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Fabian Joseph: Hello, everyone. This is Fabian Joseph from Investor Relations. On behalf of my entire team, I would like to welcome you to our Q3 2025 conference call. Joining me today are our CEO, Guido Kerkhoff; our CFO, Oliver Falk; and our CEO, Americas, John Ganem. They will guide you through the presentation. And afterwards, we're happy to answer your questions. [Operator Instructions] With that, I'd like to hand over to you, Guido. Guido Kerkhoff: Yes. Thank you, and welcome to our Q3 '25 conference call. Looking back at a quarter characterized by a persistently challenging market environment and decreasing steel prices in the U.S. Despite these developments, we delivered another solid performance. This confirms our strategic path and our successful development. I will now begin with the financial highlights of the quarter. Shipments came in at 1,440 tonnes, showing a slight year-over-year improvement. This development was mainly driven by the continued positive performance of our segment Kloeckner Metals in Americas but still supported by shipments in our segment Kloeckner Metals Europe, which increased slightly, which is pretty different to what the market outcome overall is in Europe, but we could increase slightly after a couple of quarters where we were shrinking. Sales came in at EUR 1.6 billion, which is a slight decrease year-over-year despite the positive shipment development. This was due to a lower average price level compared to the same quarter last year. We achieved a considerable year-over-year increase in gross profit, whereas gross profit of last year's quarter was particularly affected by windfall losses due to the significant steel price correction in Q3 '24. Gross profit margin also improved considerably compared to the previous year's quarter. EBITDA, therefore, before material special effects came in at EUR 43 million, a considerable increase year-over-year and results in line with our guidance. Despite the ongoing challenging market environment in Europe, our segment Kloeckner Metals Europe generated a positive EBITDA contribution for the first time since 2023. We'll take a closer look at the segment's performance afterwards. Due to a temporary net working capital increase, especially at our segment Kloeckner Metals Americas, operating cash flow came in negative at EUR 118 million in the third quarter. I would like to highlight that this negative OCF is driven neither by weak operating business nor by higher inventories. This development is rather driven by trade payables and trade receivables to some degree, which we expect to reverse in Q4. It was largely driven by orders on material end of Q2 where the payables and the cash outflow came in, in Q3. So Q2 was comparatively a bit overstated and Q3 is weaker. So, you should look at the quarters rather together than just look on Q3. And you'll see in our guidance for Q4, it will reverse and will be on a track like in our guidance so far. Consequently, our net debt financial -- net debt increased compared to level in Q3, but will come down then in Q4 again. Let's have a look at our performance in Q3 '25 by segment. Now segment Kloeckner Metals Americas shipments increased slightly year-over-year in Q3. After reaching a record level in Q2, shipments decreased slightly quarter-over-quarter, which is largely attributable to seasonality. Nevertheless, the volume was the highest we've ever achieved in the third quarter and would be even stronger if we excluded shipments from our divested Brazilian entity in Q3 '24. We're moving on a constant high level, demonstrating that our North American growth strategy really works. However, due to the lower average price level year-over-year, sales Q3 came in slightly below previous year's quarter. Prices have decreased significantly compared to the temporary repeats in Q2 and remain volatile. EBITDA before material special effects came in at $44 million in Q3, which is a considerable increase compared to last year's quarter. In our segment Kloeckner Metals Europe, shipments came in slightly increased sales slightly down compared to previous year's quarter. For the first time since '23, our Kloeckner Metals Europe segment achieved a positive EBITDA contribution despite the persistently weak demand and increased economic uncertainty. This clearly demonstrates that our consistent strategy implementation and optimization efforts are really paying off strongly in the U.S., but even to see in Europe. We're on a better track and again, our self-help measures help us to get out of it. Now let's have a look at our strategy implementation during the third quarter. We further intensified our focus on higher value-added and service center business as becoming the leading metal processor and the leading service center company in North America and Europe by 2030 is our strategic goal. First, let's have a look at our segment Kloeckner Metals Americas. United States, we announced divestments of 8 distribution sites of Kloeckner Metals, 7 of which we intend to sell to Russell Metals and 1 to Service Steel Warehouse. For the 7 sites intended to be sold to Russell, we agreed on a purchase price of approximately USD 119 million based on a net working capital as of June 30, '25, which would result in a book profit of over $20 million. The final purchase price remains subject to closing net working capital and other normal course adjustment. We've mutually agreed not to disclose details of the sale of Service Steel warehouse. The fact that we are able to sell business at a premium that are on group level on the lower end of profitability demonstrates the underlying value of our assets. In the fiscal years '23 and '24, the 7 sites contributed an average annual EBITDA before material special effects of around EUR 9 million per year to our consolidated financial statements. As this number roughly matches the future EBITDA contribution planned internally for these sites, we believe this should represent a performance indicator for them as well. Divestment not only allows us to reduce our group debt level but also creates the opportunity to reallocate capital towards our higher value-added and service center business. We expect to close the deals in December of this year. Segment Kloeckner Metals Europe, we further expanded our defense and infrastructure footprint. We received an official certification for processing armor materials for the German Federal Armed Forces at our site in Kassel, Germany. By doing so, we complete our existing approval for Ambu Steel, successfully integrating the company after its acquisition earlier this year. With that, we're preparing for upcoming large-scale defense orders in Europe by leveraging our capabilities and also our financial strength, providing a clear advantage over smaller competitors. Now let's have a closer look at our improved earnings profile following the closure of 8 U.S. distribution sites. Following recent successes, the U.S. divestments marked the next step in our transformation to the leading service center company in metals process in North America and Europe, positioning us for higher profitability and sustainable growth. Over the past years, we have strengthened our higher value-added and service center business to lower our exposure to steel price developments and thereby reduce the volatility of our results while increasing our underlying profitability. We improved our earnings profile by increasing the share of our higher value-added and service center business. The acquisition of specialized North American companies such as NMM, IMS, Sol Components and Amerinox enhances our capabilities in precision metal processing, component supply and service center operations, making them strategically valuable additions. NMM complemented our already existing footprint within the automotive industry in North America and also gave us access to electrical steel. With IMS, we significantly expanded our metal fabrication business in the U.S. Sol Components is a U.S. market leader in integrated structural solutions for solar installations. The acquisition positions Kloeckner Metals to play a bigger role in North America's transition towards renewable energy. Further, we extended our service portfolio with Amerinox and polishing and high-drose finishing in order to support the development of more competitive global supply chains. Also, we divested part of our European distribution business, which by the time of the divestment accounted for 10% of group sales, but 20% of our FTEs. Our latest achievement on our way was the aforementioned divestment of the 8 sites in the U.S., with which we focus on selling distribution sites with a low EBITDA contribution throughout the cycle. Our portfolio optimization is complemented by organic initiatives. Targeted investments, we have developed selected sites from sole focus on distribution to high-quality processing and metal working. Our strategic shift towards higher value-added and service center business is clearly reflected in the numbers. 2019, 63% of our sales came from these businesses. And as of the first 9 months of '25, the share has increased to 81%, a significant increase of 18 percentage points. If we exclude the sites in the U.S. that we've agreed to sell, the sales share of higher value-added and service center business would be at 87%, an increase of 24 percentage points compared to the starting base in 2019. These businesses offer higher profitability while significantly reducing our exposure to steel price developments together with the volatility of our results. With that, over to you, Oliver, for further financial insights. Oliver Falk: Yes. Thank you. As Guido said at the beginning, steel prices in the U.S. were subject to a considerable decrease during the quarter as illustrated in the upper part of the slide. At the beginning of the year, hot-rolled coal prices in the U.S. increased significantly following the introduction of new tariffs. After reaching a temporary peak in the second quarter, they started decreasing due to weak underlying demand. In Europe, new tariffs are currently awaiting approval by the European Commission. The measures will have the tariff-free import quotas and double tariff rates for quantity exceeding these quotas. Prices could therefore continue to increase. As part of our local-for-local business model, we do not import significant volumes from third countries. Therefore, we do not expect direct effects from those tariffs. Coming to our EBITDA before material special effects, we achieved a considerable increase year-over-year. In total, we generated EUR 43 million in the third quarter. In the first 9 months of '25, EBITDA before material special effects came in at EUR 150 million, which also represents a considerable increase year-over-year. As Guido mentioned beforehand, our strategy continues to focus on higher value-added and service center business with increased profitability and reduced dependence on the volatile steel prices as demonstrated by our latest divestment. Our net working capital came in elevated quarter-over-quarter. According to IFRS 5, positions linked to the planned sale of 8 distribution sites in the U.S., amounting to EUR 68 million, are already excluded. The temporary high net working capital, especially in the segment Kloeckner Metals Americas, is the main driver for our negative OCF of EUR 118 million in the third quarter of '25. Nevertheless, we expect a significantly positive operating cash flow for the full year '25, driven by a strong cash flow in quarter 4 of this year. As part of our operational excellence pillar within the Klöckner & Co, leveraging strength Step 2030 strategy, we continue to leverage our extensive expertise in automation and digitalization. With our efforts, we have been able to increase the number of our digital quotes by 8.9% year-over-year in the first 9 months of '25. Let's take a look at our shipment sales, gross profit, and gross profit margin for the third quarter of '25. Shipments came in slightly above previous year's quarter, mainly driven by our segment Kloeckner Metals Americas. Sales decreased slightly year-over-year due to the overall lower average price level and came in at EUR 1.6 billion in quarter 3. Gross profit came in at EUR 295 million in quarter 3 after EUR 262 million in quarter 3 2024, a considerable increase year-over-year. Also, gross profit margin increased considerably year-over-year from 15.9% to 18.3%. We will now turn to the EBITDA development in quarter 3. The volume effect was positive, contributing EUR 5 million in the third quarter as shipments increased slightly year-over-year. We also benefited from a positive price effect of EUR 36 million compared to the same quarter last year, which contributed significantly to the result, as negative windfall effects of last year's quarter have not recurred. OpEx increased by EUR 16 million year-over-year, mainly driven by higher personnel and transportation costs. We experienced negative FX effects of EUR 3 million year-over-year, mainly driven by the weaker U.S. dollar, which impacted the translation of earnings from our U.S. operations. Consequently, EBITDA before material special effects came in at EUR 43 million. Material special effects of minus EUR 7 million mainly relate to restructuring initiatives. Therefore, EBITDA after material special effects came in at EUR 36 million. We are now coming to cash flow and net development. In the third quarter of '25, we had a net working capital increase of EUR 144 million year-over-year, mainly due to trade payables and trade receivables in our Americas segment. I would like to highlight again that this net working capital buildup is temporary and will reverse in quarter 4. Taking into consideration interest, tax payments, and other items totaling to EUR 10 million, our cash flow from operating activities came in negative at EUR 118 million in quarter 3. Including net CapEx of EUR 23 million, free cash flow was negative at EUR 141 million. Let's have a look at our net financial debt. Positive effects were visible for leasing and FX translation. Taking our negative free cash flow into account, our net debt consequently increased from EUR 870 million at the end of the second quarter to EUR 1.03 billion in quarter 3. Nevertheless, we continue to possess a diversified financing portfolio with a total volume of EUR 1.3 billion, excluding leases, with more than EUR 0.4 billion unused lines available. In July 25, we renewed the European ABS program ahead of schedule, extending it until 2028 with improved terms and an adjusted volume reflecting the sale of parts of the European distribution business. This improved our maturity profile further. Additionally, we expect a significantly positive operating cash flow for the full year '25, which will be further supported by the proceeds from the sale of the 8 U.S. distribution sites, leading to a reduction in net debt. I'll now hand over to John to have a closer look at our end markets in North America. George Ganem: Thank you, Oliver. Let me start with a general overview of the market situation in North America. The U.S. economy is forecasted to have expanded again in the third quarter of 2025, but the forward outlook remains somewhat uncertain and difficult to assess. Stubborn inflation, weak consumer confidence in a slowing labor market, all pose risks for short-term economic growth prospects. Despite a still expanding economy, the metals-intensive manufacturing sector continues to face significant pressure, with the ISM index indicating contraction now for 8 consecutive months. As such, demand for metals in both the U.S. and Mexico has been constrained over the first 9 months of 2025, and this is likely to persist through the end of the year. This is evidenced by the latest industry benchmark third quarter service center industry shipments declined by 2.9% year-over-year and 4.3% quarter-over-quarter. These negative trends are likely driven by aggressive destocking across most metal supply chains as OEMs and other major steel buyers work to rebalance supply better align with expected future demand. As a result, we now expect North American real metals demand, excluding the temporary impact from destocking, to be generally flat year-over-year. Now, looking at the expected development in specific market segments. Construction activity is moderating, and both residential and nonresidential building square footage are forecasted to be generally stable to slightly down in 2025. However, nonbuilding investment and infrastructure are forecasted to grow strongly and will continue to provide an offset to the flat year-over-year trends in the building sectors. All segments are expected to return to a positive growth trajectory heading into 2026 by lower mortgage rates. Manufacturing activity continues to be under pressure, as previously mentioned. We expect the situation near term. New orders for industrial and off-highway equipment are expected to be down up to 5% in 2025, depending on the specific segment. However, current forecasts from key large OEMs are actually improving modestly in the second half of 2025 as supply chains now appear well-balanced after a significant destocking cycle that began in the second half of 2024. Trade policy clarity and lower interest rates should help these key steel-consuming segments regain even more positive momentum in 2026. Turning to transportation. This segment has been the most impacted by changing trade policy as well as the removal of EV tax credits. As a result, North American production has been declining and is now expected to be down by approximately 1% year-over-year in both the U.S. and Mexico. Auto sales have been fairly resilient, so we expect positive growth in production to return once automakers can adjust tariff-impacted supply chains and implement new production strategies in response to changing consumer demand and trade policy dynamics. On the defense shipbuilding front, activity remains very positive with Klöckner's current defense programs set to grow strongly with large contract commitments recently awarded. We also continue working closely with key mill partners to position ourselves strategically to support and benefit from what is expected to be a massive increase in defense shipbuilding investments over the next decade. Demand from appliance, HVAC, and electrical, which are key segments for KMC Americas, has come under some pressure in Q3 2025 due to destocking after holding somewhat steady through the first half of the year. For the full year, these segments are now expected to be stable to down slightly. We'll note, however, that 2024 was a very strong year for these industry segments, meaning that despite the flat growth expectations for 2025, overall demand will remain at strong levels in absolute terms. Energy continues to be the most active steel-consuming segment with positive growth expectations for extraction activity and a solid pipeline of both renewable power and power transmission projects. While renewable growth may come under pressure in future years due to recent changes in government policy, it continues to be a significant growth driver in 2025. Additionally, power transmission-related growth is expected to remain extremely strong and should be up approximately 20% year-over-year. Modernizing and expanding the North American transmission infrastructure is critical to support the expected demand increase for electricity across North America, especially in support of data centers. I will end with a few final comments. Despite short-term market demand headwinds, the Klöckner Americas business generated record 3-quarter shipments, as Guido previously mentioned, as we continue to grow and gain share in a market where service center shipments have been consistently declining. Excluding discontinued operations, our third-quarter year-over-year growth was greater than 6%. These strong growth trends are driven mainly by large energy projects and new automotive and industrial contractual programs, which required a prebuild of inventory in the late second quarter. This caused a temporary increase in third-quarter accounts payable and receivable, which both Oliver and Guido mentioned earlier, and this negatively impacted operating cash flow temporarily. The new projects and programs are now ramping up to full production, and inventories have already been reduced by greater than 10% and more significant reductions are planned. This positive development will generate a strongly positive operating cash flow in both 4Q and the full year, as previously mentioned. So, in conclusion, despite recent market challenges, we remain very optimistic about the long-term demand fundamentals in both the U.S. and Mexico. Our positive and resilient year-to-date results are clear proof that our high value-add investment strategy is working and has allowed KMC Americas to deliver a solid overall performance despite weaker-than-expected demand and continued price volatility. We are confident our positive results will continue and even accelerate as we head into 2026 as already approved investments come online and begin contributing in a more meaningful way. I will now turn it back over to Guido for some final comments. Guido Kerkhoff: Thanks, John. Overall, here in Europe, short-term, we don't see a significant change in expected wheel steel demand in Europe. Therefore, we reiterate stable to slightly negative development of around minus 1% in '25, which is unchanged from our last conference call. However, if we take a look -- a slight look into '26 and the sentiment and outlook there, based on the slight improvements we've seen on our self-help measures and growing, it seems that the underlying sentiment here in Europe and especially in Germany is slightly improving and doesn't continue to be as negative as we've seen. So it might be that we've seen the bottom right now and can start to develop from the market and especially from our own