to build these machines was over 9 months, closer to a year. And now since these 100-nanometer machines have become more standardized, we can turn them around in a 6-month period, which has the benefit for customers to align that more closely with their end customer demand and also the logistics. So what we understood is that the initial delay because of certain manufacturing or building construction issues at that customer. And that is why the placement is somewhat delayed. That is our current view supported by all the information directly from the customer. Yu Shi: Got it, Richard. So it sounds like 2 factors there, customer clean room delay and also the fact that you will improve the manufacturing cycle time. So they are not really -- they don't really need to place order well in advance, did I understand correctly. Richard Blickman: Yes. So we are currently installing machines at that same customer and those machines have been built in 6 plants. And that is also one of the factors. Yu Shi: Got it. So maybe a little bit of a more technical question. Regarding the Gen 2, the 50-nanometer accuracy tool, well, you have been very consistent. I think over the last 2 years that you expect to deliver the tool, maybe the end of 2025, that time line hasn't really moved. But at the same time, people have high expectation about Besi and probably were wondering why the schedule didn't move up. And was that more of a customer road map issue or more of a little bit of technical challenges on your side? Can you kind of shed some light on what's happening there with the 50-nanometer tool. And I think on a related question, I think when your schedule didn't really move in, do you worry about a little bit increased competition. I think on the HBM side, competition -- the landscape -- competitive landscape is well-known, lots of regional players there. But in logic side, do you see any increased competition there, especially at the leading foundry customer? Richard Blickman: Well these are very good questions. The first question on the timing of the 50-nanometer requirement, that's purely customer road map. And that road map has not changed. The road map is '27 onwards. And so that tool has to be ready by the end of '26 as we have shared, that is not being pulled forward. The adoption of hybrid bonding is ever more confirmed and we see that with additional orders, additional customers. It's definitely logic oriented because that is where the most critical and the smallest geometries are requiring this technology. On HBM stacking, it is a bit less in a sense, the bond pad pitch is not that of a great issue. But there, it's more the heat factor, so the performance of the device, which is driving using hybrid as opposed to a reflow process. On the competitive landscape, let's -- there from the beginning, a Japanese competitor has been already for 8 years sort of side by side. So far, our concept is certainly leading with a market share of over 80%, even some people say 90%. There has not been a change in that landscape. We have successfully moved the generation from 1 to 1 plus, so 150, 200-nanometer down to 100-nanometer. As far as we know, also from a cost of ownership, throughput, our system is certainly in the lead. On the HBM, it's a different competitive lens, more Korean based. Exciting will be in the course of this year, how the evaluations will, let's say, develop in terms of side-by-side comparisons that will take place in Korea at the 2 major Korean customers. So that will give us a better understanding of the competitive landscape. So that's in a nutshell, Charles, where we're at. Yu Shi: Got it. So in logic, no real change. In HBM, it's always a little bit of -- in some flux. But thanks for the color. Operator: The next question comes from Andrew Gardiner from Citi. Andrew Gardiner: I wanted to come back to the market slide that you put up every quarter in your deck. You've highlighted that tech insights have reduced expectations for this year. And I can see as well for next year, those have come down. I fully accept Besi is going to outgrow the market given your positioning in some of these areas. But expectations are pretty high out there at the moment for your revenue growth into next year. I'm just wondering if you can shed a little bit of light on how you are seeing things. You've talked about orders in the near term, but any indications from customers as to their thoughts into next year and what could help you to drive such outsized revenue growth into next year? Richard Blickman: Well, always a very good reference is the order run rate. So if you look at the last quarter, third quarter, also our guidance in broad terms for the fourth quarter, that leads to levels, which, yes, quarterly run rates give an indication on a yearly model. If you look at our revenue, let's say, if you take the guidance for revenue Q4, you take the midpoint and you add it up with the first 9 months, and then you look at the run rate in orders. And also, let's say, where those orders are coming from and you -- I think you also shared it in that sense. Then we are benefiting from a part of the market, which grows significantly more than the average assembly equipment market. So the TechInsights numbers are for the overall markets, and it could very well be that the mainstream market for less, let's say, complicated devices is growing far less than for the advanced, which has always been the case. So based on -- yes, the current run rate, one -- yes, should see that development. And also with the adoption of hybrid bonding gaining more traction more broadly, and also TC for that matter. Yes, that's a bit different than the forecast, which you see from the TechInsights. But in this industry, I've never seen any forecast, which is on the dot. It's usually either much too high or it is too low, it's a difficult time. If you also see this in respect of what's happening in the whole industry, and that in relation to the world, there -- yes, it's not that straightforward. Well, it's never been that straightforward. But anyway, so my message is our statements, we expect based on the current evidence and trends that we should be able to outgrow what is currently forecasted for the market. Operator: The next question comes from Timm Schulze-Melander from Rothschild & Co Redburn. Timm Schulze-Melander: Maybe just the first one. You talked about a new foundry customer to whom you've shipped a hybrid bonding tool. Could you maybe just provide some color about the application and just kind of how meaningful that might be? And then I had a follow-up. Richard Blickman: We are not -- let's say, we don't know the end customer in particular, but it looks like it's more in the mobile space. So that is as far as we know. Systems are ordered. They will be delivered in Q1. So then we may well know more, but customers are pretty careful in sharing end customer and end product details. Even for many, we are not allowed to see it. It's usually with code names. So our service engineers also are not able to track that, and one can understand also the reason why in IDMs, it's a bit more yes, let's say, easy because they typically have their end products, but in foundries that is a high level of -- yes, let's say, secrecy, confidential. Timm Schulze-Melander: That's really helpful. And then just you referenced an order booking that slipped and looks like it's going to track into Q4 in terms of just the readiness of the customer. Could you just maybe -- is that an existing customer? Is it a chip maker? Or is it a packaging subcontractor? Richard Blickman: Well, it's a chip-making foundry, and it's an existing customer. So that's as much as we can share. Timm Schulze-Melander: Okay. Okay. That's helpful. Because I think maybe one of the -- my last question. If we look at where the strength of sort of hybrid bonding engagement has been, it's been at those customers who are front-end chip makers and you've referenced a couple like TSMC and Intel. What would be the indication that the market is extending into subcons who don't -- the packaging specialists who don't naturally have sort of chip-making front-end capabilities. Is that something that we can anticipate sort of being in the 2026 time frame? Or is that really sort of a much longer-term kind of target that maybe follows whatever happens in high bandwidth memory? Richard Blickman: The largest subcon in the assembly space has taken ownership of hybrid bonding about a year ago and is in the process qualifying devices for end customers. It is very likely that you will see that trend, which has happened forever. And also, you can see it, for instance, 2.5D modules. 2.5D modules are now built at a whole range of subcontractors, the typical, the higher-end ones, and that is where the growth in our orders in the third quarter was very much coming from. So for hybrid bonding devices, you can expect a similar trend. It may take a few years, but it's all a matter of cost, and that is a normal trend. And as I said, you see already preparation because for those subcons, the high-end devices also offer the highest margin potential. So there's a clear win situation on both ends in reducing cost and that's the trend in many of our products. It starts at IDM and it moves gradually into the subcontracting arena. Operator: The next question comes from Martin Jungfleisch from BNP Paribas. Martin Jungfleisch: Yes. I have 2 follow-ups from some earlier questions, please. The first one is on the hybrid bonding order. I mean would you stick to your comments that you made during Q2 results where you anticipated H2 hybrid bonding order to increase significantly compared to H2 '24? Or is there -- do you see now some orders to slip even into Q1 '26? Richard Blickman: No, no, no. That's a very good question. It's very much as we said a quarter ago. So there are more we expect in Q4 to come in. So it's not just the big order, which slipped from Q3, hopefully, to Q4. But there are several other customers where we expect orders in Q4. Martin Jungfleisch: Okay. That sounds great. And then just secondly, on the 2.5D orders, I mean, you flagged this for the big increase in Q3. Just wondering, how sustainable are these order levels? I mean, is this driven by a single customer? Or is it multiple customers? And also what do you expect kind of this trend to continue into 2026? Richard Blickman: It's multiple customers. We mentioned several times that it is a group of 5, which we have been -- several we have been engaged in since over 10 years. So it started off with [indiscernible] already a decade ago, routers. And that has developed in our smaller geometries now into data center connectors. So that is a business which is growing and it's not a -- we don't expect that to be a onetime. But in capital goods, there's always this cyclical behavior. So you have a growth period, and then you have capacity absorption. But as we guided, we expect some continuation of this trend on the short term. But with the adoption of AI, and if you look at this in a broader perspective, again, what the world is expecting in the next couple of years, to do with the AI in every different form, these data centers is expected to grow significantly. And in case we are able to maintain our market position that should lead to continued business, albeit not in a straight line, but typically in a growth pattern. Martin Jungfleisch: That makes sense. Can you just tell me the lead time for the 2.5D tools? Is it similar to the mainstream market? Or is it more closer aligned to the hybrid bonders? Richard Blickman: Somewhere in between. So we have -- that's also a good question. We can turn around equipment for mainstream in -- yes, some even in 6 weeks, 8 weeks. But this is typically 12, 16 weeks. That's why we cannot turn around the orders received in Q3 in the quarter. That's why the guidance 15 to 25 and up. So a major part will be shipped in Q1. So that's how it works. So we have machines which are more than a year -- or more than 6 months, sorry, with new developments, it's more than a year, but then it varies between the purchase lead times is 6 weeks. And yes, usually to 12 to 16 weeks, that is what the pattern. Next question, please. Operator: We have time for one last question, and the question will be from Adithya Metuku from HSBC. Adithya Metuku: Firstly, I just wondered if you could help us get some more clarity into 2026. When I look at your revenue run rate that you've guided to for the December quarter or the orders run rate that we've seen in the third quarter,and annualize that, I get to around 20%, 25% below consensus in terms of revenues for 2026. So I just wondered if you expect orders to pick up further in the December quarter, or will it kind of plateau the high levels you've seen in the third quarter? Any color you can give and also any color you can give on how any other drivers we should keep in mind when we think about 2026 growth and that would be helpful. And I've got a follow-up. Richard Blickman: Excellent. Well, first of all, we try to share in the press release that the order momentum continues into Q4. So Q3 is not the highest level. We also indicated that we see renewed drivers for growth in '26, which are linked to mobile, for instance, but also in the careful mainstream recovery where we see the early signs. But on top of that, we have the hybrid bonding continuation based on further adoption, and that could lead to a much -- yes, let's say, stronger growth in '26 than what we have so far in '25. So those are the -- and don't forget the TC Next. So those drivers could result in, as I also answered to an earlier question, in a business model more focused towards the high-growth AI arena. And at the same time, recovery for those applications where we have had in previous cycles, significant growth in new model usually applications. So that's in a broad brush what the market could develop in '26, albeit in an environment which we all know is under -- yes, let's say, also different. China what we see is many customers are building next-generation capacities outside China. With the current geopolitical situation, you can expect new capacities built in countries like Vietnam, but also India. India, there are 5 major customers setting up assembly capacities, starting with direct product moves from what is currently built in China then built in India. That also offers additional growth in the change of infrastructure. So there are many aspects which can have an influence on how '26 will look like compared to '25. But we don't guide further than a quarter out. But since you ask what could be different in '26, then those are the aspects you can take into consideration. Adithya Metuku: Understood. And then just as a follow-up. I know last quarter, you talked about price negotiations in light of the recent adverse FX moves. I wondered if you could give some clarity on how those negotiations are going and when you might be able to get back into your 64% to 68% target range that you've previously provided? Richard Blickman: Well, interesting enough, if you look at the dollar decline versus the euro with about 12% and a margin impact of around 3% gross margin. So we have been able to offset that partly in new features, which always allow higher pricing, but also in carefully managing our supply chain. And in that sense, the -- those developments will continue in an environment where the market is, you could say, soft. So -- and if this is the low part of the cycle, then you have a significant upside potential. Also, if you look at revenue levels, EUR 134 million this quarter, what was it exactly, which is -- our peak was above EUR 200 million. Capacity utilization is, of course, at a different level currently. And that all has an impact on the gross margin overall. So if you compare this gross margin to peak levels, yes, the delta is larger than the 3%. I think once we reached 66%, we haven't reached 68%, it also depends on the order mix. There are certain new developments, which always have a somewhat lower margin. And over time, that improves because of, yes, the full qualification of systems. So those are all impacts on those gross margins. But still gross margins well above 62% is a reasonable margin at this time. Any last question? Operator: I think we do not have any more time for any last questions, but I will hand the word back over to you, Mr. Blickman for any closing remarks. Richard Blickman: Well, thank you all for taking the time. And if you have any further questions, don't hesitate to contact us directly. Thank you for attending. Bye-bye.
Christoffer Stromback: Good morning, everyone, and welcome to this presentation of Castellum's Q3 report. My name is Christoffer Stromback and I'm Head of Investor Relations. There will be a Q&A session in the end of the webcast. [Operator Instructions]. Let's start. Please go ahead, Pal Ahlsen. Pal Ahlsen: Good morning. The mission from the owners and from the Board to all at Castellum is crystal clear. Castellum needs to become more profitable. I think that's an exciting and fun assignment, fun mission, but I don't think it will be a walk in the park. I think everyone knows that the heydays of real estate is over for this time. So now it's back to basics for Castellum in the day-to-day business. So instead of yield compression, it's leasing. Instead of interest rates, which are -- which were almost 0 it's turning over every stone to find ways to become more efficient and more cost efficient. But it's also in the day-to-day business making sure that we are owning the right properties in the right locations and consequently seizing the opportunities we see in the transaction market. It means that we will become a more entrepreneurial company, I would say, a less democratic company. Although the net leasing in the first quarter -- the third quarter, this quarter, was positive with SEK 16 million. We know that the net leasing for the previous quarters have been negative. So in terms of vacancy rate, we know that our performance will become slightly worse going forward than it is right now due to this negative net leasing in previous quarters. So in the property management for us right now, it's mainly 1 focus, and that's leasing, leasing and leasing, means that we have to become more flexible and faster in our leasing activities. At this stage, I've been CEO now for almost 2 months. I've seen almost all properties, not all our properties yet. And just a personal reflection, I think what I've seen so far of the property portfolio is actually a bit better than I had expected. Of course, that statement has to do with what I thought before I started. But at least, this is slightly better than I thought, and I'm very happy about that. The locations are good and suits the type of purposes the buildings have. We have nice locations for office in inner cities, but also nice locations, but in B locations in the office segment. And then we have lots of industry and warehouse and logistics, also in the right locations given the purpose of those buildings. And I also think that the property portfolio is a bit more well kept than I had thought before. So that's a nice starting point, I think, for my new assignment here in Castellum. And the other reflection I would like to do is, I met most, but not all, of the staff, and I'm meeting quite competent staff that know their property portfolio by March. So I think we have a nice starting point for not turning the ship around, but really to get to where the owners and the Board want us to more profitability. As I suppose most of you know, we are commercial real estate company with most of our holdings in southern part of Sweden, but we also have properties in Copenhagen and in Finland and mainly in Helsinki. Most of our assets are office properties. We have lots of public tenants, governmental tenants and then we have a large proportion also of office -- of warehouse and light industry. And most of you also know that we have a significant share of the bid in Norway called Entra, which owns mostly AAA located office buildings in Oslo, and we own almost 40% of that company. So all in all, we have almost, and including Entra, we have almost properties for SEK 160 billion and directly own SEK 137 billion. Jens Andersson: Thank you, Pal. I'm jumping into the summary of the results. The results compared with the same period last year is negatively affected by divestments and higher vacancies. In addition, income from property management is impaired by higher financial costs due to one-off profit from our bond repurchase last year. Net leasing in the third quarter is positive SEK 16 million and minus SEK 166 million for the period, still happy to report 2 consecutive quarters with positive net leasing. Occupancy rate stands at 90%, which is somewhat lower than last quarter. Net investments of SEK 3.5 billion compared with minus SEK 327 million in the same period last year. Going into details, looking at development of income during the period, the like-for-like portfolio income is unchanged. Indexation contributes, but is offset by higher vacancies. The vacancies is coming quarters will continue to increase due to our weak net leasing in the first quarter. The direct property costs for the like-for-like portfolio is increased by SEK 40 million, equivalent to 2.5%. Direct property cost decrease at the beginning of the year due to the warm winter, low increase in the second and third quarter, primarily due to the higher rental losses, which increased by SEK 25 million. Divestments decreased income with SEK 125 million, however, partially mitigated by acquisitions in the second quarter, contributing to the income with SEK 29 million. Central administrative and property administrative cost is in line with previous years. On an aggregate debt level, NOI decreased by SEK 226 million with divestments, increasing vacancies and one of insurance claims recorded during second quarter previous year as key drivers. Looking at renegotiations. Corresponding to an annual rent of SEK 197 million, which translates to 9% of total lease stock up for negotiation were conducted during the period with an average positive change in rent of 1.6%. Limited investments on average to secure the renegotiated leases. Additionally, contracts with an annual rent of SEK 1.345 billion were extended during the period with no change in terms, equivalent to 60% of total lease stock up for negotiation, which is up from 50% in the second quarter, indicating that a good portion of our tenants are comfortable continuing paying their current rent of the indexation. Net leasing for the quarter amounts to SEK 16 million for the period, the net leasing amounts to SEK 166 million minus. The economic occupancy rate amounts to 90%, a decline of 1.2% since third quarter '24. The decline is driven by increasing vacancies corresponding to 0.8% and a general review of vacancy rents, which explains additional 0.4%. Looking at property values. During the period, Castellum has written down property values with approximately SEK 1.4 billion, equivalent to 1%. The value change is partly driven by the default of Norrköping, the fact that offer will leave approximately 24,000 square meters in Solna and generally lower cash flow expectations in our valuations due to a downward pressure on rental levels and/or increasing tenant investments to uphold lease levels in some of our markets. The valuation yield is in all essence, the same as the second quarter 2025 at 5.63%. In addition, our projects continue to show positive value add. Looking into the transaction market in Sweden, the investment volume in the Swedish real estate sector ended up at approximately SEK 104 billion in the period, compared with SEK 82 billion in 2024 and SEK 83 billion in '23. Our investment volume -- of the investment volume approximately 20% was office properties, which is higher than '24 and '23, indicating growing interest into the office segment however, on aggregate, a bit lower than historical average. Looking at financial highlights, market conditions are very favorable credit margins at historically low levels and with attractive term premium, current credit spreads in the domestic market for a 3-year bond is at around 90 bps and for a 5-year bond around 120 to 125 bps. European market is at the lower end of this range. Nordic banks continue to offer competitive pricing and are willing to increase volumes. S&P confirmed our BBB rating with stable outlook during the quarter, also hold a Ba2 rating with stable outlook for Moody's. Low refinancing activity during the quarter. In total, we refinanced SEK 1 billion in secured debt on a 10-year tenor, no activity in the bond market and limited bond maturities in the coming 6 months. Average interest rate currently at 3.1%, down from 3.2% during the second quarter. We see a potential to further reduce the average interest rate in our debt portfolio by refinancing loans and bonds on better terms. Looking at financial key ratios, very small changes in financial key ratios compared to the previous quarter. Loan-to-value now at 36.5%, an ICR currently at 3.2x, comfortable headroom against policy levels and covenants. Average debt maturity in average fixed interest term stable at 4.6 and 3.6 years, respectively. We would like to highlight that our interest rates hedging exclusively comprises plain vanilla interest rate swaps. Interest-bearing liabilities amounts to SEK 57.5 billion, down by SEK 1 billion since the beginning of the year. Over to you, Pal. Pal Ahlsen: Thank you, Jens. As most of you know, we have a very sustainable portfolio and a high focus on sustainability. And here, I would like to highlight the energy efficiency, which has improved by 7%. And that's what I meant previously that we have a very good staffing in the company because it's not easy to reduce the energy consumption with 7% which is needed since the costs of energy are normally increasing quite heavily from the municipalities as we buy lot of energy from them. So this is a very good performance, I would say, reducing energy efficiency. We're improving in energy efficiency. We have made some acquisitions this year. We bought a couple of properties from Corem during the summer, also sold some properties, mostly single assets and we made the investments. And I think going forward, we will have -- as I foresee it at least, we will have more transactions going on in Castellum, even if the net investments may remain the same, we will have higher figures, both on the acquisition and property sales side of things because that, I think, is one driver of profitability for a company -- for a property company in owning exactly the right properties at the right moment in time. And I think that sums up our presentation, and we are happy to answer questions. Christoffer Stromback: [Operator Instructions]. And the first question comes Fredrik Stensved of ABG. Fredrik Stensved: Firstly, Pal, when you took the CEO position in almost 2 months ago in the end of August, I believe you stated that the management and the Board of Directors would sort of formulate a strategic update or a strategic review. Would you say that the communication today where it's back to basics, it's focused on leasing, leasing, leasing, et cetera. Is that the strategic review all said and done? Or should we expect anything more in sort of a formal strategy update going forward? Pal Ahlsen: I think that's what I've said regarding back to basics is certainly part of the day-to-day business of commercial real estate company. But we are still working and thinking a bit about how to exactly formulate the strategy. So we will come back to that in a more formal way than this. Fredrik Stensved: Okay. Perfect. Sorry. And then on -- I think -- it's mentioned in the CEO letter that maybe Castellum will be more about entrepreneurship, decreased bureaucracy and selling and buying when good opportunities arise and so on. Is it possible to make any more concrete comments about what this means, which type of properties are you looking to sell and buy, et cetera? Pal Ahlsen: No, not at this stage. I would say. What I can say, though, is that I'm also surprised by this of our colleagues in the industry has reached out to see if there are any swaps we could make the properties or that they are interested in buying certain parts of our portfolio or in general, making transactions. So there's definitely opportunities in the market. Fredrik Stensved: Okay. Final question from me, for what's your view on share buybacks, given where your share is trading an implied deal as you see it in the direct transaction market versus buying shares? Pal Ahlsen: Personally, I'm all in favor of that. We're not there yet in our discussions internally, but I'm in favor of buying back shares, at least when we have such a huge discount as we have today. Christoffer Stromback: Thank you. Next one is John Vuong, Kempen. John Vuong: In the media, there were talks about you considering splitting up the company or at least the shareholder is talking about that. What are your thoughts on that now? Pal Ahlsen: It's too early to answer that specifically, but that's obviously, something many people are speaking about, the possibilities of splitting Castellum into smaller parts, and that would sort of show value in -- on the stock market. But that's obviously 1 option that we have, but we are looking on continuously all options we have for driving profitability. So I can't really say more than that at this stage. John Vuong: Okay. And then when you're talking about owning the right proposition in the right locations, how do you see the current pace of noncore asset sales? And is there a change in what you designate as noncore? Also following up on that how do you assets outside of Sweden as well? Pal Ahlsen: Yes. What I mean with owning the right properties in the right locations is owning those properties that will contribute to our mission to over the business cycle giving a return on equity on 10%. That's exactly what I mean with that. That doesn't mean that we should have specific locations, only AAA locations in downtown cities or that we should only have office buildings. I think we will have a mix of different type of properties that we believe that in the long term will support us in our mission to get 10% return on equity. John Vuong: Okay. That's clear. And you were talking about asset swaps, that's colleagues of your view in the industry are considering asset swaps with you. What's your view on nonyielding assets in your portfolio like the Säve Airport. Could you consider swapping down into, say, a higher-yielding assets? Pal Ahlsen: This was more a comment that there are transactions being made in the market and that is big interest for our portfolio in the market. All our business -- all our activities here at Castellum are aiming to reach our target of 10% return on equity. If a swap with some other owners is supporting that, we are -- we'd obviously look into that and acquisitions as well and disposals as well. Christoffer Stromback: Next one is Lars Norrby, SEB. Lars Norrby: Just follow up on the strategy and the portfolio composition in particular. When you're looking at it, are you particularly thinking about parts that are subscale in terms of achieving efficiency, are those most likely to be on the divestment list? Pal Ahlsen: I mean, efficiency that ends up in the cash flow from the property, right? But when we are looking at this, we are not looking at efficiency in that manner. A property can be very inefficient in some sense but very profitable. So we are not saying that just because this property is a bit messy to deal with or expensive in some sense, that's reflected in the cost of the property, right? So looking at this from a strict expected return on equity perspective. Lars Norrby: So in that sense, just still thinking about, let's say, the portfolios in Finland and in Denmark, are they big enough or are they efficient enough to warrant the position within Castellum? Pal Ahlsen: I can answer generally on that question. I think more important than size and more important than efficiency in some sense is the markets as such. Other markets that will support rental growth are the markets where vacancy in 10 years from now or 5 years from now, will be lower or higher than today. Those questions are significantly more important than if we can reduce the cost of property management by [ SEK 10 or SEK 15 ] per square meter per year. The rental growth and the demand are significantly more important. And I think that's something that shows up very well when you do a portfolio analysis like this. That it's the long-term vacancy and the long-term growth possibilities in rents that are the most important factors when owning real estate. So when -- and obviously, the price of the properties. That's the starting point, obviously. Lars Norrby: Okay. Final question from my side, while I brought up Finland, brought up Denmark, let's talk about Norway just briefly. I'm thinking about Entra, you're holding in Entra some 37%. And at the same time, Balder is close to 40%. Are you -- I mean, my impression is that Balder may be interested in looking for some kind of solution to that ownership situation, what's your view on Entra going forward? Pal Ahlsen: I think what I can say regarding Entra, I think they are facing somewhat of the same challenges that we are facing in Castellum. And they also have a financial target of trying to reach 10% return on equity over the business cycle. And to reach that in an environment where needs are not compressing, you need to have significantly better growth in the net operating income to as low investments as possible. So they are facing, I would say, the same challenges as us, how can we be growing net operating income on a like-for-like basis with as low investments as possible to come close to the target. So they are facing the same challenges as we do. Regarding our position there, we haven't discussed that much and I have no further to say rather than that we, as owners really want to see profit, obviously, in the company to increase. And the only way forward is increasing net operating income by working by leasing, optimizing costs and not just -- and minimizing CapEx -- making smarter CapEx... Christoffer Stromback: Next one is Nadir Rahman from UBS. Nadir Rahman: It's good to hear from you, Pal, on your first conference call. Looking at the like-for-like rental growth, I know that was, I think, around minus 0.3% on a total basis and minus 3.4% on a net basis. So could you give a bit more color on the contribution from indexation versus vacancy given that the vacancy did reduce slightly -- sorry, the vacancy increased slightly during the quarter. That's my first question. Pal Ahlsen: I think the -- we managed to increase sort of the rental levels in the portfolio. But the vacancy increase is sort of wiping that away. And I think the rental levels have increased somewhat around 2% in the portfolio. But the vacancy effect is bigger plus that we have a bit more rent losses than we've had in previous periods, and that explains the sort of flat like-for-like growth in rental income. Nadir Rahman: And your indexation, what kind of percentage were you seeing during the quarter? Pal Ahlsen: During the quarter, we get it once every year. And what we see right now is if the CPI, if we get 0.8%, we believe that from the first quarter, we will achieve slightly below 1%. So we have fixed step-ups in some of our contracts. And of course, some of our public sector tenants have below 100% CPI indexation. But on average, when CPI is low, we usually get a bit higher. Nadir Rahman: Okay. That's very clear. And my second question is on the net lettings. So like you mentioned, it's been positive in Q3 and I know that for the year-to-date, it's been negative overall. But how do you see this trending in Q4? And I know that Q4 generally is a more active quarter for lettings and general transaction activity in the Nordics and in Sweden in particular. Pal Ahlsen: I'm reluctant to speculate. But what I can say is that this is our main focus. It's leasing, leasing, leasing to get to turn this around, so to say. We don't want to present flat like-for-like growth rate. We don't want to present an increasing vacancy. So this is our focus. It's leasing, leasing, leasing to turn that ship around, so to say. Lars Norrby: And in order to achieve all the leasing that you need to maintain vacancy and prevent that from rising any further. Do you feel like your -- wouldn't you change for rental strategy and perhaps offer more rent freeze or incentives to tenants? Or do you think you need to compromise on rents in order to achieve a higher level of... Pal Ahlsen: I think we need to use all the tools in the toolbox being faster and more flexible. It's very dependent on the specific squaring about, but we really need to use all tools in the toolbox in a market where -- in some markets, there's a slight oversupply of offices, for example. There, you have to be faster and smarter and more flexible than your competitors. And at least in the long term, having the right locations where there actually is a long-term demand for the square meters. But using all the tools in the toolbox being faster, more flexible than our competitors, then we can turn this around. Nadir Rahman: Okay. That's very clear. And final question from me direct to Pal. You mentioned earlier on the call that the situation at Castellum and the portfolio and so on, where "better than you expected when you came in." What was the expectation before you joined Castellum? Pal Ahlsen: Well, that's a good question. But as I said, I think what I've seen so far, I think the locations are slightly better than I thought they were. And I think that the upkeep of the buildings are slightly better than I thought. And as I said, it's difficult to -- it's just my feelings around this, it's difficult to put words on it. But it is a bit like 100 meters sprinter with the targets running below 10 seconds on 100 meters. I thought we were started at 103 meters with the goal of running below 10 seconds, but it's actually starting from 100 meters. So to give some color on that. So slightly easier than I thought, given a slightly better portfolio and a very dedicated staff in the company. Christoffer Stromback: Next is Stefan Andersson, Danske Bank. Stefan Erik Andersson: Three quick ones from me. First one on reducing costs. You're talking about that, and we see that in your -- in the report as well. You mentioned that -- just trying to understand the magnitude of this. I mean it's one thing to cut newspapers and be prudent of whatever you do. But is there any -- do you see any bigger opportunities here? I mean is there still synergies from Kungsleden merger to take out? Or is it -- I mean I'm just trying to understand if we're talking about small, small things here and there or if there's any bigger ones. Pal Ahlsen: I'm sorry I have to ask this, but could you repeat the question and speak a bit louder? Because I didn't hear the full question. Stefan Erik Andersson: Okay. Sorry. I hope this is better. So my question is really on reducing costs. You talk a little bit about that. But just to understand the magnitude, is there any bigger things that could be done with efficiency, heritage from Kungsleden merger, I don't know. But was it just smaller items here and there and [Foreign Language], as we say in Swedish, daily? Pal Ahlsen: Okay. I got the question now. Your question in regards if I could give any estimate how much costs we could cut when we are turning over every stone. I cannot give a forecast cost about that. But what I can say is that we are really turning on over every stone. And that's why I mentioned the newspaper subscriptions. I think I mentioned that in the CEO letter, and when you're turning over every stone, you will find things like that. And just to be specific when it comes to newspaper subscriptions, I think we can save SEK 0.5 million there. And that's perhaps not money. But a large, many stones being turned over, I think we can save a lot of money, but I cannot give an estimate on that at this stage. Stefan Erik Andersson: Okay. Good. And then on -- we talked a little bit about the renegotiated rents that I imagine there is some investment in CapEx associated to that. Could you maybe give us a flavor of what kind of direction you have on the spot market? I mean, is that -- do you actually see rents coming up? Or is it actually going down? Pal Ahlsen: I mean looking at the renegotiations, I must admit that I was actually surprised myself when we dug into it and we do not invest that much money into the renegotiated deals, and we do not see any clear sign that it's increasing or decreasing. Stefan Erik Andersson: Okay. And then the final 1 is Säve, which -- I mean it's -- I thought -- I've seen it as a very attractive asset that you have within a very nice segment and all. I understand that you've had some planning issues there with other potential use of the airport and all that. Maybe could you maybe elaborate on your hopes for that now with the new situation if you could get compensation somehow? Or if you could alter the use in some way, whatever you might have on that? Pal Ahlsen: I cannot give so much details, but it's, in my mind, a very valuable asset going forward, especially given the huge investments that will be done in the defense industry. So I think that's an extremely valuable asset as it is. It's not yielding too much right now. I think not too much, but that's more of a value play than anything else. That is a very valuable asset. Christoffer Stromback: Next one is Adam Shapton from Green Street. Adam Shapton: Good morning. Hope you can hear me. Okay. A couple of questions. Pal, coming back to your comments on buying and selling of assets. I just want to be -- I just wanted to ask you to be clear. Are you talking about 1 strategic repositioning of the portfolio and then sort of back to business as usual? Or do you mean to say that the business model will permanently shift to much higher asset trading over the cycle? And I have another question, but maybe we can start with that one. Pal Ahlsen: We can start on that one. No, what I mean is that a property has a life cycle. You build it, you manage it and then you have a phase where it's degrading and then you have an upgrade phase. And I think Castellum is depending on market and depending on which type of asset type are good in all of these phases, but perhaps not good in all cities and all markets, and all markets are a bit different. And Castellum has had a tendency to own properties over the full cycle. And I think we need to be a bit more smarter in owning the properties in the lifespan of a property where we are the best. And that may vary over time, that may vary over markets and that may vary over asset types what properties that suits us. This means that we may very well own a property during 1 phase of the life cycle of a property in Stockholm but choose not to own it in another market, and that will trigger a higher asset rotation pace than we've had historically. So that's actually what I'm meaning with this. But also perhaps ceasing a bit more opportunities than we've done historically, when prices are right, either to sell or to buy. So it's not -- you should not read into that strategic that we are down because we are not there yet, downsizing office or increasing whatever, it's just the fact that we cannot be -- it's not perfect from a return perspective to own properties forever and ever. We need to -- we are not a perfect custodian of properties in all their faces everywhere. Adam Shapton: Okay. So that's -- so it will be management's acumen and understanding of the cycle and each individual market that will drive better returns after transaction costs according to that. Okay. And then second question is on CapEx. You mentioned one of the things you'd like to do is, I mean, you said spend less on CapEx, but then I think you sort of corrected yourself to smarter CapEx. Is your assessment that Castellum has been deploying CapEx in the past in a way that doesn't meet suitable return hurdles? Is that what you found and you think you can change that in the future? Pal Ahlsen: That's a good question, and I appreciate that. I think perhaps that was true if we go back 5 or 10 years ago that we -- when money was a bit more cheap and the target actually in Castellum was to invest at least 5% of the property value each year. So it might be some merit to that going back a bit further. I don't think that, that has been the case for the past years. But I do think that there are potential to improve where we put in our money. In some cases, we should perhaps invest slightly more. And in some cases, we should perhaps not invest anything right now. And there, I think, and looking forward to having discussions with management, where our capital makes the most -- where we get the most bang for the buck. I'm sure that there are potential there for improvement. I would be very surprised if it wasn't because that's probably the case everywhere in all real estate companies. Christoffer Stromback: Thank you. Back to Fredrik Stensved of ABG. Fredrik Stensved: Yes. And apologies for jumping in twice. I just have a follow-up on the leasing strategy. Listening to this presentation and what you're saying, Pal, it's pretty obvious that you're not happy about sort of the leasing this year. You're not happy about the lower occupancy in the past couple of years. I think at the same time, you're saying asset quality or the portfolio quality is better than you were thinking and the organization is better. They know the properties by heart and so on. So maybe in order to get sort of a feeling about upcoming changes and strategy in terms of leasing, asset quality is better, organization quality is better. What's your view on why Castellum has underperformed peers in terms of occupancy and which are sort of the concrete actions you believe are the most important in order to improve going forward? Pal Ahlsen: I'm not sure that we have been worse than peers. No idea that's the case on that. But for a company, for a real estate company, the main mission is obviously to have as many square meters rented as possible. And we have roughly 10% at least economic vacancy. That's a huge, huge potential. I think that amounts to roughly SEK 1 billion in rental revenue, and we must do everything we can to catch as much as possible of that potential rental revenue. And we are discussing internally in what measures makes sense here. And here, it's different depending on what type of assets. So I wouldn't say that we have underperformed, but I've said that we have perhaps increased the discussions around how can we reduce vacancy faster than given the measurements we've done historically. Fredrik Stensved: Okay. Thank you. Christoffer Stromback: Thank you. And that was actually the last question for today. So thank you all for listening. Bye-bye.