position as it seems we are slightly growing again here on volumes. Together with that, as we mentioned before, the European Commission proposed doubling import tariffs on steel and reducing the duty-free import quarter. Approval from the European Parliament and EU member states is still pending, but let's continue, therefore, with an outlook on our core industries, but the price hikes that are coming out of that and the stabilization of the tariffs should help on the market to develop a bit better going forward as well. And now coming to the sectors, starting with construction industry. We continue to expect a broadly stable development into '25, consistent with the outlook provided on our last call. Effects of past monetary easing are beginning to feed through while weaker economic conditions continue to weigh on construction activity. However, structural growth drivers remain supportive of German infrastructure spending, providing mid-term growth. Manufacturing, machinery and mechanical engineering continue to expect a slightly negative sector outlook for '25, which is consistent with the Q2 call, reflecting market contraction as uncertainty and softer external demand weigh on activity. Tariffs and ongoing competitive pressures from Asia are dampening production and investment, particularly in Germany's export-oriented machinery industry. Monetary easing provides some short-term support, but elevated uncertainty limits firms willingness to invest. Germany's fiscal stimulus package and rearmament initiatives will support medium-term growth in defense-linked sectors. We continue to position ourselves to benefit. Transportation. Let's first focus on automotive sector, where we also see no major change since our last call. We continue to expect slightly negative development in '25 uncertainty remains elevated and consumer confidence at low levels. The export ban on the next period ships from China pose a threat to supply chain with the potential for short-term production costs and rising input costs in the automotive sector, downside risk to our outlook. Now coming to shipbuilding. While the outlook for the commercial shipbuilding segment improved slightly compared to last quarter, substantial upturn is not expected until late next year. For the great ship sector, we are well-positioned to benefit from upcoming defense-related demand, but no notable uptick is expected before late '26, and we anticipate German defense spending will begin to increase. Household and commercial appliances segment with marginal impact on our European businesses, no major changes since the last call and continue to expect a slightly negative development. The energy industry, this sector is expected to have constant development in '25 with no major changes since our last update call. However, long-term demand remains supported by the electrification of transport and heating. Let's now turn to the financial outlook for the full year '25. We still expect EBITDA before material special effects to come in between EUR 170 million and EUR 240 million, a considerable increase year-over-year. The guidance is unchanged compared to our Q2 call. However, given the performance that we are now on the lower end of the guidance, we would expect for the full year in line with the quarter to be there. Further, we continue to expect operating cash flow to be significantly positive, driven by a strong operating cash flow in Q4. We're now happy to answer your questions. Fabian Joseph: [Operator Instructions] There's no questions. So, I will then give to it Guido for final remarks. Guido Kerkhoff: Yes. Thank you all for listening. It obviously looks like we've answered everything in advance. But in case it is not, don't hesitate to call us or Fabian and the whole IR team. So, thank you very much, and talk to you soon.
Operator: Greetings, and welcome to the Orion S.A. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Kapsch, Vice President of Investor Relations. Please go ahead. Christopher Kapsch: Thank you, Carrie. Good morning, everyone. This is Chris Kapsch, VP of Investor Relations at Orion, and welcome to our conference call to discuss third quarter 2025 earnings results. Joining the call are Corning Painter, Orion's Chief Executive Officer; and Jeff Glajch, our Chief Financial Officer. We issued our third quarter results after the market closed yesterday, and we have posted a slide presentation to the Investor Relations portion of our website. We will be referencing this deck during the call. Before we begin, we are again obligated to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's filings with the Securities and Exchange Commission, and our actual results may differ from those described during the call. In addition, all forward-looking statements are made as of today, November 5, 2025. Orion is not obligated to update any forward-looking statements based on new circumstances or revised expectations. All non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release and the quarterly earnings deck. Any non-GAAP financial measures presented in these materials should not be considered as alternatives to financial measures required by GAAP. And with that, I will turn the call to Corning Painter. Corning Painter: Good morning. Thank you, Chris, and thank you all for taking the time to join our conference call. Before getting into the Q3 review, I'm excited to announce that we've hired a new CFO, a replacement for Jeff, who previously announced his intention to retire. The formal announcement will be made shortly. We had a strong slate of candidates, both internal and external. We chose a candidate with 30-plus years of financial and business leadership experience, including the past 15 years in the chemical industry. He will start on December 1. Jeff has agreed to stay with Orion through the end of the year, and will be available for further transition support through Q1 2026. In today's call, I'll touch on Q3 results at a very high level, not the performance we expected, and certainly, we possessed much greater earnings power. Still, there are some constructive points for investors to consider. Then I want to discuss the business environment, including recent headwinds. Cutting to the chase, our biggest challenge has been soft demand in our key markets. Various Specialty end markets are being impacted by global industrial activity malaise as reflected in soft PMI readings. In our normally resilient Rubber segment, and despite solid tire sell-through, tire production in our key markets is down. When compared to what we would consider more normalized levels, tire production in the U.S. is down about 29%, and the decline is 20% across Europe over the same time period, but closer to 35% in Western Europe. While there are reasons to believe demand will inflect positively, we are in no way counting on improved conditions. We are taking action based on the current reality. Accordingly, we're continuing to focus on self-help actions, the things we can control, some significant, that are intended to improve Orion's structural cost and overall competitiveness. I'll discuss more on this shortly. One key goal of these efforts is to ensure the company is generating positive free cash flow, should the headwinds persist. I'll then hand the call to Jeff, who will review the third quarter financial results in more detail and discuss our free cash flow, [ revised ] guidance and some other items. Then I'll have some concluding remarks before opening up the call to Q&A. On Slide 3, we broadly touch on the factors contributing to our Q3 performance. Adjusted EBITDA of about $58 million was slightly better than what we had conveyed in our mid-October preannouncement, but still well below expectations. The largest factors were reduced Rubber segment demand in key Western regions, soft premium Specialty markets and fixed cost absorption variances across both segments, resulting from inventory control efforts. Because of lower oil prices, we also absorbed another inventory revaluation in the third quarter. Notably, our operating teams again delivered strong plant reliability throughout the third quarter. The sustained improvement in our operating performance is beneficial on a number of fronts, which I'll touch upon in a moment. In our Rubber segment, our customers have been feeling pressure from elevated levels of imports. Tire imports, coupled with surplus channel inventories, have affected their production rates, and thus our carbon black demand. Meanwhile, overall industrial activity softness has weighed on our Specialty business, and particularly end markets that usually consume our highest margin grades. In terms of the specific impact of this on Orion, remember, we are -- historically, we've been over-indexed to both Western markets as well as to premium tire makers. While beneficial in prior cycles, this has not been ideal during 2025, but there are signs of change. Tier 1 players are adjusting their strategies to adjust -- to defend share, including more innovation at the higher end, plant modernization efforts and more vigorously promoting their second-tier brands. The most recent 232 proclamation is another positive. Bigger picture. Western markets have been structurally dependent on tire imports for many years, if not decades, but at like half the tire sell-through at most, not the 70-plus percent from which imports have recently been seen. As the channel rebalances towards historically more normalized level of imports, we will be very well positioned to benefit from a reversion in demand for our carbon black. In our Specialty segment, we have disproportionately deployed resources to drive customer qualifications with some of our newest and most differentiated conductive carbon products, and these efforts are bearing fruit. On this slide, we highlight a couple of qualifications now in place, with leading supply chain players in both the high-voltage wire and cable market and the battery energy storage space. Both applications are placed on the strong data center demand growth for power. This conductive portfolio, including our high-purity acetylene blacks, is our fastest-growing group of products, and their potential relevance in applications beyond traditional EV batteries is particularly encouraging. On Slide 4, we share some updated data related to the key tire end market. We surmised the monthly import data for July was not unnoticed, given the volatility, there's one data point spurred. Unfortunately, this is still the most recent U.S. import data available because of the government shutdown. Parsing this by category, one sees the largest contributor to the July increase was substantially higher truck and bus tire imports, which surged over 50% year-over-year in the month of July. We point this out because this import surge could reflect an effort by certain exporting countries to beat impending tariffs. Thailand, for example, is the largest exporter of truck and bus tires to the U.S. That country's export data shows tire exports to the U.S. declining in August, the month when the country tariffs went into place for Thailand. Meanwhile, the U.S. just invoked a new 25% Section 232 tariff on diesel truck parts that will unequivocally include truck and bus tires as of November. As Section 232 proclamations are uncontested, they should prove durable, and they supersede any country-specific reciprocal tariffs. In Europe, the tire industry continues to believe the EU's investigation into exports by China into that region will result in an initial finding of dumping in December with some retroactive implications. Preliminary U.S., Canada and Mexico negotiations have begun around the USMCA trade agreement, which is poised for a reset effective July 1, 2026. As a reminder, Canada and Mexico are both net exporters of tires and carbon black to the U.S., and Orion does not have any production in either of these 2 countries. Finally, we continue to believe the millions of dollars of capital commitments from major tire companies, focused on adding net unit capacity and modernizing existing production facilities, bodes well for North American fundamentals over the next few years. The implied production capacity growth of 3% through 2030 would be helpful, but their reshoring intentions are more telling. And obviously, the normalization in tire local production rates would be a more substantial driver of an earnings recovery for Orion. On Slide 5, we highlight actions that we have taken or are taking to navigate the current environment, 3 points here. First, while we believe tire manufacturing will rebound, we are not assuming any recovery in our key end markets. Second, to enhance our competitiveness, we're implementing actions to further improve Orion's overall cost structure. Last quarter, we announced 3 to 5 underperforming production lines were being rationalized. Those actions will take place by the end of the year. We are looking more creatively at further optimization moves within our production network. Third, we've also reexamined our non-plant headcount, work processes, engagement with outside contractors, consultants, the company's aggregate discretionary spend, amongst other things, and are in the process of further rationalizing costs across the board. Savings from this competitiveness effort will start to build in the current quarter and achieve a run rate savings in mid-2026. We'll share more on the expected benefit when providing next year's guidance in February. In parallel to this competitiveness issue, we're also taking actions that benefit cash flow now. A highlight for sure is the sustained improvement in our overall plant operating performance. This helps on a number of fronts. In addition to improved on-time customer service levels, better quality and reduced scrap, we're also able to comfortably run our business with lower inventory levels, which in turn unlocks working capital. You can see the progress here in the past 2 quarters, and we expect a strong seasonal Q4 release, including, but not limited to, receivables, which should enable working capital to be a source of cash by approximately $50 million in 2025. The improved operating performance at our plant reflects our organization's focused efforts on this front, but it's also a function of our having worked down a backlog of previously deferred maintenance projects. With the improved operating performance and with 3 to 5 fewer lines competing for maintenance capital, we'll be able to further prioritize our maintenance spending and focus that spend on projects that ensure reliability at our most important production sites. This all feeds into our conviction around free cash flow generation despite the decline in EBITDA. Jeff will touch upon cash flow in more detail after his Q3 review. With that, I'll turn the call over to Jeff. Jeffrey Glajch: Thank you, Corning. On Slide 6, we show the overall company performance, both year-over-year and sequentially in the table, and compared with last year in the EBITDA bridge. Revenue was down 3% compared with last year despite 5% higher volumes. This was mostly a function of the contractual pass-through of lower oil prices, which have declined progressively throughout the year. Gross profit was 20% lower compared with last year despite the higher volumes. The most meaningful volume gains occurred in our lowest margin markets, while volumes declined in our more profitable Western regions. As a result of this dynamic, the lower demand in key regions and associated adverse fixed cost absorption were the biggest drivers of the profitability decline. The fixed cost absorption had an effect of improving our working capital and increasing our free cash flow by reducing inventories. Also, an inventory revaluation tied to lower oil prices impacted gross profit as did adverse pricing. Finally, we had some favorable one-offs last year that did not repeat. On Slide 7, the Rubber business KPIs were directionally consistent with the overall company performance. Volumes were up 7%, but revenue was lower due to the oil-related pass-throughs. Gross profit declined compared with last year, primarily a function of the adverse geographic mix, reduced fixed cost absorption in key Western regions, pricing and customer mix as well as the aforementioned inventory revaluation. Higher volumes in the Asia Pacific and South American regions were related to our improved operational performance and annual contract outcomes, respectively, but these gains contributed minimally to EBITDA because our high-margin regions experienced lower volumes. Compared with last year, costs increased due to inventory-related cost absorption, oil price-driven inventory revaluation and other timing effects. Slide 8. In Specialty, we had year-over-year and sequential volume gains, but the improvement was skewed towards lower-margin applications and products. In the coatings market, for example, a premium segment, demand was impacted by soft OEM vehicle builds and particularly with dispersion houses that can serve as swing capacity for the major coating companies when demand is stronger. More generally, we believe hesitant customer demand behavior, including continued just-in-time order patterns, reflect overall uncertainty. The biggest cost factor in Specialties EBITDA bridge was the adverse fixed cost absorption, largely a function of our inventory control efforts. On Slide 9, we touch on a few other noteworthy items in the quarter. We recorded an $81 million noncash goodwill impairment charge. Our book value, which includes goodwill, is compared to the implied value of those assets when considering our enterprise value. On a positive note, we recovered $7.3 million of the 2024 fraud-related losses through legal actions and around $11 million to date. We continue to aggressively pursue recovery through a variety of legal means and insurance coverages. Finally, we completed an amendment to our credit agreement during the quarter, which increased our RCF capacity back to its prior level, expanded our bank group and gives us more overall flexibility in navigating the current business environment. On Slide 10, we depict our latest 2025 guidance including, the EBITDA range conveyed in mid-October and the corresponding adjusted EPS expectations. Reflecting our current EBITDA guidance, along with better visibility on our progress with our working capital efforts, we expect positive full year free cash flow in the $25 million to $40 million range. Slide 11 shows our historic capital spending, including spending expectations for 2025. Notably, we do not have a figure for 2026 on this slide as we anticipate updating investors on this spend when providing a broader outlook in February. One fluid aspect is our ability to flex maintenance capital given our improving plant reliability. On Slide 12, you can see that we have achieved positive year-to-date free cash flow and expect further working capital improvements in Q4. As mentioned earlier, we expect full year free cash flow of $25 million to $40 million. With that, I will hand the call back to Corning. Corning Painter: Thanks, Jeff. I just want to close by reiterating a few key takeaways. While the case can be made that our business is at or close to trough conditions, or that a demand inflection should materialize, we are not depending on such a scenario. We are taking action. We have reduced working capital and expect a further progress in Q4 and into '26. We're taking additional cost out and working to further optimize our assets. Our objective is to increase Orion's overall competitiveness and agility. This will serve us in combating the current headwinds, and when demand conditions normalize, we'll be positioned to achieve even greater operating leverage. We'll share more detail -- a more detailed review on these initiatives in February. Underpinning all of these activities is our resolute focus on generating free cash flow. That is our highest priority. And with that, Carrie, let's open up the line for our Q&A discussion. Operator: [Operator Instructions] And our first question will come from Josh Spector with UBS. Christopher Perrella: It's Chris Perrella on for Josh. Corning and Jeff, when I think about your volumes for 4Q and into 2026, what are your expectations there? And then a follow-up on how far along are you in the contract negotiations for next year? And what is that -- so far, what does that imply for pricing and spreads in '26? Corning Painter: So our expectations for Q4, like the decline, if I'm comparing it to prior years, that's pretty much all volume largely in that area. So we're expecting people to take longer seasonal shutdowns, that kind of thing, and be managing down their own inventory in Q4. That's the signal we have there. I think for next year's volumes, in terms of manufacturing, as I indicated, there's a case to be made that inflection is upon us, but we're not counting on that. And I would say, in terms of negotiations, there, as we said and predicted last quarter, we didn't see settling quickly in our interest. They continue to drag on. And I would say all in all, the negotiations are behind schedule compared to a more typical year. So I think in terms of exactly what's going to be out there for next year in terms of volume, we're really going to have to wait until we conclude the negotiations. Christopher Perrella: I appreciate that. Anc can you just -- what's the impact of La Porte on volumes and earnings in 2026? Corning Painter: I mean, volume-wise, it's not a high-volume plant to begin with. And I think overall, with the start-up costs and all that, I would expect it to be negative in 2026. Operator: And our next question comes from John Tanwanteng with CJS Securities. Jonathan Tanwanteng: My first one, just assuming that import tire pressure is sustained through '26 at '25 levels, what is the potential for earnings improvement into '26 in RCB just between -- with all the movements you're making in costs, your customers moving to more value positioning? Just help us understand what's possible, the volumes are flat. And if you have any commentary on pricing spreads, that would be helpful. Corning Painter: Yes. So I think the big question in 2024 is -- or I'm sorry, 2026, is going to be the outcome of the negotiations, both the volume a particular company wins and the margins that come with that. I think that's sort of like the big unknown. We will be working hard on some of the efficiency projects that I mentioned. But I think a big impact for next year is going to be the outcome of the negotiations. And it's obviously commercially sensitive, and we are like in the middle of it right now. Jonathan Tanwanteng: Okay. Great. And then do you have any expectations for Specialties next year, whether it's market improvements, mix improvements? Just help us understand what your thoughts are on the Specialty side. Corning Painter: All right. Well, we'll do our -- look, we'll give our official guidance for next year in February. I think what will be guiding our views on that are, of course, what we hear directly from customers. I think you can get a sense of that by looking at how general manufacturing is going, where PMI goes. I would also say, OEM builds, right, that's an important market for that space. So those will be -- I think things you could look at that would give you a sense of how we see that business developing. Operator: [Operator Instructions] Moving on to Laurence Alexander with Jefferies. Kevin Estok: This is Kevin Estok on for Laurence. Just curious if you could give your thoughts around maybe what an industrial rebound would look like, I guess, let's say, in 2026 or 2027? And I guess just curious what you think it takes to get us there? Corning Painter: Sure. I mean -- I think industrial recovery would say taking us back to things that looked more like pre-COVID. And I would think in that kind of environment, we'd find that we're essentially nearly sold out in our key markets at that point, with strong demand coming from OEMs, strong demand from tire manufacturing, more normalized trade flows. I think the really positive thing here is that tire sell-through remains really solid. Tire sell-through is at the conditions I just mentioned, right? So it's not like that is the fundamental challenge here. Yes, shipping, trucking activity is off a little bit, but passenger car is really quite strong. The big question is the success of our customers in the west around their own market share. And of course, they're being helped by trade policy right now. I think that's a big one. I would say in the Specialty area, a pickup in construction, a pickup in automotive, those are things that would be very helpful and constructive in that area. Basically, the industrial economy getting back to a more normalized level. Operator: I'm moving next to John Roberts with Mizuho Securities. John Ezekiel Roberts: John Roberts for John Roberts again. Do you think the tire importers into the west are receiving government support or maybe lower raw materials, I don't know, Russian rubber or Russian oil for carbon black that allows them to continue to import into the U.S. in spite of the tariffs? Corning Painter: Well, I think if you look at it, the 232 tariffs, let's say, of 25%, to be clear, that's not going to be enough to totally price out imported tires. The U.S. and Europe cannot possibly make all the tires they need, right? Before all this happened, it was about 50% of the tires were imported to the U.S., very similar into Europe. So we're never talking about, it has to get to a point where they are pushed out. What I think it has to get to the point where customers are more returning to their normalized brands. So one magazine recently published that just in October of this year, Tier 2 tires had the greatest demand. That's more like normal conditions. The last -- or so far this year, it had been Tier 3 tires that had the highest demand of the 4 tiers that they track. So there's a little bit there of customer sentiment moving back to a different value proposition in the tires they buy. And then number two, like the help in the tariffs is enough to like close the gap. So the gap between the Tier 2 and the Tier 3 and most Tier 1 companies have a Tier 2 brand. But that closes up to where people choose that value proposition. It's -- again, it's like there's no effort here. There's no dream of pricing them all out, that's impossible. But it's a matter of just can you close the gap enough, the consumers will shift back. And I think that's a concrete sign that, yes, this is all possible. This is all doable. And I think things tend to revert to their norm and perhaps this is the beginning of it, but we're not going to count on that. Jeffrey Glajch: John, I think you also -- depending on the results of the antidumping situation in Europe, you may also see an impact from that. And that might give you some insight into either the profitability that they're dealing with in the short term or even their willingness to operate at a very low or negative return. John Ezekiel Roberts: Is it fair to say, it sounds like the recovery is more dependent on the lower-end consumer improving than it is on the tariffs? I mean the tariffs help, but it sounds like we need higher tire prices. Corning Painter: Well, I think it's 2 things. The point I would like to make, it's not just relying on government action, right? There's an element for industry, and there's some certainly plus in the trade policy to overcome some of the, perhaps unfair disadvantages that are there that you mentioned earlier. I think the 2 of those together are important. But I would like to stress, I think industry and our customers, there's a role there for self-help. They can continue to innovate on their top brands, make them more attractive, continue to approach their -- to promote their second-tier brands, perhaps shift some production from one to the other. These are all things within their control and that you see some signs of them taking action in that direction, some more than others. Operator: And we'll take a follow-up question from Josh Spector with UBS. Christopher Perrella: It's Chris again on for Josh. From -- as I think about next year, what are some of the recurring costs in 2025 that won't be there in 2026? Corning Painter: Well, so I think one thing that's been with us all year long, I'll let Jeff go into this, Chris. But I think one thing that's been with us all year long has been the inventory adjustments. And that's really a factor of the trend of oil pricing, and we pass that through, but there's always an element of that. Should we just assume stable oil prices, then that would go flat for us. I mean if they went up, it would revert and go the other way. But I mean that's certainly been a drag this year. Jeffrey Glajch: Yes. If you think about it to date, we've taken our inventories down by $34 million. So that's a pretty significant reduction in the inventory, and associated with it is the cost absorption related to pulling that inventory off the balance sheet and running it through the P&L. I think that's the biggest thing. Going the other way, obviously, we've taken some cost out this year. Many of them are permanent, but there's a variable comp component that's not permanent, so that would have to add back in. But as Corning mentioned earlier, we have some pretty aggressive cost actions that we are going at currently and going into early 2026, that will help us reduce our costs next year and become more competitive. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Corning Painter for closing comments. Corning Painter: Well, I'd like to thank you all for your time and attention today, and to thank everyone for their questions. They were insightful and useful, and I think, added value for all our investors. So thank you very much for that, and we look forward to be speaking with investors during the balance of this quarter. Thank you all. Have a good rest of your day. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, and welcome to the Marks and Spencer Analyst Call. This meeting is being recorded. At this time, I'd like to hand the call over to your host, Archie Norman. Please go ahead, sir. Archie Norman: Well, good morning, everybody. It's Archie here, and I'm joined by Stuart and Alison, obviously. Thank you for joining us today. I was going to say, great to see you,, but I can't see any of you. So look, I think this is a set of results where we slightly feel we've said all there is to say about it, but I'm sure you'll think of some interesting questions. So let's crack on. Stuart is going to make a brief introduction, and then we'll take whatever questions there are. Thank you, Stuart. Stuart Machin: Well, good morning, everyone. Thank you for joining us. As Archie said, Alison joins me in the room today. We've also got Fraser and Helen, so they're on hand for any follow-up questions you may have throughout the day. I'm going to start with a look back at the half from April to September before moving on to give you some detail on where we are today. I will then look ahead to Christmas before finishing with the outlook for the rest of the year. I want to cover 3 objectives that we set out a couple of months ago, which were, firstly, to regain momentum; secondly, get back on track with growth; and thirdly, accelerate the pace of our transformation. So let's start with the last 6 months. The first half, as I've said, was an extraordinary moment in time for M&S. I'm not going to go over all the old ground today because I briefed everyone on the incident during our call in May. But everything regarding the incident has been well documented, and we are now getting back on track. Our customers have been fantastic as always, and I want to thank them again for their continued support and loyalty during the period. I also want to thank our supply partners and of course, our colleagues across the whole of M&S, who showed real determination and grit. This support, together with the underlying strength of our business, our healthy balance sheet and robust financial foundations gave us the resilience to face into the incident and deal with it. At the prelims in May, we anticipated the material impact of the incident on group operating profit to be around GBP 300 million this financial year, and we are broadly in line with that. I can confirm that this is mitigated by GBP 100 million of insurance that we claimed and received during the period. This is the first set of results where we have consolidated Ocado Retail into our numbers. This is just an accounting change as part of the original joint venture, and it has no impact on our share of the business. Now let me just touch on the headline numbers because across M&S, group sales grew 22% versus last year, but that was driven mainly by the accounting inclusion of consolidating Ocado Retail. Excluding the consolidation of Ocado Retail, M&S sales were broadly flat with last year. Group profit before tax and adjusting items was GBP 184 million. And excluding lease liabilities, we are still in a net funds position. Now we put customers first and prioritize availability, which did drive waste and therefore, increased costs in our food business. With our systems off, we didn't have a clear stock view. And of course, we were using manual processes, but we took the decision to allocate stock out, fill the shelves, and that was the right thing to do for our customers. Despite the disruption in food, the business was resilient with robust sales growth of 7.8% in the half. Fashion, Home and Beauty sales in the half were down 16.4%. We had a particularly tough time here due to 3 key challenges. Firstly, we paused the online operations for just over 6 weeks and then brought them back gradually. Secondly, this impacted click and collect, which affected footfall into stores. And thirdly, supply chain disruption caused availability issues. As I said, this incident was an extraordinary moment in time. But change, on the other hand, is not a moment. And in M&S, change is a constant. We have a clear plan to reshape M&S for continued growth, and we have never lost sight of this despite the disruption. That is why we accelerated our transformation during the half with investment in our 3 priority areas of store rotation and renewal, supply chain modernization and technology transformation. On store rotation, we opened 15 new or renewed stores in the first half and we will open more than 20 in the second half. This includes opening 2 flagship full-line stores, Bristol Cabot Circus, which opens next week, and Bath open in February. On supply chain, in August, we announced a new 1.3 million square foot automated food distribution center in Daventry, which opens in 2029 to boost capacity for future growth, lower our cost to serve and improve product availability. A new regional food depot also opened in Bristol in 2026, increasing the proportion of stores served from their nearest depot. These investments are helping us get ahead of the growth curve and build a bigger, better food business. And on technology, we use the incident as an opportunity to strengthen our technology foundations and fast track some time lines, including the new Fashion, Home and Beauty planning platform. Our job is to ensure we continue to transform and grow M&S while maintaining a strong investment-grade balance sheet. That means being disciplined in our investments and their hurdle rates. Let me add a little color to each of our businesses. In Food, sales and market share growth are back on track. With 3 years of consecutive monthly volume growth outperforming the market, more customers are filling up their basket to M&S more often. In fact, the latest Kantar figures show that M&S is the fastest-growing store-based retailer in volume over the last 4-week period. In the last 12 weeks, we served 800,000 more customers year-on-year. In the half, customers made 14 million more shopping trips to M&S Food than the same period last year, demonstrating more people are shopping with M&S Food more often. You've heard me talk about our strategy, protecting the magic and modernizing the rest. In food, the magic means going to great lengths to ensure the absolute best quality, the leading on innovation and delivering trusted value. Our obsession with delivering world-leading quality continues to drive sales. Take our upgraded Italian meals range with sales up 1/3, for example. And our focus on innovation brings new products and new customers to M&S. Our viral Strawberry Sandwich sold 1 million units in just 4 weeks. In fact, we launched 700 new more quality upgrade products in the first half of this year alone. At the same time, offering trusted value is at the very heart of what we do. Sales of our value ranges are up 29%. Alex and the Food team have made good progress, but we have so much opportunity ahead of us as we work towards becoming a full shopping list retailer and doubling the size of this food business. Now turning to Fashion, Home and Beauty, where the recovery curve in this part of the business has been slower than in Food, as I said, due to the pause in online sales and stock flow disruption. But now with online back up and systems running, we're making progress every day. And over the coming weeks, we expect stock flow to settle into a more normal rhythm. Despite this, we used the period to make further progress in improving our product ranges because outstanding product sits at the very heart of our strategy for Fashion, Home and Beauty with the M&S magic being a combination of quality, value and style. We consistently lead the market in value and quality. And now I can say for the first time, based on YouGov report yesterday, we're #1 for style too. And the latest Kantar figures just out show M&S #1 in fashion market share in the last 12 weeks. This includes leading the market for womenswear and lingerie. So look, we're making progress, and this is encouraging, but there is so much opportunity in this part of the business, and there's lots for us to go after. John, as the MD has been here now 6 months and has started to accelerate the strategy, being laser-focused on the big rocks that we haven't yet really tackled, mainly the foundations of the business from sourcing through supply chain, through merchandise planning and accelerating our online performance. In international, sales were down 11.6% due to our international websites being offline and shipment disruption. However, during the second quarter, performance improved as we restored systems and websites. Mark and the team have now made encouraging progress resetting commercial terms with some of our franchise partners, which has helped enable investment in trusted value. We expanded our partnerships with Zalando and Amazon and put in place new wholesale arrangements, for example, launching lingerie in David Jones, Australia, already performing ahead of plan. The summary for international is we continue to -- it continues to be a growth opportunity in the medium term, but performance over recent weeks has been encouraging. Touching on Ocado Retail, sales were strong with growth of 14.9% over the half, driven by sales of M&S products, which grew faster at 20%. Sales growth has been encouraging, but we know there's lots to do to the path to profitability. Key opportunities include improving delivery efficiency with more same-day slots available, extending picking hours and rolling out further automation. These initiatives will boost capacity over the next few years and support the path to profit. To finish, I will turn to the outlook. As we enter the second half, the consumer environment remains as uncertain as ever. As always, our priority is to offer the best product value, quality, innovation and of course, in fashion, style. We will continue to drive our transformation and to structurally reduce our costs to offset external headwinds. For context, during the first half alone, the increase in national insurance contributions and packaging tax cost an extra GBP 50 million. But there is much in our control and the increase in our cost reduction ambition will help to address this. We're confident we will be recovered and fully back on track by the end of the financial year. In the second half, we therefore anticipate profit at least in line with the prior year as residual effects of the incident continue to reduce in the coming months. Our plan to reshape M&S for sustainable long-term growth is unchanged. Our ambitions are undimmed and our determination to knuckle down and deliver is stronger than ever. To date, we have delivered meaningful progress, but that's what's exciting because there remains so much more to do. And for us, it's all to play for. I'll hand back to Archie for questions. Archie Norman: Brilliant. Thank you, Stuart. Okay. We've got a few hands up for questions. So let's just crack on Frederick Wild from Jefferies. But by the way, could you be helpful if just one question at a time because our memory is not very good. And -- we take a couple each. All right, Frederick? Frederick Wild: So first of all, I'm going to ask a terrifically boring question, I'm afraid. Could you give us a few more details on October trading in Fashion, Home and Beauty, what sort of the overall sales growth was have you seen versus the market? Stuart Machin: Well, look, I mean, top line, as you can see, the market has been soft. You can look at the graphs in the RNS because we put those in to help people understand. And there's a couple of things. I do think people are holding back a bit because of the budget, but also the market is soft because the weather -- I'm looking here, I mean water side and it's bright sunshine. Autumn hasn't even hit yet, never mind winter. So the market is somewhat soft, and the market is very promotional. I think the latest stats I saw was high promotional participation averaging 50% already. For us, look, it is behind the curve slightly. I think there's some good news because we're not quite where we want to be yet on Fashion, Home and Beauty, but every day is getting better. And I think by the time the cold snap arrives, we will have pretty good availability, especially around fashion. So I think it's working in our favor at the moment. Frederick Wild: And then beyond that, with the -- at least in line guidance for half 2, can you help me understand the sort of moving parts within that, what could get you above be in line? And is it the consumer backdrop? Is it the speed of your availability? How should we measure that and think about that? Stuart Machin: I'll give a high level and hand over to Alison for some detail on this. But Look, in half 2, if you just compare last year, I think in Food, we're on track. I mean it could be a bit better. We're planning for a good Christmas. But I never like to overpromise and underdeliver, but we're getting back to stronger growth in food, and it's all to play for, as I say in my opening. In Fashion, Home and Beauty, we are concerned about the weather. It is something that I don't like to talk about internally, if I'm honest. I always say don't blame the weather. But on an analyst call, it is helpful just to bring it to life because if we do have a cold snap, I think we'll be pretty well set up. So my summary, Food could be a bit better and Fashion & Home could be a bit softer, but we're planning for a good Christmas, and we'll see. I'll hand over to Alison for some detail. Alison Dolan: Thanks, Stuart. So really, I would say it's all about the pace of recovery in both businesses. As Stuart has already said, we're gearing up for a strong Christmas in Food and then a good new range to launch in the fourth quarter. All of the systems that we need now to manage waste and stock loss are fully back and each week sees an opportunity -- season improvement, sorry, in waste, and we are getting to grips with it. In Fashion, Home and Beauty, I think for the third quarter, as the systems come back online, they are now all back, but stock is not