Adam Godderz: Good morning, everyone, and welcome to Euronet's Third Quarter 2025 Earnings Conference Call. On the call today, we have Mike Brown, our Chairman and CEO; as well as Rick Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet's or its management's intentions, expectations or predictions of further performance are forward-looking statements. Euronet's actual results may vary materially from those anticipated in these forward-looking statements as a result number of factors that are listed on the second slide of our presentation. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures we'll be using during the call to the most comparable GAAP measures. Now I'll turn the call over to our CFO, Rick Weller. Rick Weller: Thank you, Adam, and good morning, everyone. Thank you for joining us today. I'll start my remarks on Slide 5. We delivered revenue of $1.1 billion, operating income of $195 million, adjusted EBITDA of $245 million and adjusted earnings per share of $3.62. Revenue growth was below our expectations due to softness in certain areas of the business, which we believe was largely attributable to macroeconomic and policy decisions surrounding immigration around the world. However, the diversity of our business model, share repurchases during the year and effective expense management allowed us to offset those impacts and deliver another quarter of solid results. Finally, I want to highlight that our consolidated operating margins expanded by approximately 40 basis points over the prior year quarter. Next slide, please. Year-over-year, most of the major currencies we operate in strengthened compared to the dollar. To normalize the impact of currency fluctuations, we have presented our results adjusted for currency on the next slide. I'm now on Slide 7. Our EFT segment delivered another good quarter, where revenues grew 5%, operating income and adjusted EBITDA, each growing 4%. While results were somewhat lighter than expected, the business continues to drive growth, led by continued expansion in developing markets such as Morocco, Egypt and the Philippines, where we are expanding services, adding ATMs and strengthening banking and fintech relationships. Our merchant services business in Greece also delivered its strongest quarter since the 2002 acquisition with operating income up 33% year-over-year, driven by robust transaction volume and continued merchant expansion. Across Europe, travel volumes remained steady through the summer, supported by sustained demand for leisure travel. According to the European Travel Commission's report, overall tourism in Europe grew approximately 3.3% year-over-year. At the same time, Reuters noted that tourism related sales in Spain grew about 3%, roughly half the pace of the prior year as visitors curtailed discretionary spending on leisure and dining. Taken together, these reports highlight somewhat of a mixed picture across Europe. While consumer demand -- travel demand remains solid, spending patterns were more selective. Even so, our EFT business outpaced the broader European trend, growing about 5%. Although this remains slightly below our expectations, our broader geographic diversity, steady travel activity and continued network expansion position us well for sustained growth and resilience heading into year-end. In our epay segment, revenue declined by approximately 5% compared to the prior year, while operating income increased 4% and adjusted EBITDA 2%. The reduction in revenue reflects a shift within our wholesale mobile top-up business, where a high-volume, low-value product exited the portfolio. While this change reduced top line revenue, it only marginally impacted our operating income. Moreover, its impact was largely contained to the third quarter and accordingly, will have no meaningful impact on future quarters. Excluding this product discontinuance, our constant currency revenue would have grown at a rate similar to the operating income, constant currency growth rate. Our core digital content and payment processing activities remain stable and continue to provide a solid foundation for future growth. Money Transfer revenue grew 1% year-over-year, while operating income and adjusted EBITDA decreased by 2% and 1%, respectively. Revenue growth was driven primarily by a 32% increase in direct-to-consumer digital transactions, reflecting strong -- continued strong demand for our digital money transfer products. However, this growth was partially offset by softer transaction volumes across certain corridors. Mixed information on global economic uncertainty and recent immigration policy changes in the United States as well as in other areas of the world have slowed migration inflows and reduced remittance activity in key money transfer sending markets. According to Reuters, remittances to money to Mexico declined more than 12% year-over-year in mid-2025, underscoring how this shift -- how shifts in immigration policy can impact transaction volumes in real time. Remittances between the U.S. and Mexico represent approximately 1/4 of our U.S. remittance flows and only about 1/10 of our global transfers. This quarter, our U.S. to Mexico corridor was flat year-over-year. It's somewhat of a bittersweet feeling to have flat year-over-year growth to Mexico, bitter in that Reuters estimates a 12% year-over-year decline, but sweet in that our Money Transfer business outperformed the market by 12%. Interestingly enough, that's consistent with how Ria has performed over the last 18 years. It's this strength that gives us confidence for solid future growth. Operating income and adjusted EBITDA also reflected incremental year-over-year marketing investments to support continued expansion of our digital business and the Dandelion product. Despite some pressures, we believe solid third quarter consolidated -- we delivered solid third quarter consolidated earnings. And as we look to the fourth quarter, we expect to finish the year with year-over-year earnings growth to be generally similar to the third quarter, thereby supporting our confidence of being within the range of 12% to 16% year-over-year earnings growth as we previously provided. Next slide, please. Slide 8 presents a summary of our balance sheet compared to the prior quarter. As you can see, we ended the third quarter with $1.2 billion in unrestricted cash and debt of $2.3 billion. The decrease in cash is largely due to stock repurchases, offset by cash generated from operations. Cash returned from ATMs following the summer season peak and working capital fluctuations. In the third quarter, we completed a $1 billion convertible bond offering at an attractive interest rate of 0.625% maturing in 2030. The proceeds were used to pay down the majority of our revolving credit facility. This transaction strengthens our financial flexibility to invest in growth opportunities across our payments, money transfer and digital asset infrastructure initiatives. As we think about capital allocation, we look to maintain a debt level commensurate with an investment-grade rating, acquiring growth driving businesses in line with our digital initiatives and share repurchases. As for share repurchases, including the shares we've repurchased we made through the first 9 months of this year, we have repurchased on average, approximately 85% of our annual earnings over the past 4 years. Said differently, 85% of the earnings have been returned to shareholders through share repurchases. In this quarter, we repurchased approximately $130 million of our shares. These repurchases were beneficial in a number of ways, including the stabilization of our share price on the day of marketing the bonds and offset against any future dilution of convertible shares, which I sure would like to see happen. And finally, a locked-in pretax ROI of approximately 13%, given consensus 2025 adjusted EPS. With that, I'll turn it over to Mike. Michael Brown: Thank you, Rick, and thank you, everybody, for joining today. In the third quarter, we delivered adjusted earnings per share growth of 19% year-over-year, another quarter of double-digit earnings growth. As Rick mentioned, that keeps us on track to deliver our 12% to 16% 2025 earnings growth. This quarter's performance reflects effective execution across many areas of our business, and you'll know I'll call out some of those wins in just a minute. But I also think it is important to note that our growth was tempered by lighter-than-expected revenue across all 3 segments. As we inspected our business, it became clear that the broad global economic uncertainty played a role. The UN's Department of Economic and Social Affairs stated in their midyear update, the world economy is at a precarious moment, heightened trade tensions and policy uncertainty have meaningfully weakened the global outlook for 2025. We felt that uncertainty across most of our business from travel and consumer spending to cross-border remittances and payment processing. That said, we view these challenges as transitory headwinds, not long-term obstacles. The underlying fundamentals of our business remain strong, and we expect these pressures to ease. On top of the global uncertainty impacting all 3 segments, immigration policies in the U.S. and other countries have pressured the Money Transfer segment. The tightening of immigration reform, added enforcement and delays in work authorizations, which most of us in the U.S. see often in the press, have slowed cross-border remittances. But there are reform actions in other countries, most of us don't see. U.S. transfers to Mexico, a quarter that represents about 10% of our global remittance volume has seen the strongest pressure. In the third quarter, transactions in that quarter were flat compared to last year, which is unusual, given the consistent growth we've historically seen. While these policy changes have clearly weighed on our results, we believe they too are transitory in nature, and we would expect volumes to rebound once these conditions stabilize. Now we can't control the timing of these external factors, but we can control how we execute and invest for the future. I recently spent some time with our global leadership team and the energy in that room was unmistakable. From new market expansion and a strong pipeline for Ren and Dandelion to exciting work integrating AI into our operations and expanding our stablecoin on-ramp and off-ramp capabilities. All right. Let's move on to Slide #11, we'll talk about the quarter. Slide 11. This slide provides a high-level view of how and where we will drive our growth strategy into the future. As a reminder from our discussions over the past year, our business model is really built on 2 key revenue pillars, payment and transaction processing and then cross-border and foreign exchange, which drive our growth opportunities that continue to expand as payments become increasingly global, digital and flexible. The first pillar is payment and transaction processing, with which we facilitate high-volume transactions for banks, merchants and brand partners, continually expanding our use cases to stay aligned with evolving demand. During the quarter, we signed additional new merchants in our merchant services business continue to move forward to complete the acquisition of CoreCard and signed a new Ren and strategic network participation agreement. We'll get into more detail on these exciting deals later in the presentation. The second pillar is cross-border and foreign exchange, which powers our FX-related use cases and distributes FX services through both owned and third-party channels across both physical and digital touch points. This forms the foundation of our global money transfer business and the innovation behind our Dandelion platform, which delivers real-time cross-border payments to bank accounts, cards and digital wallets worldwide. In the third quarter, we signed a major new Dandelion partnership with Citigroup, enabling Citi's clients to make near instant full value payments into digital wallets across multiple markets. This agreement reinforces Dandelion's position as the world's largest real-time cross-border payment network and highlights the value global banks plays in our platform. During the quarter, we entered into a new partnership with Fireblocks, the leading digital asset infrastructure provider. This collaboration establishes an important element for our digital asset strategy, enabling interoperability with blockchain systems for faster, more efficient money movement. It also supports stablecoin-based remittances, consumer wallets and real-time settlement, advancing our long-term vision for integrating digital assets into our network. Now let's move on to Slide 12 and discuss our stablecoin use cases. A lot of people talk about stablecoin, but they don't quite know what they're talking about. Here's what we're doing. The passage of the GENIUS Act marks an important milestone for digital assets. It legitimizes stablecoins within regulated financial frameworks, bringing much-needed clarity to the industry. While Euronet was blockchain ready well before this legislation, this new framework opens the door for established players like us to responsibly integrate blockchain technology for stablecoin or tokenized payments across our global payment ecosystem. Through the utilization of our on- and off-ramp capabilities, including the ability to use our global ATM network to convert stablecoins into local currency, we're enabling customers and partners to move seamlessly between digital assets and fiat currency. In practical terms, this means that consumers can instantly convert digital assets to fiat currency to pay for everyday essentials, things like groceries, medicine, rent, utilities, through our trusted payout network. By combining our Ren and Dandelion platforms with the global reach of our Ria and XE distribution networks, we are making digital money usable everywhere securely and at scale. We plan to launch our first set of stablecoin enabled use cases in the first quarter of 2026, beginning with treasury settlement, cross-border transfers and consumer cash-out functionality in select markets. These pilots will demonstrate how our network and bridge, digital and fiat ecosystem, in a safe, compliant and practical way, creating new efficiencies for our partners and new choices for consumers. Finally, we'll leverage stablecoins or tokenized payments within our treasury operations to move funds between accounts and jurisdictions faster and more efficiently, reducing idle cash and enabling always on settlement. In summary, while we move money fast today, stablecoins will bring even more efficiencies and create new opportunities. I'm really excited to leverage our industry-leading global on- and off-ramp assets to deliver real-world stablecoin use cases to the world. Now let's go on to Slide #13. Slide 13, the EFT segment. It's comprised of 3 key components: banking services, the Ren Payments Platform and merchant services, each plays a key role in driving both transaction growth and digital expansion across our global payments ecosystem. Our banking services continued to have steady growth, reflecting the strength of our value proposition for consumers, financial institutions and merchants. In Poland, we expanded our footprint by adding 3 new merchant partners to support ATM deposit functionality. In the Philippines, we signed an ATM outsourcing agreement with Banco de Oro, the largest bank in the Philippines. And as we move on to Ren, on the heels of our agreement with a top 3 U.S. bank, we continue to gain momentum. This quarter, we signed a software licensing agreement with IDFC First Bank, one of India's leading private sector banks. Under this agreement, Ren will power the bank's ATMs, debit cards and transaction switching through a unique AWS architecture, the first of its kind in India. With the pending acquisition of CoreCard, we'll extend further into credit processing with provable, scalable, revolving credit technology. Together, Ren and CoreCard position us to deliver a full suite of real-time cloud-based solutions across issuing, acquiring and credit management. While subject to completion of the pending merger, the response from our customers and sales prospects has been very, very encouraging. Now here are a few comments on our merchant services business. This quarter, we processed the highest number of card transaction volume since the acquisition and added 7,000 new merchants. These results reflect continued momentum in our acquiring business and highlight how our digital initiatives continue to shift our revenue mix. Overall, it's been an exciting quarter for the EFT business with the combination of continued market expansion and the pending CoreCard acquisition, we're well positioned to deliver sustained growth. Now let's move on to epay. As you know, epay is a leading global provider of payment processing and prepaid solutions, specifically focused on connecting brands to consumers through innovation and our expansive distribution network. Our brand partners include the biggest names in tech, Apple, Google, Sony, Microsoft, Amazon, to name a few, along with thousands of others. Through a platform-as-a-service model, epay enables retailers, mobile operators and brands to manage transactions, payments and content in a manner that best aligns with their customer base. Increasingly, consumers are embracing the convenience of a fully digital experience. Today, about 70% of all epay transactions are digital, flowing across e-commerce merchants, digital banks or leading financial wallets around the world. As digital grows, epay continues to invest in security, scalability and compliance to offer the most trusted service in the industry to consumers, brands and merchants. During the quarter, we had several notable signings and launches that further expand epay's global footprint and strengthen our partnerships across digital content and payments ecosystem. On the success of our proprietary Prezzy Card in New Zealand, we launched Giftzzy, epay's own-branded non-reloadable open-loop Visa card in Australia. We expanded our partnership with Epic Games, introducing fixed denomination cards that enhance how players purchase digital content. Previously, users could only purchase Fortnite in-game currency called V-Bucks. Now users can use this card to purchase all content available in the Epic Game Store. We signed a new distribution agreement with Riot Games in India, broadening our reach with one of the world's fastest-growing gaming market. We also signed a gift card distribution agreement in Mexico with Mercado Libre, Latin America's largest e-commerce and marketplace platform. In our payment processing business, we continue to see strong momentum. We're cross-selling payment services to our existing epay content distribution merchants, both retail and online, and that strategy is paying off. Revenue from payments grew 27% year-over-year, reflecting the strength of our omnichannel approach. The pipeline remains robust with several exciting deals we expect to close in the near future. Now let's move on to Slide #15, and we'll talk about Money Transfer. As I mentioned earlier, changes to immigration policy and broader economic challenges weighed on our Money Transfer segment's revenue and transaction growth this quarter. However, as Rick mentioned, Ria continued to outperform the broader market decline to Mexico by 12%. Despite these near-term headwinds, we remain confident in Ria's ability to outpace the market, supported by its strong fundamentals and differentiated business model. Our omnichannel approach, expansive geographic presence, channel diversity and industry-leading real-time payments network set us apart from both digital-only and legacy multichannel competitors. This foundation differentiates us from our competitors and positions us well to capture new opportunities in cross-border payments, particularly through our Dandelion strategy, which continues to gain traction. Building on this momentum, as previously mentioned, we announced a new collaboration between Dandelion and Citibank. This partnership enhances the city's cross-border payments and remittance offering and expands its reach into the business to consumer uses such as payroll, social benefit and gig economy payments. We also launched Dandelion's service with Union Bank, the tenth largest bank in the Philippines and will soon launch Commonwealth Bank in Australia, another top 50 global banks. This and several other signings and launches during the quarter further validate Dandelion's role at the center of a faster, more modern global payments ecosystem. Within the remittance space, our digital business continues to perform well. Direct-to-consumer digital transactions grew 32% year-over-year and now represents 16% of total money transfer transactions, demonstrating continued adoption of our digital channel. Ria also achieved a key retail win this quarter through an exclusive partnership with Heritage Grocers Group, which operates 115 Hispanic-focused grocery stores under brands, including Cardenas Markets and Tony's Fresh Market. This was a competitive win and followed a successful mid-September launch. We are excited about the growth prospects with this partnership. On the network side, I want to briefly highlight again the partnership with Fireblocks and what that means for our Money Transfer segment. This collaboration will unlock interoperability between traditional and blockchain systems for faster, more efficient money movement. Within Money Transfer, this infrastructure will support stablecoin-based remittances on- and off-ramp capabilities, consumer wallets and real-time settlements advancing our long-term vision for integrating digital assets into our network. Bear in mind, these on- and off ramps are not easy to build. They're built one by one, a real advantage that we are excited to leverage. With that, we'll move on to the numbers -- to Slide 16, and we'll wrap up the quarter. As we wrap up, I'd like to highlight the growing traction across our Ren and Dandelion initiatives. While these opportunities often evolve long sales cycles and reference customers, our recent wins with Citi, the Commonwealth Bank of Australia and a leading U.S. bank demonstrates that our investments are paying off. We're entering a phase of accelerated adoption, and there's a lot to be excited about, including we delivered a record-setting third quarter results with adjusted EPS of $3.62, a 19% increase over the prior year. We continue to make steady progress towards completing the CoreCard acquisition with CoreCard shareholders scheduled to vote on the merger next week, an important milestone in expanding our digital payment capabilities. In August, we completed a $1 billion convertible debt offering at 0.625% interest rate maturing in 2030. The proceeds strengthened our balance sheet and increased our flexibility to pursue strategic growth opportunities. We signed a new partnership with Citibank, which will enable Citi's institutional clients to deliver near instant full value payments into digital wallets around the world through our Dandelion network, further validating Dandelion's leadership in real-time cross-border payments. And finally, we entered into a strategic agreement with Fireblocks, a leading digital asset infrastructure provider to bring blockchain stablecoin technology within Euronet's global payment network positioning us at the forefront of the next generation of financial connectivity and opening new and exciting opportunities to leverage our world-class on and off ramps. Together, these achievements demonstrate the continued strength, adaptability and innovation of Euronet's global payments network. As we look ahead, we are confident in our strategy, our technology and our ability to deliver sustained growth well into the future. We are looking forward to the fourth quarter. And once again, we are pleased to reaffirm our earnings expectations of 12% to 16% growth for the year. With that, I will be happy to take questions. Operator, would you please assist? Operator: [Operator Instructions] Our first question comes from Vasu Govil with KBW. Vasundhara Govil: Maybe to start off, Rick and Mike, if you guys could help unpack the slight softness in the EFT segment. It sounded like the travel trends you saw in Europe were pretty solid, but maybe there were some differences in spending patterns. So just trying to understand if the weakness was all in the ATM business or elsewhere like in the merchant acquiring and then whether it was transaction slowdown or just the transaction value slowdown? If you could help us unpack that, that would be helpful. Michael Brown: Okay. So first of all, all the data that we're getting from every place basically says that people are being very careful on their -- with their vacation spend, with hotels costing 40% more than they did in '19, airplane flights 50% more at least than they did in 2019 when people land, they have a little less money to spend. And then on top of that, there's a lot of worry across the world in the economy. So people are just being a little bit careful. So we've seen -- the nice thing about the -- we've seen that more in the ATMs. We actually have seen some of that too in merchant acquiring, but it's just our merchant acquiring, it's kind of growing like a band sheet. So we don't feel it quite as much there. But certainly, in the ATM business, people are just basically spending less, and then we see that at the ATMs. Vasundhara Govil: Got it. And then on the Money Transfer segment, I know immigration policies have been changing, and that's been a headwind in the industry, but you guys were actually bucking the trend up until last quarter. I recall you had a very strong 2Q. And I think you had called out July trends were actually improving versus June. So it would seem that most of the deterioration happened in August and September. So any color on the exit run rate, what you're seeing in October and sort of what changed... Michael Brown: Well, so we've seen that -- Vasu, we've seen that a little choppy. We said, yes, July looked good, and then sure enough, the next month or so, it went down. And like we landed where we landed and we're seeing October much stronger than we saw in September. So I think it's choppy, is the answer. I don't think I can tell you for sure what's going on, but it smells better right now. But it did last quarter at the same time. So we're just being cautious. We're 3 weeks in, and we're beating our forecast as we sit. We are growing many times faster than the industry is growing, and so many percent faster than the industry is growing. And in particularly, the largest quarter from the U.S. is obviously to Mexico. With that down 12%, and that's flat, I'd call that a win. So as this stuff settles, we'll be still be well positioned. And I think bucking the trend makes sense. I mean, we bucked it last time by about 8%. I think the industry was down in the neighborhood of 3% or 4%. We were up 5% or 6%. So we bucked the trend again last quarter. We are doing the same thing this quarter, but the trend is down. Operator: Our next question comes from Gus Gala with Monness, Crespi, Hardt. Gustavo Gala: You talk a little bit about pricing intra-quarter in Money Transfer. It seems like there were pricing drops in certain quarters, Mexico being one of them, U.S. to Mexico. Is there maybe a return to a less rational pricing environment? And if that's the case in the past, I think we saw it coming more so from smaller marginal players, how has this evolved? Maybe you can comment on how it looks along the vertices of digital versus retail and then domestic versus abroad? And I have a follow-up. Rick Weller: Yes. I would say on pricing, pretty consistent with what we've seen over time. There's pockets where it's a little bit more. I would tell you, we probably saw a little bit more of that in some of our Middle East kind of areas there, where a couple of -- and that's also kind of impacted a bit by the unusual nature of some of the black markets and how some of those currencies move in some of those markets. So that's where we've seen it a bit more. But on -- overall, on average, we had pretty consistent on a year-over-year basis in terms of revenues and gross profits per transaction. So I think our team did a nice job kind of balancing a little bit more the pricing pressure, like I say, in a couple of those markets with a little opportunity in some others. So net-net, it didn't show up in any kind of a meaningfully adverse way in the third quarter. Gustavo Gala: Got it. I appreciate that color. And then a similar line of questioning on Money Transfer just as the growth picked up from 29% to 32%. Over time, what do you think penetration of the transaction base could be digital? I think right now, it's about 13%, if you take the 6 million or so transactions. Michael Brown: I think our goal is to get our growth rate higher than 32%, and they're closer to 40%. That's our goal. And the nice thing is we're doing this without spending an absolute fortune. What people don't realize us compared to a pure digital player is when you walk through the immigrant neighborhoods, there are Ria plastered signs on all these little bodega windows. And so we've got a great marketing conduit there that's very reasonably priced. And so we hope to do better than 32%, but you're right. We watched ourselves grow from 30% or 29% to 32%. We hope that continues. And we're going to keep investing in it because it seems like those customers, their lifetime value is wonderful for us. Rick Weller: Yes. And we've gone from essentially -- well, we've gone from 0 to as we pointed out earlier, about 16% of those transactions are digital now. There are varying views as to what the market is out there. But let's say, in the 30% to 35% of the total business. And so we certainly have our goal set at getting to that mark. And as Mike said, as we grow in the 30-plus percent range, you could see how within a reasonable period of time, we could be at that level. So lots of growth ambition here. We'll have to see if the market continues to move farther up that, let's call it, roughly 1/3, that's more digitally oriented. In some cases, we're quick to think that customers will want to quickly use a digital product because it's easy, it's convenient. On the other hand, we know from talking with customers that not all customers want to use the digital product. They -- you have to remember the customer comes from a lesser developed country. They haven't used financial products like this before. They're not as comfortable with security and things like that. And so we have a lot of customers tell us we really like the over-the-counter product. We -- that's the way we prefer to do business. So we've got a business that's designed at delivering a product that the customer wants. We want to give them the product that's the most efficient for them. We'll continue to focus on that. But we just have to bear in mind that some customers out there absolutely want the product that we're doing a great job of delivering today. Michael Brown: And this is a great point. I mean what people don't get is that digital money transfers have been around for 20 years for 2 full decades and still the total penetration is about 35% of the market. Why is it after 2 decades that we can only get to roughly 1/3 of the potential transactions, I think it's consumer preference. So we want to make sure we're an omnichannel player. We're going to play it both ways. We're going to take people. We get a lot of our customers who are digital that actually go back and forth between, I think it was 13%, 14% of our digital customers go back and forth between physical and digital. Operator: Our next question comes from Mike Grondahl with Northland. Mike Grondahl: Revenues been decelerating this year, 9% in 1Q, 6% constant currency in 2Q and then 1% in 3Q. How do you want people to think about constant currency revenue 4Q in '26? Anything to call out epay promotions or anything? Can you just talk through that a little bit? Michael Brown: Well, all I can tell you is that our bottom-up forecast for Q4 look like it's turning around the other way. Now we'll see if that all comes through, but we've got early indications in October that it seems to be. So maybe we're through the worst of it, we'll find out. Mike Grondahl: Got it. And if you had to say, it looks like money transfer was the most pressure, and you've called out the immigration stuff. What would you put in the second and third bucket is where pressure really existed? Michael Brown: It's economics. I mean let's not -- so let's just say immigrant policy was exactly the same as it was 3 years ago. The reality is, with inflation going up, everything costing more, people are sending back less money or doing it less frequently because they just have less money. When the economy is strong, this is something you'll notice for all that's money transfer company. When the economy is strong, all our numbers go up. When the economy is weak, all our numbers go down. It really doesn't matter. So we've got a weakened economy now. And there -- and people are worried because some forecasters are predicting that it's going to get even weaker. So that's what's working against this. Mike Grondahl: Got it. And hey, post the convert transaction, and I know CoreCard is closing soon. How are you thinking about buyback versus acquisition? Michael Brown: I think it's the same as we always have, Mike. The reality is we look for good accretive acquisitions, ones that can add to our strategy and if we can't find those, then we will look to share buybacks if we believe that our stock is undervalued and it is now, so we just have to look. And the nice thing is we're seeing opportunities. We basically bought back the shares that are required for the CoreCard acquisition, we bought those back in the second quarter. So net-net for the year, it's really no impact. So -- but we kind of look at it every quarter and we say, okay, we threw off a little over $100 million in positive cash in quarter? What do we have on the plate for potential acquisitions? And if we don't see anything, then we will -- and our stock is undervalued, we'll look at buying back stock. We've got opportunities all over the place. I mean we've got them in Ren, we've got them in Dandelion, we've got them with CoreCard. Its a big one here that we're doing. We've got some acquiring things we're looking at. So I'm hoping that we can continue to spend -- what we've done is spend like -- Rick said, we spent 85% of our positive cash flow over the last 4 years on stock buybacks. I'd like to -- to me, a better balance might be 50-50. Mike Grondahl: Got it. And then just lastly, quick on the CoreCard. You're going to be issuing, is it about 2.5 million shares for that? Rick Weller: 2.3. Operator: Our next question comes from Charles Nabhan with Stephens. Charles Nabhan: I wanted to drill into your comments around epay. Specifically, I think you had mentioned that aside from the headwind, that segment would have grown in line with operating income, which is roughly 4%. So I guess, first, if my math is correct, that equates to a roughly $15 million headwind from the discontinuation of that business? And then secondly, I wanted to confirm that. And then secondly, if you put that aside, it's still growing by mid-single digits, which is below trend. So I wanted to see if there was anything going on from a promotional standpoint that was lower this quarter? Or if we should think about that mid-single-digit trajectory is sort of the normalized growth rate for epay? Rick Weller: No, I think first of all, I think you've got the math roughly right there. And then as Mike said, we feel a little of the economic pressure here, too, because a lot of the folks that purchase the epay product, it essentially is discretionary spend purchasing stuff. Gaming, entertainment and things like that. So kind of at the edge, if that takes off 2%, 3% or 4%, that kind of keeps you from being at that kind of upper single-digit growth rate rather than kind of a mid-single-digit growth rate. So that's kind of what we see. And most -- almost all of what we have in our epay business is outside of the United States. So those are economies that we don't see as much around here in the press. But it's the Asian economies and things like that. Some of these economies have the reciprocal effect of things like tariffs, if you think about it. Here you think tariffs are adding cost into the picture. Over there, it might be that tariffs are reducing the amount of sales that they're able to do, and that impacts jobs and things like that. And so we've seen that in that part of the business. So I don't see anything fundamentally in there. There wasn't anything different really on the promotion side of the business. And as we pointed out in here, we're making a lot of good headway signing up some alternative things with like the gaming community. There were some changes in that business whereby certain parties weren't allowed to restrict people's ability to use credits and things like that. We anticipate another party that's going to break open like that, too. So we see some movement in that area. Also, if you just take a look at the -- I'll just call it the entertainment gaming world there, you may or may not know, but those numbers now exceed the video, the movie industry. So we see good opportunity in that business, but I think we've just kind of felt a little of that pressure on the economy there as well. Charles Nabhan: Got it. And as a follow-up on Money Transfer, are you seeing your customers send larger balances at a lesser frequency? And then secondly, you had characterized the conditions as transient, particularly around the U.S. Mexico corridor. And I know it's tough to pin down the timing of that, but what gives you the confidence that we're going to move past this. Are you seeing anything in the data that just kind of gives you that confidence? Or are you having conversations with your customers or even regulators that just kind of gives you the confidence that we could eventually move past this over the next couple of quarters? Rick Weller: Well, I think it gets down to some real macro perspectives on the economy. And you've even seen some of these kind of things play out as the border restrictions have tightened in this new administration is not only the United States, but all developing -- developed countries, are essentially seeing population declines, they're seeing the need to have labor come in and support their economy. In the United States, we have a very strong need for labor in several industries. You could see it play out in, for example, the farming industry, where there were special appeals made so that there would be, let's say, potentially less pressure on migrant labor to help with crop harvesting and things like that. So we've seen kind of a little bit of that reaction where the administration has said, oh, okay, yes, we do need -- and they obviously acknowledge that we do need that type of labor to support this economy. You look at the estimates of immigration around the world. And again, like I say, in other developed economies that need it, we talked recently in the second quarter with the acquisition of this small business in Japan, another economy that is dependent upon having migrant labor come in to help in that market. So those are the things that we look to, to say, we believe that it will be migratory. The -- and then the transitory -- I'm sorry, not migratory, figure out which tories I'm talking about here. But that's what kind of gives us that view. And it's not different than if we look to the past 18 years that we've had the real Money Transfer business. We will see some ebb and flows in terms of what happens to different administrations and things like that. But at the end of the day, these economies are dependent upon these types of labor sources, and we feel that it will resume. Operator: Our next question comes from Darrin Peller with Wolfe Research. Daniel Krebs: This is Daniel Krebs, on for Darrin. If we could move back to the EFT Segment. I'm looking at ATMs growing pretty consistently, 4% to 5% overall this year. Could you unpack that by geography a little bit? What portion of that is driven by non-European ATMs? Rick Weller: It was a little heavier weighted towards the non-European side. And as you may recall, a number of our prior discussions as we continue to expand. Today, we called out places like Morocco, Egypt, some places like that. We see opportunity there. We were hoping to make a little more advancement in some of the South or Lat Am markets, one in particular. And then the sponsor bank we were using was the U.S. put a hold on doing business with that bank. So we had to scramble and change sponsor banks, which we've successfully done. And so it will now come back into the fold. But net-net, a little more biased towards the non-European side. Michael Brown: And let's not forget, too, that the non-European side throws off considerably more profit per ATM on average than the European one. So but they're a bugger to get into because you've got to get a sponsor bank. You've got to let the central bank has to give you authorization. You've got to find your source of cash. It's not like Europe where one license gives you access to all the markets. So it takes a while to do it, but they're very lucrative countries. Daniel Krebs: Got it. Understood. And then if we sort of extrapolate these trends, if you look out 5 years from today, Mike, do you envision having fewer ATMs in Europe than you do today for perhaps the trend is offset by more outsourced banking deal... Michael Brown: So that's an interesting thing. So on one hand, I would say if transactions continue to be stressed on how much people are spending and so forth, we may take a hard look at every one of our ATMs and just make sure that we call the ones that aren't profitable enough in Europe, and that could happen. On the other hand, we see another where we've seen that a number of countries and banks use us as an extension of banking infrastructure. It's not a tourist game anymore. You take a look at Spain, we had 2,000 ATMs in Spain, and then they were -- then they added a surcharge in Spain and then all the banks there wanted to have wholesale access to those ATMs because the central government was forcing the banks to give cash access, yet a number of the biggest banks in the market had combined and they closed a bunch of branches. If you want to look, Google it up, but you can look at the term cash desert all across Europe. Branches are closing. And so government are requiring banks to give easy cash access to people and work like the last man standing who has a good national ATM network. So we're basically being paid by the banks to do that requirement for them. So now in Spain, we have 4,000 ATMs, where we probably would have stopped at 2,000. So we've got some -- every market is a little bit different. So you could see in some markets, we might cull some ATMs, other markets, we might have an opportunity because we're playing the bank infrastructure game, which, by the way, is not tourist-based, like I said, and not tourists. You don't have to worry about how many -- how much the tourist spend because they just want x amount of ATMs that they have access to. That's a pretty good game for us. I think we have maybe one question left, operator. Operator: This question comes from Rayna Kumar with Oppenheimer. Anthony Cyganovich: This is Anthony Cyganovich, filling in for Rayna. Rick, you had mentioned some immigration impact in other markets outside of the U.S. in regards to Money Transfers. Is there any color you can give on which other corridors you're seeing a little bit of softer growth? Rick Weller: Well, now you're talking about, okay, corridors because some of these markets go across several of the corridors. We've seen some stuff like into like the Bangladesh area, like so transfers into those areas, the Pakistan type of areas and a little lighter transactions going into places, like Turkey. And if you kind of map some of those corridors with countries like Germany and U.K., you could see that they've got some immigration actions going on, some different positions that are being taken there. But those are kind of some examples of what we've seen out there. Anthony Cyganovich: Okay. Got it. That's helpful. I guess my follow-up question is, if you guys look at kind of these macro and policy-related challenges persisting over the next few quarters. I mean, Euronet historically has been a double-digit EPS grower throughout its history. I mean do you feel like this is -- if this persists, Euronet can still generate double-digit EPS growth in 2026? Michael Brown: Absolutely. Absolutely. I mean we've got so many things going on. We've been doing this for 20 years. We've had 1 year that we didn't do that out of 20 years -- 30 years, actually. And we see a lot of opportunities. I mean, we've got CoreCard hopefully, that if their shareholders vote for that. There's a lot of opportunity there. We kind of see it across the board. There are several other things we announced in these quarters do not kick off revenues instantly, but over time, they do, and that's what we're feeling comfortable about. Rick Weller: Yes. And let's kind of put in perspective the quality of the assets that we have in our business, okay? We've got operations literally around the world. We serve customers in different types of segments. We're moving much more rapidly towards digitization on everything, as we've shown you in the past, ATM, the money that we -- revenue we make off of ATMs is less than 20% of our consolidated revenue, with additions into our business like CoreCard, which opens up a new channel, a new product for us to sell. And it really has been -- it's really been exciting to see the energy coming from the sales team that have talked with folks about the credit product that we're going to be offering. And that's not in the United States. It's outside the United States, where credit has not been as highly exploited as it has been here in the United States. And so these fintechs and banks, they see real opportunity in that. Mike talked about the stablecoin. I think we're on the front edge of seeing something happen. And again, look at the quality of our asset infrastructure with our on- and off-ramps. You can throw some code together to do a blockchain transaction pretty quickly. But you can't throw together a network that's got 4 billion bank accounts connected to it, 3 billion wallet accounts, over 600,000 places to be able to pick up money or send money. We've got an enviable on- and off-ramp network that can really be leveraged with the advances in tokenization or stablecoins or things like that. And that's really been what you've seen over the life of Euronet. When we had picked up the epay business, I'll just recount that it used to be that it was 100% mobile top-up. It's now more than 70% non-mobile top-up, it used to be 100% at the retail. It's now more than 70% transactions are going through digital. So we've got this wonderful asset base here. We see some things happening on the horizon that really give us the advantage to go after that in a great way. And it's not restricted to any particular geography. We've got great technology that underpins all of this. So yes, I mean, Mike's comment, do we -- are we able to keep this? We don't see that there's any reason that we shouldn't be able to continue our history of double-digit earnings growth. Michael Brown: Thank you, everybody. I think that's it. Thank you, everybody, for joining today. Operator, you can close down the call, but thanks a bundle. See you next time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Darling Ingredients Inc. conference call to discuss the company's third quarter 2025 fiscal results. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Ms. Suann Guthrie, Senior Vice President of Investor Relations. Please go ahead. Suann Guthrie: Thank you, and thank you for joining the Darling Ingredients Third Quarter 2025 Earnings Call. Here with me today are Mr. Randall C. Stuewe, Chairman and Chief Executive Officer; and Mr. Bob Day, Chief Financial Officer. Our third quarter 2025 earnings news release and slide presentation are available on the Investor page of our corporate website, and it will be joined by a transcript of this call once it is available. During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the risk section of our Form 10-K, 10-Q and other reported filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I will hand the call over to Randy. Randall Stuewe: Okay. Thanks, Suann. Good morning, everyone, and thanks for joining us for third quarter earnings call. Our core ingredients business delivered its strongest performance in 1.5 years fueled by robust global demand and exceptional execution across all operations. While the renewables market is facing some short-term uncertainty as we wait for clarity on the renewable volume obligation, we're confident that momentum is building. We believe we're on the verge of a shift that will highlight the strength of Darling's integrated model, a competitive advantage that is unmatched in the industry. Our combined adjusted EBITDA for third quarter was $245 million as our Global Ingredients business performed strong with $248 million of EBITDA. As I mentioned, the renewables business continues to be challenged as we posted negative $3 million EBITDA for DGD, which included a lower of cost or market expense of $38 million at the entity level. Bob is going to discuss more details later in the call. But I will say that both LIFO and LCM were negative in the third quarter, which is unusual and does not typically happen for extended periods. In addition, uncertainty and continued delays in getting a final RVO ruling had a negative impact on the overall biofuel environment in the U.S. during the quarter. Now in our feed segment, in our Feed Ingredients segment, global rendering volumes margins were up both sequentially and year-over-year, driven by strong demand for fats and proteins and solid execution by our global operations and marketing teams. In the U.S., robust demand for domestic fats, supported by a strong national agriculture and energy policy helped boost revenue and margins. elsewhere in the world, our global rendering business, particularly in Brazil, Canada and Europe demonstrated stronger year-over-year performance. Export protein demand is showing signs of recovery with slightly firmer pricing trends emerging. Tariff implications, primarily China and APAC countries clearly have impacted our value-added poultry protein products, which serve to meet the needs of global pet food and aquaculture customers. Turning to our Food segment. Performance remained steady quarter-over-quarter sales dipped slightly in the quarter as customers responded to ongoing tariff volatility, but we offset that with strong raw material sourcing and disciplined margin management. We continue to see repeat orders for our next Nextida Glucose Control product and early studies on new formulations look promising. We're on track to launch our new next Nextida product in the back half of 2026. In our fuel segment, the renewables market continues to face headwinds. This quarter, we saw higher feedstock costs, lower RINs and LCFS pricing, which ultimately impacted margins. A scheduled turnaround of DGD3 led to reduced volumes of renewable diesel and sustainable aviation fuel and DGD1 remains idled until margins improve. We believe these pressures are temporary. As mentioned earlier, we're approaching the rollout of thoughtful public policy aimed at strengthening American agriculture and energy leadership, a shift that we believe will significantly enhance DGD's earnings potential. Now with that, I'd like to hand the call over to Bob to take us through some financials, and I'll come back at the end and give you my thoughts for the balance of 2025. Bob? Robert Day: Thank you, Randy. Good morning, everyone. As Randy mentioned, core business results for third quarter improved as expected, while DGD faced some challenges that we'll explain later in the call. Specifically, third quarter combined adjusted EBITDA was $245 million versus $237 million in third quarter 2024 and $250 million last quarter. Adjusting for DGD, the quarter was very solid at $248 million versus $198 million in 2024 and $207 million last quarter. Total net sales in the quarter were $1.6 billion versus $1.4 billion while raw material volume remains steady at 3.8 million metric tons and gross margins improved to 24.7% for the quarter compared to 22.1% last year. Looking at the Feed segment for the quarter, EBITDA improved to $174 million from $132 million a year ago. Total sales were $1 billion versus $928 million, Feed raw material volumes were approximately 3.2 million tons compared to 3.1 million tons and gross margins relative to sales improved nicely to 24.3% versus 21.5%. In the Food segment, total sales for the quarter were $381 million, higher than third quarter 2024 at $357 million while gross margins for the segment were 27.5% of sales compared to 23.9% a year ago, and raw material volumes increased to 314,000 metric tons versus 306,000. EBITDA for third quarter 2025 was up significantly compared to 2024 at $72 million versus $57 million. Moving to the Fuel segment, specifically Diamond Green Diesel. Darling's share of DGD EBITDA was negative $3 million for the quarter versus positive $39 million in the third quarter of 2024. While the environment for renewable fuels has been challenging, results were further impacted by 2 items. First, a catalyst turnaround at DGD3, Port Arthur, which included a pause in operations for approximately 30 days, limited staff production and the higher average margins associated with that product. And second, end of quarter market dynamics led to negative impacts on earnings from both LIFO and LCM which, in most cases, would move in the opposite direction and have an offsetting impact. Regarding LIFO, rising feedstock prices throughout the quarter and higher quarter ending values resulted in a negative impact to EBITDA, while LCM was impacted by lower heating oil and RIN values in the days after quarter end, resulting in an LCM loss of around $38 million at the entity level. After 3 quarters, the combination of LIFO and LCM has resulted in a wider than normal loss that should reverse course over time. In addition to those 2 items, the biofuel market in the U.S. has been challenged by policy delays, specifically delays in RVO enforcement dates for 2024 obligations, clarity around small refinery exemptions, SREs, SRE reallocations and the final RVO ruling for '26 and '27. However, the EPA made a supplemental proposal on September 18, that would be very constructive. In the first page of the appendix in the shareholder deck that we provided, we've shown a picture of the 2025 RIN supply versus demand, showing how these policy issues have led to an oversupply for 2025 and also showing what the balance looks like considering the EPA's proposal comparing 50% SRE reallocations and 100% reallocations for '26 and '27. In either case, a significant amount of additional U.S. biofuels would be needed to satisfy that RVO, suggesting higher prices for feedstocks, farm products and wider margins for biofuels. With lower biofuel margins and late in the year timing related to receiving production tax credit PTC payments, we contributed $200 million to DGD during the quarter. a total of $245 million year-to-date, which includes a $5 million contribution subsequent to quarter close. These contributions are offset by the $130 million dividend received in first quarter 2025 and payments from expected sales of around $250 million of PTCs that we expect to receive in the fourth quarter. To further clarify regarding PTCs, we expect to generate a total of around $300 million in 2025. During the third quarter, we agreed to the sale of $125 million. We anticipate an additional $125 million to $170 million of sales in the fourth quarter and we estimate receiving payment for around $200 million of the total $300 million we will expect to generate by year-end 2025, the balance of which we expect to monetize in early 2026. Overall, we are very pleased with how the market has developed for production tax credits. Demand is robust as potential buyers have become more familiar with the details surrounding the credit. Other fuel segment sales, not including DGD, were $154 million for the quarter versus $137 million in 2024 despite lower volumes of 351,000 metric tons versus 391,000 metric tons which were affected by animal disease in Europe. Combined adjusted EBITDA for the fuel segment was $22 million in the quarter versus $60 million in the third quarter of 2024. The difference was primarily due to lower earnings at DGD. As of September 27, 2025, total debt net of cash was $4.01 billion versus $3.97 billion ending December 28, 2024. The increase from year-end is minimal despite contributions made to DGD and a $53 million earn-out payment related to the FASA acquisition from 2022. Capital expenditures totaled $90 million in the third quarter and $224 million for the first 9 months of 2025. We expect total debt to decrease by year-end as we generate cash from the core business and receive payments from selling PTC credits. Our bank covenant preliminary ratio at the end of third quarter was 3.65x versus 3.93x at year-end 2024. In addition, we ended quarter 3, 2025, with approximately $1.7 billion available on our revolving credit facility. The company recorded an income tax benefit of $1.2 million for the 3 months ended September 27, 2025, yielding an effective tax rate of minus 6.3%, which differs from the federal statutory rate of 21% due primarily to recognition of revenue from the production tax credits. The company paid $19 million of income taxes in the third quarter and $52 million year-to-date and expects to pay approximately $20 million more in the fourth quarter. Overall, net income was $19.4 million for the quarter or $0.12 per diluted share compared to net income of $16.9 million or $0.11 per diluted share for the third quarter of 2024. Now I will turn the call back over to Randy. Randall Stuewe: Thanks, Bob. I couldn't be more excited about what's ahead for Darling Ingredients. And our conversations with the Trump administration, they followed through on everything they've committed to. The renewable volume obligation they've drafted is thoughtful and designed to support American agriculture and energy leadership. And we believe it will be a major catalyst for Diamond Green Diesel. The pieces are in place, and we believe it's only a matter of time before Darling's unmatched position in the industry becomes even more clear. As we look ahead, we remain focused on what we can control, given the current uncertainty around public policy and its impact on the fuel segment, we'll now provide financial guidance exclusively for our core ingredients business. For the full year 2025, we expect the core ingredients business EBITDA, excluding DGD to be in the range of $875 million to $900 million. With that, let's go ahead and open it up to questions. Operator: [Operator Instructions] The first question comes from the line of Thomas Palmer with JPMorgan. Thomas Palmer: Maybe just to start out, you gave some helpful scenario analysis for RIN balances and how that might proceed over the next couple of years in the earnings presentation. I wondered about what you think the most likely time line is that we might start to get clarity on some of these outstanding regulatory items, the RVO, the exemptions and then the reallocation. Robert Day: Thanks, Tom. This is Bob. Obviously, a difficult question to answer. As everyone is aware, the government has shut down. At the same time, we've heard that the RVO is considered an essential process. We have people there at the EPA that are working on this. So we're optimistic based on that view and the things that we're hearing, we expect sometime in the month of December to have the comment period closed or the EPA to submit to the Office