in the right place everywhere. If you think about all the moving parts in our distribution network, getting stock out of ports into the right DCs that allow us to fulfill online orders as well as dispatch stock into stores. That is still being worked through in the third quarter. We expect it will be fully done, certainly by the financial year-end, but operational in the fourth quarter as well. And then Ocado, we expect to continue with their strong sales. International really to have a good strong year. And as far as cost is concerned, we continue to focus on cost elimination, as you've already heard. So really, that is all playing into an expectation that at least we will be flat in the second half to the comparable period last year, and then you'll have a judgment to make as to where to take us up from there. Archie Norman: I think Alison and [ Fredrik ] just quickly raises a good point on food waste. We're getting back now online. Clothing, we're just mindful we're holding a bit more stock for the second half. So we need to manage that. There is some good news on new stores in H2. We've got 10 new food halls, 4 food store extensions, 7 renewals and 2 new full-line stores. So there's some positives. I think my summary would be we're confident we're going to start FY '27 in a good place. Okay. Good questions. Thanks, Fred. James Anstead. James? James Anstead: So you've had this cost of GBP 324 million in the first half of the year. I just wonder, you're clearly now getting very close to being back to normal, but how much more do you think that might tick up in the second half? And associated with that, and I do appreciate fully that you rarely give PBT guidance for the current year, let alone next year. But if effectively, you're guiding for PBT of at least GBP 652 million this year and the cyber impact, which is probably going to tick up a bit from GBP 324 million. Is there anything wrong with starting my spreadsheet for next year with a PBT of about GBP 1 billion. I appreciate there's a consumer outlook that we have to take a view on, and there's hopefully some underlying growth in the core M&S business. But are there any technical bits, Alison, you would say that's far too naive a starting point? Alison Dolan: Well, I'll start with the first question, James. So above the line in terms of any lingering impact on trading, you've already heard all the detail there. There's nothing beyond everything that we've set out, which is largely about the pace of recovery, particularly in FH&B and making sure that stock is in the right place. And that is in relation to the GBP 324 million impact. Below the line in adjusting items, there will be about GBP 30 million of incremental cost in the second half as we finalize standing down all of the incremental resource that we've talked about earlier, largely replacing offshore E&P colleagues with onshore resource augmentation. That will carry through into the first couple of months just as we stand that resource down. But beyond that, there's nothing. And then with respect to your second question, James, no, not really. The only thing in addition to, there's nothing technical from our side. As Stuart already said in relation to the last question, our expectation is that we are fully back to normal by the fourth quarter of this year, so that FY '27 is a clean, unimpacted year. And the forecast that you had previously in place are good for FY '27. There's nothing beyond that. Stuart Machin: I think, James, just to build on that, only a couple of summary points, a bit cheeky question on the numbers. But there's no change to our view for next year. We're in line with sort of where the consensus is currently, free to take your own view on that. But I would say we've got quite a bit of recovery in the next 6 months in Fashion, Home, Beauty and the consumer outlook is still uncertain. We're getting a lot of feedback about the sort of nothing presentation yesterday. Everyone's waiting for the 26th of November. And so the next 6 months is going to be a bit uncertain. We're hoping to start fresh, as I said, in FY '27 and be back by then. But I wouldn't overdo the ambition. Archie Norman: Okay. Thank you, James. And -- if you need help with your spreadsheet, Fraser can help -- you got a computer program. Let's go to Anne Critchlow and then we'll see Clive Black has joined us. So we'll go to Clive afterwards. Anne? Anne Critchlow: I just wanted to ask about the spring/summer fashion stock from this year. Is there any stock overhang as into the not marked down or sold through? Anything you're overwintering, anything that might need to be written off or down in the future, please? Stuart Machin: Well, it's a good question, Anne. I mean we have provided for that in the numbers. If you look at our stock cover, I'm a few days out, but as of a few days ago, we had 13 weeks stock cover. So that was 2 weeks more than last year. So we have provided for some of that in H1 already and we are holding more stock as of the half year. So it's in the H1 gross margin, you can see where we provided for it. And unfortunately, my whole strategy about not having a sale is not going to be achieved this year because when John joined us as the new MD, I said one of the key objectives is everyday pricing, let's get rid of sale and not do it. And then obviously, within 1 week of him joining the incident happened. So there's a lot to go after, though, and it is a bit uncertain, but we provided in H1. And now we'll see how winter trades, and we are going to make sure we sell our way through in H2. And that's a bit uncertain as we sit here today in the sun. Anne Critchlow: Okay. That's helpful. And could I ask -- could I ask a second question, please, on systems. So just wondering to what extent there's been a temporary fix that will perhaps need redoing. And to what extent the cyber incident might have accelerated? What you're going to do anyway and perhaps even made it simpler and better, and any examples you can give? Stuart Machin: Well, I'll start and maybe Alison has some thoughts as well. Our biggest priority for technology is recovery. And as part of that, there are some things, by the way, that we didn't bring back up. I mean there's a system in food called RTA that was very old, very clunky. It used to basically give better split of products in our DCs in different price. But actually, we haven't brought that up because we're going to buy a more simpler modern system. But really, it's all been about recovery. And now if I'm honest, it's all about resilience for Christmas. So there are some things like that food system. In John's business, he's taken a fresh look at the o9 planning platform and has actually sped that up. I mean it's going to take half the time of what it was going to take. And there are some other things we're doing like investing in loyalty, which really we're playing catch-up on. So my summary is, we haven't really accelerated a lot. We haven't really opened some systems that we didn't think -- either we thought we didn't need. But really, our transformation is going to get back on track by the end of the financial year. And we'll also talk about this at the Capital Markets Day. Archie Norman: Clive, we assume that you -- I didn't want to apply your late meeting, by the way, but we assume you're celebrating in Liverpool. Clive Black: Indeed, Archie, I was actually on time, but your systems clearly haven't got up to speed yet. But -- and also, Archie, it's great to know that you're going to be hanging around Paddington for a little bit longer than they have been the case, which is good news for everybody in my book. So first question, if I may. I'm going to try and stay away from everything from the spring. And I know you have a Capital Markets Day coming up. But Stuart, in your video this morning, you talked about M&S being a shopping list grocer. I just wondered what does the firm need to do to reach that aspiration? And what does it actually mean to M&S? Stuart Machin: I mean, Clive, in simple terms, what we're realizing in our bigger food halls, where we've got more of a grocery range that includes frozen food, our customers are relying on us to do a fuller trolley shop. I see this in my local store in [indiscernible] where over half of the shopping trips are in big trolleys and the other half of baskets. And if you look at all of our data, not just recent, but the trend in the recent years, more customers shopping more frequently and our spine of the basket, which we call center of plate, the key commodities customers buy and could buy elsewhere, that has actually grown in this half by 12%. So the key to this is the store rotation program. As you know, we're only 4% market share. I will say to Alex, it's still piddly, is the term I use, it's still small, which really just encourages us because we've got more than 50 food stores in the pipeline already approved. And that means that gives confidence. Now one of the key investments that we made during the last 6 months was -- which I called out in my opening and it's in the RNS, which is our Daventry new distribution center. Now that's 2029. But the reason we needed to commit and invest in supply chain is so we get ahead of that growth and enable that growth. So I think we're well on track. The food business is in a strong position, whether it's building a better supply chain, the work Alex and the team are doing on what we call factory resets and fortress factories, the strategy about really close partnerships and the work we're doing on range, importantly, the work we're doing on value. And we're tracking all of those top 200 items every day. Inflation is a challenge for us to manage with the extra costs headwinds that not just us, our suppliers have had, that all gets passed through to us and it becomes a challenge. But our value lines are up 30% in the year, and our value perception has the greatest increase of any other grocer in the last 3 years. So all of that added together should enable the food business to be more of a bigger shopping list retailer. Clive Black: And of course, I think you also said you still plan to double your market share in your statement this morning. And then in a similar vein, if I may, you talked about also seeing the opportunity to double your online sales in Fashion, Beauty and Home. And I guess, again, what are the mechanics by that? And just as a sub-question, I presume you still have ambitions to build, to grow your in-store activities in this respect as well. Stuart Machin: Well, I think the key thing, online sales, I mean, we said double the online sales, I think, from FY '22, which were GBP 1.1 billion. And our plan is to double that. At the moment, only 1/3 of our Fashion, Home and Beauty sales are online. And of course, that's been impacted in the last few months. But we have not lost sight of that long-term ambition. And that's very clear. Don't forget in Home and Beauty, our participation is actually very small. It's not going to be the biggest part of our strategy, but there is opportunity to grow and improve our home offer, and we will be doing that over the coming years and resetting our beauty categories, which is under review now. I think the biggest thing, just to go back on Food, just to clarify, we said double the food business. We really mean sales hopefully, that leads to a much bigger market share, of course. I think we're in a good place online. We serve over 21 million customers, but let's be really frank, we have got to do a better job online. We want to do much better on service, much better on availability, much better on personalization. There is no short of demand when it comes to our customers wanting more, whether it's in store or online. So we've got to be quite ambitious, but there's quite a lot to go for over the coming years. Clive Black: Do you see a switch out of in store into online, sorry, Stuart, just to finish as part of that process? Stuart Machin: Well, I'm hoping not, but I'm hoping we hold a lot of our stores flat at the same time. I mean online market share for us is 7% stores is higher at 12% and obviously, the focus is going to be online. If we could hold the stores, that would be good news. Clive Black: Sorry to interrupt you, Archie. Archie Norman: No, no. Thank you, Clive. Good clarification. Just to be clear, the doubling of the online is from 2022. So that would take us to 50%, the objective to get to 50% of total sales. Thanks, Clive. That's great. Let's go to Georgina Johanan, and then we'll move on to Richard Chamberlain. Georgina? Georgina Johanan: I've got 3, please. I'll ask them one at a time. The first one was just in terms of the Fashion, Home and Beauty sales, obviously, I appreciate the consumer environment and so on, but it would be good to understand what you've got planned in terms of any activities to sort of reengage that consumer and also the time line on that because presumably, you don't want to be sort of overly reengaging at a time when availability is still a little bit below where you'd like it to be. That's my first one, please. Stuart Machin: I mean, Georgina, in simple terms, I mean, where you're dead right is we could probably say we reengaged our customers too quickly before we were really ready with availability online. But we've got no issue with customers' engagement, but we have got to get the stock flowing better. And the only thing working in our favor, by the way, is that, as I said, it's very sunny here in Waterside. I don't know where you are, and we're hoping the cold snap will arrive just in time when our winter product arrives and we're ready to serve. But we don't have an issue with demand, but we are a bit slower than we would like in getting the stock from supply through to our ports, through to supply chain, through to stores, through to online. And this is John's priority as we plan for Christmas. Georgina Johanan: And perhaps just a follow-up one there, Stuart. When you're saying you don't have an issue with demand, is there something that you can sort of point to for that? Like, for example, is web traffic a lot stronger than we can see in terms of the actual sales data and perhaps conversion is down? Is there anything sort of tangible that we can point to there? Stuart Machin: Well, it's a good point. The reason I don't say there's a problem with demand is we're holding our own. In fact, our market share has improved in the last 4 weeks, if you look at Kantar. If you look at the YouGov results yesterday, it's encouraging. We're back to #1 on brand buzz. And as I said, for the first time ever in history, we're #1 on style. Now that doesn't mean we'll always be #1 on style, but it is the first. And if you look at traffic, I haven't got the number. I can't remember it, and [ at the start, ] but we'll get someone to find the number, but traffic is actually sharply up on last year. To your point, online sales are up over recent weeks. Transactions are up, but we have got to get a better availability. By the way, a session I had with Maddy and Helen just last week, you will probably notice this, but we do have a bigger demand for smaller sizes. And that's been a trend over the last 3 years. But actually, it's one of our biggest problems today online. I've just been given a scribbled note from Fraser that says September traffic was -- September traffic was up last week, 17% on last year. Traffic September up 21% in September, last week up 17%. Another one? Georgina Johanan: Yes. If that's right, please, it was just on CapEx. I guess just understanding if I was understanding right in the release that it's actually going to sort of GBP 650 million to GBP 750 million for this year, what we should be looking for in the outer years and why we're seeing that increase, please? Stuart Machin: Okay. It's a good question. I'll hand to Alison. Alison Dolan: Georgina, thanks. So you'll be aware that we have continued through the half with our strategic programs investments, so in supply chain, in stores and in D&T. Obviously mindful to protect our investment-grade rating, and that is a key priority. But as the cash generation comes through, our ability to maintain that investment, see the returns coming through, invest, as Stuart said, in the online experience, both on the website and on the app behind growing that traffic means that we can increase the envelope slightly. Depending on a particular year, there will be some disposals that we can offset that with. But we are a growth business. We have opportunities to invest behind, and we'll talk a lot more about the details behind that at next week's CMD [indiscernible] just all while aiming to grow the dividend as you've seen today. Stuart Machin: I think that's right. I mean, I would say strong discipline. We've got clear hurdle, right, Georgina. But as you know, some of the big bumps in that CapEx will be things like the NBC, which we've already announced as well. And the focus areas of stores, supply chain, D&T, and that includes online as well. Archie Norman: All right. Thank you, Georgina. We're eating up the time. So I just ask people to go at a bit of a cliff if we can. Richard Chamberlain from RBC, and then we'll go to Adam Cochrane and Deutsche. Richard? Richard Chamberlain: I'll stick to 2. I know you've got your CMD next week. So both on the clothing side, please. What's the timetable now for upgrading Sparks next year, I think you're talking about and what needs still to happen for that to take place? That's my first one. Stuart Machin: Thank you, Richard. Well, it's a short answer because in Sparks, we had a plan 6 months ago that we literally just paused and said we will come to it when we're through these last 6 months and the incident. And we've only just started to put resources from D&T back onto that program. What that will focus on is real personalization. It will focus on experience, but it won't be a big bang relaunch. There will be some good news, some good partnerships, but it will be a better way of engaging with customers and giving them a more personal service. It won't be a rewards, i.e., a different price architecture for those customers. I've never been a fan of loyalty card pricing. We research this all the time. But for us, to stand out from the crowd and try and deliver better value and value every day is an important underpin to our strategy. But really, this is all a way of getting closer to customers. It's not going to be one big bang. It will be a relaunch in March or April. And then basically, every 6 months, we will continue to improve loyalty over the coming years. Richard Chamberlain: Got it. Okay. And my other one is just on marketing spend. I'd just be interested in what's been happening on that and thoughts on whether you need to step that up now to continue sort of regaining the top line momentum in clothing. I think you rephased some marketing from sort of earlier in the summer to early autumn, if I'm not mistaken, I mean, for obvious reasons. But just wondered, yes, thoughts on sort of marketing, whether that needs to go up a bit now. Stuart Machin: I mean my summary for this, it won't be more spend. I'm not giving our marketing team any license to spend more, but it is about relooking on how we spend it. I mean, for example, there is no big fashion Christmas advert this year. We have decided to do more product ads more through social. There's different ways, we want to use YouTube and social media. So I think it's about spending it differently. The thing we've been conscious of and we're watching is making sure we spend it in line as product availability improves constantly, and that's across Fashion, Home and Beauty mainly. In Food, we're on track, and we're spending in line with the budget we laid out. Archie Norman: Thank you, Richard. Okay. We'll go to Adam at Deutsche, and then I'll take a couple more. I think we're going to run out of time. So I know everybody has been waiting very patiently. But Adam, crack on. Adam Cochrane: Just the first one, you talked about the confidence of clothing being back on track. I know over the summer, you possibly lost some customers to other retailers. Is it apparent that you're already regaining those customers who have shopped to other retailers and are now coming back to M&S? Stuart Machin: Thank you, Adam. Well, I'm saying getting back on track. So I haven't said we're back on track. We are planning that by the end of this financial year, our Fashion, our Home and Beauty business will be back on track. I mean, I think the biggest issue we had, obviously, through the incident was the lack of availability and the online business being paused. And therefore, that obviously did set us back. But as I said at the start, we're back to #1 market share in the last 4 weeks when you look at Kantar out this morning. So we're back to #1. Our product is definitely resonating. Our value is resonating. And as I said, we're #1 for style on YouGov, which came out yesterday for the first time ever in our history. So you would have seen in Kantar the improvement every month. And I think we put some of that in the RNS. So the reason I don't want to get overpromising is there is a tendency for us to say, isn't this great? We're all back to normal. But actually, it takes a bit longer in Fashion for the stock to flow, for the systems to reconcile the stock, so we know exactly where it is. And we are carrying a bit more stock than we would like. We've got to get through that. We've got to look at what's going to happen over autumn/winter. There's no autumn yet. It's not an autumn yet. Let's hope for a cold snap winter. And then we need a really clear plan as we get into the Q3, Q4. So I think it's all to play for. There's no short of demand, but stock flow has to catch up, and it's on John and his team's priority list. We go through it daily. Adam Cochrane: Okay. And on the international. And just very quickly, the expanded agreements with Amazon and Zalando, what proportion of the range are they able to access? How excited are you about increasing the growth internationally by the aggregators? Stuart Machin: I think it's a very good question. What I would say is it's very, very small. It's really testing and learning. If you look on there, you'll see on Zalando and Amazon. It is encouraging because the brand resonates, so we know that, and it's slightly ahead of our plan, but it's very small in the grand scheme of things. But I think in a year from now, this will be a good opportunity for our international business as we get more of our range on both of those sites. And I think more broadly, what Mark and the team are doing with our partners will set us up for future growth. The reset with our franchise partners in terms of how we do the agreement encourages our partners to invest. It encourages our partners to deliver better value. And in some markets, I mean, last week, I was looking at the UAE and Food is very small and the volumes are small. But just by right pricing, that business was already up 70%. Now I will say 70% up on things that never really sold much volume. I think resetting all of that is good news. And the third, the wholesale partnership, it's not just about Percy Pig in Target, although the sales of Percy Pig in Target U.S. are way beyond what we expected. So we're now putting more runs of Percy Pig on. But the wholesale partnerships, I do think in the medium-term is a growth opportunity, whether it's David Jones Lingerie, we're going to launch womenswear as well soon, then menswear. So I think there's good opportunities in the medium- to long-term for us to be this global brand that we set out last year. Archie Norman: Okay. Thank you. Well, now look, we're over time, but I'm going to go to Monique Pollard because you've been waiting very patiently. And then Warwick Okines and then we [indiscernible]. Monique? Monique Pollard: The first question I had was just on this availability issue. So what I understood that you were saying, Alison, is that the -- am I right to understand that the availability issue is more acute in online for Fashion, Home and Beauty than it is in store? If you could just give us some color on the sort of the differences in availability store versus online? Alison Dolan: Not particularly, Monique. Availability was affected by the slower stock flow, and that applied to both businesses. In online, it's slightly compounded because we don't fulfill online orders from all of our DCs. So there was that additional complication, but really both businesses were impacted. Stuart Machin: I think the summary, Monique, is we're about 5% off at the moment where we want to be. But every day is getting a bit better. Our online availability this morning, for example, was down 1% on last year. So every day is getting better, but it is split between stores and online. Your second question, Monique. Monique Pollard: Yes. The second question, just a quick one. It's on the U.K. budget and the potential for business rate increases. So if we do see business rates increase for ratable values over GBP 500,000, what kind of impact does that have on your cost base on an annualized basis, please? Stuart Machin: Well, that's a complicated one. I'll hand over to [ Alison Dolan. ] I think the -- a couple of things to just summarize, as you probably know, is this half year, with a GBP 50 million. And that's only on 2 things: one, the packaging tax; and two, the increased, what I call the double whammy on national insurance. So that was GBP 50 million for the half. When you add that to living wage, which for us, we already plan to increase wages for frontline colleagues. So we look at that as a good cost, but that is GBP 150 million for the year. I think what really worries us is what's coming down the line. We have this deposit return scheme, which is a huge headwind, a challenge in stores operationally. The setup of that is nearly GBP 30 million. Running that is a GBP 7 million cost every year for these huge monstrosities of this unit in every store for customers to bring plastic back. And by the way, in the Republic of Ireland, they break down every 5 minutes. And on top of that, you've got other big impacts because it's not just about us. All of these impact our farmers, impact our suppliers and then all of those costs get transferred to us, and then we try and mitigate them in order to provide value. So -- and I think it's not just that it's other regulatory stuff. So we've been working quite closely with people in government, talking to them about these challenges every day, hoping to influence in some way. I've met Rachel Reeves a few times now, but it is top of our mind, and we're hoping. Well, we're preparing for the worst on the 26th because everybody -- it's a bit of a nothing speech yesterday. We all sort of finished it saying, well, what did that really mean? But we're sort of planning for the worst and hoping for the best. Alison, on our particular numbers. Alison Dolan: Yes. So I would just say that at the moment, our business rate still is about GBP 180 million a year. So it's clearly material talking about that one specific item. And obviously, any increase also has the potential to be material. About 60% of our properties have a ratable value of over GBP 0.5 million. So the rumored break for larger stores would clearly be welcome for us. But that's about the scale of the bill right now. But I think... Stuart Machin: About GBP 7 million benefit. Alison Dolan: It's about GBP 7 million saving if we were to get that break, yes. But I think the bigger point really is in the aggregate of all of this new government-induced incremental charges. The EPR, for example, alone that Stuart talked about was a GBP 40 million charge for the year. The deposit retention scheme, big one-off upfront. NIC business rates, the apprenticeship levy, we can only use about 20% of it, and that cost us about GBP 7 million a year. So it's a combination really of all of these official regulatory costs. Stuart Machin: I think the only good news, Monique, for us is there's a lot in our control. Our investment in things like supply chain automation will help give better productivity. So that's why we've increased our cost saving program -- so there's a lot for us to go after as well. Archie Norman: Okay. All very good points. Thank you, Monique. Right. Look, apologies for those who haven't got in. I appreciate people have been waiting, but we're running down the clock. And we will make sure we get back to you those of you've been waiting. So I appreciate that. Last one, last shout from Warwick Okines at BNP. Alexander Richard Okines: Just 2 quick ones to finish off, and I'll do them both at once and test your memory actually. These are quick ones. Firstly, on costs, you may have answered this already, Stuart, but you've raised the structural cost savings target to GBP 600 million. So is there anything particular to call out on where those savings have come from? And then secondly, could you give us a bit more detail about what your customer barometer is telling you? Stuart Machin: Okay. I'll kick that off. On GBP 600 million, we set by FY '28, mainly through end-to-end supply chain. There's quite a lot in our plans for that and also some of our factory to floor programs and store productivity programs. By the way, we've never really got under store-friendly deliveries, which means our stores spend a lot of money unpacking things 3 or 4 times. And the good news is it's the first thing John Lyttle raised when he did his first month in stores. So whether it's supply chain or end-to-end through our stores. Look, it's a challenge, but there's plenty of us to go after on the cost side. That's why we set the GBP 600 million to start to mitigate some of the extra headwinds coming our way. In terms of customers, I mean the good news is we talk to quite a few customers every month. We have a collective where we talk to about 40,000 customers, and we ask their view, and we have 1,000 customers in Fashion, Home and Beauty and we get their views. There's never big changes, I have to say. The October survey really calls out customers talk more about rising costs. They talk a lot about the budget. There was a lot of questions, why does it take so long to set the budget. There's a lot of emotion in there about blaming the past all of the time that this is going to be a break in the manifesto and therefore, does it mean I'm paying more tax. Pension -- slightly older customers have pensions on their mind. and capital gains on their mind. So there's no doubt that takes the big part of the feedback we get. But at the same time, it's not all doom and gloom because when you get those issues on the table, what actually comes out is, well, we're looking forward to a bigger, better Christmas. And actually, we measure what we call excitement and positivity about Christmas and how you plan to celebrate. And that for our customers, of which now there's a few thousand in that pot, as I said, that's been the highest it's been. And if we just look at the early indicators, Christmas food to order is already up 7% on last year. We launched third-party food in stores. It's always an introduction, but that exceeded our expectations. And even if we look at some of the other things like Christmas decorations or the gift shop, I still think we need to relaunch this in a much better way in the years to come. But even that's trading 20% up. The softness is in fashion, but that's because of the weather and us catching up. But that's really the summary. I hope that helps. Archie Norman: Good. Well, look, thank you so much, everybody. All good questions, and there's a lot we could still talk about. But I think we should draw a line there. There's a lot of work to do, obviously. And just to remind you, those of you who are coming or able to watch, we have got a Capital Markets Day next week. By the way, we're not really expecting to mention the C word on that day at all. Stuart looking at me grinning. And there's going to be a forward-looking event and a chance to able to meet the management team. So I hope those of you who are coming will enjoy that. So we look forward to seeing you all there or thereabouts shortly. Stuart Machin: I thank everyone for your support and questions, and please shop with us this Christmas. Thank you. Operator: Thank you so much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day, and goodbye.
Operator: Good morning. Welcome to Flowco Holdings, Inc.'s Third Quarter 2025 Earnings Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Andrew Leonpacher, Vice President, Finance, Corporate Development and Investor Relations at Flowco. Thank you. You may begin. Andrew Leonpacher: Good morning, everyone, and thanks for joining us to discuss Flowco's third quarter results. Before we begin, we would like to remind you that this conference call may include forward-looking statements. These statements, which are subject to various risks, uncertainties and assumptions, could cause our actual results to differ materially from these statements. These risks, uncertainties and assumptions are detailed in this morning's press release as well as our filings with the SEC, which can be found on our website at ir.flowco-inc.com. We undertake no obligation to revise or update any forward-looking statements or information, except as required by law. During our call today, we will also reference certain non-GAAP financial information. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in this morning's press release and in our SEC filings. Joining me on the call today is our President and Chief Executive Officer, Joe Bob Edwards; and our Chief Financial Officer, Jon Byers. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Joe Bob. Joseph Edwards: Thank you, Andrew, and good morning, everybody, and thank you for joining us today. I'll start today by reviewing our third quarter results and operational performance, along with an update on the integration of the assets we acquired in August. Jon will then provide additional detail on our financial and segment results, our balance sheet and thoughts on capital allocation. I'll wrap up with our perspective on the current market environment and our outlook for the remainder of the year before we open up the line for your questions. In the third quarter, Flowco delivered another period of strong operational and financial execution. We generated adjusted EBITDA of $76.8 million, exceeding expectations, and we saw a 382 basis point expansion in our adjusted EBITDA margin quarter-over-quarter. Excluding the capital associated with our recent asset acquisition, we generated approximately $43 million in free cash flow, underscoring the durability of our cash flow generation and our disciplined execution across the business. Our performance reflects a shift toward our high-margin rental portfolio, which is growing through targeted investment and incremental customer demand for high-pressure gas lift and vapor recovery systems. On HPGL, our solutions are delivering measurable improvements in production efficiency, uptime and reliability, helping operators enhance recovery and returns. Customers continue to value the consistency and economic uplift these systems provide, particularly in an environment that rewards capital efficiency and sustained performance. On VRU, we are seeing continued momentum as operators recognize the financial and operational benefits of capturing and monetizing natural gas that would otherwise be vented or flared. Together, our HPGL and VRU fleets provide contracted recurring cash flows that offer visibility and consistency across cycles. These technologies are strengthening Flowco's leadership in production optimization, and we believe there remains substantial runway ahead as customers broaden deployment across their assets and recognize the long-term value of these solutions. Our high-margin rental portfolio was further bolstered by the acquisition of 155 high-pressure gas lift and vapor recovery systems, which we completed in August and discussed on our second quarter call. The integration of these assets has gone extremely well and is now complete, with the units performing in line with expectations and contributing to our enhanced margin profile. The acquired systems all deployed in the Permian have also enabled us to establish new relationships with several blue-chip customers while strengthening service to existing accounts. We will continue to evaluate inorganic opportunities within production optimization that complement our portfolio and align with our disciplined capital allocation framework. Spending a moment on sales and consistent with what we discussed in our second quarter call, revenues declined sequentially in both our Production Solutions and Natural Gas Technologies segments. Jon will expand on this in his remarks, but much of this impact was driven by our Natural Gas Systems business unit, which is our lowest margin business but remains a critical part of our internal supply chain, and it also provides us operational flexibility. Within Production Solutions, product sales were also impacted, but performance remained resilient considering the environment, and they exceeded our expectations for gross margin performance. This result underscores the sustained demand for our differentiated high-quality products and highlights the emphasis operators continue to place on reliability and performance in the current environment. Overall, I am pleased with our operational and financial performance in the third quarter. We continue to execute well across the organization, expanding margins, generating strong free cash flow and strengthening our high-margin rental portfolio through both organic growth and the integration of our acquired assets. These results highlight the resiliency of our business model and consistency of our execution in a dynamic market environment. With that, I'll turn it over to Jon to provide more detail on the third quarter. Jon? Jonathan Byers: Thanks, Joe Bob. Before reviewing some of the key financial metrics and results for the third quarter, I'd like to provide a reminder on our historical financial information given the combination of Flowco, Flogistix, and Estis in June of 2024. For clarity, note that any financial information presented prior to June 20, 2024, business combination, such as the third quarter 2024 financials reflects only the historical performance for Estis. Financial information for the second and third quarters of 2025 reflects the financials for the consolidated entities. Turning to our financials. Third quarter performance exceeded expectations, reflecting continued growth in our rental fleet and stronger-than-anticipated profitability within our sales business units. We reported adjusted net income of $37.3 million on revenue of $176.9 million. Total revenue declined 8% sequentially, driven by lower product sales activity in both our Production Solutions and Natural Gas Technologies segment. Despite lower revenue, adjusted EBITDA increased sequentially supported by the continued growth of our rental portfolio and its higher margin profile. As a side note, rental revenue, most of which is recurring, increased to $107 million versus $102 million last quarter. Adjusted EBITDA margin expanded by 382 basis points quarter-over-quarter, reflecting the benefit of our portfolio mix shift and the operating leverage we continue to capture across the business. In our Production Solutions segment, third quarter revenue decreased 2.1% to $126 million, while adjusted segment EBITDA increased 3.6% from the second quarter to $55 million. Adjusted segment EBITDA margin expanded 240 basis points quarter-over-quarter. The decline in revenue was primarily driven by lower downhole components product sales and partially offset by higher rental revenue from both our existing fleet and the recently acquired assets. The increase in adjusted EBITDA margin was largely attributable to improved operating leverage within our surface equipment rental business and an improvement in gross margin performance in downhole components. In our Natural Gas Technologies segment, third quarter revenue decreased 21% to $51 million compared with the second quarter, while adjusted EBITDA decreased 7.6% to $25 million over the same period, which were attributable to a decrease in natural gas systems and vapor recovery system sales in the quarter. Adjusted segment EBITDA margin increased by 714 basis points due to a favorable revenue mix shift towards vapor recovery from natural gas systems. Turning briefly to corporate costs. Third quarter corporate expenses were $3.8 million, down from $4.3 million in the second quarter, primarily reflecting lower third-party professional service costs during the period and a reduction in G&A. Overall, consolidated third quarter adjusted EBITDA was $76.8 million. Since becoming a public company, we've delivered consistent EBITDA growth while expanding margins and sustaining top quartile profitability even against a more challenging macro backdrop than when we entered the public markets. In the third quarter, we deployed $39.7 million of organic capital with the majority of capital allocated to expanding our surface equipment and vapor recovery rental fleet to support sustained customer demand at attractive returns. As we look to the remainder of the year, we expect only modest adjustments to organic capital spending and anticipate fourth quarter CapEx to decline relative to the third quarter. As noted last quarter, we accelerated a portion of our 2026 capital plan into 2025 in connection with the asset transaction, and we are assessing market conditions and customer activity levels to determine the appropriate pace of capital deployment for next year. We will continue to prioritize opportunities that enhance growth while meeting our return thresholds in alignment with our broader capital allocation strategy. Our typical investment lead time is approximately 6 months, which, combined with our vertically integrated manufacturing provides flexibility to adapt spending as we gauge customer demand and market conditions. On return on capital employed, our annualized adjusted ROCE for the quarter was approximately 16%. The sequential decrease reflects lower product sales in the period and the incremental capital deployed for the asset acquisition. As an update on our assessment of the One Big Beautiful Bill Act, in the third quarter, we benefited from the reinstatement of 100% bonus depreciation for certain fixed assets applicable to both our current year capital expenditures and the acquired assets. As a result, we've had a reversal of income tax expense in the quarter and anticipate minimal federal income tax burden for the remainder of the year. Turning to our balance sheet, liquidity and capital allocation. We ended the quarter in a strong financial position. As of October 31, 2025, we had $205.2 million of borrowings outstanding on our credit facility. With a borrowing base of $723.5 million, we had $518.3 million of availability under the facility. On October 31, Flowco declared a quarterly dividend of $0.08 per share payable on November 26. In addition, during the quarter, we returned $15 million of capital to shareholders through share repurchases. Our ability to pursue both organic and inorganic growth while returning capital to shareholders and maintaining low leverage highlights the durability of our business model and the strong cash flow generation across our business units. In summary, we delivered a solid third quarter, outperforming our expectations with adjusted EBITDA above our guidance range. We executed well despite a softer upstream backdrop that weighed on product sales. And based on current visibility, we expect sales to improve in the fourth quarter. Joe Bob will speak shortly to the market environment and our outlook as we close out the year. Looking ahead, we expect our rental fleet to continue delivering consistent, predictable performance, supported by strong demand and contracted cash flows. We also anticipate continued resilience and strong free cash flow generation across our sales business units. Our disciplined capital deployment and differentiated business model give us confidence in our ability to continue delivering strong results. Back to you, Joe Bob. Joseph Edwards: Thanks, Jon. Turning now to the market outlook. As we noted last quarter, the North American upstream landscape remains dynamic. with operators continuing to balance production growth with capital discipline in a lower commodity price environment. While macro uncertainty and commodity price volatility persists, activity levels have generally stabilized and customers are increasingly focused on maximizing returns from their existing production base. We continue to see a shift toward prioritizing operating expenditures over capital expenditures to sustain or grow production, an approach that aligns directly with Flowco's core strengths in production optimization. Considering this market backdrop, our growth expectations for the remainder of the year are unchanged, and this is reflected in our fourth quarter guidance. In the fourth quarter, we expect adjusted EBITDA of $76 million to $80 million. This outlook reflects continued momentum and growth in our surface equipment and vapor recovery rental fleets, inclusive of a full quarter contribution from the assets acquired in August. Within Production Solutions, we anticipate a small incremental seasonal slowdown in product sales that will lead to an overall decrease in revenue in the Production Solutions segment. For the Natural Gas Technologies segment, based on current visibility, we anticipate a rebound in sales across both natural gas systems and vapor recovery systems, resulting in segment revenues slightly above second quarter levels. Finally, we expect SG&A to remain broadly consistent with the third quarter. I am pleased with the solid performance of our business this quarter, and I want to thank all of our employees across Flowco for their continued dedication and disciplined execution. While we are encouraged by our positioning, we remain focused on strengthening the business for the long term. We are committed to continuously improving our operations and advancing our strategic priorities. Within Natural Gas Technologies, we are seeing positive early returns from the use of machine learning to improve efficiency, reduce maintenance expenditures and enhance margins through an internally developed proprietary system. Across our manufacturing and operational footprint, we are evaluating opportunities to further streamline processes and increase profitability. As we strengthen collaboration across the organization, we are identifying ways to more fully service customers through our complete suite of products and solutions. And we continue to assess both organic and inorganic opportunities to enhance our technology and service offerings, positioning Flowco to further support our customers in maximizing their production and profitability. 