of Management and Budget their proposal and to have something approved by the end of the year. But like I said, that's amid a lot of things going on, but that's our view. Thomas Palmer: Okay. I know it's a unique situation. And then I just wanted to clarify on the Feed outlook for the fourth quarter. The midpoint of the core ingredients EBITDA guidance implies for the kind of 3 combined segments that 4Q is comparable to what we saw in 3Q. At the same time, it does look like the price of waste fats and oils have dipped a bit in September. So do we need prices to rebound in order for 4Q to look similar to 3Q? Or are there other things we should be considering as we move from 3Q to 4Q? Randall Stuewe: Yes. I mean, Tom, this is Randy. I mean the $875 million to $900 million, the reason we put the range on there was exactly as you laid out. We have seen, given the uncertainty on policy waste fat prices come down a little bit here most of our material in North America is going to DGD. But remember, there's still Brazil and Canada and prices remain strong there. So ultimately, it's kind of -- it's a fairly narrow range for the business. As I look around the horn on DGD, I expect the Food segment to be stronger a little bit in Q4, maybe a little consistent, maybe a little on the Feed segment. But I think we'll come in close to that range. And hopefully, we can surprise you 1 day and be above it. Operator: The next question comes from the line of Conor Fitzpatrick with Bank of America. Conor Fitzpatrick: It looks like your RIN supply and demand table in the slides calls for significant biomass-based diesel feed imports through 2027. As a coastal operator, DGD may import feed and receive the RINs penalty on those gallons but could you maybe walk through the benefits to RINs policy protectionism on the feed side and maybe explain how that nets out within your U.S. fuel and feed businesses? Robert Day: Yes. Thanks, Conor. This is Bob. If I don't answer your question directly, let me know. I think the first thing I would say is, it's still not totally clear how the EPA is going to treat foreign feedstocks. That's a part of this process. As to whether foreign feedstocks are needed to meet the production and the obligations. It's going to depend on a lot of things. We do have a lot of crop -- crops and crop oils in the United States and overall North America that could be used as feedstock for biofuels. So until some of the rules around what -- if there are penalties for foreign feedstocks and how some of the crop oils are going to be treated, it's really hard to answer that question. I will say that I think when you look at overall supply and demand for fats and oils in North America and you include biofuels and food and this picture and this proposed RVO from the than probably some foreign feedstocks will be required to meet that mandate. And we're just not clear yet on how that will be accommodated. Operator: The next question comes from the line of Dushyant Ailani with Jefferies. Dushyant Ailani: Congrats on the quarter. I also wanted to note that we really appreciate the change in guidance approach that does help us. My first question was on the 3Q DGD margins. The capture was significantly better than expected. What are some of the drivers there? Robert Day: The third quarter capture was better? Is that what you said? Dushyant Ailani: Yes. Yes. For the DGD margins, it just came in better than expected. Was it like staff production or any export ARP that we can think of? Robert Day: Yes. I think the -- so I'm not sure I fully understand the question because the DGD result was maybe not as good as we hoped... Randall Stuewe: I'll help Bob here a little bit. I think, Dushyant, you're referring to the capture that Valero reports. And keep in mind here, this is a bit awkward in that they met their LCM against their other segments. So they had the same LCM we have. They just didn't put it against the renewables or DGD segment. So that's what makes the capture rate look better. Dushyant Ailani: Got it. Okay. That's helpful. And then maybe just staying on topic for the 4Q DGD margins. But we understand the nuance on removing the DGD guidance. It seems like fundamentals are still improving nicely. Indicator margins are up, again, Valero's indicator margins seem to be up $0.36 quarter-over-quarter. What are you seeing in 4Q? And how do you kind of think about that? What are some of the puts and takes, if you can share? Randall Stuewe: Yes. I mean this is kind of the challenge that's out there. I mean clearly, the 2 big units in Port Arthur and Norco are going to be operating at capacity. SAF is going to be at capacity yes, the capture indicator is stronger right now. The challenge for us is we thought by this time, we would have RIN values kind of starting to reflect the restarting of the industry and they really have it yet. So it's kind of hard. I mean we're the low-cost operator. We have enough feedstock to run our units. Our SAS margins are better than classic renewable diesel. And what else you want to add Bob? Robert Day: Well, I think we have seen an improvement in margins so far in the quarter. The question is just -- or the point here is until we get clarity on the final ruling on the RVO for '26 and '27, it's hard to it's hard to say with certainty that those margins are going to continue. But thus far in the quarter, yes, we've seen some improvement. That's for sure. Operator: The next question comes from the line of Manav Gupta with UBS. Manav Gupta: My first question is we saw a good improvement in your Feed segment margins. I think Randy, over the years, you had indicated that eventually those acquisitions coming in you would be able to drive improvement in those fronts. So help us understand some of the factors that drift help you drive a movement in the Feed segment margin? And also to an earlier question, yes, imported feedstocks might be needed, but domestic feedstocks will price at a higher premium because they'll get 100% win. So what would be the outlook for the Feed segment going into 2026. If you could talk a little bit about that? Randall Stuewe: Yes. I mean, clearly, as we've talked in Q1 and Q2, we've used the word building momentum. We were seeing feedstock prices come up what we've seen mostly is feedstock prices are flowing through now, although they've come off a little bit for Q4, but we're seeing protein prices improve around the world. It's -- I call it there's a tariff on 1 day, a tariff off 1 day. China needs to buy poultry proteins to feed aquaculture and whether it's China or Vietnam when the window opens, they trade. And so we've seen a pretty nice improvement. You can look sequentially, you can look year-over-year in the appendix of the supplier or the shareholders' debt there. and ultimately see the pricing movement. Clearly, fat prices were up sharply. The products we use at DGD and -- but protein prices were up 10%. So I think we're going to carry into Q4, remember, we're always about 60 days sold ahead. And so we'll carry some pretty strong prices into Q4. And I'm hoping that as we move into next year, we'll have kind of the same momentum. There's always a little bit of seasonality here, but really, that's kind of what I'm expecting as I look out there. Manav Gupta: Perfect. My quick question on the table that you have created. It's very helpful. But help me understand, here you're assuming a flattish capacity. We know there are facilities which are heavily dependent on foreign feedstocks at this point of time, and they are still struggling I think they will struggle even more next year if you decide to give only 50% RIN to imported feedstocks. So is there a possibility this RIN balance would look even more attractive if some of those facilities that are heavily dependent on imported feedstock actually decided to call it a day and shut down. Randall Stuewe: Yes. I think Bob and I will tag team this. My answer is we went into 2025 with the belief that the DGD margins would be no lower than they were in 2024. And we were wrong. And where were we wrong? Well, we didn't understand that the big oil guys would actually run at such significant losses to produce their own RINs. We believe that's changing as we come into 2026 and 2027. The losses at those plants are substantial. I mean it clearly shows how efficient and operationally effective DGD is. The RIN balance that Bob will talk about here in a minute, yes, it actually gets even more constructive if people behave rationally. Robert Day: Yes. And I'll just add, I think all of that is true. In addition, the proposed RVO for '26 and '27 is substantially larger than 2025. So even if we had similar production, as you noticed from the grid that we provided, then we will ultimately have a deficit in '26 and '27. And what this is intending to show is specifically that. And then beg the question, how much do margins need to improve in order for production to increase so that we can satisfy the mandate '26 and '27. You add a layer of complexity when you -- with the imported feedstock and if imported feedstock only generates half a RIN. I think that some of that is going to depend on what is the origin tariff placed on that feedstock -- if a feedstock, if a foreign feedstock only is penalized by getting half a RIN and then not being eligible for the PTC, then it's reasonable to expect a decent amount of foreign feedstocks to competitively come into the United States. It would just come in at a discount to the U.S. feedstock prices which, again, is constructive to the feed business and our core rendering business in the United States, but it would allow for satisfying the mandate for the RVO but it would -- again, it suggests that margins need to go up quite a bit in renewable diesel in order for that to happen. Operator: The next question comes from the line of Pooran Sharma with Stephens Inc. Pooran Sharma: I just wanted to maybe just peel into to that last answer you gave there, Bob. I know in the past, you have kind of walked through different RIN pricing scenarios and there are a little moving pieces here just with how foreign feedstocks will get counted. But just as it stands now, no PTC, half a rent for the foreign need stocks, are you able to quantify like what range RINs should be at in order for the industry to run, to meet the mandate in 2026? Robert Day: So this is going to be somewhat of a swag here because like you said, there are a lot of moving pieces. And if we assume that there's -- we have access to our origin feedstocks that don't face a significant tariff. And the primary source of the penalty is the half rent and lack of access to a PTC. Then we probably need RINs to go up $0.40 or so in order to incentivize enough production to satisfy the mandate for '26. If the SRE reallocation is only 50%. Pooran Sharma: Great. Great. Appreciate that. My follow-up, I just kind of wanted to focus on the balance sheet more specifically your debt and leverage. I wanted to revisit what your plans are to pay off debt. And I also wanted to ask, what are your restrictions? Like what leverage ratios do your debt restrictions, the covenants start kicking in at? Robert Day: We're nowhere near breaking any covenants. I think we've said before, we're committed to paying down debt. We've got a lot of headroom in our revolver due to circumstances around receiving cash payments from selling production tax credits we will be receiving more cash in the fourth quarter, and we didn't receive any cash from production tax credits in the third quarter. And so by the end of the year, we expect our debt coverage ratio as it's viewed by the banks, to be right around 3x. So that's really -- that's our position on that. Randall Stuewe: And long term, Pooran, we've got a financial policy agreed in the board room to go down to 2.5x. It doesn't take much for the restart of DGD to start to do that. We've not been in a capital deprivation or starvation mode of any of the factories globally. So we're in good shape here to continue to build this thing out and grow and delever at the same time. Operator: The next question comes from the line of Ryan Todd with Piper Sandler. Ryan Todd: Sorry, I know you talked a lot about this, but maybe one more follow-up on some of the regulatory uncertainty. I mean the -- as we wait for the final RVO, I mean, you've talked about the uncertainty around reallocation and a couple of other things. What are some of the other topics that you think are still being kicked around. Is there a possibility of any change in the approach to import of foreign biofuels? Are they still -- is there still a consideration in terms of the treatment of domestic feedstocks in terms of carbon intensity, like land use penalties and stuff like that? And what are some of the potential risks or positive things you think could come out of the final ruling there outside of just kind of the high-level RVO and the reallocation? Randall Stuewe: Well, I think, Ryan, this is Randy and Bob and I'll kind of tag it again here if I leave anything out. I mean, clearly, American agriculture is at the forefront of the discussions in D.C. right now. Clearly, when you lose your largest customer for soybeans, when you get beef prices as high as they are, you've got a lot of people in the room that have ideas on how to fix the situation. And so what we've been part of, as many of these discussions is, what's the easy button. The easy button here is a large SPO for RVO with a 100% reallocation. Now if you go back and you look, really, the ETA gave you a multiple choice test. It's at either 50% or 100%, but if you're really inclined, you can talk about something else you'd like. And so they've set the table there. Clearly, the PTC out there is -- doesn't encourage foreign feedstocks. So I mean that's a block in itself with a tariff on top of that even makes it more difficult. We've had discussions in D.C. and we said, well, the easy button is that, just remember, if you don't allow foreign feedstocks in here because they can't generate a credit then, oh, by the way, where are those feedstocks going to go and the room goes silent. They finally got it. They realize those stocks are going to go back to other processors, you can probably name who they are around the world in Singapore and Rotterdam and Porvoo, Finland. And then they're going to move finished RD on top of us and that's disruptive to what they're trying to accomplish. So they're trying to figure out right now how to manage that under the tariff code. So you've got the U.S. trade along with the EPA collaborating, trying to figure out how to put this together to accomplish the needs that are going to produce energy and be constructive to the U.S. farm community. Robert Day: Yes. And I'll just add that as we sit here today, the EPA has already proposed a 50% RIN generated for foreign biofuel, no access to PTC. So -- that in and of itself makes it more difficult. But as Randy said, there's a lot of momentum to preventing foreign biofuels to come in and participate in U.S. support programs. So we're pretty confident that, that's going to work out well as it relates to feedstocks, that is another thing that we're waiting for clarity on and whether they're going to enforce the 50% RIN concept or if we're -- foreign feedstocks are simply going to be limited by origin tariffs. Ryan Todd: Okay. And then maybe just -- I mean you talked about -- you provided a little bit of clarity around PTC monetization. You've had a couple -- you're a couple of quarters into the experience of a few quarters in the experienced production under the PTC regime, you're getting more consistency. Can you talk about how the monetization market seems to be working there? Have the discounts been fairly stable? And how should we think about the general ratability of the process at this point? Is the $125 million this quarter, $150 million at the midpoint next quarter? Is that like a -- are you in a fairly ratable place now in terms of monetizing the majority of your production? Robert Day: Yes, I think so. I think the context here is that there were 2 things that made it difficult earlier in the year to sell production tax credits. One is that not many counterparties were familiar with the credit itself. So there was lots of questions. The value of the credit is determined in part by carbon intensity. So you can just imagine for industries looking to buy tax credits that aren't familiar with our biofuel industry trying to understand all that is not an easy thing. And then the other is that most companies had -- it was pretty cloudy what their tax liabilities were going to look like at the end of '25 because of the Big Beautiful Bill and a lot of things that went on around that. So early in the year, it was difficult to get a lot of traction. That's obviously changed significantly. Both of those pictures are a lot more clear. And so yes, I think that for us, we're confident in our ability to sell a majority of the credits that we'll generate in 2025 and then it should be a pretty ratable process through 2026. Randall Stuewe: Yes. I think just one last piece to that is I would characterize the environment is there is more interested parties now. than there were earlier in the year. So it's now getting a chance to define terms, refine terms and pick the counterparty that we want to deal with, with timing respective to when to receive the cash. So it's a very constructive environment now. Operator: The next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: Regarding guidance, I appreciate the position you guys are taking with the more volatile DGD business segment. With that said, we are seeing better stop margins in 4Q for most feedstocks and specifically for tallow and yellow grease. Would it be fair to highlight that DGD could post the best quarter in 2025 at current margins which, again, will be a positive development as you enter 2026? Robert Day: Yes. Thanks, Derrick. I think that would be fair. I think one of the things we're sensitive to is just how uncertain policy has been and the impact that, that's had on margins. I mean, look, we're very optimistic about improvement in the fourth quarter and the outlook for next year. But we realized that the market at large really wants to see proof of that before estimates believing a lot of what estimates are out there. So I think that we are encouraged by what we've seen so far in the quarter, and we think the outlook is good, but we're just hesitant to define that with a lot of precision, just given the lack of clarity around policy that we're still facing. Randall Stuewe: Bob, can you comment on what it takes to trigger RIN and obligations and when that would happen? Robert Day: So with the enforcement dates and -- yes. I mean, I think one thing that has caused a real delay in the reaction of the RIN, has been the movement of the 2024 enforcement date from March 31 to December 1. Until we get the final ruling on the '26 and '27 RVO and clarification as to when the 2025 enforcement date is going to be. It's difficult for obligated parties to feel that they're incentivized to go and buy all their RINs, especially when so many small refinery exemptions were granted for the small refineries out there that are wondering whether they should buy RINs they have an incentive to wait when the obligation date is set at a later time in the event that they get an exemption. And so what Randy is alluding to is until some of those things are clarified, which we do think is going to happen around the end of the year. But until those things are clarified, the incentive to buy RINs and tighten up the RIN S&D doesn't exist the way that it's intended. And so it's just -- it gets a little bit difficult to forecast. But we -- to your point, Derrick, we have seen an improvement in margins so far in the quarter. The outlook is better, and we're very optimistic about 2026. Derrick Whitfield: Great. Understood. And as my follow-up, we've seen the RD market in Europe strengthen in recent months. If you guys work through the complex math of spreads, shipping and tariffs, to what extent could you access this market if it remains robust? Robert Day: We can access that market, but we pay a duty to access that market. So -- and that duty can fluctuate a bit, but it's typically over $1 a gallon. So we are selling consistently to that market. Our Diamond Green is. But it's just -- it's -- we're looking at it as a net of duties and comparing that to other markets we have available. Operator: The next question comes from the line of Matthew Blair with TPH. Matthew Blair: I was hoping you could talk a little bit about the feedstock mix at DGD. And I know that you're always looking to optimize and some of this is commercially sensitive. But just on a big picture basis, it looks like some of the indicator margins for RD made from vegetable oil are trending a little bit better than RD made from low CIP. So -- just overall, has DGD shifted to more of a veg oil mix? Or is it still pretty much all low CIPs? Robert Day: Yes. Thanks, Matthew. This is Bob. So I wouldn't -- DGD hasn't materially shifted its mix as I think you're aware, DGD1 is still down if DGD1 were to go back up and run, then that mix would shift more towards soybean oil. But as we sit here today, the mix hasn't changed a lot. Our best margins are on UCO and yellow grease and animal fats. And so we're going to maximize the opportunity we have to use those products. Randall Stuewe: Yes. The only thing that I would add, Matthew, is that clearly, in Q1 and Q2 as we were trying to figure out the rules around the PTC and 45Z redomesticating our supply chain was a pretty significant challenge. DGD is heavily reliant now on Darling's UCO and Darling's yellow grease and animal fat supply. And so we've got that up and running full speed now, and it's really visible now that you can see it in the earnings of our core ingredients business. And ultimately, it will translate into a better sales value within DGD. Matthew Blair: That's helpful. And then apologies if I missed this, but the contributions that Darling is making to DGD is that to help fund the DGD3 turnaround? Or why is Darling sending money back to DGD? Robert Day: Yes. And it's hard. So the answer to that question, some of that's timing, some of that is turnaround. Some of that is just the margin structure. So remember, that the PTC revenue that we will get as Darling, that flows directly to the partners. So that money doesn't stay inside of Diamond Green Diesel. That's number one. The other is, as you pointed out, in 2025, we've completed 3 catalyst turnarounds. And so our maintenance CapEx is higher in 2025 than normal. So it's really the timing of all those things that's led to the contributions that we've made. Operator: The next question comes from the line of Jason Gabelman with TD Securities. Jason Gabelman: I wanted to go back to something else that Bob had mentioned just around companies complying with their RIN obligations and that perhaps catalyzing stronger RIN prices. Can you talk about, I guess, more specifically the time line around that I think 2024 RINs are due December 1. And then at that time, the balances for 2025 should become more visible to the market. So do you expect that December 1st deadline to hold? And do you think that could be an initial catalyst to move RIN prices higher before we get the final RVO for '26 and '27? Robert Day: Yes. Thanks, Jason. So I do think that, that deadline will hold. I don't know that it will have much of an impact on RIN prices because all the RINs that have been procured so far in 2025 can ultimately be used to satisfy the obligation for 2024. And that's quite a long time and a lot of RINs. There may be some refiners who are waiting until the last moment to buy their RINs. But because we've had so much time in 2025 to do that, we're not expecting that, that's going to result in a significant lift to RIN prices at that time. If we have clarity around enforcement dates for 2025, going back to the March 31, 2026, as they normally would be. That would be a time when we would expect RIN values to probably see a lift. Jason Gabelman: Got it. That's helpful. And then my second one is hopefully a simple question. Just given on the screen, DGD margins have improved. It seems like it could be the margin signal could be there to restart DGD1, so wondering what exactly you need to see to have confidence to restart DGD1? Robert Day: So we've talked about this before. DGD1 went down for a catalyst turn around early in 2025. Given the changes in the PTC and the origin tariffs on so many of the feedstocks, our view is that DGD1 only makes sense to restart at least in the current environment with the current RVO under the current rules when soybean oil can be profitable, and profitable means a margin that's good enough for a long enough outlook that justifies burning up a catalyst. And so I think, certainly, we're a lot closer to that than we have been. We may get there, but it definitely looks a lot better than it did a few months ago. Operator: The next question comes from the line of Andrew Strelzik with BMO. Unknown Analyst: This is Ben on for Andrew. My first question is around the Food segment. And just a commentary there that when it's maybe some weakness exiting third quarter and into fourth quarter. So I was just hoping you could just walk us through your outlook for the next few months in the food segment. Randall Stuewe: Yes, I think what we were trying to put in the narrative is clearly tariff on, tariff off, up to 50, [ fentanyl ] tariffs, trying to figure out the supply chain was very confusing for our customers in Q3 and so the choice was to pull down domestic inventories. So remember, most of our Brazilian production comes into the U.S. that's in the hydrolyzed collagen peptide form, very successful product for us. . And so we had some delays in orders there. We think it will pick up and be a stronger Q4. That's about all the color that I can give you today on it. And what we've seen is a continued rebound of the hydrolyzed collagen business. And while our new Nextida products are making a foothold in the industry, they're still relatively minor in the contribution of that segment. But they are as we quoted in there, we're getting repeat orders, which is a great thing. By next summer, we're going to launch what I think will be called Nextida Brain, and that will be a brain health product and it's got a really great outlook, too. Unknown Analyst: Well, that's great to hear. And then on my next question, something that kind of, I think gets lost in the weeds sometimes or at least lately, California LCFS credit value, they've been generally stable at weak levels. Can you remind us of the expected time line of triggers that should propel these values higher eventually? Robert Day: Thanks, Andrew, this is Bob. I think as we know, there was quite a bit of a delay in the implementation of their step down to increase the greenhouse gas obligation, reduction obligation in California. And so -- as a result of that, that bank got built up so large that most of the obligated parties from our perspective had a sufficient number of credits where they -- even with the change in the ruling they didn't need to go out and immediately buy credits. Our view is that they are working their way through those credits and that sometime in 2026, we'll start to see that S&D come more into balance and steady increases in the LCFS credit premium. But it's hard to -- I think we believe it will be more steady than sort of a step-up in value. Operator: The next question comes from the line of Heather Jones with Heather Jones Research. Heather Jones: I had a question on your Feed segment and just thinking about the protein pricing. I know in the past that you have put in place and some of your fat pricing contracts, you had like minimum levels and if it went below that, what Darling received, it wouldn't go below that? And I was just wondering if you all had put any of those kind of things in place for your protein business in the U.S.? Robert Day: Heather, This is Bob. So all of our every contract is somewhat unique, and it really has to do with our approach towards accommodating our suppliers and trying to work with them on terms that make sense for their business as you're -- I think what you're pointing out is that we do have some contracts where Darling collects a minimum processing fee. And if prices get above a certain threshold, then we participate in some of the value of those prices. There are certain instances where protein prices are part of that as fat prices are. I think generally speaking, though, we see -- as you're well aware, we see a lot more volatility in fat prices and a lot more upside from time to time in fat prices. And so we tend to focus more on that than we do on the volatility in the protein markets. Randall Stuewe: Yes, I think to argument, what Bob said, is the thing that happened is the United States was heavily reliant on shipping low-ash poultry meal into the Asia countries for dominantly China for aquaculture. The offset was a strong domestic pet food demand in the U.S. And what we've seen twofold is, one, with the tariffs on, tariffs off with China and Vietnam, they're unable to take the risk, if you will, to buy that product. So it has to find as all commodities do the next best market. What you're seeing in the pet food business is post COVID, you've seen fluffy back to the shelter. And then you're not seeing a growth that's very significant right now on the pet food side. And then you're seeing that the consumer -- the CPG companies took prices up pretty drastically making those bags of brand name products with meat in them, really, really pricey and you're watching strong growth now in the green-based alternatives, namely old Roy. So it's essentially a disruption scenario right now, Heather, and we're off from where traditionally poultry high-end, low-ash poultry products have traded, although they're coming back. The second that Trump relieved the tariff on Vietnam for 30 days or whatever, big shipments and sales went out of here. That's our Eastern Seaboard plant that are heavily reliant on those products. So I think we've got a pretty good outlook. They've come back now and have improved quarter-over-quarter. And I think we're cautious on next year, but we think it's -- we think everything looks much better. Heather Jones: Okay. And then my follow-up is on Europe. So recently, they extended the tariffs on RD imports and biodiesel imports extended to staff. So as we're thinking about Q4, you'll have a full quarter of SAP production and SAP pricing in Europe is really strong. So will having a full quarter production more than offset the impact of them now imposing these tariffs on U.S. staff? Just wondering how to think about those moving pieces. Robert Day: Yes. Thanks, Heather. I think the way to look -- think about that is it will have if it's going to have an impact, the impact is going to be felt a bit later on. SAF is not -- we aren't selling market. The SAF that we're producing today was sold a while ago, and most of the SAF that we will produce in 2026 is already sold. So the tariff impacts will affect new contracts as they come about. We'll just have to see what those markets look like and supply and demand. But we still have access to voluntary markets in the United States. So we're optimistic about where we stand with SAF and SAF sales. Operator: The question comes from the line of Betty Zhang with Scotiabank. Y. Zhang: For my first question, I wanted to ask about broadly the core EBITDA guidance. It's been updated to that $875 million to $900 million range, and that's a bit lower versus the first number that you gave out at the beginning of the year, so I'm wondering if you could reflect on how the year played out and where it didn't quite meet your earlier expectations. And looking forward to 2026, do you think that this year's 12% to 13% growth is somewhat comparable to what you're seeing for next year? Randall Stuewe: Yes, Betty, this is Randy. I mean the $875 million to $900 million is the amalgamation of all 3 segments, net of DGD. Clearly, we're 2/3 of the way through October, we don't know really where October is going to finish. We don't have that type of visibility on a day-to-day basis here. So it's just -- this business when prices are steady, and volumes are steady around the world, you can give some guidance there. What we have tried to do is it's just too difficult to put a number out on DGD either for Q4 or next year. The core ingredients right now looks similar to stronger in 2026. But we won't know that and be able to give guidance on that until around -- till an RVO is published and then when we do our -- probably our February earnings call. Y. Zhang: Okay. Fair enough. And my follow-up question, I want to ask about the Fuel Ingredients business, the portion, excluding DGD. The margin there looked a bit the gross margin looked a bit higher quarter-over-quarter and also the segment earnings came in higher versus what we saw in the first half. Could you please share maybe some of the drivers there? Randall Stuewe: Yes, that business is made up, while Bob described it in his comments, a disease, it's really mortality destruction predominantly in Europe today. And then that's our green gas business, remind people that the green gas or green certification business in Europe, we're the one of the largest in all of Europe today producing gas over there. And then those are our digester businesses, and we added a small one in Poland now. So ultimately, that business ebbs and flows with what we call the Rendac business predominantly, and that's the 7 rendering plants in Europe that are geared towards mortality destruction. Anything you want to add there, Bob? Robert Day: I mean I think it's -- what you're alluding to is just sometimes the inputs, the price, the cost will change for the inputs energy prices that we're selling there remains strong. And so that's what you're seeing with these gross margins. Operator: There are no additional questions left at this time. I will hand it back to the management team for any further or closing remarks. Randall Stuewe: Thank you again for all the questions, today. As always, if you have additional questions, feel free to reach out to Suann. Stay safe. Have a great holiday season, and we look forward to talking to you after the first of the year. Operator: That concludes today's conference call. Thank you. You may now disconnect your lines.
Leszek Iwaszko: Good morning. Thank you for standing by and let me welcome you to Orange Polska Q3 2025 Results Conference Call. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. The format of the call will be a presentation by the management team followed by a Q&A session. Unfortunately, our CEO, Liudmila Climoc, couldn't join us today due to urgent private matters. So, the sole speaker will be Jacek Kunicki, CFO. So, I'm passing now the floor to Jacek. Jacek Kunicki: Good morning. I'm pleased to say that the third quarter was very successful for Orange Polska. The success is rooted in our strong operating performance. We've achieved very good commercial growth, especially on the consumer market, where both the customer bases and the ARPOs have increased at a healthy pace. Our wholesale line of business has delivered more revenues and more margins. This comes as a result of new business, that is, monetizing our fiber infrastructure. It will generate more value over the course of the next few years, allowing us to compensate some large wholesale contracts that are due to end in 2026. This should remind us that wholesale is our strategic asset, complementing our retail operations and reducing our risk profile. Successful commercial activity is the anchor of the Lead the Future strategy and our value creation. After 9 months of 2025, we are pleased with the developments in this area as they lay a solid foundation for the strategy going forward. This performance has translated into strong financial results, and let's take a look at that -- these on the next slide. I'm pleased with the financial results of Q3. We have increased revenues, profit and cash generation. Revenues were up by a steep 9.3% year-over-year, including a spike in IT&IS sales and also a strong consistent contribution from the core telecom services business. This solid expansion of the core business, combined with cost discipline, drove the Q3 EBITDA almost 3% up year-over-year despite a demanding comparable base. We're really happy with this result. Our eCapEx has amounted to just over PLN 1.1 billion year-to-date. It is at a comparable level to the same period of last year, and it is in line with our full year plans. This quarterly evolution reflects different timing of CapEx between the 2 years. Following a stronger Q3, the year-to-date level of organic cash flows is also stable year-over-year. This reflects higher cash from operating activities, driven by the EBITDA expansion, which compensated for less proceeds from real estate disposal. My takeaway from this is that robust Q3 results give solid support to our full year prospects. After 9 months of the year, we're confident to deliver on our 2025 objectives and to create further value for shareholders. Let's now look -- take a look at the commercial activity in more detail on the next slide. It came very solid across all core telecom services. What particularly stands out this quarter is Mobile. The net customer additions have exceeded 100,000 and were at the highest in more than 4 years. As you may recall, our B2C strategy is focused on reaching new households not yet using Orange Polska services, in order to unlock the growth potential for the future. We're pleased that it is bearing fruit, and we are enlarging our customer footprint. The robust growth of the customer base was coupled with an increase of the Mobile ARPO, a slight improvement versus the trend observed a quarter ago. This comes due to a strong ARPO development in the main consumer brand, partly diluted by an increasing share of the B-brand customers in the overall customer base. Growth in convergence and fiber was solid, consistent with previous quarters and in line with our strategy. It was a combination of 5% and 13% growth of the respective customer bases and a solid 3% to 4% uplift of the average revenue per offer. In spite of fierce competition in fiber, we are successfully competing in the local battles and growing well by addressing our customers' need for higher speeds and for more content. Commercial growth is essential for future value creation, and these results demonstrate that we have the right commercial strategy to prevail in the core telecom offering. Let's now take a look at how these translated into revenues. Our Q3 top line dynamic was exceptional, above 9% growth year-over-year. It reflects 3 main developments: first, an exceptional hike of the IT&IS sales; second, a consistent growth of the core telecom services revenues. And 3 -- third, the accelerated dynamics of wholesale. Let's now review them one by one in a little bit more detail. The IT&IS revenues went up by an extraordinary 47% in quarter 3. The key driver of this performance was resale of software licenses. It is a tool to create future upsell potential. Hence, despite the large top line, its immediate contribution to profits was negligible. Nonetheless, looking at this development and also at other wins in our pipeline, we are now more optimistic about the future prospects for the growth in IT&IS revenues and profits. What is most important in our top line performance this quarter is that revenues from core telecom services grew by 6.5% year-over-year, repeating their strong and consistent dynamics. You've seen the drivers of this growth: robust increase of our customer bases and solid ARPO development. Finally, the third factor, wholesale. Its growth has accelerated on the back of fast revenues coming from the new fiber optics backhaul business that I mentioned earlier on. It is a multiyear business development, and it gives us a solid baseline also for 2026 and beyond. We anticipate to further grow the value of our wholesale line of business activity in the future. To sum up on revenues, after 9 months of the year, the top line growth exceeds 4%. Revenues from core telecom services are delivering a rock-solid performance this year, supported by robust net customer additions and ARPOs. And three, the new business in wholesale significantly boosts its future prospects, once again demonstrating the value-add of this activity to Orange Polska. Obviously, the profitable revenue growth is the main driver of the higher EBITDA. Let's look at the latter on Slide 7. EBITDA for Q3 has increased by almost 3% year-over-year. It benefited both from growth of the direct margin and from less indirect costs. Direct margin grew by PLN 21 million year-over-year and its underlying increase was even greater. Please note that last year's results included a positive one-off related to capitalization of PLN 53 million customer connectivity costs. Obviously, excluding this one-off, our direct margin for Q3 would have grown by 4% year-over-year. This outstanding growth was driven by high margin from core telecom services and by an increased contribution from wholesale. Indirect costs were PLN 4 million lower versus the third quarter of last year. We benefited from increased efficiency of network operations, including savings in field maintenance. The transformation of the network activity is an important part of our strategy, and we're pleased that we can already report its first tangible results. Q3 indirect costs have also reflected lower growth of labor costs and less advertising expenses versus the previous quarters. To sum up on EBITDA, we are very happy with its growth in quarter 3. It stems from a healthy combination of high margin from core business and cost discipline. And obviously, this is our main recipe to deliver consistent and sustainable EBITDA growth throughout the Lead the Future strategy period. With 3.4% growth for the 9 months of this year, for the year-to-date, we are obviously well on track to deliver on the full year objective in this area. Let's now turn to cash flow on Slide 8. Year-to-date, we generated nearly PLN 670 million of organic cash flow. This is almost exactly the same level as last year, helped by a very solid quarter 3. The OCF benefited primarily from a very healthy growth of cash from operating activity. It increased by almost PLN 200 million year-over-year due to a higher EBITDA and also due to less -- lower working capital requirement. It was offset by higher cash CapEx and also by PLN 80 million less proceeds from real estate disposal than in the comparable period of last year. We're satisfied with cash generation so far and with robust sources of growth coming from the operating activity. We plan for a peak of property sales in Q4, and we anticipate a solid organic cash flow in the last quarter of the year. Our leverage has increased very slightly following the acquisition of the 5G spectrum license and a payment of the dividend in July. However, our balance sheet structure remains very sound. Let's now summarize Q3 on the next slide. So, for us, the underlying message is our commercial and financial results in Q3 were very solid. We're pleased with the performance to date and in particular, with the commercial developments. We have a well-performing core telecom services business. The prospects for wholesale operations have improved substantially, and we see initial signs of recovery on the business market. These demonstrate our strong fundamentals. We're confident to achieve our 2025 objectives and also to create further shareholder value by implementing the Lead the Future strategy in subsequent years. That's all for me and we are now ready for your questions. Leszek Iwaszko: [Operator Instructions] First question is coming from the line of Marcin Nowak. Marcin Nowak: Three questions on -- rather, issues for me. The first one, regarding this new wholesale deal, could you provide more details regarding how much it contributed in the first quarter to both the top line and EBITDA, for how many years this contract is signed, and if you believe that there are similar deals possible in the future with other parties? The second issue, could you provide maybe an update on those provisions for significant risk that Orange has created last quarter? And the third issue, could you provide more detailed plans about the marketing spending and how -- by how it has been lower than in previous quarters? And what are the plans for the following quarters, especially with this lower spending, the commercial performance has been quite good. Jacek Kunicki: Thank you very much, Marcin. I guess I will start with your last question. For the marketing or for the advertising and promotion spend that we were mentioning. When I look at quarter 3, the spending was roughly PLN 8 million lower than in the quarter 3 of the – of last year. And that is -- well, it is much different if we compare to the second quarter where advertising and promotional expenses have actually grown by PLN 12 million year-over-year. So, the difference to the Q1 was not that great. But obviously, quarter 3 was with a different timing of advertising campaigns and spendings versus last year. So that is regarding the costs. On the efficiency of those marketing spendings, I think it's fair to say we're very happy with those. Looking at the level of our net additions, both in postpaid and prepaid as well as in the convergence and fiber, we are very happy with the direction of the -- both advertising and overall the efficiency of the commercial period that we had for the back-to-school activity. And that is -- that has really delivered on our plans. So, we're now focusing definitely on the peak commercial season of Q4 and especially the second part of November and December to make sure that we are able to replicate a successful commercial activity. Then regarding your second question, well, I will not be able to help you much. We have created a provision for risks, claims and litigations of PLN 45 million in the second quarter of this year. And obviously, we've described as much as we can in the notes to the financial statements, but we are unable to provide you with the exact detail as this is commercially sensitive. We do not want to prejudice the outcome of any activities that are covered by the provision. And then regarding wholesale, well, it is a multiyear deal. Again, I will not be mentioning the specific commercial conditions because that is commercially sensitive. But definitely, we did see a much greater contribution of wholesale to the margin creation this quarter versus what we've seen in the previous quarters. I would say it's fair to say some of it was already -- so that was more than PLN 20 million better than in the previous quarters. Some of it was helped by the particular development that I have mentioned, and part was simply due to other business reasons because we do need to remind ourselves that wholesale is an important part of our activity, and it's not driven just by this one deal. And this is something that -- well, we've tried flagging for quite a long time. It enables us to monetize our infrastructure by selling data transmission, by selling FTTH access, by being an active player on all the interconnect market in Poland. It also enables us to decrease the risk profile of our retail activities because we are able to grasp some of the profits on the wholesale market. Getting back to this particular business development, it's obviously a long-term business development that we have, such as they usually are in wholesale. I would guess that the peak of the value will be the next 4 years. And I think we will see a more visible contribution of wholesale or of this business development already in quarter 4. And what I mentioned is when we take a look at 2026, we were aware, and we are aware that some important wholesale contracts are coming to an end and this particular business development should help us to offset the impact of those contracts ending. So, we're back to the state where we expect the contribution of wholesale towards our [ EBIT ] to actually be able to grow year after year. I think that is what I would mention regarding this particular activity. Thanks. Leszek Iwaszko: Our next question is coming from the line of Nora Nagy from Erste Bank. Nora Nagy: Two questions from my side, please. Firstly, could you give us, please, more update on the B2B segment? And what is your outlook for the coming period? And secondly, approximately when shall we expect the next Social Plan to be released? Jacek Kunicki: Thank you very much, Nora. Very relevant questions. So, on the B2B line of business, I think it's fair to say that while this line of business has been extremely successful for us in the past, and the success of the previous strategy was -- B2B was a significant contributor towards that success, we did see the B2B under a greater pressure this year, both from the connectivity business and also from the slowdown on the IT&IS market. Some of it results from a very high comparable base of last year, where we benefited from some specific activity on the wholesale SMSs. Some of it results basically from a slower -- a softer IT market. I think it's fair to say that while we are not back to robust growth yet, so, the B2B trends, I would say, remain relatively fragile. If I'm comparing what we're seeing right now in terms of the amount of deals that we are able to win and the profit margins on the deals that we're able to win, we're getting, I would say, the first signals that could lead us to believe that we could be going back to growth in the next 2 or 3 quarters. That would be my outlook for the B2B. And that is something that we really need. You know that the Lead the Future strategy and generally, the value creation in Orange Polska, it starts with the top line and with a profitable top line, so with a direct margin. And we need the 3 engines of commercial activity to be delivering results. We see the B2C engine really going ahead full steam. We do see an acceleration in wholesale and improved prospects versus the ending contracts of 2026. So, between the last quarter and this quarter, we are more confident about the level of wholesale activity next year. And then I think the next step is we need B2B to get back to solid, consistent growth as it used to deliver in the past. And this is when we will be really happy with our ability to grow the EBITDA, to grow the cash flows on the back of a profitable expansion in the commercial activity. And then getting to your second question, before the year-end I would expect we will close the discussions with the social partners for the next round of Social Plan, which I anticipate it will cover 2026, 2027, and we should come back to you before the year-end with a current report whenever we do finalize it. And then probably this current report will also include some early estimate of the provisions that you would see in the income statement for the fourth quarter. Obviously, the final ones might be -- will be reported when we will report the quarter 4, but stay tuned for the next few months, and I'm sure that we will get back to you with the news on the Social Plan before the year-end. Leszek Iwaszko: Thank you. We have no more voice questions. Two questions that came online. First question, they cover topics we've already discussed, but maybe in a slightly different angle. So, a question from Pawel Puchalski from Santander. Wholesale segment, are you pleased with Q3 2025 Wholesale segment growth pace? And should we expect its further acceleration in coming quarters, years? What are wholesale margins? What is wholesale’s cash conversion? May we consider Q3 '25 wholesale pickup to represent likely driver of 2026 DPS increase? Jacek Kunicki: So, thank you, Pawel, for your questions. And you've rightly spotted wholesale as a point of focus. I think it's very relevant. Yes, we are pleased with the wholesale acceleration in Q3, definitely pleased. I do expect that we will have good value contribution from wholesale also in quarter 4. So that is something that will help us before the year-end, and it makes us even more confident in our ability to post a nice EBITDA growth this year. I think that is definitely a big help. When it comes to the next years, well, you are aware that we were previously anticipating that due to some contracts ending in 2026, wholesale might be under pressure in that year. I think that situation is much easier now, and we would be looking at ourselves actually getting a positive contribution from wholesale year-over-year because of this new business development. So that is definitely improving the prospects for wholesale going forward. And then in terms of margin and cash conversion, what I would say, it really depends on the level -- the margins really depend on the level of -- on the revenue line of wholesale because if you take some interconnect, the margin might be thin when we are looking at the interconnect coming in and going out, like some transit activities. But overall, the relation of revenues to margin is extremely high on those services where we are monetizing the existing infrastructure. And likewise, when we look at the cash conversion ratio, because we are treating wholesale as a way to monetize mostly existing infrastructure, then yes, the conversion of revenues to cash is extremely high, much, much higher than on the retail activity. It is because we are using and monetizing whatever infrastructure already exists. So obviously, wholesale has its limit when it comes to the size because by nature, it is filling up the needs of our competitors in this area. But the -- our ability to extract margin and cash from whatever revenues we get is extremely high. And that's why wholesale is a very important contributor to our results. On the DPS, I think it's -- stay tuned and we will talk about that in February because that is the moment that we make the decisions, and we are in a position to make some recommendations. What I keep on repeating throughout this year is that our primary focus with all the months except February, is to create conditions to allow us to be generating more profits and to be in a position to share more value creation with our stockholders, shareholders. And so, I do believe that the growth of profit and cash generation in quarter 3 is an important step in the direction of further value creation for the shareholders of Orange Polska. Leszek Iwaszko: We have another voice question coming from the line of Dawid Górzynski from PKO BP. Dawid Gorzynski: I have 2 questions actually. First on net customer additions in Mobile segment. It was particularly strong in the third quarter. And I wonder if there were some particular large clients that entered the base this quarter or it was like just a successful marketing activity from your side? So, this is the first question. And the second question is about organic cash flow outlook. Right now, we are flat after 9 months of the year, we are flattish, like organic cash flow is flat year-on-year. Last year was particularly strong. And I think that the expectation was that this year, CapEx -- sorry, organic cash flow should be lower. I wonder if you still think this is the true or maybe you see some upside potential? And you think that like exceeding PLN 1.1 billion of organic cash flow this year is at hand? Jacek Kunicki: Thank you very much for your questions. I think starting from the net additions, yes, we did have a support of 2 large accounts in the Q3 numbers. And so, this was -- this is something that we are quite happy about. You could have read in the press that we took over 15,000 sim cards from the Polish Post. But this -- even if you were to take out those larger deals, it's still the best quarterly result in the last 3 years. So, I think -- I'm looking at the data right now for B2B, for B2C, for all the brands of both B2B and B2C, and it's -- across the board, we are very, very happy with all the results. If I take a look at the main Orange brands, the best results in a few years, new brands, new mobile, very good results, flex brands, very good results. It's across the board, good performance. And I would say both in postpaid and prepaid. So, this is particularly strengthening. And it reflects a good offering that we've had. It was supported by the family offer that we launched. It was supported by, I think, quite good advertising and a straightforward messaging for this commercial period. So, I know that my colleagues in marketing were happy with the results. And also, throughout this year, we do see simultaneously a good increase of the prepaid base. And when we take a look at, again, at the actions of this, it's about the quality of the promotions and the advertising. It is about us strengthening the position in some of the key distribution channels that we have had. And it enabled us to have a volume growth despite the fact that we've significantly increased the ARPO in prepaid and that we've gained a substantial amount of revenues and margin from prepaid as a result of that. So generally, mobile activity, very good in quarter 3, and I would not say it's a one-off driven activity. Obviously, everyone is now focused on the key period of November, December, where we need to be smart about the level of retentions that we make. But equally, we want to get as much as we can from the market when the availability comes in. So that is on the net additions. For the organic cash flow, I believe the PLN 1.1 billion that you mentioned was 2023. And last year was PLN 980-something million. I do agree this was quite a strong comparable base, which is something that we had mentioned. We are stable after 3 quarters. We are heading into quarter 3 with quite good operating performance dynamics, quite good from the perspective of the EBITDA and the ability to convert the EBITDA on to operating cash flow. So that is definitely supporting quarter 4. I think the main unknown today is how much real estate will we sell in Q4. Obviously, we're planning for a peak of real estate sales. That is directly helping our cash position. And so that remains, I think, the main uncertainty. But we are relatively confident about posting a good result, both in Q4 and for the full year. Leszek Iwaszko: And we have one more text question from Piotr Raciborski from Wood & Co. Congratulations on strong Q3 2024 results. Could you please again comment on strong ICT sales growth? Do you expect similar growth trends in the upcoming quarters? Do you see an increased demand on IT services from public institutions? Jacek Kunicki: Okay. Thanks a lot. Well, we don't expect that 47% year-over-year in quarter 4. It was quite an exceptional event. And I did mention it's -- it was driven by resale of licenses with a small margin. But it is important that we conduct these deals for the sake of the future upsell that we are able to do on the back of these deals. So, I would really not disregard the resale of licenses and our ability to then monetize on them over the next 4, 5 or 6 quarters. That is definitely worth doing, and we will continue doing that. Then regarding the future prospects, I think for us, it's not only a matter of Q4, but it's a matter of getting the right momentum to grow the revenues and margins from IT&IS or from ICT over the next years. I think when we take a look at the long-term potential, we are very optimistic. There is growth that is there to be had over the next years, both for revenues and for margin creation. And that is definitely the case. When it comes to IT, yes, it includes IT. I think that the IT market, while it was relatively soft this year, I do believe that it has still a lot of growth potential. And so, we definitely count on ICT revenues and margin growth in the next periods to come to help us to increase the EBITDA, increase cash generation and deliver value for shareholders. Leszek Iwaszko: Thank you. It appears we have no further questions. Thank you very much for participation. Please let us know if you'd like to meet us and then talk to you in February. Thank you. Jacek Kunicki: Thank you very much. Bye-bye.