2025 has reinforced the value of our strategic focus on production optimization, where advancing artificial lift technologies within Production Solutions and improving vapor recovery performance across Natural Gas Technologies is creating meaningful value for our customers and for Flowco. We believe the next phase of value creation will be driven by technology-enabled efficiency, continued innovation across our offerings and deeper collaboration with our customers to unlock value over the life of the well. Flowco is well positioned to continue advancing our strategy and to deliver meaningful long-term value for our customers and shareholders. And with that, I'll turn it back over to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Derek Podhaizer with Piper Sandler. Derek Podhaizer: Just wanted to start with Natural Gas Technologies, more specifically, the progression of optimizing natural gas systems. It seems like that drove some of the top line decrease, but we've also saw 700 bps margin expansion there. I know, this was a point of emphasis last quarter. So maybe just update us on your progression optimizing that business unit because it seems like you made a lot of progress in the quarter and how we should think about it moving forward as you continue to optimize NGS? Joseph Edwards: Yes. Certainly, Derek. Thanks for the question. Good to hear from you. So, remember, the natural gas systems business unit is our supply chain, right? Its primary function is to build vapor recovery systems as well as the conventional and high-pressure gas lift systems for our rental fleets. In addition to that, from time to time, we will sell systems to customers that would prefer to own versus rent. Again, we do not sell high-pressure gas lift systems, but we will sell conventional gas lift packages as well as vapor recovery systems when the stars align and the price is right, okay? So, with that said, we did take in the earlier part of this year, the step to optimize that part of our supply chain by consolidating one of our facilities into our center of excellence in El Reno. I think you've been there. It's a world-class manufacturing facility, very proud of that facility. We took the painful step to close down one of our sister facilities in Pampa, Texas and reallocate the capacity to El Reno, Oklahoma. One particular point that we're particularly proud of is the fact that with all of the redundancy that took place in Pampa through various job placement exercises and career fairs that we hosted, we placed almost 100% of those employees in neighboring facilities in the Pampa region. So even though it was a painful step, it was a necessary step for our shareholders, but we did right by the community that we operate in every day and taking care of those employees. There might be more to go there. We have additional capacity elsewhere in the system. We continue to evaluate it as we look at the demand profile going into 2026. But yes, we're happy to get that behind us this year and move forward in a leaner way. Derek Podhaizer: Got it. Okay. That's helpful color. And then I guess just on the rentals, right, like we're up to 60% of revenue now. We were 50% in first quarter. Is this where you expect the run rate to kind of be going forward as we move into 2026? Or are you continuing to target rentals of HPGL and VRUs that we could see something north of 60% as we move into next year? Joseph Edwards: It will largely depend on the capital deployment pace, Derek. The shift from 50% to 60% this year is really due to the capital we've deployed as well as the softer product sales, okay? So, it's a mix shift coupled with growth CapEx kind of phenomenon. Heading into next year, we see -- and we'll talk on this. I think Jon will probably address this in a minute. We see capital deployment roughly in line with what we're deploying -- what we have deployed in 2025. There will be some mix shift within the capital deployment, of course, depending on the demand profile we see. But we fully expect product sales to be largely consistent with where they are in 2025, absent some sort of industry activity boost. Remember, the product sales are a function of both what happens downhole as well as the surface equipment, and we've seen particular weakness in the surface equipment sales business in 2025. So yes, look, hard to tell if 60% is going to be the new norm or if it's going to go down. My guess is it's probably going to go down a bit as sales recover heading into the end of the year and then going into '26. Anything to add to that? Jonathan Byers: No, I agree. I think, I mean, 60% is almost a flip from a couple of years ago because of all the investment we've made in our rental fleet, but Q3 was particularly low in terms of product sales. We expect that to recover a little bit in the next quarter. So I think you'll see that kind of bump back down a little bit. And overall, that will have an impact on margins as well as we sell more than we ramp. Operator: Our next question is from Philip Jungwirth with BMO Capital Markets. Phillip Jungwirth: You've operated the Archrock assets for the last couple of months, can you give a bit more detail on the customer response and feedback to date as they work with the Flowco team? And is there any cross-selling potential or increased HPGL penetration that can be done across the new blue-chip customers? Joseph Edwards: Certainly. To answer the second question first, yes, we inherited a couple of accounts that we, for a variety of reasons, had trouble penetrating, specifically with HPGL, Phil. And we think that the -- and it's early, but we think that those accounts are going to be open to the broader commercial discussions that our teams can have as they progress through the Wells progression from HPGL to another form of lift, most likely traditional gas lift. So those conversations are happening. We're starting to see some good early returns there, and that's just a daily part of the battle on our commercial efforts. In terms of the first part of your question having to do with really the integration of the systems into our fleet, it was seamless, okay? The reception that we got from customers of us really the leader in the space and what we do is focus on production at the wellhead, customers were very pleased that we were the buyer of these assets and are now the custodian of their early production efforts. So I'd say all around, it was very positive. I certainly hope all future M&A is as seamless as this. This is a particularly unique one, though, I think. But no, it's gone really well. Phillip Jungwirth: Great. Great to hear. And then can you talk about recent trends in VRU adoption across maybe both upstream and midstream? And just given that captured methane is put back into the sales pipeline, I mean one of the big themes we've seen is just the amount of Permian pipelines and construction FID-ed in the last couple of months and what the strip is implying from Waha post 2026. Does this at all make you any more optimistic on increased VRU adoption after you see higher in-basin gas prices? Joseph Edwards: No question. We are as optimistic, if not more, based on the fundamentals of the natural gas build-out. You mentioned pipeline capacity. It seems like any time you have a new pipeline announcement, it just inevitably gets filled with all of the associated gas that's coming out of the Permian. And then the massive amount of data center power build-out that's taking place, a very large portion of that will be fueled by natural gas. So, I think the demand profile for natural gas, the fundamentals for natural gas coming out of the Permian in particular, just continue to strengthen. And vapor recovery is becoming ubiquitous with pad design and with the undeniable economics that it provides to an operator to deploy our systems, we remain confident in additional system deployment. We really track a couple of key KPIs on a month-by-month basis. And one of the most critical ones is the number of units that we set every month net of those that come back to us in terms of returns. And I'm pleased to say that, we just continue to see positive months as we build more systems, as customer demand improves, that net set number continues to trend in the right direction. So we see no reason to back away from the capital deployment that we plan for 2026 in VRU, and look forward to hopefully providing more positive data points in the quarters to come. Operator: Our next question is from Sean Mitchell with Daniel Energy Partners. Sean Mitchell: Joe Bob, you kind of mentioned technology in the opening comments. But just are you guys building out kind of proprietary software tools in-house? Are you partnering with kind of digital specialists to accelerate kind of AI and automation capabilities? Joseph Edwards: Good question, Sean. We actually have built out over the last 10 years, if you can believe it. In-house proprietary software systems that have helped manage and operate our vapor recovery systems more efficiently, more profitably than our competitors, okay? So, this is a legacy of previous investments we've made as a private entity pre-IPO. We're in the very early stages of leveraging that internal capability of software development, specifically software development to help optimize surface equipment more efficiently. We're in the early phases of deploying that capability across the rest of our businesses. And then obviously, from there, integrating data that we can collect downhole, either with our own equipment or with third-party equipment into more efficient operation of a system that marries downhole lift techniques with surface drive that will enable the lift technique to take place. So, this is largely an in-house effort. We alluded to it in some of our prepared remarks, but we are starting to see some very positive early returns from years' worth of investment and hopefully more to come there. I think the ultimate end goal is to work with customers who have more data than we do, right, to integrate what they see in their production information with what we can provide with our lift and VRU techniques to help optimize their production on a field-wide basis, not just well by well. But that's the end goal. We're on the journey and look forward to hopefully sharing more good news over time. Sean Mitchell: Congrats on the quarter. Operator: [Operator Instructions] Our next question is from Jeff LeBlanc with TPH & Company. Jeffrey LeBlanc: I wanted to see if you could help frame the tailwind for your HPGL and VRU businesses as operators start to target gassier benches. I know you just talked about the tailwind for natural gas demand, but it actually seems like at least you're starting to see the shift on phase windows in the Anadarko and Eagle Ford and then probably over time, you can also see it in the Permian. So, I would just appreciate any color there. Joseph Edwards: For HPGL, what you're really -- what we're really looking at is oil production, right? So, as we look at big picture production data for the country, oil production continues to hang in there. And we haven't seen the meaningful decline in production that I think folks feared earlier this year might take place as commodity prices corrected and activity levels started to be curtailed. So, I think high-pressure gas lift certainly plays a part of that, and we're going to continue to invest in that effort. We've really seen no change from customers' demand for our systems, in particular, in the Permian, which is our largest concentration of units in the U.S. So, we expect to continue to generate positive growth out of that specific product line over the next few quarters and really have not seen any kind of demand profile shift. So hopefully, that answers your question. I know, there's not a ton of detail in there, but that's how we see it. Operator: Our next call is a follow-up from Derek Podhaizer with Piper Sandler. Derek Podhaizer: I wanted to ask about the buyback. Nice to see $15 million for this quarter. Maybe just updated thoughts on how you're thinking about that as far as your capital allocation strategy. Obviously, we have the dividend for a couple of quarters. Now we have the buyback. I know you have an authorization out there. You're balancing your capital deployment. Will this just be opportunistic? Will this be more formulaic, returning over 50% of free cash flow, which is really nice to see. Just maybe some more thoughts around the buyback, just given that you just kicked it off. Joseph Edwards: Yes, certainly, Derek. Listen, we've been very, very careful to not be prescriptive in telegraphing to the market how our capital allocation framework will be period full stop. We've been much more opportunistic in looking at ways to deploy the free cash flow that we generate every day. As we look during the quarter at our internal opportunities as well as every day how we're valued, it just became increasingly more clear that we're undervalued. And so, we leaned into share repurchases during the quarter, and we will continue to as long as we feel like we are not valued where we feel like we should be, certainly, that in relative terms against the opportunity set that we have to deploy capital in our existing business and, of course, in M&A. So, look, we'll remain opportunistic. We were happy to start the process during the quarter. to buy back stock opportunistically, and we'll just continue to evaluate it as it hits the screen every day. Derek Podhaizer: Got it. No, that makes sense. And then maybe just looking out to 2026, I appreciate that it's early. But how do you start to think about that kind of where you're comfortable, where estimates are today for next year? And just thinking about the progression of obviously kind of these weaker product sales. We have some seasonal dip in 4Q, but we should have some recovery next year. So maybe just some early thoughts as you look out to 2026 and kind of where numbers are shaking out right now. Joseph Edwards: Listen, we're a brand-new public company. We've started to and have been consistent in guiding quarter-by-quarter. I think we're going to continue that cadence, Derek. We provided you some guidance for Q4. We obviously have a view on '26, but we're going to see how the planning process goes between now and the end of the year. What I can tell you is that the opportunity set that we are investing in today, and remember, we're kind of a 6-month lead time kind of organic CapEx organization. The opportunity set looks strong. And we are making capital decisions out through June. And I'd say, they're largely consistent with the opportunity set that we've seen this year. So I don't see any reason why we're going to curtail capital spending certainly through midyear next year. The form of the capital may be different, moving from electric to natural gas drive or conventional from HPGL. It will move around within the systems that we operate. But I'd say as we see it today, it's pretty steady. The product sales, as you point out, are shorter cycle. And you tell me what the price deck is for next year, and we can pontificate on what the year could be? But we're just not comfortable enough to give you any kind of full year guidance just yet. But as we look into Q4, things look good, and we're optimistic that we're going to deliver another good quarter with some growth and positive free cash flow and returning capital to shareholders, just as you pointed out. Operator: This will conclude our question-and-answer session. I would like to turn the conference back over to management for closing remarks. Joseph Edwards: Thank you, everybody. Look forward to talking to you again in 90 days. I hope everybody has a great Thanksgiving and good rest of the year. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, and welcome to the Jack Henry First Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vance Sherard, Vice President, Investor Relations. Please go ahead. Vance Sherard: Thank you, Jeannie. Good morning, and thank you for joining the Jack Henry First Quarter Fiscal 2026 Earnings Call. Joining me today are Greg Adelson, President and CEO; and Mimi Carsley, CFO and Treasurer. Following my opening remarks, Greg will share his comments on our quarterly results, operational metrics and the outlook for the remainder of fiscal '26. Mimi will then discuss the financial results and updated fiscal '26 guidance provided in yesterday's press release, which is available on the Investor Relations section of the Jack Henry website. Afterwards, we will open the lines for a Q&A session. Please note that this call includes forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from our expectations. The company is not obligated to update or revise these statements. For a summary of risk factors and additional information that could cause actual results to differ materially from such forward-looking statements, refer to yesterday's press release and the risk factors and forward-looking statements sections in our 10-K. During this call, we will discuss non-GAAP financial measures such as non-GAAP revenue and non-GAAP operating income. Reconciliations for these measures are included in yesterday's press release. Now I will hand the call over to Greg. Gregory Adelson: Thank you, Vance. Good morning, and I appreciate each of you joining today's call. I'd like to begin by thanking our associates for their hard work and unwavering commitment to our key differentiators, culture, service, innovation, strategy and execution. I will share 3 key takeaways from the quarter and then provide additional detail about our overall business. First, our financial performance. We produced record first quarter financial results with non-GAAP revenue of $636 million, up an impressive 8.7% over last year's first quarter. That significantly exceeds the 7% to 7.5% increase we anticipated in August. Our non-GAAP operating margin was 27.2%, representing a robust 227 basis points of margin expansion over last year's Q1. Second, our sales performance, starting with migrations from in-house processing to our private cloud. In Q1, we signed 7 contracts to move existing clients to our private cloud, including a $11 billion asset credit union and an $8 billion asset bank. Notably, the asset size of clients migrating to our private cloud was 60% higher over the past 12 months, $43 billion versus $69 billion, while the number of deals has remained consistent with previous years. As a reminder, we earn on average approximately 2x more revenue from clients in the private cloud compared to those on-premise. Today, 77% of our core clients are operating in the Jack Henry private cloud. Turning to new core sales. As many of you know, the first quarter is typically our lightest of the year. In Q1, our sales team earned 4 competitive core wins, including 1 financial institution with over $1 billion in assets. For context, last year, we started with 6 competitive core wins in Q1 and finished the year with 51. We remain confident that we will be within that range again this year as we are off to a very strong start in Q2. I also want to comment on the new sales procedures we implemented for the contract renewals about 6 months ago, which has resulted in a healthier balance between new sales and renewal contracts as well as improved pricing procedures. Our Q1 fiscal year '26 deal mix was 44% new core sales and 56% renewals compared to 35% new sales and 65% renewals in Q1 last year. We expect this trend to continue throughout the fiscal year. Third, our annual client conference. In September, we hosted another highly successful Jack Henry Connect conference in San Diego, drawing a record 2,651 clients. This is our largest event of the year and a major driver of new business opportunities. We had a record 91 prospects from 30 banks and credit unions. This is important to note because 20 of last year's new core wins came from prospects who attended Jack Henry Connect, underscoring the strategic value of this event. Additionally, the conference drew 48 consultants and our technology showcase featured 266 third-party fintechs, both all-time highs. We also had a record attendance at our annual CEO Forum, hosting 211 CEOs. Overall, attendees expressed less concerned about the macro economy than last year and plan to continue investing in technology to enhance their digital capabilities, strengthen fraud protection, improve efficiencies and modernize their businesses. Next, I'd like to highlight several important announcements we made in the quarter. I'll start with our acquisition of Victor Technologies, which closed on September 30. We're excited to welcome the Victor associates to the Jack Henry family. We are equally excited about this technology as we leverage the capabilities to create new opportunities for our clients and the many fintechs serving the financial industry. As you've heard me say, our acquisition strategy targets companies that have great teams, are cloud-native, API-first and accelerate our product road map, Victor fits that strategy perfectly. Victor's modern innovative platform with direct-to-core connectivity enables financial institutions to embed payment capabilities into third-party nonbank brands such as fintechs and commercial customers. This helps financial institutions grow deposits, diversify fee income and maintain compliance controls. For Jack Henry, Victor provides a highly scalable solution that creates diverse revenue streams, enhances our payments-as-a-service capabilities and accelerates the delivery of emerging services like stablecoin. Victor was already integrated with our SilverLake core banking system and our Jack Henry PayCenter prior to the acquisition. We plan to extend its capabilities to serve our Symitar credit union and treasury management clients and to integrate directly with the new cloud-native Jack Henry platform. I will now provide an update on stablecoin as we've been actively developing and executing our strategy. We just completed a proof of concept in less than 2 weeks to allow financial institutions to send and receive USDC. We continue to work with key vendors and emerging fintechs on other aspects of our strategy, which includes the development of wallet, custody and settlement services for our clients to service their account holders. Furthermore, the new Jack Henry platform supports 9 decimal places, well above the 6 required for USDC, positioning us very well for both stablecoin and tokenized deposits. By contrast, most, if not all, existing core support only 2 decimal places. This advancement has already enabled us to facilitate cross-border stablecoin transactions for third parties through Banno. Another key development this quarter was the launch of our cloud-native Tap2Local merchant-acquiring solution. Tap2Local is offered exclusively through banks and credit unions, giving them a powerful way to win back deposits from small- and medium-sized businesses that have shifted their card acceptance activities to other providers. Tap2Local primarily targets the 82% of SMBs that are sole proprietors. Today, only 16% of sole proprietors keep both their retail and commercial accounts at the same community financial institution, largely due to the lack of SMB-focused services. Built in partnership with Moov, Tap2Local delivers differentiated capabilities for SMBs, including easy enrollment, tap to pay on both iOS and Android devices without additional hardware and continuous account reconciliation to the accounting platform of their choice. We showcased a live demo of Tap2Local at Jack Henry Connect and received fantastic feedback. We are currently rolling it out in phases to our Banno clients. We rolled out the initial phase of 40 clients on Monday of this week. We also did a live on-stage demo of Jack Henry Rapid Transfers at the conference. In partnership with Moov, we conducted more than 1,000 additional demos of this solution in the technology exhibit hall. Rapid Transfers enables both SMBs and consumers to instantly move funds between external accounts, eligible cards and digital wallets to manage day-to-day transaction and personal finances. There are only a handful of institution offering this service today, 0 were community financial institutions until now. We are collaborating with both Visa and Mastercard to facilitate these transactions through their respective debit rails. Rapid Transfers is receiving strong initial reviews with 48 clients now live and 126 more in various stages of implementation. These unique solutions are all powered by the cloud-native API-first infrastructure we've built through our technology modernization strategy and are part of the Jack Henry platform. This strategy has enabled us to accelerate our innovation at speeds not typically seen in our industry, especially from a core provider. We developed our Tap2Local and Rapid Transfers solutions in less than 10 months, including close to 40 external certifications. We developed a full proof concept of USDC in only 2 weeks, and we will be launching our public cloud native deposit-only core in only 3 years, still on schedule for the first half of calendar 2026. The new Jack Henry platform is integrated with all of our existing cores. Unlike most of our competitors, it's not a side core, which is a separate parallel system that runs alongside the primary core. Side cores do not integrate directly with nor do they extend existing cores to enable new and enhanced use cases in the way the Jack Henry platform does. This integration delivers significant advantages to our clients, including real-time processing, streamline operations, open API connectivity, enhanced security and immediate continuous upgrades. Next, I'll provide a few updates on specific products. In our payments segment, we continue to experience outstanding growth in our faster payment solutions. Over the past year, the number of financial institutions using Zelle has grown by 20%, the Clearing House's RTP network by 25% and FedNow by 32%. In Q1, payment transaction volume through these channels increased by 55% over the prior year Q1. In our complementary segment, we signed a total of 38 new Financial Crimes Defender and faster payment module contracts in the quarter. As of September 30, we have 148 financial crimes installations completed and another 66 in various stages of implementation. We also have 113 faster payment modules installed and 205 in various stages of implementation. Speaking of Financial Crimes Defender, we are proud that our solution recently won a silver medal from Datos Insights for Best AML and Fraud Transaction Monitoring Innovation. Continuing with our complementary segment, we continue to see success with our Banno Digital Platform. For the quarter, we signed a total of 18 new clients to the Banno platform. We currently have 1,026 Banno retail clients and 390 live with Banno Business. We finished the quarter with 14.7 million registered users on the Banno platform. At the end of Q1 last year, we had 12.7 million registered users, a 15% increase over the past 12 months. We are confident that the tech spending will remain strong based on recent surveys, direct feedback from our clients and our robust sales pipeline. In Bank Director's 2025 Technology Survey that came out in September, 71% of respondents reported an increase in their bank's technology budget for fiscal year 2025 with a median increase of 10%. These results align with findings from our strategy benchmark published last spring. In that survey, 76% of our own clients said they plan to increase spending over the next 2 years with their top priorities being digital banking, fraud prevention, automation, cybersecurity and AI. Speaking of AI, we continue to focus on numerous product and internal use cases to help our clients and our staff improve back-office efficiency. Our new solutions are built with a human-in-the-loop approach. And while reviews are still early, feedback has been extremely positive. We have created over 100 internal AI use cases, while we continue working through prioritization, these efforts have already enabled us to control headcount additions from the improvements we have seen across all lines of business. As a reminder, we do not sell any of our products utilizing a seat license model. So factors such as the number of branches or employees at the bank do not have a bearing on our revenue stream. Looking ahead, we will hold our Annual Shareholder Meeting next week in Monett, Missouri and offer a webcast for remote viewers. We're also proud to recognize the 40th anniversary of our IPO this month and will commemorate the milestone with a bell ringing at NASDAQ on November 21. In closing, we are extremely pleased with our overall Q1 performance and remain highly optimistic about the rest of the year. I know -- I'll now hand things over to Mimi to walk through the financial details. Mimi Carsley: Thank you, Greg, and good morning, everyone. Our associates remain steadfast in serving our financial institution clients, delivering shareholder value, leading to another quarter of solid revenue and earnings growth. I will begin with our healthy first quarter results, then conclude with our updated fiscal '26 guidance. Q1 GAAP revenue increased 7% and non-GAAP revenue increased 9%, a continuation of consistently solid performance. Non-GAAP revenue growth was positively impacted by the shift of our Connect client conference into Q1 from Q2. Even without this timing shift, quarterly revenue growth would have been a robust 8%. First quarter deconversion revenue of approximately $9 million, which we previously announced was up approximately $5 million, reflecting a steady pace of M&A activity among financial institutions. Now let's look more closely at the details. GAAP services and support revenue increased 6% for the quarter, while non-GAAP increased 8%. Services and support growth during the quarter was primarily driven by strength in data processing and hosting revenue for both private and public cloud, revenue from our Connect conference and solution implementation. Private and public cloud offerings continue to drive strong growth. Cloud revenue increased 7% in the quarter. This reoccurring revenue contributor is 30% of our total revenue. Shifting to processing revenue, which is 42% of total revenue and another strategic component of our long-term growth model. We saw a healthy performance with 10% GAAP and non-GAAP growth for the quarter. Consistent with recent results, quarterly drivers included increased card, digital and payment processing revenues. Completing commentary on revenue, I would highlight total reoccurring revenue exceeded 91%. Next, moving to expenses. Beginning with the cost of revenue, which increased a modest 1% on a GAAP basis and 4% on a non-GAAP basis for the quarter. Drivers for the quarter included higher direct costs consistent with revenue growth, higher personnel costs, partially offset by lower benefits and increased amortization of intangible assets. For modeling purposes, amortization of acquisition-related intangibles was $6 million for the quarter. Next, R&D expense decreased 1% on both a GAAP and non-GAAP basis for the quarter. The quarter decrease was primarily due to tempered net personnel costs. And ending with SG&A expense for the quarter on a non-GAAP basis, it increased 14% and 9% on a GAAP basis. The quarter increase was primarily due to the timing of our Connect client conference, increased personnel service costs, higher net personnel costs, partly offset by lower commission and benefit costs. Without the Connect client conference costs, SG&A would have increased 12% on a non-GAAP basis and 7% on a GAAP basis. Aided by our consistent revenue growth, we remain focused on generating annual compounding margin expansion. Q1 delivered a 227 basis point increase in non-GAAP margin to 27%. Non-GAAP margin benefit from inherent leverage in our business model, strategic cost management and leveraging existing workforce as we continue to focus on enterprise process improvement and AI utilization. These strong quarterly results produced a fully diluted GAAP earnings per share of $1.97, up 21%. Reviewing the 3 operating segments, we are pleased to see positive performance across the board. Core segment non-GAAP revenue increased 6% on the quarter with operating margins increasing a robust 114 basis points. We continue to gain benefits from private cloud trends and disciplined cost management. The payments segment quarterly non-GAAP revenue increased 8%. The segment again had outstanding non-GAAP operating margin growth with quarterly results of 170 basis points. Revenue growth was due to resilience in our card-related services, consistent growth in the EPS business and large -- continuing large percentage growth on faster payments, albeit on a smaller dollar base. Margins benefited from operational efficiencies and disciplined cost management. Finally, complementary segment quarterly non-GAAP revenue increased an impressive 9% with healthy 75 basis points of margin expansion. Quarterly revenue growth continued to reflect digital solution demand, beneficial product mix and sales sourced from both new core wins and noncore financial institutions. Now a review of cash flow and capital allocation. Q1 operating cash flow was $121 million, a $4 million increase over the prior fiscal year. Quarterly free cash flow of $69 million delivered by a $10 million increase was positively impacted by the collection of remaining annual maintenance billings and full tax depreciation and development expenses related to recent tax legislation. Our consistent dedication to value creation resulted in a trailing 12-month return on invested capital of 22% compared to the 20% in the first quarter of the prior year. We're very proud of the durability of this metric performance. Additionally, I would highlight the following significant capital allocation decisions, $100 million in share repurchases year-to-date through October, the asset acquisition of Victor and $42 million in dividends paid. We ended the quarter with a minimal amount of debt consistent with normal course revolver line usage but expect to end the year debt-free, barring acquisitions or other opportunities. I will now discuss the updated increased full year guidance. As you're aware, yesterday's press release included updated increases to fiscal '26 full year GAAP guidance. Deconversion guidance will continue to follow the conservative methodology introduced in fiscal '24. Fiscal '26 deconversion revenue guidance has been increased to $20 million. Aligned with guidance methodology, we will update the outlook as we confirm more activity throughout the year. Full year GAAP revenue growth guidance increased to a range of 4.9% to 5.9%. This is driven by deconversion revenue increase, expected revenue contribution for the remainder of the year from the Victor acquisition. I will emphasize GAAP revenue remains almost certainly understated due to the conservative deconversion revenue guidance. Based on our strong first quarter results and expected continued momentum, we have increased the lower end of the non-GAAP revenue annual growth rate guidance, resulting in a new outlook of 6% to 7%. As a reminder, fiscal '26 and the first quarter of fiscal '27, Victor acquisition-related financial impacts will be excluded as part of non-GAAP reporting. Based on the above revenue growth and our resilient financial model, we expect to again generate sustainable accretive sources of margin. We are increasing full year guidance for non-GAAP margin expansion to a range of 30 to 50 basis points. All of the above are indicative that our business operations remain healthy and sound with near-term growth opportunities. The full year GAAP tax rate estimate for fiscal '26 is 23.75%. The above increased guidance metrics result in a stronger full year outlook for GAAP EPS of $6.38 to $6.49 per share, a growth of 2% to 4%. And as a reminder, updated conservative deconversion revenue guidance almost certainly understates EPS GAAP growth. Fiscal '26 is expected to have superior free cash flow conversion due to recently passed tax legislation, and we have elected to take the accelerated election. Full year free cash flow conversion outlook is for 85% to 100% for the fiscal '26, matching our expected target but with a bias to the higher end of the range. As a reminder, we see fluctuations in quarterly results relating to software usage license components along with the timing of implementation. Therefore, the correct performance indicator for our business is the consistently strong fiscal year financial results. In conclusion, Q1 results reflect outstanding performance leading to increased guidance. We're pleased by the start to our fiscal year and remain positive on the outlook. Demand for our solutions aligned with continued technology spend by our clients and prospects will drive superior shareholder return and value. We appreciate the contributions of our dedicated associates that achieve these superior results and our investors for their ongoing confidence. Jeannie, please open the line for questions. Operator: [Operator Instructions] The first question comes from the line of Rayna Kumar with Oppenheimer. Rayna Kumar: Nice results here. We saw some solid margin expansion in the quarter. And as you mentioned, Mimi, R&D was down 1%. Can you talk about how sustainable this type of margin expansion is going forward? And maybe how margin could look for the remainder of the year by quarter? Mimi Carsley: Thanks for joining us this morning, Rayna, and your question. I think R&D has the same profile that you've seen in SG&A and other areas consistent with across our expense, which is the thoughtfulness in which we planned this year's budget being modestly conservative out the gate. We're being very disciplined around headcount increases while still investing for growth. So as we look to the remainder of the year, some of that is timing related. Some of that is things that we're expecting to kind of reverse, if you will, some benefits-related net personnel costs and the timing of some of the spending we have for projects. But overall, I would say there's consistency that's going to drive the full year margin expansion, which is our general control of spending, our limited head count growth for the year and efficiencies in AI. Operator: Your next question comes from the line of Will Nance with Goldman Sachs. William Nance: I was wondering if you could expand a little bit on the pricing and competitive environment out there. And in particular, there's been a lot of focus around some of the core consolidation happening at the competitors. Are you guys seeing an increased willingness to explore converting cores in the market? And how are you feeling about your chance of maybe shaking loose a couple of those opportunities? Gregory Adelson: Will, thanks for the question. I think we're not seeing anything more significant. I know, obviously, there were some recent announcements on collapsing the number of cores for one of the providers and things along that line. It's still early. I think our pipeline is still remains very significant. As I mentioned in my script, we've already seen some nice wins for the quarter. And so I anticipate that will continue to be at a fairly normal pace. I haven't seen anything out there that has seen any more intense competitive pressure than I would have said 6 months ago, though, at this point in time. Mimi Carsley: I think, Will, the only other add I would say to the point that Greg made in his prepared remarks, the changes we've made operationally around limiting the impact from pricing compression to your -- the first half of your question around pricing, we're starting to see the fruits of the labor paying off. So we're seeing stabilization from that headwind. We're quite excited by the collaboration between our sales, operational teams around that and going after that, and that's reflected also in the sales mix numbers that Greg talked about. Operator: Your next question comes from the line of Dan Perlin with RBC Capital Markets. Daniel Perlin: I just wanted to maybe revisit the sales momentum here and the conversions into private cloud. So I think you said you signed 7 clients to convert to private cloud. You're at 77% today. So you're getting pretty high on the penetration rate there, which is clearly a positive for the revenue uplift. I guess what I'm ultimately getting at is, as you think about the strategy to increasingly sell outside the core, can you just maybe update us on where that progress is? I know you've got a lot of initiatives underway, but it would be helpful to kind of refresh that strategy here. Gregory Adelson: Sure. Thanks, Dan. Yes. So as I mentioned, we're still -- we're right at 77%. As we've talked about, we still see a good 5 to 6 years of continued progress at the numbers that we've been seeing based on -- over the last several years, we've been averaging between 35 and 45 of those migrations. We believe we're on track to