Alexander Bergendorf: Good morning, everyone. This is Alexander Bergendorf, Head of Investor Relations at Axfood, and welcome to the Axfood Third Quarter 2025 Telephone Conference. So with me today, I have Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our website, you will find the presentation materials for today's call, and we encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. And a recording of this call will be made available after the end on our website. So with that, I will now hand over the words to Simone. So please go to Page #2. Simone Margulies: Thank you, Alex, and good morning, everyone. Axfood summarizes another strong quarter with high customer traffic, volume growth and increased market share. With increased loyalty and growth in our store chains as well as improved efficiency and solid cost control, earnings increased in all operating segments. In addition, we continue to invest in strategically important areas to become even more efficient and further improve our competitiveness. In recent year, our logistics structure has been developed to enable continued profitable growth. And during the quarter, we announced plans to establish a new highly automated logistics center in Kungsbacka in Southern Sweden. In sustainability, we presented the Food 2030 report, our proposal for a more sustainable food strategy for Sweden. We also continued to phase out fossil fuels in all our transports, had our new solar park in full operations and launched innovative new products focused on sustainability and health. Following that introduction, let us now turn to Page 3 and the agenda for today's presentation. I will start with a brief market overview, and then I will give you a review of our third quarter performance and some of our strategic priorities. Following that, Anders will take you through the financials. And lastly, the outlook for the full year and a brief summary to conclude for me before we open up for questions. Turning to Page 4, but let's go straight to Page 5 and take a look at the quarterly development. As in previous quarters, market conditions in Swedish food retail during the third quarter continued to be characterized by intense competition and high price awareness among consumers. Overall market growth amounted to 5.4% and Statistics Sweden reported that the annualized rate for food price inflation was 4.4%. This was somewhat lower than in the second quarter this year. However, in absolute terms, compared to the second quarter, the price development was relatively stable. Axfood is successfully navigating a changing end market dynamic by leveraging the strength of our business model of strong and distinctive concepts working in collaboration. Thanks to affordable and attractive offerings, more and more consumers are choosing to shop with us. Having maintained our momentum, we delivered a strong performance in the quarter. Growth in our retail sales amounted to almost 20%. Excluding City Gross, which was acquired in November last year, growth amounted to just over 6%. As such, our growth again was above the market rate, both including and excluding City Gross. Volume growth from increased loyalty, customer traffic and new store establishment was the main driver behind this development. In e-commerce, we grew 11%, which compared to the market growth of 8%. Excluding City Gross and the discontinued business Middagsfrid, sales were up 6%. Turning to Page 6. Consolidated net sales for Axfood grew almost 7% in the quarter, driven by continued strong momentum in Willys, Hemköp and Snabbgross. We also saw a positive trend for City Gross. In all, City Gross net sales amounted to just over SEK 2 billion. However, on a group net sales basis, the contribution from City Gross was SEK 345 million due to internal eliminations in Dagab. Please go to the next page, #7. Group operating profit increased to just over SEK 1 billion, and the operating margin was stable at 4.8%. Operating profit included items affecting comparability of minus SEK 39 million related to City Gross. Adjusted operating profit, which excludes these items, also increased to SEK 1.1 billion, and adjusted operating margin was higher at 4.9%. In all, the absolute growth in group operating profit was driven by Willys and Dagab. However, Hemköp and Snabbgross also reported increased profits year-on-year with strong growth in percentage terms. So the earnings performance was once again very well balanced this quarter across our operating segments. City Gross had a negative impact on the group's profit development, however, to a less extent than in the previous quarters. Let's now go deeper into the development in each operating segment, starting with Willys on Page 8. Willys continued to outperform the market in the third quarter with a growth of 6%. Growth primarily came from higher volumes as a result of an increased number of customer visits and new store establishments. A higher average ticket value also had a positive impact on the sales development. Willys is Sweden's most recommended food retail chain and has a unique position on the market. The rate of increase of new members in the Willys Plus loyalty program continued to be on a high level. And in addition, loyalty among existing members remained strong. Earnings grew and amounted to SEK 587 million, which corresponds to a stable operating margin of 4.9%. The increase in operating profit was primarily driven by the increased sales volumes, a stable gross margin development and good cost control. Leveraging its position as Sweden's leading discount grocery chain as well as its liking among households, Willys is continuing to develop its offering. Among many initiatives, stores are continuously being upgraded to a new Willys 5.0 store concept. Willys 5.0 entails a significant improvement to the customer experience through a substantial upgrade of store layout and design. The assortment is key, and here, the focus is really on enhancing the offering of fresh products. Willys 5.0 is a scalable concept, which gives flexibility and opportunities to establish more stores. Because establishing new stores, this is exactly what Willys wants to do as the store chain is currently accelerating its expansion pace to reach even more consumers. In October, Willys reached a significant milestone when it opened store number 250 in RosengÃ¥ard in Malmö. Over the past 10 years, Willys had expanded store base with more than 50 stores on a net basis. And now the aim is to open at least 10 new stores each year in the coming years. Moving on to Hemköp and Page 10. Hemköp's retail sales growth of 6% in the quarter exceeded that of the market and like-for-like growth was also strong at almost 5%. Hemköp demonstrated volume growth driven by customer traffic, a higher average ticket value also impacted the sales development positively. Total net sales for Hemköp increased 7%. Operating profit was higher at SEK 103 million and operating margin was 5.1%. The increase in operating profit was mainly driven by the increased sales, a stable gross margin and good cost control. Turning to Page 11. I just talked about Willys modernizing its store base, and Hemköp is also modernizing stores at a rapid rate in order to enhance the customer meeting. In addition, its offering is continuously being developed with a focus on price value, fresh products and meal solutions. Hemköp's performance in the third quarter was strong, representing a continuation of its momentum for some time now. This development is despite them operating in traditional grocery, which is a segment that while being the largest on the market, has seen its share of the market decline in recent years. It's important to take this into account when analyzing Hemköp. And it is quite clear when you look at the customer data such as development in penetration, in loyalty and purchases, that Hemköp is clearly outperforming their main peers. We are now on Page 12. We acquired City Gross nearly a year ago to create new growth opportunities for our group. The organization is working according to a clear plan and has a comprehensive development agenda in place to reverse the chain's weak performance in recent years. This year is a transitional year, and we are today reiterating that we expect to reach profitability at some point in the second half of 2026. While total growth for City Gross in the third quarter was impacted by store closures, like-for-like growth amounted to slightly more than 3%. City Gross reported on an operating loss on an adjusted basis of minus SEK 4 million. The loss was less negative than in previous quarters with positive effects from like-for-like growth. In addition, structural measures and efforts to streamline operations also contributed to the development. On a reported basis, operating profit amounted to minus SEK 43 million, which corresponds to an operating margin of minus 2%. This included items affecting comparability of minus SEK 39 million pertaining to structural measures, including discontinuation costs for the store in Kungens Kurva in Stockholm, organizational changes and sales currents within the nonfood assortment. In August, the new communication concept and the improved more affordable customer offering was further developed. Also, the City Gross store in Borlänge was closed ahead of concept change to Willys. Turning to Page 13. The 3% growth in like-for-like sales for City Gross represent a positive trend. The chart on this slide shows comparable sales on a rolling 12-month basis, each quarter from the third quarter 2022. As you can see in the chart, after a couple of years with declining sales, City Gross is now back to growth, which, of course, is encouraging. That said, we are still in early days on our journey with City Gross and maintain a high activity level to enable the chain to become a competitive player on the market once again. City Gross has excellent potential as a pure-play hypermarket operator, an attractive segment that is continuing to account for a growing share of the market. With a long-term perspective, we are leveraging our knowledge and experience to develop and strengthen the chain for the future. Moving to Slide 14. Our restaurant wholesaler, Snabbgross, delivered growth of 6% in the quarter on both a total and like-for-like basis. Higher volumes through increased customer traffic had a positive impact on sales in addition to a higher average ticket value. Operating profit was higher than in the prior year and amounted to SEK 101 million, corresponding to a higher operating margin of 6.3%. The increase was mainly driven by higher sales, a stable gross margin and good cost control. Next Page #15 and Dagab. Dagab's quarterly net sales increased by 5%, driven by sales to Willys, Hemköp and Snabbgross. Operating profit increased to SEK 341 million, and the operating margin was higher at 1.7%. The performance was primarily due to the sales growth and a lower cost level with increased productivity in logistics. Operating profit was, however, negatively impacted by a lower gross margin. Dagab is continuing its effort to optimize the flow of goods and streamline the group's new logistics structure. The logistics center in BÃ¥lsta, the fruit and vegetable warehouse in Landskrona and the recently expanded and automated highway warehouse in Backa, Gothenburg are all contributing to the group's capacity and efficiency. In addition, and we are now on Page 16, work on establishing a new highly automated logistics center for Southern Sweden has been initiated to ensure increased capacity and efficiency. As previously communicated during the third quarter, letters of intent were signed with our automation partner, Witron and with Kungsbacka Municipality. The logistics center, which will span approximately 90,000 square meters and be environmentally certified, will handle picking and deliveries of goods in all temperature zones to grocery stores. Total capacity is expected to increase at least 20% compared to current volumes in the Southern Sweden. The facility is expected to be put into operation starting in 2030. Turning to Page 17. Now it's time for Anders to take you through the financials. So please go to the next page, Page #18. And Anders, please go ahead. Anders Lexmon: Thank you, Simone. During the first 9 months, net sales for the group increased by 6.6% to approximately SEK 66 billion. Including City Gross, retail sales increased by 19.3% and excluding City Gross, the increase was 6%, which was more than the food retail market in total, where growth amounted to 4.5%. Operating profit, excluding items affecting comparability, increased 5.8% to just over SEK 2.8 billion. The operating margin, excluding items affecting comparability, slightly decreased from 4.3% to 4.2%, where the City Gross acquisition impacted the margin with minus 0.3 percentage points. Next, Page #19. During the third quarter, the cash flow was minus SEK 40 million, which was SEK 380 million higher compared to last year. We saw a strong underlying operating cash flow, both for the third quarter and the 9-month period, mainly due to a less negative contribution from net working capital compared to last year. The negative calendar effect was higher last year. The negative cash flow from investment activities of SEK 421 million in Q3 was somewhat higher compared to last year, but in line with previous quarters. We have a higher pace in our investments in our retail operations and a lower pace in automation investments compared to last year since we now are through with our investment in the fulfillment center in BÃ¥lsta. By the end of the third quarter, Axfood utilized approximately SEK 3.1 billion of the group's credit facilities compared to SEK 2.5 billion by the end of Q2 and SEK 3.2 billion at the end of Q1. The increased utilization compared to Q2 was due to the dividend paid out in September. And then please turn to Page #20. Net debt has increased since the acquisition of City Gross in Q4 last year. In addition to the loans raised for the acquisition, net debt also has increased with the City Gross leasehold debt of approximately SEK 2 billion. As we communicated in the Q2 report, Axfood has successfully refinanced the existing revolving credit facility in the beginning of Q3. The new RCF amounts to SEK 4 billion, where SEK 1 billion have a tenure of 3 years and SEK 3 billion have a tenure of 5 years. And the conditions in the new agreement are in all essentials unchanged compared with the old facility. The equity ratio amounted to 20.4%, which was lower than December 2024, but above the actual year-end target of 20%. The lower equity ratio compared to Q3 last year was also a result of the City Gross acquisition. Total investments, excluding leasehold and acquisitions for the first 9 months amounted to SEK 1.3 billion. Year-to-date, we have established 7 new group-owned stores, the same number as in the prior year. We have, however, increased our store modernization rate compared to last year. And then please turn to Page #21. When we look at the capital efficiency, we have a negative development of our rolling 12-month net working capital as a percentage of sales. As I have mentioned before, the impact of City Gross acquisition is expected to increase this KPI with approximately 0.3 percentage points on a rolling 12 months' basis. Capital employed has increased over the last years, mainly due to both the acquisition of Bergendahls Food and City Gross as well as the investments in BÃ¥lsta. The level of capital employed increased slightly during the first 9 months, mainly as a result of increased leasehold debt and utilization of credit facility. Due to the increase in capital employed, return on capital employed decreased somewhat compared to last year to 16.4%. And thereby, I have come to the end of my presentation, and I hand over to you again, Simone. Simone Margulies: Thank you, Anders. We are now on Page 22, but let's go straight to Page 23. While we maintain our full year outlook for capital expenditures, our store expansion plan is slightly revised. Due to a slight delay, the number of new group-owned stores opened during the year will amount to 9. In addition, the store network is expanded with 3 retailer-owned stores joining the network from competing retail chains. As for items affecting comparability, structural costs in City Gross are now estimated to amount to SEK 150 million. As a reminder, the outlook for next year 2026 will be presented in conjunction with the release of our year-end report. Please now turn to Page 24. So let me summarize. We are summarizing a strong third quarter with higher growth than the market and improved earnings in all operating segments. Just over a month ago, we held a Capital Markets Day at which we discussed how our business model and structure create opportunities. We also laid out our main competitive advantages, and I would like to mention them here again. First, with our brands, both in-store concepts and private labels and a high-quality affordable assortment, we are well positioned to meet consumers' diverse and evolving needs. Second, we have attractive store locations and a significant potential to expand. Third, our integrated value chain provides the right conditions to quickly adapt when customer behaviors or market conditions change, and it also gives us efficiency. Fourth, to us, the key to drive long-term growth and profitability is based on customer traffic, loyalty and volume growth. We have seen a strong development in all these areas over a long period. And with our scale, we can further strengthen our competitiveness. Our performance in the third quarter really shows how we drive growth in all segments on the market, both organically and through expansion and how our integrated value chain gives us efficiency. The strength of our business idea enable us to continue to challenge and grow. We are maintaining a high rate of development, and I am convinced that we are poised to strengthen our market position in the years ahead. That was all for today. Now please turn to Page 25, and I hand over to the operator to open up the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Fredrik Ivarsson from ABG. Fredrik Ivarsson: I have 2 questions. First, if we could dig into the margin profile in Willys a little bit. So I guess Q3 tends to be quite a bit stronger than the other quarters, especially Q1 and Q2, but now it's been almost in line with the previous 2 quarters for 2 consecutive years. And I know you took some price investments last year. But in addition to that, I guess, has the market been -- has it been even more campaign-driven during the summer months? Or do you see anything else that sort of explains why the normal margin uptick that we usually see in Q3 didn't really materialize this year? Simone Margulies: Yes. Thank you for your question. As you said, there are some seasonal effects and also the mix effect also have an impact on the margin on Willys. But I would say, to start with Willys had a stable margin development, even though there's a really high competition in the market. And we have a customer that is pretty much in the same behavior as we've seen in the last year with a strong focus on price and with a high price activity level in the market. So by that, we still have -- we continue to have a stable margin development in Willys, which we are really happy to see. And one thing that is also affecting a little bit on the bottom line for Willys is that we have a high expansion rate in Willys. This year until September, we have opened up 7 new stores for Willys compared to 4 last year. And by that, we see some -- the margin gets some -- it dilutes in the margin because we get higher personnel costs when we open stores. And then it usually evens out after a couple of months. But when we open many stores, we have some more personnel costs -- staff cost for staff during the first -- until you get up in a growth rate in the stores. Fredrik Ivarsson: Okay. That makes sense. And second one on City Gross. You have been talking about your earnings getting back to black figures during the second half of 2026, and now you sort of reiterated that statement. But you were almost there already in Q3 this year, although on an adjusted basis. Has the progression in City Gross been stronger than you expected before? Or was this more or less according to plan, so to say? Simone Margulies: I would say we are working according a comprehensive plan to turn around City Gross, both to create growth since it all starts with a growth in like-for-like sales. So I would say we're pretty much following our agenda for City Gross. There are some seasonal effects also in the hypermarket segments during Q3. So I would say, since we are -- this is a journey, and we see something, it will go up and it will go down. We are here in the long run to create a really strong format in the hypermarket segment. So I would say we are not ahead of our plan. We are following our plan. So we reiterate our guidance for the second half of 2026. However, we are really happy to see these positive signs, primarily on the like-for-like sales, I would say, because that's where it all starts. And then, of course, that we see the result of the initiatives that were made to decrease the cost level. It's -- of course, we're really happy to see that we see these positive signs. But we are according to plan, I would say. Fredrik Ivarsson: Okay. And maybe a short follow-up on the like-for-like growth in City Gross. I recall you did some price value investments. Would you care to give sort of a ballpark figure on the volume growth in the quarter? Simone Margulies: I would say we have a comprehensive agenda regarding the growth, and it's all about developing the offering, both the assortment, but as you said, also to strengthen the price position. It's also about how we do the marketing, the campaigns, it's about operations in store. And I would say that it's a mix of growth and price. But as you said, we are strengthening the price position in City Gross. And by that, the majority is driven by volume. Operator: The next question comes from Gustav Hagéus from SEB. Gustav Sandström: I'll take over from that last statement of yours that you had primarily volume growth in City Gross in the quarter. And if I read correctly, that was the case also for Willys and Hemköp, which is a bit contradictory to the market growth, which appears to have been 4 out of 5 percentage points in the quarter and the market was inflation. And you say that you've primarily driven your growth through volume, given that you're 25% or so of the market then, it appears then that you've price invested compared to the market quite a bit here in Q3? Or are we talking different numbers that don't really add up here? Simone Margulies: Yes. I understand it's difficult for you to see because what you can see is the SCB figures on inflation, and that consists of a basket that is set once a year and it's not -- I would say it's not changes over the year. So they set the basket once a year and then they could, I would say, differentiate the volumes. However, when we look in the price factor internal figures, it's a gap between those figures. And I will not be able to say our figures, but there -- and that has been the issue for all times that we don't really see the same internal figures on pricing than SCB's reporting. Gustav Sandström: Okay. But then on a general topic question then, given that the margin seems a bit under pressure and also your comments on much price action in the market and price competition, is your view that you've lowered prices in the quarter and more so than competitors regardless of what the SCB figure is? Simone Margulies: No, I would say -- I mean, I normally don't go into details about our price strategy. But for us, it's always about securing our price positions in the market where Willys, of course, is the cheapest on the market. And also Hemköp, it's important to be really price attractive, and we see really good, how you say, development in the -- that's what I wanted to show you also, the customer figures about Hemköp really taking notice of the price position that they have changed during the years. So the only way, of course, it's about for us always to be competitive in the market, but within City Gross, we made the price investment that we talked about, both in August and in April. So for the other formats, it's all about always to be competitive in the market. So I would say the margin for both Hemköp and Willys has been stable during this year. Gustav Sandström: Sure. But turning then to Dagab, just help us understand what the underlying development is here. If I recall correctly, you called out SEK 11 million extraordinary costs for Middagsfrid and another SEK 20 million or so for ramp-up costs of the new facility last Q3. Just to understand, when looking at Dagab's development here, EBIT year-over-year, if you were to add back those figures to the comparable, EBIT is flat or actually a little bit down year-over-year. And you have called or guided the market for up to SEK 300 million in savings on a yearly basis once fully ramped up in Dagab. I understand you're not there, but it would be very helpful if you can help us understand, first of all, if that base is correct, so that operating earnings are basically flat to slightly down for Dagab? And secondly, if you have, how far you've come on that journey towards SEK 200 million to SEK 300 million savings on an annual basis for Dagab and where that money went. We note that margins in City Gross, for instance, are quite much better than consensus here today. Simone Margulies: Yes. Thank you. For Dagab, we are realizing the efficiency gains, both in BÃ¥lsta and also in Landskrona, our fruit and vegetable warehouse. So we see that the productivity is increasing, and we are realizing the efficiency gains. So we early communicated the spend from SEK 200 million to SEK 300 million on a yearly basis, and we are in the lower spend, i.e., SEK 200 million. However, we both have a negative margin development in Dagab due to mix effects, the gross margin, I mean, gross margin development in Dagab due to mix effects. And that is because Dagab is supporting the chains in the role in the market. And also, we have some product mix that is affecting the gross margin negatively for Dagab. So we see the positive effect in Dagab in realizing the efficiency gains and the productivity, and then we have a negative effect on the gross margin. Gustav Sandström: But is the mix effect explaining then the SEK 50 million negative underlying development for Dagab? You have volume growth, right? So it should be some type of uplift? Or is that going into some of the other retail concepts like City Gross? It would be, I think, very helpful since you have that breakeven target on City Gross, I think it would be helpful to understand how much of that is actually just transferral from Dagab and how much is sort of underlying improvement for City Gross? Simone Margulies: So the gross margin development in Dagab consists of different part, as I explained. First, the mix effect, which is a negative because we had deflation in fruit and vegetable that is affecting the gross margin in Dagab negatively. Dagab is also supporting the chains, and that is what we see on the negative side. We're realizing the efficiency gains in Dagab, both in BÃ¥lsta and the fruit and vegetable warehousing up till now. Gustav Sandström: Okay. So last one, sorry to dwell on this, but I think it's quite important since you have the target to go breakeven in City Gross and you have guided for up to SEK 300 million savings in Dagab. Do you expect Dagab to showcase any of those savings into Q4 next year? Or is that going to go into the other concepts? And how do you distribute them then between you think Dagab and City Gross and Willys, just to get a feel of what's going on underlying. Simone Margulies: For us, it's about leveraging our business model, and that's about growing as a group in a whole. And we do that by having strong store concepts, growing like-for-like and total sales. That gives us volume in the behind and then we become more efficient. So for us, it's really important to do the long-term investments we do in our logistics structure so we can be competitive over time. The efficiency gains, you don't -- maybe we don't see them in Dagab as well. You have to look at us as a group and a whole. So for us, it's really important to grow like-for-like sales in City Gross and then to have growth in all our segments. And this quarter, we show growth in all segments. We show increased operating margin in all our segments, which is really positive, and that make us summarize a really strong quarter. So for us, it's about leveraging our business model and also playing the game where our competitive edge is. And that I think that this quarter shows really that we're doing. Operator: The next question comes from Magnus RÃ¥man from SB1 Markets. Magnus Råman: I'd just like to ask on the price and inflation topic again because now you state that you see a bit different numbers internally. But if we just relate to the SCB stats, we had a food price inflation that rose in the early spring this year, an index level that came up and thereby also year-on-year inflation. However, this index level and the inflation rate has come down sequentially in the recent 2 months. And if we look ahead and if we just assume an unchanged index level, we will, of course, then come to very low inflation rates entering next year, and then we have the halving of the VAT in April. But from this perspective of food prices, I'd like to ask, firstly, if you see -- I mean, those price changes can be driven both from changes in your procurement cost and also from competitive pressure. Do you view that the decrease in prices that we've seen in recent months have been driven by reduced sourcing costs? Or is it an increased price pressure that you see in the market? Simone Margulies: I would say that the inflation -- even though we don't see the same figures at SCB, we see the same trends within our internal figures. I'd just like to clarify that. But the trends that we see is driven by the, how to say, the sourcing, the price fluctuations that we see in our sourcing. So as you said, we have a shortage in the market on red meat, also in dairy, and that increased the prices in the beginning of the year and continue during the year. And then we have deflation in fruit and vegetable that has come down because of the sourcing prices. And I would say that it's pretty much what you see in the market changes in the pricing. And then if you look into the VAT, as you asked, of course, we see positive on the VAT because we have a consumer that has been under pressure for many years. So by reducing the VAT in Sweden, we create a consumption spend for the consumer. And of course, that will be positive. How that will affect us volume-wise, it's really, really difficult to make any forecast on. So we better come back to that when we implement the new VAT level in April next year. Magnus Råman: Right. But there was a question also previously about underlying volume. And I guess that maybe it's good to clarify that underlying volume growth could not only be driven by sort of an increase in the number of units, it could be a mix shift when people trade up if they buy more meat sort of more -- yes, higher quality type of meat, then you get an implied volume growth, but it could mean that it's not more calories consumed, it's a higher sort of -- it's a shift up in mix towards the premium end. And I mean, with the halving of the VAT, I guess it's fair to assume that we would see some type of mix shift that could contribute to your end margin and profitability. Yes. Simone Margulies: It's difficult to make forecast about that. But I would just say that when we talk volume, we talk volume and when we talk mix or price, it's a different thing. So when I say volume, I don't talk about mix. I would just clarify that. But of course, we're hoping, as we see that the volume goes up within fruit and vegetables when the prices comes down, we are hoping to see a little bit more -- I would say, the share of the more sustainable food to increase, we hope for that, but it's very difficult to make any forecast about it. It's really positive for the consumers to have a larger consumption share. Magnus Råman: Right. But so to conclude, the overall gross margin improvement that we see clearly on the group level, both in year-on-year terms in Q3 and in year-on-year terms on the 9-month rolling or 9 months-to-date basis is, in your opinion, predominantly driven by a relief in the sourcing costs rather than a relief in the price pressure in the market. Simone Margulies: Now you said the development of the margin, that was not -- you asked about the price. So to start with the -- Anders, sorry. Anders Lexmon: Yes, sorry. Magnus, the gross margin that you see in our report is not the same as the gross margin that we see in our chains and in our stores because it's how to -- we disclose and report the COGS. It's a different way. Yes, I know that we have to wait for the annual report to get the product margin. But yes, what I'm trying to get at is that there should be -- if you look at the overall sourcing costs from an [ SAO ] index perspective, for example, we see that we should not expect an increasing pressure, rather a relief in the sort of pressure. And with the items that you mentioned that goes into the gross margin, for example, diesel prices and for transportation and so on, that is also points to a relief rather than an increased pressure. Magnus Råman: But this leasing pressure also obviously affects the prices in the stores. I mean they follow the way out in the stores. Anders Lexmon: Yes, exactly. And I mean the indexation of rent should be flat, if anything, entering '26, I guess, with the inflation rates we have now. Magnus Råman: Yes. What happens in '26, we have to come back to... Anders Lexmon: Right. Okay. I'm happy with that. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Simone Margulies: So I would like to thank you all for joining us today, and I hope to see you in next quarter.
Stacy Pollard: Good morning, everyone. I'm Stacy Pollard. I'm here with Dassault Systèmes' CEO, Pascal Daloz; and the CFO, Rouven Bergmann. Unfortunately, our Head of Investor Relations, Beatrix Martinez, could not be with us today. She's out for a couple of weeks. So I have the pleasure of being in this room again. It's been a few years since I sat in the chairs beside you guys. So it's very interesting to be a different perspective on this side of the podium. Now let me move on and formally welcome you to Dassault Systèmes' third quarter webcast presentation. At the end of the presentation, we will take questions from participants in the room and online. Later today, we'll also hold a conference call. Dassault Systèmes' results are prepared in accordance with IFRS. Most of the financial figures in this conference call are presented on a non-IFRS basis, with revenue growth rates in constant currencies unless otherwise noted. For an understanding of the differences between IFRS and non-IFRS, please see the reconciliation tables included in our press release. Some of the comments we will make during today's presentations will contain forward-looking statements, which could differ materially from actual results. Please refer to our risk factors in our 2024 universal registration document published on the 18th of March. I will now hand over to Pascal Daloz. Pascal Daloz: Thank you, Stacy. Good morning to all of you. It's always a pleasure to be here in London and to have a chance also to interact directly with you. So we're going to review the Dassault Systèmes performance for Q3. Let me give you some -- at least my reading of the numbers. I think this quarter is a solid quarter with healthy margin, and I think Rouven will come back on this. And we -- with a strong EPS growth, and we continue to grow the recurring revenue part, which is, I think, the important thing because this is reflecting the strength and the resilience of our business model. Now if you look at the numbers, the revenue grew 5%, thanks to a strong demand across our core industries. Our subscriptions business is up 16%, accounting for almost half of the recurrent part of the revenue. If you remember, a few years ago, it was only 1/3. So this is growing extremely well. We hit a 30.1% operating margin, which I think is reflecting our focus on running profitable and efficient business. And finally, the earnings per share came at EUR 0.29 and growing at 10%. So behind this number, I think there are certain things I would like to highlight and which are our strengths. The first one is Industrial Innovations, especially Transportation & Mobility, we continue to expand our footprint. And despite the ongoing challenges in this sector, we have also a strong momentum behind 3DEXPERIENCE and SOLIDWORKS this quarter. The second thing is, I think our focus on accelerating SaaS adoption is starting to pay off this quarter, you will see. This is driving the revenue growth and the strong market traction. And to further support this momentum, we have established a new leadership at Centric to fast track the adoption of the SaaS business model. Lastly, in the field of artificial intelligence, I think we are shaping the future with a powerful combination between the industry most comprehensive data sets, the scientific rigor, the advanced modeling and simulations being combined with the real-world evidence, we call it the real-world validations. And AI for us is really not an add-on. It's embedded in the core of the 3DEXPERIENCE platform for a long time because you remember the 3DEXPERIENCE platform, this is really how we are managing the knowledge and the know-how for many of our customers. This quarter, we are coming with new category of solutions. And you remember the Virtual Twin as a Service, the generative experience and the virtual companions, and we will say more about this. And they are really transforming the way our industry, our customers, they are designing, producing and operating the life cycle. Now for the full year, we are confident enough at least to reaffirm the earnings guidance, and we expect the EPS to grow between 7% to 10%, with the total revenue rising 4% to 6% on an adjusted basis, and it's mainly due to 3 factors. The first one is the lower growth from MEDIDATA, which is in line with Q3, in fact, the impact of the SaaS acceleration for Centric and the volatility impacting some of the timing to close. Now let's dig into some details behind those results. Let's zoom first on the manufacturing sectors. As I was telling you, Transportation & Mobility has once again proven its resiliency. And to give you the numbers, this quarter, we are growing at 18%, one-eight. Why so? Because it's usually when it's a difficult time for our customers that they have to take radical decisions. And this quarter, we have some -- Ford took the decisions to go with us to expand outside of the engineering borders, and we have signed a contract with them for the next 5 years to use the platform across all the different programs. I will tell you more on this probably next quarter. But there is also another very important flagship customer we signed this quarter with Stellantis. And I know some of you were expecting us to move along this way, and I will come back on this. Why those companies are basically adopting widely the 3DEXPERIENCE platform, is because they are using our solution first to speed up innovation. And speed is becoming really one of the key topic. You remember a few years ago to develop the car, it was almost 48 months. Now we are talking about 16 months. So it's a little bit like fast-moving goods. And to master the complexity, you need a different approach, and this is where I think we are making a difference. Sustainability is also a topic. The electrification is driving the cycle. You know it. And more and more with the SDV, we are creating a personalized experience for the customers. And this is really the combo, if you want, of what we can provide with our solutions. We are also seeing a strong growth in defense. It's growing double digit this quarter, where programs are becoming more complex and collaborative. And I think our 3DEXPERIENCE platform, combined with what we call the model-based system engineering, MBSE, which is now a standard in the industry is more and more widely adopted, and this is really opening a new opportunity for us, not only in Europe, but also in the rest of the world. Life Sciences, the market remains unstable and challenging. I think Rouven will say more about this. We still see the new clinical trial start being contracted. Nevertheless, we landed with some big contract this quarter. And more importantly, I think we're also being encouraged by some large win backs. AbbVie is one of them. And you remember, it was one of the flagship customer of Viva a few years ago. They signed with us a contract for the next 5 years. And I think this is the proof that what we do is extremely critical. And I think also this is a proof that what we have built as a foundations is critical for them also for the AI-based programs, and I will come back on this. In Infrastructure & Cities, the demands keep growing, in fact, for autonomous and sovereign infrastructure, you remember, especially in the energy space. But we are more and more seeing new use cases or new opportunity emerging. One of them is the nuclear decommissioning. As you know, it's a big topic because you have many reactors around the world aging. And we are using our solution to do virtual twin as a service to manage the safety and the efficiency of this process and to manage the end of life of those nuclear reactors. So this space is really, again, a way for us to establish leadership in a domain where we are the challenger because in this space, I think we do not have the same footprint than the others. Now let me show you some key wins. Stellantis, for you know the company, I mean -- and you remember, we had a significant footprint with PSA, but the rest of Stellantis was much more in the hands of our competition. So what do -- they took the decisions to -- I mean, to standardize on 3DEXPERIENCE platform on the cloud, which is, I think, important for their system engineering backbone. And this is extremely important because, as you know, the system engineering is the foundation to do the SDV. And all the car players are moving along this way, and they are using our system approach, system-to-system approach as a way to standardize across all the domains to unify the bill of materials, but more importantly, against, they are building the foundation for their AI initiatives because one way to reduce the cycle of time to develop the car is to be much more generative and you need an infrastructure to do this. And that's what the 3DEXPERIENCE platform is ready for. So we are extremely proud to support this transformation. And it's a significant one because it's a ramp-up at the end with more than 20,000 users we need to equip with the systems. Moving to Life Sciences. I already say a few words. So AbbVie, it's a global biopharma. It's one of the top 10 global pharma. And it's a win back. And it's a win back of a win back, let's say this way, because again, a few years ago, they took the decisions to open some clinical trials with Viva. And now they are back with us. And there are a few reasons for that. One of them is the time. They were sharing with us that we are 10x faster in the way to run the processes and the clinical operations. It's also a big cost saving, which is an interesting takeaway because you remember one of the arguments which was used was this EDC is becoming a commodity and it's price sensitive. And the reality is the price is one thing, the savings and the efficiency is another one. And it's -- here, you have the proof. And the last argument, all the pharma sector, a little bit like the auto sectors, they are building their AI programs in order to automate, in order to use in a better way the data set they have. And they have seen through our platform, the ability to develop their own program on top of what we do. So those are the reasons, if you want, behind these win backs. Finally, from a customer standpoint, this is an interesting case also. Korea Hydro & Nuclear Power is the largest energy public enterprise in Korea, and they have launched the digital transformation to manage, I was telling you, the decommissioning of 26 reactors. So the reactors is first generation. They are progressively replacing it with a new generation. And to do this, it's a complex process. They have to decommission this large installed base. They showcased this example, this case in Koreans 3DEXPERIENCE forum a few weeks ago, and I was having the chance to participate to this. And frankly speaking, you should really look at it. It's amazing what they have been able to do because it's a very complex process. Safety is at stake. Compliancy is at stake. It's a very, very sensitive process because you have to manipulate the reactor when the reactor is still working. At the same time, you need to do it in a very precise manner. And to manage this complexity, to predict the complexity of the process to prevent the risk, to keep track of everything because you have to be compliant. They are using the platform and they are using the virtual twin in order to make this. So why I pick those examples? Because behind all of them, there is a clear pattern. We are not only the partner for them. I think in many cases, we are the game changer for them. We are the one allowing them to accelerate their industrial transformation, whatever it's in the mobility, life sciences and the energy sector. Now let's speak about 3D UNIV+RSES. So you remember, we announced it in Feb this year, and I was making this statement, 3D UNIV+RSES is not an extension of what we do. It's really a leap forward. And there are a few things I want you to keep in mind. What are our differentiations? The first one is we are building our AI engine on the large and the most structured industry corpuses. And it's the result of 40 years, having 400,000, almost 400,000 customers worldwide in a very different sectors, building the virtual twin of all the objects you can see on the slides. And this is a unique purpose to train our systems. So -- and remember, AI without having high-quality data is just only a noise. But if you have the right data, it's becoming game changer. The second takeaway is the data set is not enough for what we do. You need to build AI on science. And this is extremely important because if you are only relying on patterns matching and recognitions, it's not enough for what we do. The AI needs to be built on physics, biology, material sciences, engineering principles. And why so? Because when life are at stake, whatever it's -- when you develop a drug, when you fly in objects, when you have driving an autonomous car, you cannot take risk. The system should not guess, should not hallucinate. You need to understand how the parts fit together, how the materials behaves. And this is really what we have been able to build, which is an AI which is rooted in sciences. The third element is we are coming today, I mean, today, a few weeks ago on the market with the new category of solutions. So you remember, we presented it during the Capital Market Day. And now I'm really pleased to introduce you to our virtual companions. And in fact, it's a family of 3 for the time being. You have AURORA which is our business strategies, focusing on the outcome and efficiency. You have Léo for engineering experts, and Léo is really diving deep into design and simulations. And you have MARii is our scientific authorities handling the -- probably the most advanced questions on research. The interesting things, if you ask the same questions to all of them, you have different answer. So more than a long explanation, let's look at the video. [Presentation] Pascal Daloz: So as you can see, it's not just about AI. It's about having an AI, which is behaving like your team because you need -- when you do engineering activities, you need to assemble different domain expertise at the same time. And if you try to converge too rapidly to the solutions, at the end, you are letting some open opportunities untapped. And this is basically what we are doing with the virtual companions, which are a way to complement and to enrich the roles we have developed. Now this is also an interesting thing because you can use AI as a way to take smarter decisions and faster. And here is, again, a concrete example. It's AURORA. And AURORA is widely used by many industries for currently to deal with the tariff, with the trade policies, the supply chain issues. because this is changing so much that you need almost every day to reactualize your what if scenario. So AURORA, in this case, is not only anticipating but reacting. She anticipates the turnaround, the uncertainty. She try to manage with data-driven insights, the consequences. And this is important because for many industries, the margin is at stake. So to keep it you ahead, the system, if you want, is helping you to collaborate, is bringing you the right expertise, is telling you what are the different avenue you have in front of you in order to fix the problems at the right times. Now let's speak about SOLIDWORKS. This is an interesting -- this is a very important year for us. It's a milestone because we are celebrating the 30 years anniversary of SOLIDWORKS. And why this is important? Because if we step back, after 30 years, I think no one will debate that SOLIDWORKS is the undisputed leader in the 3D CAD. And I put some numbers on the slide just to give you the proof, 8 million users. It's by far the largest design community around the world, 1.5 million commercial license, which is truly addressing the large company, but also the start-ups and all the shakers. It's almost 300,000 clients worldwide and again, covering the large spectrums of all different industry we serve. So it's a lot of legacy of innovations that we are keep pushing from a product development forward. And I think now with SOLIDWORKS, we are also introducing the artificial intelligence to build the next phase to make it faster, smarter, easier to use, in fact. And the topic for us is not only to automate tasks, but more importantly, to give more time for the creativity. And we have some features we are introducing and some functionalities. The first one is obviously the generative design. Second one is what we call assistive features. which is an intelligent and pattern of recognition when you do, for example, an assembly. And all those kind of things are really helping the users to work smarter, but not harder. Behind this, I think if there is one message I want you to keep in mind is this AI approach is a way to do the docking bridge with the 3DEXPERIENCE platform. As you know, this topic is at stake for several years. And I think now I believe we have find the routes to connect the SOLIDWORKS' large installed base we have with the 3DEXPERIENCE platform. It's a way if you want to turn the SOLIDWORKS users into the lifelong experience partner. So I think -- and Rouven will come back on this, but you will see the performance of SOLIDWORKS this quarter is really extremely good. It's growing at double digits. Now to conclude, I think why everything I share with you matters. There are a few things. I'm sorry, I should not anticipate your presentation Rouven. The first one is 3D UNIV+RSES is giving a few and large advantages. The first one is, you remember, we are helping our customer not only to manage the full life cycle of their products but more and more to manage the life cycle of the intellectual property. And you should remember what I'm telling you. In this AI periods, the most important is assets is intellectual property because everything you built is leveraging the intellectual property. And if you do not have a way to manage it safely to take it as a real asset to manage your life cycle the same way you manage the life cycle of the products, you take the risk to be out of the game. And this is what we are bringing to our -- to mix the different knowledge coming from different sources, but at the end, still tracking will belong to what to. The second thing is, in many domains, we are turning compliance into a competitive advantage. If you take aerospace, if you take health care, if you take energy, those are extremely heavily regulated industry. And one of the answer to the tariff war is to put more regulations. That's the way to protect, if you want certain markets. The flip side of this, if you are an industrial company, you have to manage with this complexity. And AI is a fantastic tool to read millions of documents to extract 1,000 rules and us, what do we do with those rules? We do design -- we do compliance by design, if you want. The system is checking automatically that everything you do, every design you do, every decision you do are compliance by design. The third element, I think generative AI is really a game changer as soon as you can trust it. And your AI in many industry we serve needs to be certifiable. If you cannot certify the output of what you have produced with AI is useless. And the way to do it, if you remember, we are training our AI on very comprehensive data sets, which is pretty unique. And those are very high quality of data sets. And it's validated by the science, which is even more important. And we are deploying those artificial intelligence capabilities into a secure and sovereign environment, which is what we do with 3DS OUTSCALE. So this combination is pretty unique on the market. It's very differentiate -- it's a huge differentiations compared to many of our peers. And this is, in my view, a game changer in many, many customer engagements we have right now. The last but not least, I think we are coming on the market with a new category of solutions. You have seen this morning the virtual companions, AURORA, Léo and MARii, but you will see more and more the generative experience, the virtual twin as a services. We have a road map for this -- for '26, '27, and this will accelerate the contribution of AI in our revenue streams. So with this, I think it's time for me to hand over to you, Rouven to give more flavor on the numbers and probably the outlook for the rest of the year. The floor is yours. Rouven Bergmann: Thank you, Pascal, and also welcome from my side to our call today. Thank you for joining us online and here in the room in London. Let me start with 3 key messages. First, top line growth and margin expansion are our top priority. Second message, the 3DEXPERIENCE platform is driving our business model shift to subscription and recurring revenue growth. This engine is working well with 16% growth of subscription this quarter. The third message is we are mission-critical, as you saw in the examples to our clients. In fact, in 2025, we are winning significant contracts with many of the top industrial companies across the world, and this is laying the foundation to long-term value creation with cloud and AI. It is these powerful long-term partnerships that give us confidence in our long-term targets. Now before I dive into the specifics of the quarter, a few more things to summarize briefly for you. Our financial results for the quarter were solid with 5% revenue growth and an expanding operating margin, which is up 100 basis points and 10% growth in EPS. Industrial innovation is driving the growth of 9% in the quarter and 8% year-to-date, while MEDIDATA and Centric were softer than expected. As discussed previously, the repositioning of MEDIDATA is ongoing. The change of the model to reduce the dependency on clinical trial activity will take time as we are doubling down on the enterprise and the PLM opportunity in Life Sciences. And for Centric, we're accelerating the SaaS transition. And to this effect, we have promoted a new leadership team, as you heard from Pascal. Now looking at the full year, we adjust our revenue outlook to 4% to 6% ex-FX, in line with our current trajectory of 5% top line growth year-to-date. At the same time, we maintain our EPS growth target of 7% to 10% ex-FX. This is thanks to the strengthening of the operating margin driven by additional efficiencies we are generating in the business. With this in mind, let me take you through the details. In Q3 and year-to-date, total revenue software were both up 5% ex-FX. Recurring revenue was strong, up 9% in the quarter, and it highlights a very solid acceleration when compared with 7% year-to-date. Subscription revenue growth was 16%, and it was driven by new deals signed in the quarter and the increasing visibility from large contracts that are ramping. As a result, subscription revenue now represents almost half of the recurring revenue base. It's up 3 points from last year. And starting in 2026, subscription revenue will surpass maintenance revenue in absolute terms. 3DEXPERIENCE was the growth engine behind that, up 16% in Q3, and the signings of Ford and Apple contributed to the strength in subscription growth. Upfront license revenue declined 13% as our clients continue to adopt the subscription model at an increasing rate. The best proof of this is that recurring revenue now accounts for 84% of the total software revenue year-to-date. The operating margin improved 100 basis points for the quarter and is driving strong EPS growth of 10%, thanks to the productivity gains and cost discipline. In fact, OpEx was up 3.1% in the quarter, and we continue to rebalance resources to support our growth strategy. Now turning to the growth drivers. In Q3, we saw very good 3DEXPERIENCE revenue, and it's now representing 40% of software revenue year-to-date. The growth was broad-based, up 16%. Cloud revenue was 8% in Q3, 7% year-to-date. 3DEXPERIENCE cloud revenue grew 36% in the quarter and 29% year-to-date. The key wins for 3DEXPERIENCE cloud, such as Ford, [indiscernible], Dallara Automobili and Stellantis demonstrate the value of the platform for our clients where transformation is critical as is the need to leverage AI. Now let me review the Q3 actuals versus our objectives briefly. Total revenue came in at EUR 1.461 billion in the quarter, mainly affected by currency headwinds. Excluding currency, growth was 5% at the low end. Operating margin was 30.1% and above the objective to 60 basis points from performance and a negative currency effect of 20 basis points. EPS was EUR 0.29, driven by better operating performance against a small currency headwind. Now looking at the geographies and product lines. The Americas rose 7% in Q3 with good performance in Transportation & Mobility, High Tech and Aerospace & Defense during the quarter. Europe was a bit softer at 4% in Q3 with double-digit growth in Southern Europe, solid performance in France and also Germany. This was supported by subscription momentum, especially in Aerospace & Defense. Asia was up 4%. India had an outstanding quarter. Korea was up double digit. Here again, strong performance of Transportation & Mobility as well as Aerospace & Defense. China experienced softness in Q3, but also on a tough comparison base when looking at last year's number. Now let me review the performance of our product lines. As mentioned previously, Industrial Innovation delivered excellent results in 2025 across key domains led by CATIA, ENOVIA and DELMIA as well as SIMULIA, highlighting the value of the 3DEXPERIENCE platform is delivering to our clients. So it's broad-based across domains. We are mission-critical to the transformation of our clients with superior capabilities to generate virtual twins. Life Sciences growth was lower than expected. It was down minus 3% in the third quarter with MEDIDATA impacted by continued study start declines, but importantly, continuing to gain market share. Overall, from an industry standpoint, the volume business continues to face pressure. When we entered 2025, we had assumed that volumes would stabilize, helping to support our forecasted growth in the second half. Conversely, we observed a decline in high single digits in Phase III studies and mid-single-digit decline across Phase I and Phase II since the beginning of this year. While we are expanding our market share, the impact of the decline in study starts is not yet compensated by the growth from the expansion with our enterprise and mid-market clients who proved resilient. As you heard from Pascal, we had a major MEDIDATA platform win back, the top 25 pharma, AbbVie, after a brief period with a competitor, AbbVie decided to return to MEDIDATA for all clinical trials, leveraging AI everywhere. This validates the trust clients place in us and the value of the MEDIDATA platform. Additionally, in Q3, we expanded partnerships with Sanofi. You see the press release this morning and also expanding our business with IQVIA, including Patient Cloud. Looking at Life Sciences outside of MEDIDATA is the opportunity to win with PLM is our clear priority. For the first 9 months, growth is up double digit, highlighting the strong potential of our portfolio to address the challenges of this industry. Now moving to mainstream innovation. Growth in this segment was mainly driven by SOLIDWORKS, as you heard. The shift to subscription is well underway at SOLIDWORKS. Centric growth was slower than expected in the quarter due to some shifted renewals, and we saw an acceleration in the share of clients adopting the SaaS model. Now turning to cash and the balance sheet IFRS items. Cash and cash equivalents totaled EUR 3.910 billion as of Q3 compared to EUR 3.953 billion at the end of 2024. This decrease of EUR 43 million on a euro basis was driven by a negative currency impact of EUR 269 million. At the end of the quarter, our net cash position totaled EUR 1.321 billion, a decrease of EUR 138 million versus a net cash position of EUR 1.459 billion at the end of last year. Now let's take a look at what drove our cash position at the end of the third quarter year-to-date. We generated EUR 1.334 billion in operating cash flow for the first 9 months versus EUR 1.348 billion last year. The cash conversion from non-IFRS operating income was 97% for the first 9 months. Cash conversion is a top priority, and we expect the conversion to improve going forward. And starting Q1 2026, we expect working capital to support cash conversion reaching the 2024 levels with the potential to improve further. As discussed previously, 2025 operating cash flow is impacted by significant contracts that we signed in the quarter as well as higher payments related to tax and social charges as well as negative FX. For the full year, we now expect operating cash conversion -- for the full year 2025, we now expect operating cash conversion to be in the range of 78% to 80%. To sum up, operating cash flow year-to-date was mainly used for the -- for investments, EUR 581 million, of which EUR 240 million was for acquisitions, EUR 216 million for the purchase of the Centric noncontrolling interest with the remainder of CapEx of EUR 123 million to support our cloud growth. We paid EUR 343 million in dividends and made a net repurchase of treasury shares of EUR 186 million. For any additional information, you will find the operating cash flow reconciliation in our presentation that we published this morning. Now let's transition to our financial objectives for 2025. Net-net, our year-to-date revenue is up 5%. For the full year, we now adjust our revenue outlook to reflect this trajectory and expect growth of 4% to 6% ex-FX for both the total revenue and software revenue versus 6% to 8% previously. In absolute terms, we are adjusting the full year revenue outlook by approximately EUR 140 million to the midpoint. This reflects an impact of EUR 30 million from Q3 and an FX impact of about EUR 20 million. The remaining delta can be explained by 3 factors: a, the lower growth from MEDIDATA in line with the Q3 performance; b, the impact of the SaaS acceleration at Centric; and last but not least, we also factor in an increasing macro volatility with the potential to impact the timing to close large transactions. Please also remember that we had a high comparison base in Q4 of 2024. Now looking forward, the change of model for Centric is on -- sorry, the change of model for MEDIDATA is ongoing. And we are confident as well into the accelerated SaaS transition of Centric given its strong positioning in a very large market and clients are endorsing it. For Industrial Innovation, we have built a very strong foundation in 2025, where we signed significant contracts, and we expect in 2026 to expand on these partnerships, transforming with virtual twins and generative experiences. And last but not least, the SOLIDWORKS momentum is strong. Recurring revenue outlook remains stable. It's at 7% to 8% growth. And underscoring what I said at the beginning, we are implementing a sustainable recurring growth model with increasing visibility. Above all, I mentioned the strength of our operating model, highlighted by the margin improvement. As such, we are maintaining our EPS growth expectation of 7% to 10% growth or EUR 1.31 to EUR 1.35. To achieve this, we expect Q4 OpEx to continue to trend in the same range of Q3, delivering margin expansion of about 100 basis points, which is driven by ongoing productivity initiatives, having the right people at the right place to make it simple. So this is all based on FX assumptions for an average rate for the year of euro to dollar at $1.13 and euro to yen at JPY 166.7. Now briefly on Q4. As you can see, the revenue range of 1% to 8% is fairly large. This is predicated on potential uncertainties in the timing of deal closing, mainly for the upfront license business, while subscription growth of 8% to 12% is solid on a high comparison base. Operating margin is expected in the range of 37.2% to 38% and EPS growth of 7% to 17% ex-FX to hit EUR 0.41 to EUR 0.45 EPS for the quarter, reflecting the ongoing operating leverage. Now as I reflect on the performance so far this year, I want to highlight that our operating model is resilient, and we apply strict financial discipline to support our long-term growth. We occupy a unique leading market position in which that makes us mission-critical today and tomorrow for our clients. Profitable growth and improving cash conversion, as mentioned, is a top priority with clear objectives to show results starting 2026. AI and cloud are 2 main growth drivers. We are confident we will deliver on their ambitious growth targets. We are committed to continue to invest right for innovation, for clients and for shareholder value. Now Pascal and I look forward to take your questions. Operator: [Operator Instructions] We pause for a brief moment and take questions from participants in the room first. Adam Wood: It's Adam Wood from Morgan Stanley. Maybe just to start off, you finished off even identifying that it is a reasonably large range for the fourth quarter in terms of revenue growth. Could you maybe just talk a little bit about what is in there at the bottom and top end of those ranges in terms of pipeline conversion assumptions on big deal closings? I mean, at the bottom end, are we assuming that none of the big deals close? Just to give us a little bit of a feeling for what's in there and how conservative that bottom end is? And then maybe just secondly, Pascal, you talked about the huge breadth of customer data that you have that you can train models on and use for AI. First of all, could you just talk about how challenged that is where customers are still on-premise? And then how much does that force them and accelerate the shift to cloud with the impact that has on the revenue transition? Rouven Bergmann: Thank you, Adam. I'll take the first question. The -- can you hear me well? Just working with microphone. Yes, there's a wide range on license. The recurring subscription part is fairly consistent compared to our performance year-to-date. I think that's important to note. On the range, the low end of the range is derisked with large transactions. We have a long list of large deals that we have all validated extremely detailed to see where they can fall and the size of those transactions in different scenarios. What I said, given that increasing macro volatility and the timing that -- and the impact on timing of closing this could create, we were prudent to reflect at the low end, a more conservative and prudent perspective of large deal contribution. So the midrange -- the midpoint requires some of those large deals, but we have the potential to do better because our pipeline is strong, but it's depending on the timing of closing of those large deals and the size of those large deals. Pascal Daloz: Coming back to your question about the transition from the on-prem to the cloud and how it is linked with AI. Definitively, AI is accelerating the trend, right? And there are a few reasons for that. One is because no need to wait to have transition everything before to start AI. And the way we do it, we do what we call supplemental. So when you have a large installed base or large deployments of the 3DEXPERIENCE platform on-prem, we come with an instance on the cloud in order to basically enable all this AI new category of services we are developing. And this is really accelerating the trend. And you have seen in the number, it's 36% growth this quarter, the cloud related to 3DEXPERIENCE platform. It's 30% since the beginning of the year. And it's extremely correlated also with the subscriptions acceleration with 16% this quarter. So in a way, this is helping the transition. And if you remember a few years ago, we were convinced the collaboration will be the catalyst for the people to move to the cloud. I think AI is the way to go. Mohammed Moawalla: Rouven, Pascal. Mo from GS. Firstly, just it's encouraging to see on the industrial business, there is pretty good momentum, particularly with Stellantis, Ford. As you look kind of into next year, as we think of some of the headwinds and the tailwinds, how should we think about the kind of growth across the different sort of segments of the business? Because obviously, in mainstream Centric has a transition still to navigate. On the Life Science side, it sounds like kind of visibility is still reasonably low, but the industrial business is ramping. So how should we think about the sort of puts and takes for growth next year? And then secondly, as we think about the Life Science business, have you sort of -- clearly, it's sort of behind plan. How do you think about the kind of strategic sort of view of this business over the medium term? You're willing to kind of write it out? Or is it something that perhaps maybe you need to kind of change the scope of to try to extract more of the growth areas that are probably better positioned? Pascal Daloz: Do you take the first one, Rouven? I'll take the second one. Rouven Bergmann: Okay. In terms of the building blocks more, when we look at the trend of 2025, Industrial Innovation up 8% year-to-date, 9% for the quarter, very much supported by the strong growth in 3DEXPERIENCE adoption. That's a very healthy and sustainable trend. That was always our objective to convert that growth into recurring revenue and subscription growth. As I mentioned that in year-to-date, there is -- and in Q3, there is always good contribution from new deals that we are signing, but also contribution from deals that we have signed in previous quarters that are ramping and are contributing to growth in the current quarter. With many of the significant deals we signed in 2025, this will be the case in 2026. So from an industrial standpoint, manufacturing industries, including for SOLIDWORKS because in SOLIDWORKS momentum is also favoring. I think we are fairly confident in our ability to continue to transform these huge industries. And in a way, many of the deals that we signed are a starting point for what's expected in 2026 and beyond. So without giving you guidance for 2026, but I think from that perspective, the 2025 trends are healthy and stable and sustainable. Related to MEDIDATA, the growth profile, yes, is very much affected by the volume business as we are changing the model to become more enterprise and more sticky by really looking at an enterprise solution to transform life sciences with the objective to generate evidence and outcomes faster for patients. And that's not just in the clinical trial, it's in research, in biology, but also in manufacturing and quality management and the whole life cycle of real-world evidence and trials and patients. So the opportunity is large, and we are making the changes to be in a better position in 2026 now. Now for 2026, I think we want to be cautious on the growth contribution from that part. We're not expecting a decline in 2026 from Life Sciences. I think we are in a better position in 2026 than 2025. That's our starting point. And for Centric, the situation is difficult in 2025, but it will improve in 2026. The SaaS acceleration is imminent. It's already happening as we are speaking, because customers are transitioning faster to the SaaS and cloud solutions than to the on-premise. And we expect around mid-teens growth for this business next year. And if you add all of that, I think we are -- we should enter 2026 with confidence. Of course, the macro standpoint is going to weigh, and we have to assess that. But the building blocks are in place and are shaping. That's the message to you. Pascal Daloz: The second part of your question, Mo, is if we do -- if we consider Life Sciences still being strategic for Dassault Systèmes, right? Ultimately, this is the question you ask. And the answer is yes. And there are a few reasons for this. One, if you look at who are the industry spending the most in research and development, Life Sciences and High-Tech are the 2. In the previous century, it was the auto and aerospace. In this century, they are the 2 spending the most. And if you remember, the core market we serve is really the innovation space, and we are obviously serving the one spending the most in innovation. So from market attractiveness, there is no doubt. The second reason is because we did not diversify in the life sciences only for the purpose to expand or to diversify the market. It was also a way for us to learn new scientific -- at least to develop new scientific foundation. Let me tell you why. If we want to address the sustainability challenge, we need to understand how life is generating life, right? This is -- it seems maybe a little bit far from the day-to-day numbers. But from a scientific standpoint, this is extremely important for us to crack how life is designing things. And my bet is the next generation of generative design will -- from a scientific standpoint, will come from this space. So this is the second reason why this is so important to continue to invest and to crack this sector in a good way. Now the question, what are we doing to change the game? Rouven already answered partially to these questions. The first one is we need to minimize the dependency on the volume of clinical trial. That's obvious because right now, the model is extremely sensitive to this. So when the market is booming, we are getting the full benefit of it. You have seen it during the COVID time and just after the acquisition of MEDIDATA. But when the market is shrinking, basically, you are penalized. And I know every quarter, I'm repeating this, the worst of the worst is, in fact, we are gaining market share. But you have hard time to figure out because you see the number decreasing. In a way, we are reinforcing our position into this space. So the way to do it, there are 2 different axes. One is to be more sticky and less dependent on the number of clinical trials, which is the enterprise approach, which is nothing more than the PLM approach we are applying to the sector. And we see a lot of traction downstream. All the topics which are related to the manufacturing, to the supply chain management, how to accelerate the transfer from the lab to the production system are extremely critical. Why -- the reason why we signed with Sanofi, the extension was they have 12 molecules in their pipelines. They need to basically put on the market in the next 3 years. They want to speed up the ramp-up for the production and to gain almost a year compared to what they used to. And the way to do that is very simple. You do most of the ramp-up production when the molecule is still at the lab level in terms of development. So you do what we do in other industries, except we do it specifically for the life sciences. So this is one axis to be enterprise-wide and to focus on the downstream and basically climb up, if you want, the value chain. The second one is MEDIDATA is a medical platform. The 3DEXPERIENCE platform is an enterprise platform, but MEDIDATA is a medical platform. And if you look at what kind of information we have into the systems, those are the medical insights for right now only the clinical trial and the intent is to expand the usage of this medical platform when the patient, they are under treatment. So this is what we call the patient centricity because there is no reason we cannot follow the patient when the patient is taking the drugs. And we can follow this, we can follow the adverse effect, we can follow -- we can make prescriptions, how to do -- to take the drugs, when it is the appropriate time, right? There are many, many services we could imagine around this way. And this is the strategy we are building around myMedidata. Those are the 2 axes we are using as a way to, if you want, be more sticky and less dependent on the volume of things. Now this is requesting to change the offer, right? And this is what we are doing. In the way we report the number, there is a little bit something which is hidden. In fact, you do not see the traction of the rest of what we do in Life Sciences because in the Life Sciences and Healthcare line, we are only reporting basically MEDIDATA and BIOVIA. But we are selling more and more DELMIA, ENOVIA, SIMULIA and also CATIA and SOLIDWORKS in the med device, and this is reported into the Industrial Innovations. So if you combine all those things, the picture is, in fact, better. Balajee Tirupati: I'll repeat my question. The first question is on MEDIDATA. How are you seeing the dynamics in the U.S. evolving? It would appear that some of the overhangs, regulatory overhangs have been reducing of late. And separately, we have also seen some of the CROs in IQVIA, ICON reporting decent booking numbers of late. So where are you seeing incremental growth headwinds for MEDIDATA coming from? And as we go in 2026, are you seeing a better visibility or some improvement in the decline in starts that we have seen in 2025? Rouven Bergmann: Yes, Balajee, thank you. I think the IQVIA and ICON outlooks were mixed, to be fair. So I don't think that anyone is saying we are yet through the decline in clinical trial activity. For sure, when we just look at clinical trial starts, Balajee, and the public available number that where all pharma companies are reporting their clinical trials that are starting, the numbers are down. And as I mentioned before, for Phase III, they are down significantly, and this is where the lion's share of value is concentrated for a software vendor as well, also for CROs because this is where there's the largest operation and there's -- most of the people are involved, and it is where the lion's share of the value is created. This is what's affecting us. And we have yet, to Pascal's point, to show that we can rebalance that headwind that we are facing from the volume decline with growth by creating a more sticky offering, connecting the dots across the life sciences enterprise to have that growth outweighing the decline just from the volume in terms of number of trials started. This is the challenge that we are facing. This is what we're seeing right now in our numbers reflected of minus 3%. At the same time, when I look just at the segment level from enterprise and mid-market, both parts are growing. But also for those 2 parts, they have less clinical trials in their portfolio than what they were doing in 2019, even before COVID. So we are already rebalancing, right, with our offering and improving our -- increasing our footprint with more value that we are creating for clients for which we are -- that we are able to monetize. But when you then include the pure volume part, still it overweighs and it reduces the growth in this quarter to minus 3%. I think regarding the U.S. regulation, right now, biotech funding is still not great, right? And that's also a reason why there's less trials started in the U.S. and in Europe. But we see an increasing trial activity, for example, in Asia, specifically in China. And that's a market opportunity that we are also addressing, but it's a different market with different economics. And now looking into 2026, it's difficult to predict what trial starts will be in 2026. I think what we should assume at this point is that our mix in 2026 is improving versus 2025 to be in a better position to offset that volatility. And offerings like clinical data studio are an enterprise offering. They are not clinical trial related. And this offering is going very, very well, and we are leading with this offer in the industry. One important part of the AbbVie announcement is the AI everywhere part. So when you are making decisions today as a company to go -- to think 5 years out, AI is at the center. And our AI strategy is resonating very well. And this is a catalyst for 2026. So I'm a bit -- you hear, I'm a bit more optimistic than what we're seeing in 2025, but it's too early to declare victory. Balajee Tirupati: Thanks for very comprehensive answer. If I can have a follow-up question. So following up on the AI debate that we have right now, and I appreciate it is a bit different for vertical software companies. But are you seeing your clients taking a pause in decision-making also on account of trying to understand what -- where the debate moves of software versus foundation model and also as your own 3D UNIV+RSES offering matures. So are customers also weighing decision and taking a pause in decision-making? Pascal Daloz: So it's a very good question. In fact, for many of our large customers, they started the AI initiative 2 years ago, in fact, by doing a lot of by themselves or sometimes partnering with start-ups. After 2 years, they are coming to the conclusion, it's promising, but you need to integrate this foundational model in the way you operate the company. And we are at this point. Let me give you an anecdote. I was with Ford a few weeks ago. And the CIO was telling me he stopped almost all the AI initiatives because now he wants to rationalize. But he want to rationalize in the productive way. He say, obviously, it's a lever for us. We have investigated many use cases. Now we need to focus on the one being more promising. And usually, the way to do this is very simple. You look at the moonshot, the one really changing the game. If you focus AI on the things which are making some improvement in what you do, you will never have your payback because AI is costly. However, if you focus on things you cannot do or you can do with a very different level of efficiency, the payback is there. And we are really at this stage. So for us, I will say it's driving against the adoption of the platform as the data lake. They are building more and more on the foundation because there is no need to redo the job. We have already done it. And more importantly, it's already integrating in everything they do. Because at the end, if you want to design the car, you still need CATIA. The fact that CATIA is driven by an AI engine is one thing, but you still need CATIA to produce the model, to produce the geometry, to produce basically the instruction for the shop floor. This is really where we are game changer. And this is extremely difficult to do without having our foundation, in fact. So to come back to your questions, I think, yes, there is a pause in a way people are doing less experiment -- but now they are taking the decision to focus on the core use cases, which are really productive and making the moonshot, I call it the moonshot, I mean, having a significant lever on the efficiency or opening new avenue. For example, this is what we are seeing in the material science. There are certain things you cannot do if you do not have an AI engine to do that. We are at this crossroad, but we are much more benefiting from this than something else. Charles Brennan: It's Charlie Brennan here from Jefferies. Apologies, 3 questions for me. Firstly, I'm struggling to match the narrative on to the actual numbers. You're attributing the weakness in the quarter to MEDIDATA and Centric, but MEDIDATA is a recurring revenue business and recurring revenues actually beat expectations. Centric is partially a license business, but it doesn't feel big enough to account for the size of the license decline. Is there anything else going on there, maybe a change in revenue allocation between the 2 lines? Or what else went wrong in the quarter to justify the shape of the numbers? Secondly, I'm hearing accelerating subscription as one of the themes coming across -- is that just Centric? Or is it more broad than that? And traditionally, it's tough to accelerate growth when you're moving to subscription. Do we need to think about a phase in '26 and '27 with accelerating license declines? And do we have to think about that in the shape of growth going forward? And then thirdly, I should probably sneak one in on cash flow. 84% conversion in 2026 is a surprisingly precise guide given the recent track record on cash flow. Are you confident that, that takes account of all of the working capital terms on deals that you're going to sign in 2026? Or is there scope for payment terms on deals in '26 to disrupt that 84% cash conversion? Rouven Bergmann: Okay. Thanks, Charlie, for the questions. Let's start -- go through this one by one. On the quarter, there's nothing else than what I outlined. I don't know where the disconnect is, but maybe I just reiterate it in simple form. Yes, MEDIDATA is a recurring business, but it also has a volume aspect of clinical trials that are starting and ending in a way they are not recurring, right? I think we were always clear about that. There's a subscription part where we contract over a period of time. And then there are studies that are starting and ending, and there is volatility to that. Charles Brennan: [indiscernible] Rouven Bergmann: Of course. But when studies are ending, they stop recognizing revenue. So there's a lot of studies ending. There's new studies are starting. If you're down minus 3% in a quarter on EUR 250 million, you can do the math in terms of how many this is, but there's a number of trials. We are running thousands of trials, Charlie. So in a market, as Pascal said, where the volume is stable, right, where we can gain growth through market share expansions, it's a solid generator of growth. And this has been the model of MEDIDATA for a long time. Now today, the volume part or the consumption business, you might say, represents about 30% of the overall business. And that business is down high single digits. And that's impacting the quarter, high single digit to low double digit for that volume business. Now it's offset by the increase in subscription contracts from deals that we are expanding and winning in the market. So that's to the MEDIDATA part. There is no magic to that other than this. On the subscription acceleration, as I said in my remarks, it's twofold. It's deals that we are signing in the quarter and ramps that are contributing to the growth from deals that we have signed in previous quarters. We are transitioning our installed base to cloud. But in many cases, it's not a 100% transition. In the case that Pascal mentioned in his -- in the presentation, the company, Stellantis, that's 100% for that part, right? It's not contributing to subscription this quarter. It will contribute over the period of time. But we have other deals where we have on-prem and cloud hybrid deals where there is a portion in the license subscription and a portion in the cloud subscription. And that has a higher impact on the in-quarter revenue in the subscription line. But it's still recurring and it's building over time. And this high structure of deals helps us to get away from the subscription license where the upfront portion is most significant and helps us to spread revenue more equally over time to create a more recurring base. And of course, when you look at our subscription on a quarter-to-quarter basis, it's -- I know where you're coming from, it's not sequentially up every quarter because of the on-premise part of subscription, which we well understand that depending on the start time of renewal or renewal dates, there is a fluctuation from quarter-to-quarter on our subscription business. You can go back years and you can see that. So rounding up the point, there is a contribution from deal signing in the quarter that are hybrid, where we have on-premise and cloud portion, where the cloud is over time and on-premise has more of a point-in-time impact. And then we are seeing ramping deals from deals that we have signed before. So also here, there's no impact from -- for the Centric part -- for the multiyear deals of Centric that we have recognized over the last quarters and last year specifically and before, that revenue is part of upfront license because it's a license subscription where you upfront revenue and it impacts the license part. So that's not driving the subscription business, Charlie. But going forward, as we are transitioning this business more to an ARR model to a SaaS model, it will support the subscription growth. And that's the whole point of what we are doing. From a cash flow perspective, Well, I think 2024 is an outlier in terms of several effects that we are facing related to tax impacts, social charges that are higher compared to 2024. That is all going to be in our base in 2025 compared to 2026. So we don't have those onetime effects any longer. At least they are not foreseeable at this point in time. And as it relates to the ramping deals that I talked about on the subscription line, they will generate significant higher cash in 2026 than in 2025. I have that level of visibility. Now that's the baseline for the assumption to be back at the 2024 levels. Now is there a possible variability? Yes. But the baseline assumption is the 2024 performance. Pascal Daloz: Maybe one additional comment I should make. Charlie, there is no trick. I think my commitment is very simple. I want to continue to gain market share in all the industry we serve. And I think quarter after quarter, I can -- I hope I'm proving to you that this is what we do, including in sector where it's extremely competitive. And the second thing is we are accelerating the transition to subscription and to the cloud. That's what we do. So my view, we are doing the right things. It's the appropriate time. Against, we were pushing this for a few years ago, but the market was not ready in our space for the cloud. Now it is, they are. And if you remember, the subscription used to be 1/3 of the recurring revenue 3, 4 years ago. Now it's 50%. And we are on a path in the next 3 years to be almost 2/3 of the recurrent part of the revenue. So I think we are walking the talk. That's what the commitment to do. This is what we are doing. We are redirecting the deal. And I think at the end, the numbers are reflecting this extremely, I mean, transparently, Charlie. Operator: We have an online question coming from the line of Laurent Daure at Kepler Cheuvreux. Laurent Daure: Yes. I have 3 quick questions. The first, if you could elaborate a little bit giving us an update on your pipeline of large deals by maybe verticals and your discussions with those clients, the long sales cycle, is it just the macro? Or is there anything else on the discussion you have with them? My second question is if you could give us a bit more color on the change in management at Centric and also on the 15% growth you're expecting for next year, the visibility you have on that, given that you will continue to move subscription? And my final question is, when you refer to a couple of years to rebalance the Life Science business, do you see a risk that maybe for 2 or 3 years that this business end up being kind of flattish? Pascal Daloz: Okay. So Laurent, I will take it, and Rouven, feel free to add whatever you want at the end. So the pipeline coverage is 2x, which is good. For Q4, usually, this is where we are. So -- and it's relatively balanced between the large deals and, let's say, the midsized deals, which is also important because when you have too much on the large deals, this is sometimes difficult to manage. In terms of industry contribution, it is relatively consistent with Q3. So you still have a fraction which is transportation and mobility centric. We have a large part also coming from aerospace and defense. And we also have a good visibility on industrial equipment. So that's for the core industry. And again, we -- the pipeline coverage is definitively not the topic. What we observe, and we have been explicit about this, sometimes 1 or 2 big transactions can shift from one quarter to another one, independently of us. And that's what Rouven is mentioning when he says the volatile geopolitic is basically putting some volatility on the time to close. But it's only a question of time to close. It's not a question related to the pipeline. Coming back to the Centric management change. In fact, it's very simple. You know Chris is turning 70. Chris, the founder of Centric, turning 70. For a few years, he was preparing Fabrice Canonge to be -- to take the positions. So we say it's the right time. We completed the acquisition of the remaining piece of Centric. So from basically a timing standpoint, it was appropriate to make the changes right now. And as part of the new setup, the new leadership, we have put this transition to the cloud as one of the objectives for the team and the EUR 1 billion threshold, which is the size of this business we want to achieve in the coming years, also one of the objectives for this new team. The last thing is related to Centric performance for next year. Rouven Bergmann: Life Sciences, the next 2 to 3 years. What is our expectations, the rebalancing of Life Science. Pascal Daloz: The rebalancing is already happening again. So except -- and this is what I was telling you, we are reporting in a line which is not making it visible for you. So probably something we need to change for you to have a visibility to understand how the momentum is going in order to basically balance between the volume-based business versus the enterprise-based business in Life Sciences. Now if we step back a little bit, I think the booking growth is good for Centric -- for MEDIDATA. So the topic is not the booking, it has to accelerate, obviously. But it's against this termination of studies and not having a new one starting again, which is the topic. I do expect we are reaching the bottom, frankly speaking. I told you this last year, I remember. And again, it was not -- it was based on facts because we were tracking all the pipelines. The way we do this, we look at how many Phase I, how many Phase IIs. We make some assumption about the move from one to another one. And this is how we are computing, if you want, the potential new studies starting every year. Now there is a big change, and you highlight it. We see Asia contributing to the trend, especially China, right, which was not the case in the past. And we were relatively dependent, as you say, on the U.S. dynamic for the creation or at least the most promising molecules coming on the market for the Phase III. Now we see basically this being much more balanced between the different continents. And this is also giving hope for me because we see -- and if you track it, we are seeing a lot of investment in the biotech in China, but also in Korea as well, Japan as well. So I do believe if we combine the 2 together, we will be in a much better situation. And Centric because that was also the question. Again, we have this massive renewal last year. That's the reason why we have the base effect this year. And if you combine this with the fact that we want to accelerate, I want to accelerate the transition to the cloud and the SaaS business model, this is creating the gap. But this basically, in 2026, we will be in a much better situation because we will not have the base coming from the big renewal. Anyway, the trend and the acceleration of the cloud is already happening. So that's the confidence I can share with you. Operator: Our next question comes from Frederic Boulan at Bank of America. Frederic Boulan: I've got 2 and a short clarification. Firstly, around AI, if you can spend a minute on your commercial model of the offering you've presented, any kind of attach rate you foresee on a midterm view? Second, coming back on the free cash flow side and your 84% conversion from next year. Any specific moving parts or action plans you want to call out to underpin your confidence in free cash flow acceleration? And then short clarification on MEDIDATA, can you confirm the comment you made on expect similar growth or similar revenue decline? Is this a comment about Q4 versus Q3 level of minus 3%? Pascal Daloz: So Rouven, I take the first one. For the cash flow. So the way it works for the AI new category of solutions is very simple. You remember the portfolio is structured around role, processes and solutions. So in front of the role, we have the virtual companions and the virtual companions are there to advance the role and to extend the roles. The generative experiences are there to basically automate the processes. And the solutions ultimately is what we want to do with the virtual twin as a service. So keep this in mind for the purpose of the clarity. Now how do we price each of them? The virtual companion is priced on a fraction of the cost of the people we are either augmenting it or basically substituting sometimes. That's how we price. For the generative processes, the generative experiences, it's a usage-based model. So it's a token base like many companies do. And why so? Because I really want to ease the adoption and to accelerate the adoption with this consumption model. And it's something we master relatively well because it's almost the same approach we have for simulation for a long time, right? And for the virtual twin as a services, it's an outcome-based model because at the end, you are not selling any more the tools, you are selling basically the end result of what the tool is producing. So it will be an outcome-based model. Now from an attach rate standpoint, it's still a little bit early because we came on the market with this. But we could expect that for many roles you have in the market being used right now, you will have an extension with the virtual companions for sure. You could expect that for processes, which are the most complex one, the generative experiences will be a way to accelerate significantly the time to market and the efficiency. This is true for the design. This is true for the manufacturing. This is also true for the compliance, as I was highlighting it. And virtual twin as a service, it's something we do specifically in the new industry because they are not equipped. Usually, they do not have all the skills, and we are gaining a lot of time by doing so. One example of what I'm saying -- in the Life Sciences, when we are speaking about the manufacturing systems and the production systems, more and more, we go straight with the virtual twin as a service, which is an easy way for us to deploy our solutions and to reduce the time for the adoption. That's how we are basically pricing and how we are planning. And you remember what Rouven say, say the contribution of those new category of solutions, we are expecting EUR 0.5 billion in the coming plan, which is ending in 2029. Rouven Bergmann: Okay. Thank you, Frederic. I'll go through the cash flow question. Regarding the 84%, what are the kind of puts and takes and level of visibility and action items that we have underway. I think first, important to mention is we have a certain level of visibility from large contracts that we have signed where there are clear payment terms that are going to drive cash in 2026, early 2026. So that gives us a clear perspective on the puts and takes between '25 and '26, which I call the timing effect that we had. So that's one part. We also have some other nonrecurring payments in 2025 that will not recur in 2026. We also have visibility to this. Now above that, -- when I look at our DSO and the impact of the DSO in context what we just discussed on Centric. Centric has been a big driver of the increase in DSO or has contributed to the increase in DSO, I should better say. And now as we are moving to a recurring model, we will see the benefit of that also in terms of better aligning revenue and cash. So the conversion from that perspective should also will benefit from this change that we have decided. And then the last point is we are applying strict discipline on cash management, and that will have an impact also in 2026, and I already see that happening in 2025. The last point regarding the MEDIDATA comment, yes, this was related to Q4. So the trend of Q3 to be expected similar in Q4 2025. Pascal Daloz: So this is concluding this morning's session. So thank you very much for the one being there with us in London and for the people being connected. Look forward to seeing you on the road, either Rouven or myself, we will do some roadshow in the coming weeks. And see you no later than early next year. Thank you very much.
Operator: Good morning. Welcome to Sonic Automotive Third Quarter 2025 Earnings Conference Call. This conference call is being recorded today, Thursday, October 23, 2025. Presentation materials, which accompany management's discussion on the conference call can be accessed on the company's website at ir.sonicautomotive.com. At this time, I would like to refer to the safe harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company's products or market or otherwise make statements about the future. Such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. In addition, management may discuss certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Please refer to the non-GAAP reconciliation tables in the company's current report on Form 8-K filed with the Securities and Exchange Commission earlier today. I would now like to introduce Mr. David Smith, Chairman and Chief Executive Officer of Sonic Automotive. Mr. Smith, you may begin your conference. David Smith: Thank you very much, and good morning, everyone. As she said, welcome to the Sonic Automotive Third Quarter 2025 Earnings Call. Again, I'm David Smith, the company's Chairman and CEO. Joining me on today's call is our President, Jeff Dyke; our CFO, Heath Byrd; our EchoPark Chief Operating Officer, Tim Keen; and our Vice President of Investor Relations, Danny Wieland. I would like to open the call by sincerely thanking our amazing teammates for continuing to deliver a world-class guest experience for our customers. We believe our strong relationships with our teammates, guests and manufacturer and lending partners are key to future success. And as always, I would like to thank them all for their continued support and loyalty to the Sonic Automotive team. Turning now to our third quarter results. Reported GAAP EPS was $1.33 per share. Excluding the effect of certain items as detailed in our press release this morning, adjusted EPS for the third quarter was $1.41 per share, a 12% increase year-over-year. Consolidated total revenues were an all-time quarterly record of $4 billion, up 14% year-over-year, all-time record quarterly consolidated gross profit grew 13% and consolidated adjusted EBITDA increased 11%. Our third quarter earnings were negatively affected by a significant increase in medical expenses and a higher-than-expected effective income tax rate, which partially offset the strength of our operating performance. Moving now to our Franchised Dealerships segment results. We generated all-time record quarterly franchise revenues of $3.4 billion, up 17% year-over-year and up 11% on a same-store basis. This revenue growth was driven by a 7% increase in same-store new retail volume, a 3% increase in same-store used retail volume and a 6% increase in same-store fixed operations revenues. Third quarter new vehicle volume benefited from an increase in consumer demand for electric vehicles ahead of the expiration of the federal tax credit, which increased our retail sales volume and average selling price, but pressured new vehicle and F&I gross profit per unit. Our fixed operations gross profit and F&I gross profit set all-time quarterly records, up 8% and 13% year-over-year, respectively, on a same-store basis. These 2 high-margin business lines continue to increase their share of our total gross profit pool, eclipsing 75% of total gross profit for the third quarter, mitigating the potential tariff impact on vehicle pricing and margin to our overall profitability, while also leveraging our SG&A expenses more efficiently than incremental vehicle-related gross profit. Same-store new vehicle GPU was $2,852, down 7% year-over-year and 16% sequentially due to a surge in pre-tariff consumer demand that drove an increase in GPU in the second quarter of 2025. Additionally, a higher mix of electric vehicle sales in the third quarter reduced our franchise average new vehicle GPUs by approximately $300 per unit. On the used vehicle side of the franchise business, same-store used volume increased 3% year-over-year and same-store used GPU increased 10% year-over-year and decreased 4% sequentially from the second quarter to $1,530 per unit. Our F&I performance continues to be a strength with third quarter record franchise F&I GPU of $2,597 per unit, up 11% year-over-year and down 5% sequentially due in part to the elevated electric vehicle sales mix in the third quarter, which reduced average F&I GPU by approximately $100 per unit. Absent the transitory third quarter EV headwinds, continued strength in F&I per unit supports our view that F&I will remain structurally higher than pre-pandemic levels even in a challenging consumer affordability environment as we continue to fine-tune our F&I product offerings and cost structure. Our parts and service or fixed operations business remains very strong with an 8% increase in same-store fixed operations gross profit in the third quarter. Same-store warranty gross profit continued to be a tailwind in the third quarter, up 13% year-over-year despite strong warranty performance in the prior year period, and same-store customer pay gross profit grew 6% year-over-year. We believe this continued strength in customer pay revenue is attributable to the increase in technician headcount we achieved in 2024 and our efforts to not only retain these technicians, but to continue to grow our technician capacity in 2025. Turning now to the EchoPark segment. Third quarter adjusted segment income was $2.7 million and adjusted EBITDA was $8.2 million, down 8% year-over-year. For the third quarter, we reported EchoPark revenues of $523 million, down 4% year-over-year and gross profit of $54 million, down 1% year-over-year. EchoPark segment retail unit sales volume for the quarter decreased 8% year-over-year, and EchoPark segment total GPU was a third quarter record of $3,359 per unit, up 8% per unit year-over-year, but down 10% sequentially from the second quarter. While we expected EchoPark used GPU pressure in the third quarter, our ability to acquire quality used vehicle inventory at attractive prices was challenged by unexpected off-rental supply headwinds, contributing to approximately 2,000 fewer retail unit sales than we forecast in our July guidance. While these headwinds persisted through September, we remain focused on increasing our mix of non-auction sourced inventory going forward to benefit consumer affordability and retail sales volume. When combined with the strategic adjustments we have made to our EchoPark business model, we believe we are well positioned to resume a disciplined store opening cadence for EchoPark in 2026, assuming the used vehicle market conditions sufficiently improve. Turning now to our Powersports segment. We generated all-time record quarterly revenues of $84 million, up 42% year-over-year and all-time record quarterly gross profit of $23 million, up 32% year-over-year. Powersports segment adjusted EBITDA was an all-time record -- quarterly record of $10.1 million, up 74% year-over-year, driven by record sales volume at this year's 85th Sturgis Motorcycle Rally. We are beginning to see the benefits of our investment in modernizing the Powersports business, and we remain focused on identifying operational synergies within our current network before deploying capital to further expand our Powersports footprint. Finally, turning to our balance sheet. We ended the quarter with $815 million in available liquidity, including $264 million in combined cash and floor plan deposits on hand. Our focus on maintaining a strong balance sheet and liquidity position allowed us to complete the acquisition of Jaguar Land Rover, Santa Monica in the third quarter, following our previously announced acquisition of 4 Jaguar Land Rover dealerships in California at the end of the second quarter, cementing Sonic Automotive as the largest Jaguar Land Rover retailer in the U.S. and further enhancing our luxury brand portfolio. Going forward, we remain focused on deploying capital by a diversified growth strategy across our Franchised Dealerships, EchoPark and Powersports segments to grow our revenue base and enhance shareholder returns. In addition, I'm pleased to report today that our Board of Directors approved a quarterly cash dividend of $0.38 per share payable on January 15, 2026, to all stockholders of record on December 15, 2025. We continue to work closely with our manufacturer partners to understand the potential impact of tariffs on manufacturer production and pricing decisions and the resulting impact tariffs may have on vehicle affordability and consumer demand going forward. To date, we have not seen a material impact on vehicle pricing as a result of tariffs, but our team remains focused on executing our strategy and adapting to ongoing changes in the automotive retail environment and macroeconomic backdrop, while making strategic decisions to maximize long-term returns. Furthermore, we remain confident that we have the right strategy and the right people and the right culture to continue to grow our business and create long-term value for our shareholders. This concludes our opening remarks, and we look forward to answering any questions you have. Operator: [Operator Instructions] Our first question is from Jeff Lick with Stephens. Jeffrey Lick: You guys have an interesting little used car market test tube in your business model with given the franchise business and EchoPark. It looks like you kind of outperformed your peers and did pretty well in the franchise and then EchoPark had some issues. Obviously, you mentioned the rental supply headwinds. I was just wondering if you could elaborate even more, just kind of what's this saying about where the used car market is in general? And any specifics you could give? Frank Dyke: This is Jeff. From a franchise perspective, obviously, we trade for a lot more cars on the franchise side because of the new car business. And so we have really focused on dropping our average cost of sales. So we're trading, we're being more aggressive on our trades. I think our average cost of sales moved from $37,000 over the last 4 or 5 months down into the $33,000 range, $34,000. That makes a big difference. We're focused on bringing it even down further. We'd like to get below $30,000. A little harder to do on the EchoPark side because we're acquiring most of those vehicles out of the auctions, although we've been focused on buying more cars off the street. And as you said, the rental car company issue, that David talked about in his opening comments, it dried up for us. That cost us about 2,000 units during the quarter. A little bit of a surprise to us. We're offsetting that, working with our new car franchises and our buying team, buying -- getting more aggressive on buying vehicles really for EchoPark under the $24,000 price target. And you'll see us improve that as we move through the fourth quarter. Heath R. Byrd: And this is Heath. I'll add one more thing. We started an initiative with the franchise of really focusing on a good process and putting in technology for buying off the service lane. So that's really helped that side of the business as well. Jeffrey Lick: And then just a quick follow-up. On the $31 million in incremental comp, which I think a good chunk of that was medical expenses. Could you just elaborate where does that stand going forward? Heath R. Byrd: Yes, sure. This is Heath. First of all, we're guiding, as you know, for the full year in the low 70s. If you look at medical, which was driving that, it was $0.05 worse sequentially from Q2 to Q3, $0.10 worse year-over-year. We expect medical to be flat from Q3 to Q4. So total SG&A for Q4 is expected to be the $72.8. But it is driven by the medical and that is utilization as well as increased cost. We are self-insured. And so obviously, everyone is getting an increase in medical premiums going forward. And so we're addressing it as every other company. We'll be increasing the premiums collected, which should handle that issue that we saw in Q3 and expect it to be similar in Q4. Operator: Our next question is from Michael Ward with Citi Research. Michael Ward: I wonder if you can provide any color on a walk in the franchise gross from Q3 to Q4 and then into 2026? Because it sounds like you had $100 impact from BEVs, and it sounds like there are some other unusual events. So how do we look out? It sounds like 4Q is higher and then maybe even relatively flat on a variable gross basis for over a year. Is that what we're looking at like kind of more consistency, ups and downs, but kind of moving to the same range? Frank Dyke: This is Jeff. I think with the increase in the BEV volume at the end of the quarter, that really drove -- I think it was $100 down in front PUR and $50 in back-end PUR sequentially. But I expect to return to normal margins and maybe even improving margins as we move into the fourth quarter. We're seeing that already because of the lack of BEVs. We really pressed hard to move all our BEVs out. We're about 4% of our total inventory today are BEV units. I think that's about 800 units on the ground. We have significantly reduced our exposure to that product, which has been obviously a drag for everybody from a front PUR perspective. So I would expect fourth quarter margins to improve sequentially. And I would expect them to continue to improve as we move into 2026 or at least be flat with where we are in Q4. So a little hit at the end of the third quarter, but smart because we reduced our exposure to all those BEV units that we had on the ground, and that was just the right thing to do from our perspective. Heath R. Byrd: And this is Heath. Just a little bit more color. If you look at -- in total, the EV, we make less gross by $3,275. And the mix in Q3 went from 8.3% in Q2 to 11.9% in Q3. So that's what created the $100 headwind in front and a $50 headwind in F&I. Danny Wieland: And just rounding that out, this is Danny. I mean that's a 54% volume increase from Q2 to Q3, which is in line with what the industry saw from an EV penetration. But as you think about that, we sold 3,600 EVs in the third quarter, and we would expect that volume to be much lower in the fourth quarter now that the federal tax credit is not available. So the normal seasonality we would expect from a volume perspective may not hold where we typically see a 10% uptick from 3Q to 4Q in new vehicle volume. Last year was even more of an anomaly, closer to 20% because of the BMW stop sale issue we saw in the third quarter of last year, where we pushed sales into 4Q. But as we think about it, it could be more of a mid-single-digit volume growth sequentially from 3Q to 4Q because of the lack of EV. That should obviously benefit GPU given what Heath said about the relatively lower margins. But from a total volume perspective, it's something to be mindful of. Michael Ward: And as you look at the JLR business, is it fair to say that, that had a bigger impact on parts and service than it did on the new vehicle side? Frank Dyke: Yes. This is Jeff. We had plenty of new vehicle inventory supply. That wasn't an issue at all. And it is a drag on the parts and service business. But that's slowly going to get corrected and come back and -- but definitely, the drags in parts and service, not on the volume side. David Smith: But I will say -- this is David. I will say that we've benefited from scale in our -- being the largest dealer now for JLR has been really fantastic. We've had inventory when others haven't. And I think going forward, I think that those acquisitions are going to prove to be some of our best because those are -- you mentioned your previous question, the GPU. Those are some of our greatest -- highest GPU stores in the company. Michael Ward: Makes sense. If I can sneak in one more, just on the Powersports side. You've had great performance there. And do you have any data that how big this industry is? And is there a better consolidation opportunity in Powersports than you would see in the new vehicle/used vehicle side? Frank Dyke: I don't know if there's better, but there is certainly a big opportunity. And we're learning how to operate the Powersports business. You can see we sold 1,105 million new and used motorcycles or Harley's during the rally. That beat the all-time record of 718 that was set years ago. And that's just training, technology, pricing, inventory management and bringing things in our skill sets that we have on the franchise side of the business and EchoPark of the business into Powersports. And as David said in his opening comments, we have great opportunity to continue to grow the footprint that we have, but there are certainly -- we're getting deals every day coming across our desk with great opportunities to buy. And as we get better and better at operating, I think you'll see us expand that footprint. Great money in it, great opportunity, great customer base. So bringing our technology and our processes is making a big difference. David Smith: And this is David. I'd just add that it's a real complement to our team that we're now the manufacturers are coming to us wanting us to buy more and coming to us with some opportunities. So that's -- and that's how we bought Sturgis, actually, those deals. And so it's great to see we're really proud of the progress our team has made. Heath R. Byrd: And just to see a little bit of color, we view it, it looks like 1990 retail automotive, very fragmented, not a lot of technology, not a lot of sophistication in marketing, understanding how you make money in used service. So we think there's a huge opportunity to create the same kind of formality in that industry as many have done in the automotive retail. Michael Ward: And as you pointed out, a lower multiple, right? Frank Dyke: Way lower. Yes. David Smith: We hear where you're going with that. Frank Dyke: You're right. David Smith: There's a great opportunity, which is why we got into it. And you got to remember the people who -- a lot of our customers are super passionate about the products that we sell. They'd rather have that than a car in many cases. So it's a great business to be in. Frank Dyke: There were over 800,000 guests at the Rally this year. So if you think about it, we sold 1,105, just think about the upside opportunity just at the Rally alone. That closing ratio is not where we want it to be. We can do a lot more. We need more motorcycles and more process and more technology, but we're slowly bringing that on, and it's starting to make a difference. And we've really increased the used vehicle -- the used side of the business, too. That business is up 70% or so for the year. And that's going to continue to grow. That's not something that, that industry has been focused on. Michael Ward: It sounds like a similar playbook. I really appreciate it. Operator: Our next question is from Rajat Gupta with JPMorgan Chase. Rajat Gupta: Great. Just had a couple of follow-ups on the GPU comments. I'm curious that in the third quarter, outside of the electric vehicle headwind to GPUs, was there anything that surprised you in the performance there, perhaps with respect to like how the OEMs are managing the dealer margin or the invoice margin? Automation talked about some different ways in which the OEM might tackle this, maybe in the form of lower back-end incentives or volume incentives, et cetera. Just curious if there was any change there that you observed? And if anything, was it onetime or would you expect that to continue? Relatedly, I was a little surprised by your comment that you would expect 2026 new vehicle GPUs to be similar to the fourth quarter. I mean our understanding is always that fourth quarter is seasonally higher due to the luxury mix. So are you taking into account like even a lower electric vehicle mix in 2026 versus the fourth quarter that's maybe driving that assumption? Just curious if you could tie those comments. Frank Dyke: Yes, that's exactly right. BEV is going to be way, way lower as a percentage of our overall volume than it has been over the last couple of years, which has driven the margin down. And then no real surprises, I don't think from ex BEV for the first 9 months of the year or for the quarter in terms of margin. I think that there are going to be some surprises as we move into the fourth quarter because there's been -- there's an inherent -- you look at October, October slowing, in particular, from a luxury perspective. And I think that the manufacturers are going to have to get super aggressive with incentives in order to move inventory. Our inventory is at the highest level from a new car perspective that it's been all year. And our competitors are the same as we watch it. And I think you're going to find that BMW, Mercedes, they're going to have to be super aggressive. Right now, we're seeing some double-digit decreases in those brands' volumes year-over-year. And we're not alone in that category. And so I do think you're going to start seeing some super aggressive pricing. It needs to come. Those brands need to step up and bring more incentives in order to engage the fourth quarter or it's going to be a more difficult fourth quarter from a luxury perspective than many are projecting. Rajat Gupta: Got it. Got it. Okay. That's helpful... Frank Dyke: That's something that I would encourage you to watch real closely is what's going on, on the luxury new vehicle side of the business. Exchanging a BMW for a Ford exchanges a lot of margin one way versus the other. And I think that's something that we all need to watch as the industry from a luxury perspective slows down in the fourth quarter. Usually, it speeds up. And so we're hopeful that the manufacturers will see that and bring -- start to get really aggressive on incentives. Rajat Gupta: Understood. Understood. We'll keep an eye on that. And a follow-up was on just the warranty penetration. It looks like it dropped from the second quarter by a couple of hundred basis points. I'm curious, was that just again like mix driven because of electric vehicles and those are leads? And your guide was like a further step down in fourth quarter. I'm just curious what's driving that? And what's like a normalized number we should assume when we head into '26? Frank Dyke: Yes, if it's BEV and ex that out, it would have been normal numbers. Danny Wieland: And to that point, that's with the sequential headwinds we saw in F&I, it's primarily the warranty penetration. You got a higher lease mix on BEV. And then again, as we go into the fourth quarter, typically, our fourth quarter F&I is actually a bit lower because of that higher luxury lease mix that we see in 4Q in normal years. But as we go forward, we talked about, I think it was the last call that 2,700 or so is an achievable, consistent run rate in a normalized powertrain mix and brand mix for us, particularly when you think about the benefits of the new JLR stores that we've added in their F&I performance. Operator: Our next question is from Bret Jordan with Jefferies. Patrick Buckley: This is Patrick Buckley on for Bret. Circling back on EchoPark, it sounds like there were some unique headwinds this quarter with the off-rental slowdown. Should we expect any of that to persist into next year? And I guess, should we still be thinking about an acceleration in EchoPark next year as well? Frank Dyke: I think it will -- no, I don't think it will persist into next year. And I think we'll find ways to overcome that by buying more cars off the street. And we're excited, as David talked about in his opening comments, we're going to start to grow EchoPark again next year. So how many stores we open, probably more tailored towards the end of the third and the fourth quarter next year. But with more off-lease vehicles coming back, inventory getting right, prices are going to continue to drop. That's going to be a big help. And so '26 should be a good year for EchoPark and then beyond. And we'll open a few stores next year, like I said, in the last 6 months and then really start growing in '27. David Smith: And this is David. I think it's really important to mention that we're building the EchoPark business just as we've built our core business, not quarter-to-quarter, but we are building it for the long haul. And so we're keeping that in mind, we're going to grow the EchoPark business just as soon as we can and grow it efficiently and smartly. Our team has gotten a lot better about where we build and how much we spend on building and our training processes and all of that. I'm just very excited about the future of EchoPark and what we can do once we really step on the gas of growth. So there's more to come in the future. Patrick Buckley: Got it. That's helpful. And then looking at the Q4 outlook for 10% to 11% growth in fixed operations gross profit. I guess, could you talk about the driver moving forward there, price versus volume? Is there any tariff inflation going on there? And maybe the warranty pipeline, how does that look from today? Frank Dyke: Warranty pipeline looks good. Lots going on. Look, what's driving this for us is our additional headcount and tech count. From March of '24, we really started focusing on growing our techs, training our techs, maturing our techs. That's making a big difference. We've got the stall count. We've got the headcount, and that's making a huge difference for us in delivering. And the thing is that the pipeline is long. There's just -- we see growth year after year after year. And I don't see it slowing down. I see it speeding up. And so we're very, very excited about the efforts we're putting in there to grow our share from a fixed operations perspective across all of our markets. David Smith: And I tell you -- this is David. I'd tell you that our team has just done an outstanding job retaining -- as I mentioned in my comments, retaining and growing those techs that we've really changed the game and changed the attitude of how we hire techs and retain them. Operator: Our next question is from Chris Pierce with Needham & Company. Christopher Pierce: On the franchise side of the business, I just want to make sure I'm following. Was there a demand pull forward in -- like maybe people switching powertrain choices in the third quarter, and that's leading to inventories being elevated in luxury in the fourth quarter? Or are those not related? And are we still expecting typical seasonality and we're expecting the OEMs to step up? Like how does that all sort of fit together if it fits together at all? Frank Dyke: It's definitely a pull forward from a BEV perspective because the incentives ended at least for most brands, and that definitely happened. And inventory is growing from a luxury perspective. We're at our highest inventory levels of the year. Incentives are going to have to grow in order to speed up the volume. And we are not seeing that in October. Like I said, BMW, Mercedes, those brands for us, and I was doing industry checks yesterday, we're talking 15%, 20% reduction so far in this calendar month. And I've seen that in some of our competitors as well. That's tough. The manufacturers need to step up or inventory is going to grow. I think you're going to see the same seasonality, but our growth is usually 10% third quarter to fourth quarter. This year, we're expecting that to be in the 5% range. And like Danny said earlier, last year, it was 20%. So you can do the math. The manufacturers are going to have to step up or inventories are going to grow and margins are going to start coming down. Not having BEVs is going to help margin, but inventory growth can pull margin back if they don't step up and put some incentives out there. And that's a real serious situation. I said it earlier, you got to watch that. Watch what happens in luxury during October, and then we'll see if that spills over into November and December. Christopher Pierce: And have we seen a situation like this where the OEMs wait and wait to pull the trigger on this? Or is it just the market is so kind of weird because of all the incentives that this is uncharted territory? Frank Dyke: Yes. I think the market is weird with the shutdown in -- of the government shutdown. There's some strange things going on here. The tariffs certainly are playing a role, but we -- it's a big -- pretty big dropoff in luxury volume in October year-over-year, in particular, around BMW and Mercedes. Land Rover is a little bit the same, too. Now our business is growing because we've got stores that we didn't have last year, but in our numbers. But -- the luxury business has slowed down in October. And the first 9 months of the year were weird, [ pillaheads, ] tariffs, all kinds of crazy news. This is just sort of a normal month, October and November. And we'll see what happens. Like I encouraged Rajat earlier, you need to watch that and watch what happens from a new car luxury perspective. That's an important mix changes bottom lines, right? And that's important to watch as we move through this quarter. Christopher Pierce: Okay. And then just one on EchoPark. Can you just sort of help me understand, is it typical industry seasonality that rental car companies bring cars to auction at a higher rate in the third quarter after summer travel and that sort of didn't happen this year? Or like is it something -- going back to industry weirdness, is it something that unexpected that happened? Or I just kind of want to flesh that out a little bit. Frank Dyke: Yes. Typically, they defleet. And so we pick up inventory. They did not do that this year. And I think it's just the unknown of the tariff and whether they were going to be able to buy new cars or not. And so we're seeing a little more inventory come in, but not at the levels that they normally do. We typically have 1,500, 1,000 vehicles in our mix from them. And I think I looked at the other day, we were down to 133 units on the ground. And so that's just not normal. And so we're having to replenish that. It did catch us a little off guard in the third quarter, but still nicely EBITDA positive, and we're very excited about the year for EchoPark. I mean it will be a great year in comparison to the last few, as you know, and then really excited about '26 and '27 and moving forward with our growth plans. Heath R. Byrd: Yes. I think to add to that, I think it is interesting that we can handle those kind of bumps now. We're built to be more efficient. So when you have something that comes like this, we've got the scale and we can handle it. When in the past, it was more difficult. Frank Dyke: It didn't blow up the P&L. Operator: [Operator Instructions] Our next question is from Mike Albanese with the Benchmark Company. Michael Albanese: I'm just going to squeeze in a quick one here as you think about, I guess, EchoPark, right? And this was built to kind of compete with the CarMax model. And coming out of the quarter, CarMax had hit a situation where depreciation essentially had picked up pretty significantly. I think kind of a follow of the pull forward in demand seen kind of in the first half of the year. And I'm just wondering if that heightened depreciation that I think hit over the course of like 6 to 8 weeks, it's like 2/3 of the typical annual depreciation curve. If that had an impact on your business, how you think about that and kind of what that impact was? David Smith: Yes. I think we felt the same thing. MMR increases in the second quarter, 106% to 107% drove our average cost of sale up. We tried to pivot to the rental sector. It wasn't available. And so we made the decision to cost us the 2,000 units in volume. So yes, we saw the same thing. Michael Albanese: Yes. Right. I guess the takeaway there being that generally, your sourcing mix being a little bit different kind of protects you against that situation a little bit. Does that make sense? Frank Dyke: Yes. Danny Wieland: And if you remember, Mike, we -- If you recall, we guided to back in July, we expected a little bit of front-end GPU compression, a couple of hundred dollars from 2Q to 3Q as a result of this kind of what we were seeing in the wholesale market and wholesale and retail pricing spreads. What really was the headwind for us that was unanticipated was the volume impact. We didn't have alternate sources, and that's what put pressure on the performance. If you think about those 2,000 units that are normal GPU, really, that's the shortfall in 3Q that caused us to pull down our full year EchoPark EBITDA guide. Frank Dyke: But smart not to go out and try to replenish that volume buying a bunch of cars at auction, they're going to bring the margin even down further. So good decisions made. We need to be more aggressive in buying cheaper cars off the street, and that's something we're focused on for the fourth quarter and moving forward. Operator: With no further questions, I would like to turn the conference back over to Mr. David Smith for some closing remarks. David Smith: Well, thank you very much. Thank you, everyone. We will speak to you next quarter. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you again for your participation.
Operator: Thank you for attending the OceanFirst Financial Corp. Third Quarter 202 Earnings Call. My name is Brika and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Alfred Goon, Investor Relations. Thank you. You may proceed, Alfred. Thank you all for attending the OceanFirst Financial Corp. Third Quarter 2025 Earnings Call. My name is Brika and I will be your operator for today. [Operator Instructions] [Technical Difficulty] We now have the speaker line reconnected. And I would like to thank you all for attending the OceanFirst Financial Corp. Third Quarter 2025 Earnings Call. My name is Brika and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Alfred Goon, Investor Relations. So thank you. You may proceed, Alfred. Alfred Goon: Thank you, Brika. Good morning and welcome to the OceanFirst Third Quarter 2025 Earnings Call. I am Alfred Goon, SVP of Corporate Development and Investor Relations. Before we kick off the call, we'd like to remind everyone that our quarterly earnings release and related earnings supplement can be found on the company website, oceanfirst.com. Our remarks today may contain forward-looking statements and may refer to non-GAAP financial measures. All participants should refer to our SEC filings, including those found on Forms 8-K, 10-Q and 10-K for a complete discussion of forward-looking statements and any factors that could cause actual results to differ from those statements. Thank you. And now I will turn the call over to Christopher Maher, Chairman and CEO. Christopher Maher: Thank you, Alfred. Good morning and thank you to all who've been able to join our third quarter 2025 earnings conference call. This morning, I'm joined by our President, Joe Lebel; and our Chief Financial Officer, Pat Barrett. We appreciate your interest in our performance and this opportunity to discuss our results with you. This morning, we will provide brief remarks about the financial and operating performance for the quarter and some color regarding the outlook for our business. We may refer to the slides filed in connection with the earnings release throughout the call. After our discussion, we look forward to taking your questions. We reported our financial results for the third quarter, which included earnings per share of $0.30 on a fully diluted GAAP basis and $0.36 on a core basis. In terms of performance indicators, we are pleased to report a fourth consecutive quarter of growth of net interest income, which increased by $3 million as compared to the prior quarter and was fueled by an increase in average net loans of $242 million. Net interest margin of 2.91% remained stable compared to the second quarter. Total loans for the quarter increased to $373 million, representing a 14% annualized growth rate, driven by strong originations of $1 billion. Joe will have more to add regarding our growth strategy in a few minutes. Asset quality remained very strong as total loans classified as special mention and substandard decreased 15% to just $124 million or 1.2% of total loans. This places us among the top decile of our peer group. The quarterly provision was primarily driven by net loan growth and an increase in unfunded loan balances and commitments. Operating expenses for the quarter were $76 million, which includes $4 million of restructuring charges related to our strategic decision to outsource residential loan originations and underwriting functions. This initiative is expected to meaningfully improve operating leverage and earnings in 2026. Pat will provide a detailed update on our financial outlook in a moment. Lastly, capital levels remain robust with an estimated common equity Tier 1 capital ratio of 10.6% and tangible book value per share of $19.52. We did not repurchase any shares this quarter under the existing plan as our capital was deployed for loan growth. This week, our Board also approved the quarterly cash dividend of $0.20 per common share. This is the company's 115th consecutive quarterly cash dividend. At this point, I'll turn the call over to Joe for additional color on these businesses. Joseph Lebel: Thanks, Chris. I'll start with loan originations for the quarter, which totaled $1 billion and resulted in loan growth of $373 million. The value of our continued recruitment of talent, coupled with favorable conditions for many of our borrowers has resulted in momentum in commercial and industrial, which increased 12% for the quarter. Despite the large origination and loan growth for the quarter, the commercial pipeline continues to be strong at over $700 million, only 10% below the high from the linked quarter. Turning to our residential business. During the quarter, we made the decision to outsource this business line. As we wind down the existing pipeline, we expect to see some modest growth in the fourth quarter before the portfolio begins to run off. Total deposits in the third quarter increased $203 million, although organic growth was higher at $321 million before decreases in brokered CDs, which declined by $118 million. Growth was primarily driven by government banking and Premier banking. Premier bankers contributed $128 million of new deposits for the quarter. The Premier banking teams, all of which we onboarded in April, remain on track to achieve our 2025 target of $500 million by the end of the year. Deposit balances as of September 30 totaled $242 million across more than 1,100 accounts, representing nearly 300 new customer relationships to date. Approximately 20% of those balances are in noninterest-bearing DDA and the overall weighted average costs of those deposits was 2.6%. The percentage of DDA is increasing as these accounts become fully operational, which should continue to offset new customer acquisition costs. We remain pleased with their results thus far. Also of note is the Premier Bank's contribution to commercial lending. Premier clients represent $85 million of commercial originations this year and the Premier commercial pipeline totals $50 million. Lastly, noninterest income increased 5% to $12.3 million during the quarter, primarily driven by strong swap demand linked to our commercial growth. With the outsourcing of our residential and title platforms, we anticipate a reduction in fee and service income of approximately $2 million in the fourth quarter and a modest gain on sale of loans in the fourth quarter as we close out the remaining pipeline. With that, I'll turn the call over to Pat to review the remaining areas for the quarter. Patrick Barrett: Thanks, Joe. And we've got a lot of good stuff going on but a little noisy. So apologies in advance for taking a little bit longer with my prepared remarks. So as Chris noted, net interest income grew and margin remained stable this quarter. Furthermore, pretax pre-provision core earnings grew 15% or $4 million linked quarter with the addition of earning assets at the end of the second quarter and through the third quarter, improving earnings power. On the rate side, loan yields increased 8 basis points, while total deposit costs remained flat. While our core NIM remained flat, it was negatively impacted by lower loan fees and a full quarter of higher interest costs on our subordinated debt. Absent these 2 factors, our overall NIM would have improved to 2.95%. Borrowing costs increased 12 basis points, primarily due to the second quarter repricing of our subordinated debt. Average interest-earning assets increased during the quarter, reflecting increases in both the securities and loan portfolios. Chris and Joe have already spoken about the loan growth but I'll add that we took advantage of market conditions to essentially prefund next year's anticipated growth in the securities book with highly liquid, very low credit risk and capital-efficient securities that will be accretive to our ROA, all without meaningfully affecting our neutral interest rate positioning. Looking ahead, we expect positive expansion in net interest income in line with or higher than loan growth but modest short-term compression on margin in the fourth quarter due to seasonality and some residual repricing of a handful of large legacy deposit relationships. Asset quality remained strong with nonperforming loans to total loans at 0.39% and NPAs to total assets at 0.34%. Delinquency levels continued to remain at the low end of historical levels, while criticized and classified loans declined noticeably. Risk ratings across our commercial portfolio were stable, while net charge-offs of $617,000 were benign and represented only 2 basis points of total loans, bringing our year-to-date net charge-off run rate to only 5 basis points. Overall, credit quality continued to perform in line with our company's strong historical experience and remains among one of the best in our peer group. Our provision for credit losses in the quarter was driven by both on and off-balance sheet loan growth, partly offset by overall improvements in asset quality levels. Core noninterest expenses increased from $71.5 million to $72.4 million, driven by increased comp and occupancy expenses. This excludes the impact of noncore restructuring charges totaling $4.1 million in the third quarter. The increase in comp expenses and occupancy expenses were driven by recent commercial banking hires, combined with modest increased variable spend during the quarter. Looking ahead, we expect our fourth quarter core operating expense run rate to move downward slightly to the $70 million to $71 million range. Turning to the noncore charges. We do anticipate a final $8 million in nonrecurring restructuring charges in the fourth quarter related to our outsourcing initiatives. Note that the reduction in headcount associated with the residential outsourcing will not be completed until late in the year, pushing the operating expense benefit from that initiative into the beginning of 2026. To be clear, we expect the pretax improvement in annual operating results to be approximately $10 million. Capital levels remain robust with our CET1 ratio moving down to 10.6%, driven by loan growth during the quarter. While the CET1 ratio remains strong, we continue to evaluate opportunities to further optimize our capital in the near term as we wait for the earnings from newly added earning assets to increase internal capital generation rates. We continue to focus capital priorities on supporting loan growth in the near term and do not expect to prioritize share repurchases. Finally, we've resumed our annual guidance, as you can see in our supplemental earnings materials. At this time, for the full year 2026, we expect 7% to 9% annualized loan growth for the year, predominantly driven by growth in C&I, which will be partly offset by runoff in our residential portfolio. We expect deposits to grow in line with loans as we continue to maintain a loan-to-deposit ratio of approximately 100%. The continued growth in earning assets should drive steady net interest income growth in line with or exceeding high single-digit growth rate, while our modeled 3 rate cuts of 25 basis points each throughout the year could drive a NIM trajectory well above 3% by mid-2026. Other income is expected to be $25 million to $35 million, reflecting reduced gain on sale and title revenues resulting from our outsourcing initiatives. 2026 operating expenses should range between $275 million to $285 million, reflecting the impact of our focus on expense discipline to offset any inflationary pressures. Capital should remain strong with our CET1 ratio at or above 10.5% for the year. These firm-wide targets should result in an annualized return on average assets of 90-plus basis points by the fourth quarter of 2026, with a glide path to achieving a 1% return on assets in early 2027, continuing to improve thereafter. At this point, we'll begin the question-and-answer portion of the call. Operator: [Operator Instructions] The first question we have comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Yes. Maybe we could just start on the net interest income guidance. Just to clarify because there's a few things happening. I think in the slide deck, there was a comment about reaching 3% by the end of -- or maybe it was a terminal 3% rate in 2026. And then, Pat, you just mentioned potentially reaching 3% by mid-2026. The 8%-ish guidance for NII growth in 2026 pretty much implies that, that would be more of an end of the year story. And then that also implies kind of a reduction in the balance sheet from the end of the year. So sorry to pile all that into one question but maybe you can just unpack the NII guidance from a balance sheet compared to a margin story for next year, would be helpful. Patrick Barrett: Sure. So I'll do my best. So hang with me on this. But the 3% terminal rate was referring to our assumption around Fed rate cuts, not our NIM margin. So that's assuming 2 more rate cuts during the rest of this year and 3 next year. So just to kind of take that off the table. We do expect that we will approach or breach a 3% NIM sometime in the first, second quarter of next year, so in the near -- very near term and continue to expand with a pretty modest but steady expansion as we move forward. We expect the balance sheet to continue to grow in the high single-digit levels, almost entirely from loan growth. And that should result -- look, this is all things being equal, so deposit costs, a big question mark, competition, yields and spreads, a big question mark. But our best estimate right now is that, that should result in steady revenue growth, at least commensurate with the loan growth, high single digits. So by revenue, I'm really talking about net interest income. So we see that growing at or better than the pace of loan growth, which is high single digit. Daniel Tamayo: Okay. I appreciate what you said on the terminal rate. First of all, that was obviously a mistake on my side. But -- so that -- I guess if the margin is up at that level, that would imply the balance sheet is going to come down, not down in the fourth quarter but down relative. There were some pretty significant growth on overall balances in assets in the third quarter. It sounds like you prefunded some growth with securities for next year. So there's some dynamic with the average earning assets coming down relative to the size of the overall balance sheet in the fourth quarter. Is that the way to think about it? Christopher Maher: Maybe. It's Chris. Maybe I'll just kind of try and draw a clear path. So to take the noise out of the third quarter, we did buy some securities and we don't anticipate doing that again. It was a pretty unique opportunity to prefund 2026. So the securities portfolio, you should consider being relatively stable as we go into '26 and throughout '26. On the loan side, though, we expect to continue to see growth. So very good quarter this quarter, $373 million. That was a particularly strong quarter. Maybe I would think closer to $250 million, plus or minus. Some quarters better, some quarters worse. But as Joe mentioned, his pipeline is very strong. We've got a lot of momentum. The new bankers are producing. So if you were to just use kind of back of the envelope and assume that over the course of '26, we're growing plus or minus $1 billion on the balance sheet, driven by loan growth, coupled with deposit growth. So that's the part of the balance sheet that would move. And then as we pointed out earlier, NIM crossing over that 3% in the first half of the year and you put those 2 things together and that's how you kind of get the glide path to the 90 basis point or better ROA by Q4. Daniel Tamayo: That's helpful. Okay. But ultimately, the NII numbers that you guys are talking about, just putting the guidance together, is my math correct here, it gets me to kind of the [ 3 80s ] range for 2026 for net interest income. Is that what we should be looking at? Patrick Barrett: Or better, maybe a little bit higher. Daniel Tamayo: Okay. Okay. So that -- the -- this 7% to 9% NII off of 2025 is kind of a floor. Is that the way, that or better? Patrick Barrett: Yes. Look, we haven't had annual guidance in a while, quite frankly, the uncertainty in the environment, the funding environment and the growth environment being a big part of that. So this is our best estimate now and we're trying to probably err on the conservative side. And I know it's frustrating for us to give ranges of things. But we know we'll probably be wrong in our estimates but this is our best estimate today. And so we're trying to be a bit on the conservative side from a growth perspective, given that this is our first quarter of really meaningful growth in 2 to 3 years. Operator: Your next question comes from Tim Switzer with KBW. Timothy Switzer: So the first question I have is around the Premier Bank. And sorry if you guys touched on this on the call but you doubled deposits this quarter. It looks like you got to double it again from a larger base for Q4. What's driving the acceleration there? And I'm sure you already have a good amount in the pipeline kind of embedded for you but just curious what's driving that? And is there any color you can provide on this trajectory as you try to get that $2 billion to $3 billion by the end of [ '27 ]? Joseph Lebel: So Tim, it's Joe. I'll answer the first part of the question relative to what's driving deposit growth. It's the teams we've hired and their acclimation not only to the bank but their customers' acclimation to the bank. I think we referenced the 1,100-plus new accounts that have been opened. A lot of those operational accounts are in the process of being converted to funding. So what we've seen early on is the excess cash come across paying a little bit higher rate for those dollars. And as the actual operational balances start to come, we'll start to see more of that transactional opportunity come across at lower dollar cost. So that's really the value short term. And then, of course, long term, clients come in pieces, right? They don't come altogether and they don't come all at once. So as these teams mature, they'll generate more and more activity from their former book, hence, the value of those deposits over the last couple of years -- over the next couple of years, getting to that $1.5 billion, $2 billion, $2.5 billion, $3 billion number. Timothy Switzer: I'm sorry, I was on mute. It was also great to see the $85 million of loan originations related to Premier Bank. That seems like that's a bit above kind of what you guys are expecting, at least in terms of like an LDR. But it's early -- it certainly can move around but can you maybe provide an update on your expectations there? Joseph Lebel: Yes. Actually, we've been really pleased with the activity of the Premier bankers so far. And Tim, I expect that we'll see more of that. I think it's a little too early to try to forecast what the percentage of loans versus their deposits will be. Obviously, historically, it's been a pretty low number. But we have some seasoned folks that have been around a long period of time and I think we're going to do pretty well in that space. And that sort of goes across some of the CRE space, some of the C&I space. So I think we'll be pleased with the outcomes as we go forward. Timothy Switzer: Okay. Great. And then I want to make sure I heard this correctly. I think you guys said the restructuring of the residential mortgage business will provide about a $10 million pretax benefit. So if that's a $14 million expense savings, that implies about a $4 million headwind to revenue. Are there other headwinds expected in noninterest income that gets you that $25 million to $35 million guide because that's obviously a bit below where you guys are trending for this year. Christopher Maher: Yes. Let me just -- Tim, I'll mention a couple of things on residential and then Pat will get to the noninterest income. Just on residential, this is a business that we were in since 1902. So restructuring it is something we're doing very carefully. We're making sure that we meet and support all of our customers in the transition. We've made sure that we have an ability to produce residential loans for those customers going forward. And then because of the size of the reduction in force, which is about 10% of our headcount, we have modification requirements at the state level. So that all kind of combines for a transition period that's going between [Technical Difficulty]. So you saw some of those onetime expenses for everything from severance to contract terminations and all that. That will all be wrapped up by December. So the benefit will really show beginning in January. We'll get that full benefit. And you're right about the $4 million headwind in residential. So all your numbers are right with that. And Pat, maybe you could talk about the noninterest income. Patrick Barrett: Yes. So the piece that's missing from what Chris just said, which is really focused on our operating residential origination and underwriting platform, the people, the severance associated with it, the costs of paying the people, et cetera, is what generates the $10 million net, $14 million of expense reduction, $4 million of kind of our current run rate of gain on sale per quarter of $1 million, times 4 quarters. So that's your $10 million. The piece that's missing from this that maybe hangs in your models a little bit awkwardly is our majority ownership in the title company that we had acquired about 3 years ago. That hasn't been material from a bottom line perspective. But it did contribute somewhere in the neighborhood of $10 million of consolidated expenses and about $10 million of consolidated title fee revenues annually in our run rates. It just didn't pop up from a discussion standpoint because it was essentially a conduit to facilitate origination business more than it was a profit earner. So that will bring down -- those are headwinds in the revenue side but also positive benefit in the expense side that will come out of it. Operator: Your next question comes from David Bishop with Hovde Group. David Bishop: Chris, Joe, appreciate the color on the NDFI exposure there. Obviously, that's been in the headlines a bit. Any color you can provide there in terms of the nature of that lending, how it sort of bifurcates with the sort of the regulatory guidelines? And then secondly, on the loan side, any update on [ gov con ] exposure with the shutdown, how that portfolio might be holding up on the -- on a credit perspective? Christopher Maher: Sure, Dave. Just on the NDFI, probably the most important distinction I'd make other than it's a very small piece of what we do is that we really aren't engaged in NDFIs that lend to the consumer. So we're -- these are more NDFIs that do commercial lending. So if you think about our Auxilior Capital, for example, which is an equipment finance business that we have an equity ownership in but we also use within the company and we provide some credit facilities to. So stuff that is very closely followed and where we've got our hands on things. So we're not concerned about any of those and those exposures, I think, are all in pretty good shape. Obviously, given the other experience this quarter, we went out and just brushed up and made sure there's nothing there to be concerned about. So does that answer that part of the question? David Bishop: Yes. Unknown Executive: All right. Christopher Maher: I'm sorry, the second -- that was. David Bishop: On the [ gov con ] exposure. Christopher Maher: [ Gov con ], not a big exposure for us today. Today, it's about $100 million worth of exposure and that is squarely focused on mission-critical contractors and decisions we've made over the course of the last year. So we were really thoughtful about entering those kind of relationships with folks that understand government shutdowns. They've been through this before. They've got plenty of liquidity. So we feel pretty comfortable about that. But we stay in close touch with that and Joe, anything you've heard from clients you might pass along? Joseph Lebel: No, I think you summarized it well, Chris. I'd just add the comment that we've been pretty close to it. We didn't have historical exposure and presence there. So a lot of our stuff, as Chris mentioned, has been in the last 12 to 14 months. So that's been a benefit to us because we don't have any legacy risk. David Bishop: Got it. And maybe, Pat, an update in terms of thoughts on the sub debt and that sort of reset. Any thoughts on sort of refi-ing or paying off? Patrick Barrett: Yes. We're not going to really go into the details of that on the call today but those details are available to anybody that's interested elsewhere. Operator: Your next question comes from Tyler Cacciatori with Stephens Inc. Tyler Cacciatori: This is Tyler on for Matt Breese. The cost of deposits were stable again quarter-over-quarter despite strong deposit growth, including demand deposits. And I know you talked about competition a little bit but when do you think we start seeing some of the benefits from the team in terms of lower all-in costs there? Christopher Maher: On the Premier side, you'll see that kind of go down gradually, as Joe said, as those noninterest accounts become activated and balances come in, the mix will shift a little bit but I would think a pretty gradual change there. And then in terms of the rest of the base, deposit betas and the Fed rate cut, there's a lag in the -- or kind of roll-through of deposit rates because we have some contractual agreements with various commercial accounts and things like that. So if you think about what happened last year, rates came down towards the end of the year. We didn't really see the benefit until the first quarter of '25. So sometimes there's about a 90-day lag and that contributes to Pat's guidance that NIM would be flattish, maybe even down a little bit in Q4. And we did have some contractual repricings of accounts that were pretty much at or near 0. So that kind of counterbalanced some of the positive movement elsewhere. So I think flattish, maybe down a little bit in -- for NIM in Q4 but then returning to expansion in Q1 and kind of sequentially thereafter. Patrick Barrett: Yes, that's a little -- this is Pat, Tyler. This is -- that's a little bit of the other side of the double-edged sword of growth, which we're very happy to deal with is that we need to raise deposit funding to fund loan growth. And so we're kind of a little bit bound by whatever the competition in the markets are today. We're seeing the same kind of lag though on deposit cost declines that we saw with increases when we were in the upgrade cycle. It was slow to get going and then it kind of picked up pace as the Fed continued to raise interest rates. We're expecting to see the same kind of behavior, slow, unfortunately, slower to come down initially and then picking up pace as we kind of move into the down rate cycle into next year. Christopher Maher: Also the CD book is pretty short duration. So it's under 6 months. So we'll see a lot of that repricing roll through the CD book in the coming months. Tyler Cacciatori: Great. And then my next question is about the ROA. When do you guys think you can hit a 1% ROA here? Christopher Maher: So I think to kind of knit together our comments earlier, we think we're better than 0.9% by the end of next year, fourth quarter '26, crossing over above 1% in the first quarter of '27 and then for the full year, continuing to grow throughout that year. So it's going to be at or around fourth quarter next year, first quarter '27. And as Pat said, there's a lot of unknowns out there about Fed policy and rates and all that but that's our best guess today. Tyler Cacciatori: Great. And then just my last question here. I think you said it in the prepared remarks, sorry if I missed it, about the deposit composition of the deposits the Premier team is bringing on and if the expectations of that 30% DDA target has changed at all? Unknown Executive: They're about 20% today and the expectations haven't changed. Operator: [Operator Instructions] And we now have a question from Christopher Marinac with Janney Montgomery Scott. Christopher Marinac: Just a quick one on the allowance. If you were to see an increase in criticized loans still not big in the scheme of things, would that drive a change in the reserve? Or does that sort of have tolerance? I mean it's been low on criticized for several quarters. I'm just curious if that were to go back up a little bit, that would be anything material to how you provision? Christopher Maher: Chris, you're right. The model is sensitive to the levels of criticized and classified. So if we saw a material movement in those numbers. We have a little bit of pressure on the ACL. In fact, if we had just taken the mechanics this past quarter, the decrease in criticized and classified would have caused a reserve release. We didn't think that was the right decision given the external environment and our shift over to C&I. So the model may say that on the way down or on the way up but we try and use our qualitative assessment and the exterior -- the indications of the economy that we get from, say, Moody's and others to drive our final decisions. So there's a little bit of sensitivity there but we've been trying to be thoughtful about the provision to reserve using our qualitative factors. Christopher Marinac: Perfect. No, that's great, Chris. And a separate follow-up question just is, if we see more changes among some of the regional bank competitors in your footprint, would that change the hiring? And I'm thinking above and beyond the Premier initiative. Or could -- would you just want to go after more business with the existing team? Christopher Maher: It's always a balance. We -- look, whenever we find great talent, we don't want to pass it up because that's what drives our business. On the other hand, we're very much focused on hitting the return hurdles that we've outlined today. So it's a trade-off. You've got to have -- if you find very good people, you don't want to pass them up. But we're very mindful that we need to get our return on tangible common equity into the double digits. We see doing that next year and we want to stay on course to do that. So we'll be balancing out the quality of opportunities to bring on bank [Technical Difficulty]. We love the bankers we brought on. We will probably always add bankers from time to time but the number of bankers will be determined by us continuing our steady march in improvements to profitability. Operator: [Operator Instructions] I can confirm that does conclude the question-and-answer session here. And I would like to hand it back to Chris Maher for some final closing comments. Christopher Maher: Thank you. We appreciate your time today and your continued support of OceanFirst Financial Corp. We look forward to speaking with you in January. And as we kind of head off into the holiday season, we wish you and your families all the best. Thank you. Operator: Thank you. That does conclude the OceanFirst Financial Corp.'s Third Quarter 2025 Earnings Call. Thank you all for your participation. You may now disconnect and please enjoy the rest of your day.
Operator: Good morning and welcome to the Ryder System third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Calene Candela, Vice President, Investor Relations for Ryder. Ms. Candela, you may begin. Calene Candela: Thank you. Good morning, and welcome to Ryder's Third Quarter 2025 Earnings Conference Call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website. Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; John Diez, President and Chief Operating Officer; and Cristina Gallo-Aquino, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Fleet Management Solutions; and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, are on the call today and available for questions following the presentation. At this time, I'll turn the call over to Robert. Robert Sanchez: Good morning, everyone, and thanks for joining us. The Ryder team delivered our fourth consecutive quarter of earnings per share growth. The third quarter earnings were in line with our expectations as the operating performance of our resilient contractual businesses and the benefits from our strategic initiatives more than offset headwinds from freight market conditions. The business continues to outperform prior cycles, demonstrating the impact from actions that we've taken under our balanced growth strategy to derisk the business, increase the return profile and accelerate growth in our asset-light supply chain and dedicated businesses. I'll begin today's call by providing you with a strategic update. Cristy will then take you through our third quarter results, and John will review capital expenditures and our increasing capital deployment capacity. I'll then review our updated outlook for 2025 and discuss how we expect to leverage the strong foundation provided by our transformed business model. Let's begin with a strategic update on Slide 4. We remain focused on creating compelling value for our customers through operational excellence and investment in customer-centric technology while further improving full cycle returns and unlocking long-term value for our shareholders. We expect earnings growth in 2025, driven by the operating performance of our resilient contractual businesses and the execution on our strategic initiatives. We are on track to realize the benefits from the strategic initiatives we outlined at the beginning of the year. These benefits are the key drivers of the year-over-year earnings growth expectations. Long-term secular trends that favor transportation and logistics outsourcing remain strong, and we are well positioned to benefit from increased domestic industrial manufacturing as 93% of our revenue is generated in the U.S. We delivered high teens ROE of 17% for the trailing 12-month period, which is in line with our expectations during a freight cycle downturn. We expect our transformed business model to deliver ROE in the low to mid-20s when market conditions improve for our transactional rental and used vehicle sales businesses, which will enable us to achieve our over-the-cycle ROE target of low 20s. Earnings growth from our high-performing contractual portfolio reflects our value proposition as well as our pricing discipline. Over 90% of our operating revenue is generated by multiyear contracts. Our transformed business model has demonstrated its resiliency over this elongated freight cycle downturn, which is going on its fourth year. We are confident that our cycle-tested business model will continue to outperform prior cycles while providing us with a solid foundation to meaningfully benefit from the eventual cycle upturn. Consistent execution of our balanced growth strategy is increasing the earnings and return profile of our business while also growing our capital deployment capacity. Ample capacity and our strong balance sheet support our capital allocation priorities focused on profitable growth, strategic investments and returning capital to shareholders. Aligned with these priorities, our Board recently authorized a new discretionary 2 million share repurchase program that replaces a program that was largely completed. So far in 2025, we've returned $457 million to shareholders by repurchasing approximately 2.2 million shares and paying our dividend. Since 2021, we have repurchased approximately 22% of our shares outstanding and increased the quarterly dividend by 57%. Our new share repurchase program and the dividend increase announced earlier this year demonstrate our commitment to disciplined capital allocation. Our 2025 forecast range for free cash flow is unchanged at $900 million to $1 billion, which reflects lower year-over-year capital spending and includes an annual cash flow benefit of approximately $200 million from the permanent reinstatement of tax bonus depreciation. Slide 5 illustrates how key financial and operating metrics have improved since 2018, reflecting the execution of our strategy. In 2018, prior to the implementation of our balanced growth strategy, the majority of our $8.4 billion of revenue was from FMS. Ryder generated comparable earnings per share of $5.95 and ROE of 13%. Operating cash flow was $1.7 billion. This was during peak freight cycle conditions. Now let's look at what we're expecting from Ryder today. In 2025, a year which freight market conditions remain at or near trough levels, our transformed business model is expected to generate meaningfully higher earnings and returns than it did during the 2018 peak. Through organic growth, strategic acquisitions and innovative technology, we have shifted our revenue mix towards Supply Chain and Dedicated with 60% of 2025 revenue expected to come from these asset-light businesses compared to 44% in 2018. 2025 comparable earnings per share is expected to be between $12.85 and $13.05, more than double the 2018 comparable EPS of $5.95. ROE is expected to be approximately 17%, up from the 13% generated during the 2018 cycle peak. As a result of profitable growth in our contractual lease, dedicated and supply chain businesses, operating cash flow is expected to increase to $2.8 billion, up approximately 65% from 2018. As shown here, in 2025, the business is expected to continue to outperform prior cycles even when comparing the pre-transformation peak to the current market conditions. We're proud of the strong performance of our transformed business model and believe that executing on our balanced growth strategy will continue to deliver higher highs and higher lows over the cycle. I'll now turn the call over to Cristy to review our third quarter performance. Cristina Gallo-Aquino: Thanks, Robert. Total company results for the third quarter are on Page 6. Operating revenue of $2.6 billion in the third quarter, up 1% from prior year, primarily reflects contractual revenue growth in SCS and FMS. Comparable earnings per share from continuing operations were $3.57 in the third quarter, up 4% from $3.44 in the prior year. The increase primarily reflects higher contractual earnings and the benefit from share repurchases. Return on equity, as Robert previously mentioned, our primary financial metric, was 17%, up from prior year, reflecting higher contractual earnings and share repurchases, partially offset by lower rental demand and used vehicle sales results. Year-to-date free cash flow increased to $496 million from $218 million in the prior year due to reduced capital expenditures and lower income tax payments. Turning to fleet management results on Page 7. Fleet Management Solutions operating revenue was in line with prior year. Pretax earnings in Fleet Management were $146 million, up year-over-year, reflecting higher ChoiceLease performance driven by pricing and maintenance cost savings initiatives, partially offset by lower used vehicle sales and rental results. We continue to see progress on our pricing and maintenance cost initiatives and remain on track to achieve the benefits targeted for this year. Rental results for the quarter reflect market conditions that remain weak. Rental demand increased sequentially, but the increase was below historical seasonal demand trends. Rental demand this quarter was also lower than last year. Rental utilization on the Powerfleet was 70%, down slightly from prior year of 71% on an average active Powerfleet that was 6% smaller. Lower rental demand was partially offset by higher rental Powerfleet pricing, which was up 5% year-over-year. Fleet Management EBT as a percent of operating revenue was 11.4% in the third quarter, below our long-term target of low teens over the cycle. Page 8 highlights used vehicle sales results for the quarter. Year-over-year used tractor pricing declined 6% and truck pricing declined 15%. On a sequential basis, pricing for tractors was unchanged and pricing for trucks increased 7%. Sequential pricing benefited from a higher retail mix as we realized better proceeds using the retail sales channel versus the wholesale channel. In the third quarter, 54% of our sales volume went through our retail sales channel, up from 50% in the second quarter. As a reminder, in the second quarter, we exited out of some aged inventory and increased our level of wholesaling activity. Our retail mix is still below prior year levels of 68%, reflecting ongoing weakness in market conditions. Pricing in our retail sales channel declined 4% sequentially for tractors and was unchanged for trucks. During the quarter, we sold 4,900 used vehicles, down sequentially and up versus prior year. The sequential decline was driven by the actions we took in the second quarter to sell aged inventory. Used vehicle inventory of 8,500 vehicles was in our targeted inventory range. Used vehicle pricing remained above residual value estimates used for depreciation purposes. Slide 19 in the appendix provides historical sales proceeds and current residual value estimates for used tractors and trucks for your information. Turning to supply chain on Page 9. Operating revenue increased 4%, driven by new business in omnichannel retail. Supply chain earnings decreased 8% from prior year as the benefits from operating revenue growth were more than offset by e-commerce network performance and higher medical costs. Supply Chain EBT as a percent of operating revenue was 8.3% in the quarter at the segment's long-term target of high single digits. Moving to Dedicated on Page 10. Operating revenue decreased 6% due to lower fleet count, reflecting the prolonged freight downturn. Dedicated EBT was in line with prior year, reflecting acquisition synergies, offset by lower operating revenue. DTS results continued to benefit from strong performance of our legacy Dedicated business, reflecting pricing discipline as well as favorable market conditions for recruiting and retaining professional drivers. DTS remains on track to realize the benefits from the Cardinal acquisition synergies. Dedicated EBT as a percent of operating revenue was 7.8% in the quarter at the segment's long-term high single-digit target. I'll now turn the call over to John to review capital spending and capital deployment capacity. John Diez: Thanks, Cristy. Turning to Slide 11. Year-to-date lease capital spending of $1.2 billion was below prior year. Rental capital spending of $271 million was also below prior year levels, reflecting weaker freight market conditions. For full year 2025, lease spending is expected to be $1.8 billion, reflecting lower lease sales activity. Lease spending is expected to be down approximately $200 million from prior year, reflecting the prior year impact of OEM deliveries from vehicle orders in 2023. We expect the ending lease fleet to remain fairly consistent with current levels by year-end. Forecasted rental capital spending is approximately $300 million, down from prior year. By the end of this year, our ending rental fleet is expected to be down 12% and our average rental fleet is expected to be down 5%. The rental fleet remains well below peak levels as we manage through an extended market downturn. In rental, we've continued to shift capital spending to trucks versus tractors. As of the third quarter, trucks represented approximately 60% of our rental fleet. Our full year 2025 gross capital expenditures forecast of approximately $2.3 billion is below prior year. We expect approximately $500 million in proceeds from the sale of used vehicles in 2025 and full year net capital expenditures are expected to be approximately $1.8 billion. Turning to Page 12. In addition to increasing the earnings and return profile of the business, our transformed contractual portfolio is also generating significant operating cash flow. Improving the overall cash generation profile, the business is one of the essential elements of our balanced growth strategy. Better earnings performance is driving higher cash flow generation and in turn, is delevering our balance sheet at a more rapid pace. This momentum is creating incremental debt capacity given our target leverage range of between 2.5 and 3x. As shown on the slide, over a 3-year period, we now expect to generate approximately $10.5 billion from operating cash flow and used vehicle sales proceeds. Our operating cash flow will benefit from improving contractual earnings. This creates approximately $3.5 billion of incremental debt capacity, resulting in $14 billion available for capital deployment. Over that same 3-year period, we estimate approximately $9 billion will be deployed for the replacement of lease and rental vehicles and for dividends, leaving $5 billion of capital available for flexible deployment to support growth and return capital to shareholders. We estimate about half of this capacity will be used for growth CapEx and the remaining to be available for discretionary share repurchases and strategic acquisitions and investments. Our capital allocation priorities remain unchanged and are focused on supporting our strategy to drive long-term profitable growth and return capital to shareholders. Our top priority is to invest in organic growth. We've taken a balanced approach to investing and since 2021 have invested approximately $1.1 billion in strategic M&A and have deployed approximately $1.2 billion for discretionary share repurchases, reducing our share count by 22%. Our balance sheet remains strong with leverage of 254% at quarter end at the lower end of our target range and continues to provide ample capacity to fund our capital allocation priorities. With that, I'll turn the call back over to Robert to discuss our outlook. Robert Sanchez: Turning to our outlook on Page 13. Our full year 2025 comparable EPS forecast is updated to a range of $12.85 to $13.05, above the prior year of $12 as higher contractual earnings benefits from our strategic initiatives and lower share count more than offset the impact from market conditions in rental and used vehicle sales. Our updated forecast continues to reflect contractual earnings growth as well as a muted environment for used vehicle sales and rental. Although sales pipelines remain strong, the prolonged freight downturn and economic uncertainty continue to cause some customers and prospects in Lease and Dedicated to delay decisions. These near-term contractual sales headwinds are consistent with current freight market conditions. We are, however, encouraged by robust sales and pipeline activity in SCS. Our 2025 ROE forecast is unchanged at 17% and is in line with our expectations given current market conditions. As mentioned earlier, our free cash flow forecast of $900 million to $1 billion is unchanged from the prior forecast and reflects lower capital expenditures in 2025 and an estimated annual benefit of $200 million from the permanent reinstatement of tax bonus depreciation. Our fourth quarter comparable EPS forecast range is $3.50 to $3.70 versus a prior year of $3.45. Turning to Page 14. The key driver of expected earnings growth in 2025 is incremental benefits from multiyear strategic initiatives that are well underway and related to our contractual lease, Dedicated and Supply Chain businesses. They represent structural changes we're making in the business and are not dependent on a cycle upturn. Upon completion, we expect these initiatives to generate annual pretax earnings benefits of approximately $150 million, which will be a key component to achieving our long-term ROE target of low 20s over the cycle. In FMS, we expect to realize an incremental annual benefit of approximately $20 million in 2025 from our lease pricing initiative. This results in a total benefit of $125 million relative to our 2018 run rate, reflecting portfolio pricing under the new model. We expect $50 million in benefits over multiple years from our maintenance cost savings initiative announced in mid-2024. In DTS, we expect to realize $40 million to $60 million in annual synergies from the Cardinal acquisition at full implementation. The majority of these synergies are related to maintenance efficiencies and replacing third-party operating leases with the benefits of Ryder ownership and asset management. In SCS, we are focused on optimizing our omnichannel retail warehouse network through continuous improvement efforts, driving operational efficiencies and better aligning our footprint with the demand environment. During the third quarter, we incurred some incremental costs related to the optimization of our network but expect continued progress on this initiative with incremental benefits expected in 2026. By year-end 2025, we expect to realize approximately $100 million from these initiatives, benefiting all three business segments. Approximately $70 million of these benefits are incremental to 2024. In addition to driving our outperformance relative to prior cycles, our transformed business model also provides a solid foundation for the business to meaningfully benefit from the eventual cycle upturn. As such, we expect an annual pretax earnings benefit of at least $200 million by the next cycle peak. The majority of the $200 million benefit is expected to come from the cyclical recovery of rental and used vehicle sales in FMS. In Dedicated, improved driver availability and lower recruiting and turnover costs are benefiting earnings but have been a headwind for new sales and revenue growth. As freight capacity and driver availability tighten, we expect to see incremental sales opportunities and improved revenue growth in DTS as private fleets seek solutions to address these challenges. In supply chain, muted volumes in our e-commerce network have been a headwind to revenue and earnings. We expect supply chain results to benefit as volumes from these services recover and our optimized warehouse footprint is leveraged. We've been pleased by the business' resilience and performance during the prolonged freight market downturn and are confident each of our business segments is well positioned to benefit from the cycle upturn. Turning to Page 15. Our transformed business model continues to deliver value to our customers and our shareholders. We continue to outperform prior cycles, and our results are benefiting from consistent execution and the strength of our contractual portfolio. We continue to see significant opportunity for profitable growth supported by secular trends, our operational expertise and ongoing momentum from multiyear strategic initiatives. We remain committed to investing in products, capabilities and technologies that will deliver value to our customers and our shareholders. That concludes our prepared remarks. Please note that we expect to file our 10-Q later today. At this time, I'll turn it over to the operator to open the call for questions. Operator: [Operator Instructions] And our first question will come from Scott Group with Wolfe Research. Scott Group: I want to ask how you think these CDL regulations impact the business model? What are the puts and takes? I don't know if you have like a sense on your -- on the lease side of the business, like are you more exposed to large fleets, private fleet, small fleets where there may or may not be less exposure? And do you think there is risk that if there's fewer drivers that could pressure used truck pricing? I don't know, just some of the puts and takes. Robert Sanchez: Yes. Scott, I think that's still developing. But I would say that what it's likely to do is tighten the driver market. The drivers that are impacted just for the purposes of our supply chain and dedicated business, we don't have any of those types of drivers in our company. So tighter driver market typically is good news for our dedicated business as you're more likely to have companies looking for help on how to bring those drivers in. As far as our customer base on the lease side, let me hand that over to John, so he can give you a little more color on that. John Diez: Yes, Scott, the majority of our lease portfolio, if you think about it, there are private fleets that are doing specialized deliveries, whether they're food distributors or even local deliveries. Most of what we think is going to get impacted is that over-the-road transport space, which are doing dock-to-dock deliveries that don't require special handling. So I would say the majority of it is not impacted by this. Our estimates based on the number of CDL drivers out there could be as much as 5% impact to the overall capacity. So not expecting a meaningful change there to our customer base but certainly will put pressure on wages over time. And I think that will favor more outsourcing activity for our business, both on the dedicated side as well as individuals looking to cut cost and coming to us for either their fleet maintenance or dedicated solutions. Scott Group: Okay. And Robert, I know you -- usually on the Q3 call, you give at least some thoughts, perspective on the next year. We've had some multiyear initiatives like some of those like the lease pricing kind of -- I think this is the final year of it, the fleets sort of shrinking a little bit as the year plays out. So what are the drivers of earnings growth next year? Are there headwinds to be thinking about just overall puts and takes as you think about '26 earnings growth potential? Robert Sanchez: Yes. As I was going into this call, I thought there would be a lot more clarity this year than there was last year, given we had an election coming up last year. So there's still a lot of uncertainty. But I would tell you it's a very similar story in that you should expect contractual earnings growth. Really, we have $50 million left in our strategic initiatives of $150 million. So you should expect a good chunk of that, if not all of it, to really come in next year. In addition to that, although we've had some muted sales in Lease and Dedicated because of the freight market softness and extended downturn, the really strong part of the story this year is supply chain. We are seeing a very strong sales year in supply chain this year. It's on pace to be one of our best sales years. So those contracts should start coming in as we go into next year. Probably second, third quarter, we'll start to see more of them come in. But I would expect revenue and earnings growth really driven by the supply chain side next year. And then on the transactional side, it's really when do we think the freight cycle is going to turn. And we're now -- we're going to be in our fourth year of a downturn. So at some point, it will. If it happens earlier in the year, we'll get some boost from our rental and used vehicle. If it happens later in the year, we'll get less, but that -- but it's really that $200 million of incremental earnings that we're expecting by the time we hit our next peak. When that turn happens, you'll start seeing some of that. It doesn't all come in the first year, but you'll start seeing some of that. And there's still not a lot of certainty of when we're going to see that. But one of the things you mentioned around tighter market could be more capacity coming out of the spot market, which is probably a good thing for the overall freight market. As you know, we have zero-based budgeting here. So you expect us to continue to manage our overheads and look for cost takeouts there. If it is a slower -- if it is a slow market from a freight market standpoint, so we don't see an upturn, then you should expect another strong free cash flow year. Unless we see a big freight rebound, I think that's probably -- it's probably in the cards for us next year, another strong free cash flow year. And then also continued share repurchase. So really continued execution on our balanced growth strategy, which I think has given us really good results so far, and we'll continue to do so. Operator: [Operator Instructions] And our next question will come from Ben Moore with Citi. Ben Moore: I wanted to touch on more about your used gain being challenged in the quarter. In thinking about 4Q and 2026, can you share how you frame thinking about the truck tariffs? Presumably, you could allocate purchases towards U.S.-made trucks, USMCA compliance can alleviate tariffs on foreign-made trucks. You've got higher new truck pricing that should lift your used truck prices, and you can possibly pass through to customers higher new truck pricing given the strong truck leasing industry pricing discipline and also private fleets would probably want to outsource more to you. It's more economical to lease than buy. Can you walk us through kind of maybe some of these points and what you're thinking the puts and takes, whether it could be an overall benefit? Robert Sanchez: Yes. Ben, first, I'll say that we're still -- we still don't have clarity on what the impact on the pricing is going to be and how much if any of it will be passed through. But I think you hit on some of the key points that, #1, if there is a price increase. And I think there's market dynamics here. So all the OEs, regardless of where they're doing their final manufacturing will have to compete in the marketplace with those that may be doing more domestic versus across the border. But any increase that we see, obviously, we pass through in our lease rate with our customers. We're not buying trucks until we have signed leases. Those increases will likely -- if they do happen, will slow down the purchase of new trucks, I would expect, which should give -- which should accelerate getting the supply of trucks in the market down to where they need to be. So that could be -- help accelerate the balance of the freight market. But for Ryder, just as importantly, the cost of used equipment and the used equipment that was purchased prior to the tariffs should be more valuable. And we should see some help on the used truck side over time as the higher pricing of new trucks comes in. So those are the big ones. I think at the end, complexity at Ryder is our friend. And I think the uncertainty has not been our friend, just like uncertainty is not a friend of any business. But more complexity is good for us. And certainly, we're seeing plenty of it coming down the pipe with some of this tariff talk, also some of the changes in driver regulations and qualifications and who could be a driver. So those things over time really, I think, make the work that we do more complex, which should bode well for outsourcing and should bode well for companies like ours. Ben Moore: Great. Really appreciate that. Maybe as a follow-up, just thinking longer term, capital structure-wise, as you shift your mix to more Supply Chain and Dedicated, how might you think about maybe kind of trending down your leverage target to be more in line with your supply chain and dedicated peers? It looks like most of them have leverage around 0 to 1 to 2x. Robert Sanchez: Yes. Listen, that's a good question. But I think if you look at our balance sheet, you can see that the majority of the capital that we're spending is still heavily weighted towards our FMS business. The good news is the profitability of that business has significantly improved. So the contracts that we've signed over the last now 5, 6 years are certainly more profitable than what we had historically. So that allows us to continue to hold our leverage and keep our leverage where it is, even as there's been a shift in certainly the revenue and earnings for the company. So John, do you want to add something to that? John Diez: Yes. And Ben, I think right now, we're at the lower end of our target range. You should expect once the freight market recovers, we are going to be spending more capital to not only replenish the fleet but grow the fleet both for lease and rental. So you will see our leverage move up within the range as we kind of up cycle the business. So that's kind of one of the dynamics here is we're on the trough end of the cycle, which you're seeing us operate towards the latter end. It will take multiple years, I would say, before we start seeing a meaningful impact to our capital structure from the growth that we're seeing in Supply Chain and Dedicated. Operator: And moving on to David Zazula with Barclays. David Zazula: So Steve or Cristy, Robert's comments suggested a pretty positive outlook for Supply Chain Solutions kind of into the quarter and next year. Can you contrast that with some of the headwinds you saw this quarter? Were they temporary? Is some of the revenue going to be able to offset the poor network performance in e-commerce? Just any color you can provide there. Robert Sanchez: Steve? John Sensing: Yes, David, as you look at it, we had our ninth consecutive quarter of EBT earnings last quarter. We remain in high single digit. I'd really put it in three buckets. We had higher medical costs in the quarter. In e-com, there was a productivity miss really associated with a couple of accounts where volumes were lower than what was forecasted. And then as Robert said, in our strategic initiatives, the continued optimization of our multi-client e-com and Ryder last mile footprint, we did have some customers that requested to move earlier in the year. So we've got some moves going on here in the second half where we had planned those to happen in Q1, but we didn't want to accommodate them. So a little bit of higher move in shutdown costs as well. Cristina Gallo-Aquino: I'll add to that -- David, I was just going to add to that, that in the forecast that we've provided for the fourth quarter, what we're expecting there on the high end of the range is that rental will continue kind of at this flat sequential demand environment. And on the UVS side, on the high end, there would be some market improvement and also some benefit from us shifting to more retail mix on the used vehicle side. And then on the low end, it would just be that demand drops below Q3 levels, so a declining environment and that used vehicles also have a modest decline. David Zazula: Very helpful. And then just if I could squeeze one in on SelectCare. It seems like there's some headwinds in SelectCare there. I guess, one, can you maybe discuss whether we should think of those as temporary? Or is there something going on there? And then should we think of SelectCare as being more volatile than historically has been? It's been a pretty consistent grower over time. So anything you can provide there on the SelectCare line? Robert Sanchez: Yes, I'll let Tom give you color. Remember, SelectCare has a component that's contractual and then another component is more the re-billables or the more transactional part is we've got customers that need body work and other types of work to do but go ahead. Tom Havens: Yes. So I would view it as temporary. As we looked at the quarter, it was just lower activity. And as Robert mentioned, that lower activity in the transactional forms of SelectCare. And we certainly expect that to return to more normal levels in the fourth quarter. Operator: And the next question will come from Ravi Shanker with Morgan Stanley. Ravi Shanker: Just a follow-up on the non-domicile CDL rule. I understand that you said it's a very, very direct impact for you guys. But how do you think about the timing and maybe the indirect impact? If you can kind of rewind a little bit to 2018 with the ELD mandate and the 2020 Drug and Alcohol Clearinghouse kind of when there were regulatory changes in the industry that impacted small truckers, how quickly did that kind of the second derivative flow up to you guys? And also, how -- what's the timing that you think this impact will take place? Is this something going to happen right away? Is it '26? Is it going to take several years? And what are you guys seeing right now? Robert Sanchez: Yes. Those are good questions, but it's hard to tell at this point still, right? We don't know what the timing of this is. But the estimates are that it's 5% of the driver market that could come out over the next couple of years. So it's probably not something that happens overnight. It happens over a period of time. And whenever there's been a tightening of the driver market, it's typically good news for outsourcing. So again, we would expect to see some improvement, much needed improvement, I would tell you, on demand for dedicated services. And that's an area that as the market tightens up, you should see that. You should also see an increase in the transactional parts of our leasing business, rental and used vehicle sales because some of those drivers that are maybe one way and our typical truckload type fleets go down, some of the private fleets are going to have to pick up the slack. And we've seen that tilt over the last couple of years more towards the for-hire driver. You may see that come back towards the private fleet, which would benefit our leasing customers and our dedicated business. Ravi Shanker: Understood. And as a follow-up to that, just on that point of private fleets. I think there's been some speculation about private fleet growth over the years. And yesterday, we may have heard that there are some signs that maybe private fleets may be kind of giving back just given cost inflation and other issues. What do you think are some of the structural trends in private fleet growth right now? And kind of how do you think that lasts through the up cycle? Robert Sanchez: Yes. I think we've seen that in our lease fleet and our dedicated fleet over the last several years as coming out of COVID, there were a lot of trucks that were ordered that came in that probably our customers didn't need them all at that point once the COVID high came down. So you've seen those fleets defleeting over the last 2 to 3 years. And we believe that's probably getting closer to the tail end of it now. But yes, there's no doubt that private fleets have been defleeting over the last 2 to 3 years. Operator: And we'll take a question from Jeff Kauffman with Vertical Research Partners. Jeffrey Kauffman: Congratulations, everybody. I just wanted to focus a little bit on the bonus depreciation. How is that going to funnel into the financial statements? Is it just going to be a cash flow benefit? Is it going to help the operating margins? And how is that going to accelerate? I think you mentioned a $200 million benefit. Maybe I'm wrong, but I just kind of want to get a better idea of how that's going to flow through the financials. Robert Sanchez: Cristy? Cristina Gallo-Aquino: Jeff, so -- yes, the bonus depreciation right now for us is going to be a cash tax benefit, and we are estimating that to be about $200 million. We would expect that at the same level of capital spending in future years, it would continue to be about $200 million in the next several years. So that's the way it's going to flow through our financial statements. There is no tax rate effect of this. And from our operating margins, I mean, we continue to price our leases at market rates. So there really isn't a meaningful impact. It's just a cash timing benefit that we're going to be getting. Jeffrey Kauffman: All right. And the $200 million number is an annual number, correct? Cristina Gallo-Aquino: That is correct, yes. Operator: And our next question comes from Jordan Alliger with Goldman Sachs. Jordan Alliger: Just wanted to come back to supply chain for a second. You mentioned the margins were in the high single-digit target for the third quarter. You mentioned the e-commerce network productivity or performance. Is that something that just is isolated into the third quarter and it drops off and we could get back to some sort of a sequential improvement from here? Or does that sort of linger on? And then secondly, you commented that supply chain sales pipeline has been really strong, and it could start impacting in the 2Q, 3Q next year. You talk a little bit about the trade-off? If you start getting back to the revenue growth targets that you'd like to see longer term, is there a trade-off with margin on start-up? Or can we hold these high single digits as that starts to flow in? Robert Sanchez: Yes, I'll let Steve answer that. I'll tell you the last part of that. I do think we're certainly excited about the growth. We are not changing our earnings leverage targets, though for supply chain, no would expect same earnings leverage targets. Just to be -- it's going to be nice to get back closer to our target growth rates. But go ahead, Steve. John Sensing: Yes. I think in the quarter, as you think about Q4, there's going to be some continued optimization of the footprint, specifically in e-commerce and last mile. So I think that would continue, but it would set us up for a rebound in 2026. We also are seeing in the second half a few more plant shutdowns in automotive as they retool and move models around to different plants. So that's another one. It didn't really stand out in the quarter, but that's some items that we're seeing here in the back half. Operator: And our next question will come from Harrison Bauer with Susquehanna. Harrison Bauer: You've laid out your peak-to-trough market improvement opportunity of around $200 million, and that was off a 2024 base with used vehicle sales down on the gains part or maybe $50 million this year and rental earnings contributions also down notably. Do you think that peak-to-trough opportunity might be close to $300 million if we rebase the transactional earnings contribution to 2025? John Diez: Yes. Harrison, this is John. I think your observations are directionally accurate in that if you think about where we were in '24 from a gains perspective and where we're sitting today, obviously, we've had a pullback in our UBS gains. As a reminder, our expected normalized gains annually are in that range of $75 million. So clearly, more opportunity on the UBS side relative to where we were back in 2024. Rental has also taken a step back since then, which would suggest that it's a little bit more than the $200 million that we originally had calibrated. So we are going to need to make investments to grow the rental fleet and continue to invest in that fleet over time, which factors into that $200 million. But you're absolutely right. The $200 million is maybe not reflective of where we sit today, which is more depressed than where we were a year ago. Harrison Bauer: And as a follow-up to the non-domicile CDL conversation, I appreciate how you mentioned how the removal of drivers would impact different parts of your business. But what do you think the sort of other side of that where there might be additional trucks to the market and how that might affect used vehicle prices? Robert Sanchez: The question is additional trucks as a result of having fewer drivers? Harrison Bauer: Correct. Yes, like the displacement of drivers and what might happen with those trucks and any pressure to used vehicle prices or residual values. Robert Sanchez: So you're saying that -- yes, there'd be more used trucks in the market. Yes, I think that would be -- I mean, time will tell, but I think that would be more than offset by just the benefit of more trucks needing to be there to replace them, right? You're going to have to -- you're going to need more newer trucks or less or newer model year trucks to replace them. So yes, it's hard to tell exactly how it all falls out. But generally, I would tell you that as the market tightens for drivers, that is a good thing for used trucks, and that's a good thing for our rental business. Operator: And our next question will come from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Just wanted to ask for a little bit more specifics on the rental demand. I think you said it was a little bit weaker than seasonal. I don't know if you can call out anything in particular there. And similarly, for the e-com, it sounded like it was a productivity miss on maybe volume. So is there anything within that vertical that you can read into? Or is this more of a one-off from a specific customer and whatever their forecast was and whatever that warehouse was supposed to look like, but definitely didn't deliver? Robert Sanchez: So I'll let Tom address the rental, what we saw in the quarter versus what we expected. Tom Havens: Yes. Cristy mentioned it a little bit in her opening comments, but the third quarter was slightly down from our expectations and slightly worse than what we would typically see from a seasonal demand trend by about 1%. If you look at the trend year-over-year, you can see that. So as you step off into the fourth quarter here on that slightly lower demand, that's reflected into the fourth quarter forecast as well. So it's a little bit worse than what we had expected. Robert Sanchez: And certainly, well off of our target of where we want to be from a utilization standpoint. Steve, do you want to address the e-com? John Sensing: Yes, Brian, I'd say that productivity miss to a forecast was really a one-off situation in the quarter. Brian Ossenbeck: And I guess just on the rental demand, if it was worse, and I appreciate you updating the guidance for the run rate, but what -- is there anything in particular that surprised you to the downside? Was it a combination of things? Anything you can really point to? John Sensing: Yes. I guess there's good and bad in the detail of the data. But the good point is our pure rental business year-over-year, the demand for our non-lease customers renting trucks was flat year-over-year. So what we're seeing is our lease customers haven't picked up their demand. And we certainly haven't signed -- lease sales have been a little bit muted, and we would typically have awaited in leases as we sign new business. So those are the 2 areas that were down in demand. The other good point here, and you saw it in the numbers, the RPD was up about 5%. So we are seeing good rate discipline in rental. So I think when we see our lease customers start to rent again, that will be a really good sign for us. Operator: And we'll take a question from Ben Moore with Citi. Ben Moore: Just looking at the bright side, your strong sales performance in SCS, and you seem very excited about SCS leading growth in 2026. Can you talk more about your recent developments in your incubator for tech that had developed your RyderGyde, RyderShare, RyderShip and tech-driven sales. In our research, it looks like load board and broker apps using AI and supporting one truck owner operators. And I'd be curious to hear about similarity with your tech supporting your logistics managers and the outsourcers that you serve. John Diez: Yes, Ben, John Diez here. Two components to your question. One around tech. Clearly, what we're seeing, the investments we're making in RyderShare, RyderShip and some of the other technologies that are customer-facing is making a difference. That's really a big differentiator in what we're seeing in the sales activity. We are starting to see large customers take action in reshaping their supply chain. So these technologies are making a difference in those opportunities and how we compete. With regards to the second part of your question around AI, clearly, we're deploying some of these technologies, especially around Agentic AI technologies with regards to improving our service levels and improving the effectiveness of some of our solutions, specifically around our transportation management and brokerage part of the business. That's making a difference in optimizing rate for our customers, improving our overall service levels as well as improving our effectiveness around our freight bill audit and pay activity there. So you are seeing that in the supply chain space as well as some of the activities we're deploying to other parts of the business, including fleet management and dedicated. Operator: And our last question comes from Scott Group with Wolfe Research. Scott Group: Just real quick. Can you just let us know what's in the guidance for gains in the fourth quarter? And it's always a little hard to know with that slide on the residual values. Like how much cushion is left to stay within the ranges on residuals before we risk either losses or having to do something with depreciation assumptions? Cristina Gallo-Aquino: Yes. Scott, so on the guidance itself, well, first, let me remind you, in the quarter, pricing was somewhat stable. And at this level, we're still maintaining gains on the P&L. So I would expect the fourth quarter to be similar or somewhat better because we are expecting on the high end, a modest improvement in pricing. So we think that it will be higher than the third quarter results. As far as how much can we sustain, the sensitivity right now is we would need pricing to decline 8% from where it is today in order to hit the bottom end of our residual levels. We are not anticipating a decline. And so right now, that's not what we're forecasting, but that is the amount that it would need to decline to hit the bottom end. Scott Group: Okay. So it doesn't sound like, just to be sure, you're not planning any residual assumption changes or changes in accelerated depreciation or anything like that for next year. Cristina Gallo-Aquino: That's right. Right now, we're comfortable with our residuals where they're at. Operator: At this time, there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks. Robert Sanchez: Okay. Well, thank you. We're near the top of the hour. So thanks again for your ongoing interest in Ryder and great questions. Talk to you guys soon. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
Operator: Thank you for standing by. Welcome to the Brandywine Realty Trust Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jerry Sweeney, President and CEO. Please go ahead, sir. Jerry Sweeney: Jonathan, thank you very much. Good morning, everyone. Thank you for participating in our third quarter '25 earnings call. As usual, on today's call with me are George Johnstone, our Executive Vice President of Operations; Dan Palazzo, our Senior Vice President and Chief Accounting Officer; and Tom Wirth, our Executive Vice President and Chief Financial Officer. Prior to beginning, certain information discussed on the call today may constitute forward-looking statements within the meaning of federal securities law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. For further information on factors that could impact our anticipated results, please reference our press release as well as our most recent annual and quarterly reports that we file with the SEC. So during our prepared comments today, we'll briefly review third quarter results, provide updates on our '25 business plan and be prepared to answer any questions you may have. Looking at the third quarter, we posted solid operating metrics again, reinforcing the continued flight to quality and our strong market positioning. As we'll review in more detail, we do anticipate performing within all of our business plan ranges. At the midpoint, we have now executed over 99% of our spec revenue target. Our quarterly tenant retention rate was 68%, and we expect to end the year at the upper end of our range. Leasing activity for the quarter approximated 343,000 square feet, including 164,000 in our wholly-owned portfolio and 179,000 in our joint ventures. Forward leasing commenced after quarter end remained strong at 182,000 square feet with most of those leases taking occupancy in the next 2 quarters. Third quarter net absorption totaled 21,000 square feet. And as anticipated in our business plan, we ended the quarter at 88.8% occupied and 90.4% leased. In Philadelphia, we're 94% occupied and 96% leased. In the Pennsylvania suburbs, we're at 88% occupied and 89% leased with a solid pipeline of prospects for the existing vacancies. Boston remained at 77% occupied and 78% leased. We do, as we forecasted before, a large known move-out in the fourth quarter that will drop this region further into about 74% by year-end. Looking ahead, we have only 4.9% of annual rollover through '26 and one of the low -- which is among the lowest in the office sector and only 7.6% through '27. For the quarter, our mark-to-market was a negative 1.8% on a GAAP basis and a negative 4.8% on a cash basis. Both of those metrics, however, were heavily influenced by a large as is renewal in Austin that had a negative 16% GAAP and negative 18% cash, but no TIs were invested. Without that lease, the company would have been a 6.2% positive GAAP and 2.8% positive cash. By way of example, our CBD and Pennsylvania mark-to-market were positive at 6.7% and 3.1% on a GAAP and cash basis, respectively. Our capital ratio was 10.9%, slightly above our '25 business plan range. But based on leases already executed for the fourth quarter, we're maintaining our capital ratio range of 9% to 10%, which is the lowest capital ratio range we've had in over 5 years. Tour activity through the portfolio continues to accelerate. Third quarter physical tours were in line with second quarter, but more importantly, the square footage of those tours in Q3 exceeded the second quarter by 23%. Another positive sign is that as we track our deal status, letters of intent, legal negotiations out for signature is up 170,000 square feet or 25% from Q2 levels. For the quarter, 51% of all new leases were the result of a flight to quality, and we do not have any tenant lease expirations greater than 1% of revenues through 2026. Our operating portfolio leasing pipeline remains solid at 1.7 million square feet, which includes about 72,000 square feet in advanced stages of negotiations. To sum up, operations '25 is characterized by continued strong operating performance, supported by limited rollover risk, excellent capital control, the ongoing strengthening of our marketplaces and an expanding leasing pipeline. Looking at our balance sheet and liquidity, we remain in excellent shape with no outstanding balance on our $600 million line of credit and cash on hand at the end of the quarter. As previously disclosed, we recently issued $300 million of bonds due January of 2031, which generated $296 million of gross proceeds at an effective yield of [6.125%]. We used $245 million of those proceeds to repay our secured CMBS loan that was due in February of '28. That term loan payment leaves us fully encumbered in our operating portfolio, which provides much greater flexibility to lease and manage our assets and then also bought about $45 million into our unencumbered NOI pool. We have no unsecured bonds maturing until November of '27. And to ensure ample liquidity, we do plan to maintain minimal balances on our line of credit. As noted previously, our overall business plan is still designed to return us to investment-grade metrics over the next several years. As such, we will continue looking to reduce overall levels of leverage. And as a point of reference on that, our average cost of bond debt is slightly north of 6%, but we do have $900 million or about 50% of our outstanding bonds with coupons north of 8% which, assuming capital markets remain constructive, provided very good refinancing opportunities for us over the next several years. Looking at the markets from an overall standpoint, the real estate markets and overall sentiment continue to improve. That perspective is supported by the following fact patterns. Our pipeline activity continues to grow. Tour volume remains at very healthy levels. Rent levels and concession packages remain very much in line with our business plan and in select submarkets and buildings, we continue to push both nominal and effective rents. And all of our 2025 key operating goals have been achieved. The demand for high-quality, highly amenitized buildings remains a strong consumer preference. In Philadelphia CBD, as I noted on previous calls, market vacancy remains concentrated in a small number of buildings and high-quality buildings continue to outperform lower quality while pushing effective rents. Our competitive set continues to narrow through buildings being removed from inventory for conversion and several select assets still having financial issues, which essentially removes them from the leasing market. In fact, as an update from last quarter, our numbers now show that potentially 11 buildings totaling 5.1 million square feet of office is in the process of being removed from inventory for conversion to residential uses. As a frame of reference, that's about an 11% reduction in the overall office inventory in CBD Philadelphia. As such, with no construction on the horizon, our quality assets remain in an ever-improving competitive position. The city's life science sector, while still early in the recovery phase, should remain a forward growth driver, particularly with the return of capital as that submarket is backed by a strong regional health care ecosystem that includes over 1,200 biotech and pharmaceutical firms along with 15 major health care systems. Austin also remains in a recovery phase. Leasing activity continues to improve. As of last report, there are over 108 tenants actively seeking more than 3.5 million square feet with the tech sector accounting for 1.5 million square feet of that demand. So a bit of a resurgence from the tech company space demand standpoint. Third quarter leasing activity was 1 million square feet, which was 70-plus percent higher than in Q2. So green shoots are continuing to emerge in Austin, particularly in the higher-quality product. Our FFO for the quarter was $0.16 a share or $0.01 above consensus. We had 2 operating items that Tom will amplify in more detail that did impact our '25 guidance revisions. As previously announced, we will be recording in the fourth quarter an earnings charge totaling $0.07 per share related to the early prepayment of our secured notes. In addition, we did anticipate, as outlined on previous calls, making progress on recapitalizing at least 1 and possibly 2 projects of our development joint ventures in the second half of the year. We did anticipate these recapitalizations would add around $0.04 per share to 2025 FFO. During October, we did capitalize our 3025 JFK properties as the first step in this process. We do anticipate possibly one more later this year or very early in '26. As we talked before, the objective of these recapitalizations, which includes the full retirement of the preferred equity investments is to bring high-quality stabilized assets onto our balance sheet, which will deliver high-quality cash flow, improve earnings, reduce overall leverage and open up additional capital options for us on those properties. Due to several factors, including the slower stabilization of several projects and slower-than-anticipated interest rate decreases, these recaps are occurring a quarter or 2 behind schedule. As such, the full impact will not occur really until 2026. As a result of that, our revised FFO range as we outlined in our press release is $0.51 to $0.53 per share. Optimizing value in these development projects remains a top priority. With 3025 Avira and Solaris both 99% leased and stabilized, our joint venture development pipeline is really down to 1 Uptown and 3151 JFK. The leasing pipeline on these projects is up 700,000 square feet from last quarter. But as you noted in the supplemental package, even with this increase, given the uncertain timing of lease executions, the time to complete tenant space plans and the corresponding build-out time lines, we have slid the stabilization dates on both of those properties. Looking at Schuylkill Yards 3025, that commercial component is now 92% leased. We have a very good pipeline for the remaining space in the building. With leasing in place, the commercial component will stabilize in Q1 '26, immediately after our major tenant takes occupancy. Avira, as I noted a moment ago, is 99% leased and achieved full economic stabilization during the quarter. We're also experiencing that project a very good renewal rate with average double-digit rate increases thus far this year. 3151 was substantially delivered in the first quarter of this year and will be in a capitalization phase for the balance of '25. The pipeline on this project has increased to 1.7 million square feet, broken down to 60% office prospects and 40% life science prospects. They range in size from 25,000 to 200,000 square feet. Discussions with many of these prospects are active. Tour activity remains robust, and the project has been very well received. The life science market, as I noted, remains very much in a recovery mode. It's impacted by a challenging fundraising climate and public policy uncertainty, although we are seeing an increased traffic coming from that sector. Despite the strong increase in both Austin life science traffic, as I noted, we did slide the stabilization date just to be conservative on when leases will actually commence. At Uptown ATX, we're 40% leased, but have another 15% of the project in the final stages of lease negotiations. The remaining pipeline remains strong with tenant sizes ranging from -- between 4,000 to 100,000 square feet, including ongoing discussions with several full floor users. We're also nearing completion on building out some spec space on one of the floors to accommodate the accelerated move-in for several smaller prospects. Solaris, which opened about a year ago, has achieved stabilization during this quarter. So very successful on that with the renewal program well underway. As noted last quarter, our '25 business plan anticipated $50 million of asset sales. We have sold $73 million of properties at an average cap rate of 6.9% and an average price per square foot of $212. At this time, we're obviously not factoring any more sales closings during '25, but we'll certainly identify a target as part of our 2026 guidance. In general, though, from what we're seeing, the investment market continues to improve, both in terms of velocity and pricing. The pricing increase is notable because many asset trades are still on lower quality or underleased assets. For example, over the last 12 months, there have been about $475 million of sales in suburban Austin at prices per square foot ranging from $75 to $470 per square foot, an average occupancy of 67% and cap rates ranging from the low single digits to upwards of 12%. Likewise, in the PA suburbs, there were $242 million of sales at cap rates that range from 7% to 11% and an average occupancy of 85%. So buyers, including institutional buyers are continuing to reemerge. So we anticipate the investment climate will continue to improve into 2026. On the dividend, as noted, our Board decided to -- or previously announced, our Board decided to lower our dividend from $0.15 per share to $0.08 per share. We believe this revised dividend is sustainable and represents a CAD payout ratio much more in line with our historical averages. To the extent we continue to experience progress on the developments and cash flow growth from our operating properties, continued low capital cost and reduced borrowing costs to increase CAD, we'll certainly reassess our dividend going forward. But the idea was to set a good solid floor, give ourselves a position to generate $50 million of internal capital that we can use for reinvestment back into our properties. So with that, let me turn the floor over to Tom to review our financial results for the third quarter and an outlook for the balance of the year. Thomas E. Wirth: Thank you, Jerry, and good morning. Our third quarter net loss stood at $26.2 million or $0.15 per share. Our third quarter FFO totaled $28 million or $0.16 per diluted share and $0.01 per share above consensus estimates. Some of the general observations for the third quarter, our FFO from our unconsolidated joint ventures totaled a loss of $6 million or $1 million higher than our $5 million forecast, partially due to the delayed recapitalization activity during the quarter. G&A expense was below our reforecast by $600,000, primarily due to timing and other income was $600,000 above our reforecast due to various items. Other forecasted quarterly results were generally in line. Looking at our debt metrics, third quarter debt service and interest coverage ratios were 2.0, consistent with the second quarter. Our third quarter annualized combined core net debt to EBITDA was 8.1 and 7.6, respectively. Both metrics were within or below our business plan range. From a core portfolio composition during the third quarter, we made one adjustment to our projections. We had forecasted 250 King of Prussia Road becoming a stabilized core property during the third quarter. However, due to a tenant delay in occupancy, the stabilization date has been moved back to 1Q '26. As Jerry highlighted, we completed a successful 5-year bond issuance that closed in early October, which generated gross proceeds of $296 million. Proceeds were used to pay our $245 million secured CMBS loan, which was due in 2028. Both transactions closed in early October. It is important to highlight that in June of '25, we executed an unsecured bond cap of $150 million at 7.04%. And the recent issuance represents a 13% decrease in our unsecured borrowings since that June offering. In addition, the coupon on our recent bond issuance is slightly below our pro forma 6.26% weighted average effective rate. So we feel the significant increases to our interest expense from future refinancing should come down. We continue to maintain a strong liquidity position and use further sales and refinance proceeds to reduce unsecured debt and to improve our credit profile. We have time to work on this improvement with no unsecured bonds maturing until November 27. Giving effect to the CMBS loan prepayment at the end of the quarter, our wholly owned debt was 100% fixed with a weighted average maturity of 3.5 years. This excludes the 3025 construction loan, which will now be consolidated and matures in July of 2026. As highlighted, we adjusted and narrowed our guidance for 2025. The midpoint reduction is 10% and is comprised of $0.07 reduction from the transaction costs associated with the repayment of the $245 million CMBS loan, a reduction of $0.04 per share is primarily due to the delays in recapitalizing our development projects, which we expected to generate some benefit to our third and fourth quarter results. There is some negative carry from the bond issuance and the CMBS redemption, and we did have a delay in the stabilization of 250 King of Prussia. Looking at fourth quarter guidance, in connection with the October buyout and consolidation of 3025 JFK, the impact to our fourth quarter results will be an increase to GAAP NOI of $1.9 million, an increase to interest expense of $2.9 million through the consolidation of the construction loan and $2.7 million improvement in our loss from unconsolidated joint ventures and a reduction in interest income of about $600,000 to our reduced cash on hand balances. While that is muted to our fourth quarter, the opportunity to buy out our higher-priced capital partner ahead of a final stabilization gives us flexibility entering 2026. The $8 million of annualized NOI for the fourth quarter will increase to over $20 million in the first quarter and grow from there. With the property now wholly owned, we have the flexibility to refinance the above-market debt with lower-priced unsecured, secured or agency debt, and we assess -- as we also can assess the opportunity to find a common equity partner and potentially reduce our equity stake. Turning to the rest of the fourth quarter. Property level operating income will total about $71 million and will be similar to the last quarter results with 3025 being included in the fourth quarter, but lower NOI primarily due to a known move-out in Austin as well as the pushback of $250. Our FFO contribution from our joint ventures will total a negative $2 million, which is sequentially lower than the third quarter, primarily due to the fourth quarter consolidation of 3025, higher NOI at both Solaris and Avira and partially offset by a higher loss at 3151. G&A expense for the quarter will total about $8 million, representing a full year expense of $42.6 million and within our 2025 business plan range. Our interest expense will approximate [$38.5 million], sorry, and the capitalized interest will be about $2.5 million. Sequential increase in the interest expense is primarily due to the consolidation of 3025, lower projected capitalized interest and the negative carry impact of the $300 million of unsecured bonds, offset by the $245 million of CMBS loan repayment. Termination fees and other income will total about $2 million and net management and development fees will also be about $2.5 million. We anticipate no property disposition activity for the balance of the year. We anticipate no ATM or buyback activity, and our share count will be roughly 179.5 million shares. Turning to our capital plan. Our capital plan for the balance of the year totals $388 million and is fairly straightforward, but with some adjustments based on the recent capital markets activity. Our 2025 FFO payout ratio for the third quarter was 93.8%. And then looking at the larger uses, the repayment of the CMBS loan is $245 million. We used just over $70 million to acquire the preferred equity interest at 3025. Our development spend will total $24 million, which includes 165 and 250 King of Prussia Road. Our food hall at One Drexel Plaza is also in those numbers, and we have $14 million of common dividends, $8 million of revenue maintaining capital and $12 million of revenue creating capital. The funding sources are the $300 million unsecured bond issuance, $25 million of cash flow after interest payments and $5 million of a proposed and expected King of Prussia construction loan for our hotel. Based on the capital plan, we are anticipating an incremental $58 million of our cash being used and balance end of the year of roughly $17 million with no outstanding balance on our $600 million unsecured line of credit. While our 2025 business plan net debt-to-EBITDA range is between 8.2 and 8.4 due to the consolidation of 3025 JFK, we project this, will temporarily increase to 8.8x at the end of the fourth quarter. However -- and that is the 8.8x is generated by the consolidation of 3025 or about 0.4 of a turn. However, when 3025 JFK income stabilizes in 2026, that ratio will decrease by 0.3 of a turn for only a net increase of 0.1 of turn increase. Our net debt to GAV will approximate 48%. Our core net debt to EBITDA will also be impacted temporarily by the same EBITDA adjustments we just made for 3025. We anticipate our fixed charge and interest coverage ratio will be negatively impacted by the financing activity and the consolidation of 3025 and will reduce our fixed charge to about 1.8. With incremental income from the development projects, we anticipate that leverage will then begin to improve as we get into 2026. I will now turn the call back over to Jerry. Jerry Sweeney: Tom, thank you very much. Well, to wrap up, the operating platform remains in very solid shape, very limited rollover the next couple of years. We're growing effective rents in many of the submarkets, accelerated some of our leasing programs to make sure that we are doing everything we can to take advantage of both the recovering market and the reduction in our competitive base. We continue to have as a priority focus for the company, stabilizing all these development projects. And while we have great success thus far, we have work to do, and that pipeline has not completely translated to quarterly earnings growth yet. But as Tom outlined, even using 3025 as an example, there's tremendous levels of NOI coming into the balance sheet and P&L over the next year or so. So the groundwork has been laid, and we're building on the continued momentum to drive long-term growth. The operating platform, as I noted, remains stable with very limited rollover and our liquidity is in excellent shape, and we're well positioned to take advantage of continued market improvement. So Jonathan, with that, we're delighted to open up the floor to questions. As we always do, we ask that in the interest of time, you limit yourself to one question and a follow-up. Operator: Certainly, and our first question for today comes from the line of Seth Bergey from Citi. Unknown Analyst: This is Lauren on behalf of Seth. Could you go over in more detail how we should think about the timing and process of the recapitalizations? Jerry Sweeney: Sure. We'd be happy to. In fact, it's a great question because I know the recapitalizations and the timing of them is a big impact. So let me spend a few moments to answer your question. By way of quick background, those preferred structures were put in place as bridge capital for us that would preserve all the upside of these properties accruing to Brandywine. They were fixed payment structures with cost of capital from the high single digits to the teens. The financial reporting treatment of those structures was that we needed to recognize as a current period of expense, the accrued but not paid in cash return on that capital. And those structures were always designed to have the accrued unpaid return paid out of a capital event, which is exactly what just happened on 3025. And as we look at the development pipeline, as I think you all know because many of you have visited the properties, they're all very high-quality, extremely well-positioned assets in 2 mixed-use master planned communities. Two are now stabilized with 3025, which includes both the Avira and the office component. That took about 24 months from completion to stabilize. Solaris has stabilized. We delivered that in the late third, early fourth quarter of '24, and that stabilized about a year later. So good progress on that. The pipeline on 3151 and an Uptown is big enough where we have a clear path to stabilization, albeit with some uncertainty regarding the timing of when those leases will actually kick in place. But while the approach for each of the ones may vary a bit, the goal is to bring on as much NOI as possible onto our P&L and/or recover significant capital. And as we look at the different options, as Tom touched on a little bit, those recaps can be financed with noncore asset sales, lower cost financings, pari-passu ventures on some assets. So we have a fairly wide range of options on each one. But just spend a moment looking at each one, let me walk through. So 3025. We recapped at our highest cost of capital partner there. By the expensing of those preferred returns, we were going to incur in 2026, just shy of $10 million of preferred charges or about $0.04 a share. So that buyout eliminates that drag on earnings. And then the capital options we have are very robust. I mean the rate on the current construction loan is just shy of 8%. So if we did an unsecured financing to take out that construction loan, we can save close to 200 basis points or about $4 million in interest. And if we actually do an agency level financing on the residential piece, that overall cost of debt could be even lower. We also are looking at exploring a pari-passu joint venture, we could recover some capital. And then obviously, always considering whether we sell the residential component or not. So 3025, now with that buy behind us, take away highest cost of capital in the rearview mirror, full control by Brandywine. With the debt coming due, we think we have some positive refinancing outcomes at a very straightforward level. Solaris is stabilized, but cash flow and the NOI is still recovering. As we noted on previous calls, we -- to accelerate the lease-up in that market, we did give concessions burning off. We did give concessions to get that original lease-up achieved at the rate that we did. Right now, the capital markets aren't giving full credit to concession level rents. So we're now in the first wave of our renewals and very pleased with that progress. Our renewal rate on that project is 64%. We're getting about an 8% increase in rates. We're giving out no or very limited concessions on renewals and very limited concessions on new leases. Based on the expensing of that preferred in '26, we had about $4 million or about $0.02 a share of charges on that. So the approach on that project is we're already exploring a recap. That could be a sale or a joint venture on the existing asset. The current debt is just shy of 7% today. So again, agency debt on that would be somewhere in the very high 4s or low 5s. And our target really is in the first half of '26 to kind of achieve that recap once the concessions burn off on the lease schedule, on the renewals and the marketplace recognizes the net effective rents that we're generating on an ongoing basis. For One Uptown, we've clearly some leasing work to do there. We have about 75,000 square feet under advanced lease negotiations that would take that project to 55% to 60% and a really good pipeline behind it. Right now, we're projecting, if we do nothing with that about a $0.025 per share preferred expense charge in '26. And our approach there is get a little more leasing done to more visibility. We are already talking to several potential partners about a pari-passu recap. We have our lead tenant there has an expansion right in midyear that we'll see if they exercise or not. So One Uptown is most likely a late first half, early second half recap event. Looking at 3151, that's our second highest cost of capital. And we're obviously dealing with the challenge of getting that property leased up. The project has been very well received based on the pipeline by a number of select investors and several debt sources. So as the second highest cost of capital in our development ventures, we have about $8 million in expense charges on that property in 2026, just from the preferred. So with the process we have underway, we think that a partner buyout is a near-term event. That could be financed through other sales or much lower cost financing. We own that property without any debt on it. So our hope is to get 3151 across the finish line no later than the first quarter of '26. So hopefully, that road map is helpful. Operator: And our next question comes from the line of Manus Ebbecke from Evercore ISI. Manus Ebbecke: Just wondering if you could touch on a little bit more on Uptown ATX. It was obviously good to hear that the pipeline is up and you have some lease in the later-stage negotiation pass. Could you maybe clarify like out of the total leasing prospects that you see at the asset, how much is for spec suites versus like [indiscernible] users? What type of tenants those are, if those are real net growth in the market or just kind of like relocation tenants? And then on the second one, just like on the broader scope of the development land out there, what should we maybe expect in terms of starts in '26? I assume, obviously, like another commercial part is more kind of further out as we are leasing up the Block A first. But maybe I know there's contemplations for additional residential or hotel projects. So kind of maybe give us an idea in terms of time line or what to expect in '26 there as well. Jerry Sweeney: Okay. Great question. Thank you. And a couple of overview comments as you look at Austin. Look, I mean, Austin clearly has a disequilibrium, particularly in the CBD marketplace. I mentioned the number of tenants in the market looking and the increase in third quarter leasing activity. Any how, about 85% of that leasing activity in the market is being captured by Class A buildings. But when you drill down to the Uptown Domain submarket, which is really our competitive set right now since 405 Colorado downtown is fully leased, that's about 3.7 million square feet. That submarket is about 96.3% occupied. You've got about 68,000 square feet of sublease space in 2 domain buildings in 2 blocks of 35,000 square feet or so, which is down dramatically from just a year. One tenant indeed did put 100,000 square feet on the market for sublease in one of the domain tower buildings. So you've got about 168,000 square feet of sublease space in that submarket. So that's about 7% vacancy. So a fairly tight market. Also, the train station, which we noted in the supplemental package, did, in fact, start construction. That has spurred a lot of additional interest because now it's delivered in the first half of '27. CapMetro through this -- these are their numbers, not ours, projects us to be the second busiest train station along that red line, a real people mover that dramatically improves labor pool accessibility. So we think that's a nice catalyst to get some additional activity. And the other factor is that we have a number of tenants who are in our pipeline who are downtown or doing market-wide searches and we're really amplifying the fact through our team that there's a $23 cost difference between being downtown or being in Uptown. Most of that is -- there's a $5 stone in rent, $10 in expenses. So it's a very solid economic decision. So with that background, and sorry for all that detail, but I want to set the table for why we're still very optimistic about One Uptown success. We have a number of tenants in the pipeline. We have a number, frankly, that are kind of in-market relocations are kind of in the 4,000 to 10,000 square foot range that are kind of spec suite tenants prospects. And then we have a couple of tenants in the 80,000 to 100,000 square foot range. There are multiple floor tenants that have toured the property, and we're in discussions with them. And then we have one full floor tenant that is a lease under negotiation at this point. George, any other color you want to add to that? George D. Johnstone: Yes. I think we've got, like Jerry said, the one -- we have one floor dedicated to spec suites, and we've got either leases in late stages of negotiation and other pipeline prospects for that floor and then a lease out for another full floor user. And then, of course, we have the underlying expansion rights with NVIDIA, who signed last quarter. So again, I think we feel good about the pipeline, the composition of it, the spec suites have been well received. If the market continues to shift in the spec suite direction, we've kind of done that now with 2 floors and are prepared to shift quickly as needed. Jerry Sweeney: Thanks George. And then to answer the second part of your question, look, we're -- major folks at Uptown, make no mistake, is lease One Uptown and recap both projects. So that's #1 absolute top shelf priority. Recognize, I think, the value we have long-term at our Uptown development, we have a number of discussions underway with large users who would be interested in doing build-to-suits at that location. They are still early stage and are not detracting from our core mission of getting One Uptown leased. We are also, as we've noted in the SIP, moving forward with the planning of Block B to the objective there to be submitting site plan -- for site plan approval by the end of the fourth quarter of this year with hopefully getting approvals in late '26. Block B consists of a multifamily property rental, a large retail base and a hospitality component, i.e., a hotel and obviously, parking. We are working with a retail and hospitality partner as we think through the design components of that. And as those plans get finalized and priced, we will be looking for the right capital answer to facilitate that project moving forward. Obviously, with the partners we have involved, they have capital resources. Brandywine has significant embedded value in the land that, that project will sit on. So we think that's a very viable option for us in terms of equity contribution with land value. So we're looking at a number of other, as I mentioned, build-to-suits, but again, very low priority compared to mission-critical of recapping these development projects and getting One Uptown leased. But certainly happy to provide any color on that as the quarters go by. Operator: [Operator Instructions] Our next question comes from the line of Dylan Burzinski from Green Street. Dylan Burzinski: Maybe just first one on -- can you explain why you all decided to issue the unsecured notes and then take out the CMBS debt. If my recollection is correct, I thought the CMBS debt didn't -- wasn't too pricey in terms of the rate. So just sort of curious you guys' thoughts on how you guys approach that. Thomas E. Wirth: John, Dylan, this is Tom. I think the way we approach this is that we've been looking at the CMBS loan and thought about actually prepaying a couple of assets and bringing them out as unsecured for a couple of reasons, one for leasing, one potentially to do something with them on the capital market side. So we were already thinking about it. When the rates came in as much as they did and the differential in rate was only a quarter -- 25 basis points, basically, we thought, let's unencumber the assets. It helps our [UAP], it helps all of our unleveraged ratios, and we thought that was a good execution. We knew there was the charge, $10 million of cash that went out the door with that. But it also thought it was also a good way to reset our rates with the debt capital markets. So the 7.04% we had done -- the 7.04% cap we did in June was at a very high premium. I think it was close to 107% of face. And I think that really was hurtful in us getting that rate any lower. I think doing something at par, bringing our rate down into the lowest kind of helped reset that bar. Since it was issued, it's been trading fairly well, right around par. So we thought that was also a consideration as well. Dylan Burzinski: Maybe just a broader one. I know there's a few assets on the market in downtown Philadelphia. I'm not sure if you guys are sort of interested in buying assets. But I guess just -- as you guys think about your cost of capital today, just sort of long-term plans as it relates to how you think you can close the disconnect between where share trades versus where an NAV estimate might be, especially ours? And maybe you can sort of tie in just longer-term leverage targets and that it might be helpful. Jerry Sweeney: Yes, Dylan, Jerry. Thanks for the question. Yes. Look, I think the -- we think we have a couple of really good ingredients to start to turn that perception around fairly quickly. And that is the leasing up of the development projects and proving out their value proposition and then recapitalizing kind of, i.e., changing the capital stack of those projects that really does remove the earnings overhang. I mean if you really take a look at -- if you took the existing preferred structures without being touched, I mean, there's a significant impact to earnings because of the financial reporting treatment we have on those. So simply by clearing up those recaps, getting control of those assets and then pursuing better cost of capital outcomes for those I think, really winds up putting us in a great position with -- as I look at '26 into '27. So I think that's going to be a very key ingredient for us. Look, the operating portfolio continues to perform very well. We have -- as with any portfolio, there are some soft spots. But I think we're very encouraged with what's happening in each of the different submarkets we're in that really give us some significant ability to continue to drive effective rents across the board. We do have some assets that we have on the market and we will put on the market in '26 that we feel are not great growers for us and actually adversely impact some of our growth objectives going forward. And as we have done in the past, we look at those assets from a net present value standpoint and determine at what point in time we should sell those. So I think the major issue we're focused on right now is proving out the value thesis for these development projects. I think it's generally recognized in the private markets that the land holdings and the approvals we have in place at Uptown and at Schuylkill Yards are incredibly valuable long-term value generators. Our challenge, given our public cost of capital is to determine from a market timing standpoint, when we should move forward with the next phase, but more importantly, how we finance those. I think the objective we had going to this round of development was we did the preferred structures, which had an incrementally higher cost of capital, but left all the residual value to Brandywine. I think as we look forward at some of the future development starts, assessing different capital structures there, I think, will be very important because the ultimate objective is for us to get back to investment grade. We think we have a clear path to do that as we look at the numbers going forward. And one of the impediments for us getting to investment grade has really been the impact on our fixed charge coverage. And the reality, our fixed charge coverage has been impacted because our debt costs have almost doubled in the last 4 years. That's why as I even noted in the comments, when I look at the existing bond pricing, as Tom touched on our bonds are pricing -- are trading pretty well. We have 2 bonds outstanding, $900 million at rates north of 8%. So we think the refinancing opportunities there as the time is right, bring a lot of those financial and operating metrics back into a very good position. So I think the takeaway point, we got some near-term hurdles in terms of getting these development projects leased. We've got to prove out to the marketplace that we can effectively recap these properties and create long-term value, continue driving the operating results of the company as well as we have for the next few years into an ever-improving market and then really focus on how we overall reduce leverage to hopefully improve our overall cost of public capital. Operator: And our next question comes from the line of Upal Rana from KeyBanc. Upal Rana: Could you provide some detail on the Board's decision to reduce the dividend? How should we be thinking about timing of the cash flow ramping up in '26 in order to maintain a CAD payout ratio that's a little more sustainable? Jerry Sweeney: Yes. Look, I think as we took a look at and recommended to the Board a couple of things. One is, as I've outlined before, the Board really looked at what the operating cash flow was, what our refinancing requirements were, when we would expect the development projects to ramp up and what capital was really required for the recaps. And when they took a look at all of that and we looked at the '25, '26 and '27 landscape, the theory was, after we had done some preliminary work on recapping some of the joint ventures, it became very clear that the cost of outside capital was a lot more than our internally generated capital. And the opportunity for the company to save $50 million of cash flow at a time when, as I mentioned with Dylan, our public cost of capital is prohibitive. It simply seem to make a lot of sense. As we looked at the numbers, where we've reduced the dividend to, we feel, as I mentioned in my script, is very sustainable. We do believe that as we start to bring more NOI on to the P&L, we have an opportunity to grow that dividend. And then most importantly, as the last point, we talk to a lot of shareholders. We ask them their opinion on how they view the capital landscape, how they viewed the challenges the office sector faces. And I think a lot of our shareholders are very supportive of a dividend reduction as a pragmatic conservation of capital. So all those factors went into the Board's decision. We had a good discussion and validated that the level that we cut it to is certainly, we think, a floor from which we can grow. And hopefully, as the market conditions improve, the debt markets get more constructive, we can generate more liquidity that we'll be in a position to go back to raising that dividend. Upal Rana: Okay. Great. That was helpful. And then do you have any updates on the strategy to deal with the IBM move-out in Austin coming in '27? Jerry Sweeney: We actually do. Look, IBM is going to be vacating spaces between the end of the -- well, really beginning of the second quarter and through the third quarter of '27. The impact on '27 after factoring what we think will be expense savings because that lease -- we're getting reimbursed for expenses, many of which are variable. So we think it will be about a $12 million hole we need to fill. We're going down a couple of different paths. One is when we take a look at the existing leasing in place in our development projects, excluding 3151, we think the year-over-year growth in that income stream will more than amply cover that '27 loss of revenue. But more importantly, we are spending time looking at renovating the 902, 904 and 906 buildings at Uptown, which is about 500,000 square feet. We have plans underway. Our base in those buildings is very attractive. We are in the throes of pricing those renovation programs through, including thinking through the additional infrastructure that's required. And as it stands right now, we think we're in a very good position to deliver completely renovated buildings, they -- frankly, as you may recall, they have great super structures. It's really new facade, new mechanical systems that will be able to deliver these state-of-the-art newly renovated buildings at a significant pricing discount to existing office rents that we think can really accelerate the absorption there. So one of our hopes if the plan progresses on schedule, is that we'll be able to deliver the first level of renovation in early '27, kind of dovetailing with one of the IBM vacations. And one of the reasons we're able to do that, you may recall, is we were very successful in getting some additional approvals from the city of Austin to increase the density at Uptown from 3.1 FAR to 12.1 FAR and increase the height limits on the buildings from 180 to 491 feet. We also have the ability to transfer density between blocks. So by renovating those buildings, which are lower rise, we're not compromising any future growth density by doing that. And I mean, the maximum density under our zoning is well, well beyond what we're currently planning to build. But having that flexibility to respond to changing market conditions, particularly given that train station and the growth of residential neighborhoods in that marketplace, we think it is a very valuable commodity. So game plan is, I think we can bridge the gap with just incremental income coming through the NOI from these new development projects, again, excluding 3151 and the renovations coming online will help to all deliver better NOI for us looking into '28 and '29. Hopefully, that answers your question? Upal Rana: Yes, that was great. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Jerry Sweeney for any further remarks. Jerry Sweeney: Jonathan, thank you very much. And thank you all very much for participating in our third quarter earnings call. Our next call for fourth quarter and '26 guidance will be in early February, and we look forward to talking to you at that time. So thank you very much. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.