do that again this year. As I did mention, some of those are larger customers just based on a lot of the larger customers are more reluctant at the time to make those changes. But to answer your question about outside the base, yes, so we are highly focused on all of the new Jack Henry platform components that we've built are all core agnostic. So every one of those have opportunities to be sold outside the Jack Henry base and creating opportunities for us to leverage larger opportunities. That's been something that we've talked about for the last several years. We had 2, we had a regional -- a very large regional and a super regional at our client conference in September, again, exploring the various opportunities there. We talked about Banno going outside the base. Our team will start selling that and having opportunities in January of '26. So we'll be out actively working, and we already have a couple of potential opportunities identified, but Banno will be something that will continue to create opportunities. And then everything we're building today in the platform even related to our SMB strategy. So the Tap2Local or the Rapid Transfers, we've created companion apps that will allow us to sell all of those to competing digital providers and allow them to utilize that technology and creating a consistent revenue stream for us as part of that. But we're -- obviously, we're launching first with our Banno clients and eventually, we'll be offering that more broadly out in the market. So it's going to create a continuous opportunity for us to connect with outside the base core opportunities as well as complementary and payment products. And by the way, Victor, the Victor acquisition will also allow us to do that, creating opportunities with some of the non-Jack Henry core clients as well. Operator: Your next question comes from the line of Kartik Mehta with Northcoast Research. Kartik Mehta: Greg, I think you and Mimi both talked about the consolidation and obviously, increase in deconversion fees. Just a 2-part question on that. One is, what type of impact do you expect that to have on your recurring revenue into next fiscal year? And as we go into calendar 2026, do you think we'll have the same amount of core activity? Or do you think that slows down because there's all this M&A activity and banks will want to wait to see how that plays out before committing to converting a core? Gregory Adelson: Yes. Thanks, Kartik. So I'll take your first question first. Yes. So we had talked about in the August call, just we had timing. We typically win more than we lose. There was some timing based on some size deals, and we had talked about that being a headwind. We've actually started to see that kind of level itself out, especially in what we call convert merge activity, which is our customers buying other customers. We're already seeing just in our banking segment, almost double the number of convert merge that are on the calendar for this year as compared to last year. So again, that's starting to level itself out. A lot of the impact that we saw for the year that was heavily weighted towards Q1, and there were some opportunities there that we, again, started to rightsize. To answer your question on the number of core activity, I think based on our pipeline, based on our typical success rate, I would say that we're going to be right where we typically are around that 50 number, and the team feels very confident about that as well. There could be some additional opportunities, again, by what was announced with one of the providers in the consolidation of some of their cores. But that yet -- again, that was just recently announced and activity is still being built. But that could increase the number. Don't know, but a lot of those are also smaller deals. So we'll have to see kind of where those fall and if they end up being ones that are acquired prior to making a core change. Mimi Carsley: If I could add a little bit more just from a context, you might find this metric interesting, Kartik, but it really shows to me the real resiliency and the attractiveness of our FI segment. But if you look at the last decade or so from like 2014 to 2024, within the M&A context, you'll see far less activity within the segments that really represent the majority of our customer profile. So within credit unions within the [ $100 million to $10 billion ] segment contracted 13% versus the total market contraction of almost 30%. And banks, it was even more apparent with actually growing that market segment 4%, while the total market contracted 30%. So to me, that really shows the health and attractiveness and the limited impact overall from the continuation of the 4 decades of industry consolidation in our segments. And if anything, we've historically talked about that being a growth engine for a lot of our clients. Gregory Adelson: Yes. And I'll just tag on one other comment that I think is important, which I emphasized in my opening comments around our platform. Our platform strategy and our ability to innovate as quickly as we are is allowing us to keep a foothold on opportunities even when our institutions are being acquired. We're getting time at the table. There's been several instances where we've been invited even though that we know that the acquiring institution is going to move off of their existing -- or keep their existing competitive core. We've been invited in to speak about what we're doing and where we're going as part of their future plans. So there's a lot more opportunity for Jack Henry in these deals than there was even a several years ago. Operator: Your next question comes from the line of Jason Kupferberg with Wells Fargo. Tyler DuPont: Greg and Mimi, this is Tyler DuPont on for Jason. I just wanted to ask not to pile on core banking, but I just want to ask about the trends you're seeing. I heard in the prepared remarks you guys signed 4 takeaways, and you're comfortable with the 50 to 55 target. But just from an asset size perspective, could you maybe clarify the average size of the wins you're seeing in the quarter? And how that sort of coincides with your longer-term strategy to move upmarket and to claim those larger wins? Gregory Adelson: Yes. So I appreciate the question. Yes, I mean, we closed 4 deals for the quarter. One was a multibillion-dollar deal. If you go back to last year, we closed 16 multibillion, 4 over $5 billion, and we're on track to do that or better this year. So based on what our forecasts are and what's in the pipeline, the first quarter results fall directly in line with what our expectations would be. Operator: Your next question comes from James Faucette with Morgan Stanley. James Faucette: Greg, you mentioned the Bank Director survey and the median growth in tech spend. I'm curious, just given where we are in the deposit cycle and the prospect of accelerating loan growth next year with change in interest rates. I was hoping you could help us to stratify the differences in demand from your customers for deposit attraction versus retention versus lending and how you are allocating resources to one side or the other, whether it would be to lending or the ledger side? Gregory Adelson: Yes. So I'll give you a couple of comments. I think Mimi has got a couple as well. So I think what I would say is that from a interest level, obviously, the loan portfolio is continuing to increase as with opportunities. But the real concern with most of the institutions today is maintaining the deposit growth to allow that customer base to have opportunities for lending. And so when you look at the things that are happening in the market today, so whether that be neobanks or stablecoin or other things that -- and again, even what we've seen in the SMB market where a lot of these smaller customers or in this case, sole proprietors are banking at other outside of the community banking space for their SMB needs, that's where the real concern is because they're losing those clients without the right solution sets to keep that in. So there's a lot of interest, obviously, to find opportunities on the lending. But today, I think their bigger focus is efficiency and deposit growth as of right now. Mimi Carsley: And the only add I would say is that we consistently see through our own survey that we do that both deposit gathering as well as lending remain in the top 4 priorities in the last 3 years. Sometimes they horse trade in terms of which is outpacing the other, but both are certainly top of mind. I would say in Q1, James, we started to see a little bit of the signs of an increasing pace of lending activity, whether that was some enthusiasm regarding the overall economy, inflation coming down, the expectations of the Fed starting to move, but we are starting to see a small uptick in the pace of lending, which is a very encouraging sign. Operator: The next question comes from Dominick Gabriele with Compass Point. Dominick Gabriele: I have to say, I think you guys sound pretty fired up on this call in the prepared remarks. And one of the things with Jack Henry is the level of revenue growth. And it sounds like you're limiting pricing compression and stabilizing that headwind. I was just curious, given where your current guidance is this year versus previous years, maybe you could -- is there any chance you could quantify that headwind of pricing over the last 12 months and how it possibly went into your current guidance and what those mitigation efforts like actually are in the business? Is it like salespeople having different mechanics or something along those lines? Mimi Carsley: Sure, Dom. So I would say that we started to see that impact last year, which is why we called it out, but we're seeing it flow through the P&L this year. But from an encouraging sign, I would say we've seen a stabilization through the operational activities, the collaboration between sales, the programs that the leadership team has put in place, we're certainly seeing that headwind abate and we -- but we need to see the whole impact flow through this year. So I wouldn't give a precise number from an expectation, but it was certainly one of the larger causes for the lower guide this year versus our longer-term growth plan. The other area was a modest expectation from consumer sentiment health and the spending. And thus far, we've seen a pretty robust consumer spending. We've seen card. That was part of the Q1 outperformance was card came in higher than expectation. And while we still have a lot of the year to play out, we remain upbeat and optimistic on a modest continuation of that spending trend. Gregory Adelson: Yes, Dom, I'll add a couple of comments around kind of process stuff. Just yes, I mean, we took a very detailed approach with sales operations and finance. It took us several months to get it to where we wanted it to be. And we actually started to see the processes come together at the end of fiscal year '25, so in the fourth quarter, where we saw performance improve, and we've continued to see it through the first quarter. But we still, as Mimi had mentioned, we still had some deals that were already done, especially some larger deals. As I noted last year, we did a lot of -- a lot more renewals than we did the year previously and a lot larger clients. So some of the impact was already felt. But the new processes that we put in place, the structure and the rigor of communication and collaboration amongst all of the teams to ensure that everybody was in sync was a big part of what we were focused on. And honestly, it's exceeded my expectations this early. So we're very optimistic that things will continue down that path as well as having less renewals than we had last year by about 20-something percent. So that's another component of this. But again, a lot of what was baked into the original guidance was because it was already baked into the deals that were done in fiscal year '25. Operator: The next question comes from the line of Dave Koning with Baird. David Koning: Good job. And I guess my question, card processing revenue accelerated about 2%, which was nicely better than industry trends, which were pretty stable to maybe a little acceleration, but 2% is a lot better. And I know you called out a lot of the newer types of payment services growing really well. And I guess the question is, is that sustainable, like this higher level of growth now? Are those other things contributing enough to kind of keep this at a higher pace? Mimi Carsley: Dave, I would say it's a combination of a number of factors within the payments segment. One is, as we talked about, the U.S. consumer spending at a better clip than I think we were concerned about last year as an economy as a whole. So you're seeing that a healthy pace. I want to say it's a crazy pace of exuberance, but a healthy pace of the U.S. consumer spending. The other is the ancillary services surrounding card have been very healthy. So we have a number of services that complement the payments card business. We've seen healthy uptick in growth in those businesses. The stabilization and positive performance from the EPS business really helps. That's still a large segment portion of the payments segment. And then on the faster payments, even though it's off of small base numbers, we think there's a lot of upside from the solutions that are going to drive adoption and volume on the faster payments. So we're quite positive on the momentum there. Gregory Adelson: And Dave, I'd like to add one other component. We are actually starting to see a lot of the value of our Payrailz acquisition coming into play now. We're starting to see a nice uptick in Payrailz/iPay Bill Pay opportunities. We're seeing less compression. We're seeing less deconversion. We're seeing all kinds of things that are generated as what we expected out of that acquisition starting to come to fruition now. So that's another key component based on the size of that business helping to help drive some of that as well. Operator: The next question is from Darrin Peller with Wolfe Research. Darrin Peller: Nice quarter. Just to clear up a little bit. I mean, I know when we came out of last quarter, there was obviously those few items called out. And you touched on some of the progress and what you're seeing around things, whether it's bank M&A or pricing and renewals and generally account growth at credit unions impacting your initial guide by a bit. Clearly, you're seeing good outperformance, like you said, even on the card side. But when we think about where your confidence is around some of the newer areas, again, you mentioned faster payments, but Moov partnership, Tap2Local, Rapid Transfers. Do you see those being enough to spool up so that by the end of the fiscal year, you basically have 50 bps maybe plus that could have replaced what you -- some of the headwinds are impacting this year by. Is that going to be big enough and material enough in your view? And just maybe a quick update on how some of those are trending as well. Gregory Adelson: Yes. I mean it's a good question, Darrin. I think the issue is that specifically tied to Tap2Local and Rapid Transfers, as I mentioned, we're just now rolling that out. I can tell you, we have very high expectations of what it will be long term. And based on the feedback we got at our client conference and what we're seeing initially with customer excitement, we feel very strongly. Now whether it's going to be a 50 bps increase, I'm just going to probably say probably not. But if it is, we'll start to know more here in the next couple of quarters. But I can tell you that for the long-term growth, everything that we're doing in the SMB, which, by the way, this is only Phase 1. There's going to be multiple phases of what we're going to do in this space tied to driving opportunities in both our digital offerings and our payment space. But related to faster payments, related to some of the things that we believe is going to happen, we had a call with the Fed recently. I think the Fed is going to get really serious about pushing various treasury activities and driving more opportunities on the send side of faster payments. That could create some additional revenue flow. But everything that we are doing and even what we've seen with some of the improvements, as I mentioned earlier, on renewals, obviously, the market environment with 10% being the spend with various core opportunities, all of that will help contribute to what we originally stated were going to be headwinds. But it's still -- we're Q1, so it's still early to be able to fully determine what that will be yet. Mimi Carsley: Darrin, I would echo Greg's commentary. There's a lot of reasons to be pleased by the initial reaction and even the momentum we've seen from the uptake and the waves of installations that we have targeted. But I think at this point, the reason for sharing them is really as an indicator and a validation of our investment for growth and the level of innovation, less so the in-year impact from them. But as we think about what they could grow to be over the imminent next few years, it gives us great optimism around being within the range and to the upside of that range and opportunities to start thinking about the next new range possibility. Darrin Peller: All right. That's helpful. And can I just follow-up quickly on the competitive landscape for a moment because I know this came up a bit earlier, but the core consolidation going on at one of your competitors, obviously, that's been talked about a lot. When you think about your -- I know you're reiterating your range of what you'd expect to add from a core standpoint. But when you think about what you're seeing in the market in terms of the magnitude and level of RFPs even, have you noticed any changes more recently in the last, let's call it, 6 months or 12 months? And do you -- or are you hearing rumblings of more change to come on that front? And then I guess, capacity, when you think about your capability to handle if we were to get another 20 potentially, let's say, 50 went to 60 or 70, is that something you see yourselves being able to handle well? Gregory Adelson: Yes, it's a great question. And I'll tell you, from a standpoint of the time frames you gave, like I said, a lot of the news that has come out, I mean, obviously, they announced at their client conference, they were doing the consolidation of the cores, but it got a little more pronounced in the last week with other things. So the activity itself, I wouldn't say, has significantly increased any more than what it's been. I do anticipate that to happen just based on any time anybody announces core consolidations, there's just as an uptick. To answer your question on capacity, yes, we are 100%. We can gear up. We do that already based on timing of things that we have happening in M&A, things that we have in M&A, I mean, in new core wins. So bringing on teams, we do that regularly. We're good at it, and we're not concerned about that. And the other thing is we've done a lot on the AI side related to how we handle RFP responses and things like that. So our acceleration of being able to handle an accelerated amount of RFPs doesn't concern us. But the sales team is all over it, and I anticipate that to be a -- that's a siren, I guess, yes. Sorry. But I don't anticipate that being -- yes, no worries. I don't anticipate that being a concern at all, Darrin. And we'll continue to update you as this goes on. But I will tell you, that we are starting Q2 off with a very nice start to competitive core wins. The one thing I do want to call out is we continue to be the only one that actually announces the number of core wins. So a lot of people reference the number of increase that they have and all of that, but nobody else actually puts out a physical number. So we get held to a different standard, I think, than maybe some others. Mimi Carsley: If I could add on to the thoughtful comments that Greg had, our sales team does a remarkable job of working with prospects. And while I agree, we will see an enhanced kind of acceleration of interest an opportunity that comes from the core consolidation announcement of competitors, the lack of innovation that they've offered for a number of years has already created that demand for opportunities for us to talk and show the solutions -- the innovative solutions we have to offer. So to me, this is a potential acceleration. A lot of clients still are going to wait until the end of their client contract length to make a change, but it's certainly an exciting opportunity because it solidifies the message we've been talking about, which is they need to make a change. They can't just stay on a nonmarketed, not innovative core to meet the needs of their financial institutions. So we're excited about what that could potentially be in the long run, but it's more of a consistency for our sales team. Operator: The next question is from Cris Kennedy with William Blair. Cristopher Kennedy: Can you just talk a little bit more about Victor kind of who the target customer is for that? And what type of interest and opportunity you're seeing with that asset? Gregory Adelson: Yes. Thanks, Cris. A couple of things. So one, it creates opportunities for banking as a service within the banking and credit union market. So as we mentioned already, we have SilverLake integration today. We have several of the Jack Henry core clients that are utilizing the service. So we were already partnered with Victor on that front. We'll be -- and we're connected to our PayCenter offering as well, and we'll be doing the credit union business. But now it's creating opportunities in our treasury management platform. So embedded finance payments and the ability to drive additional payment types like integrated payables, things along that line are all candidates for that. There's also opportunities to work directly with fintechs to facilitate payments for them. So we have several fintechs that are actually already directly integrated into the Victor solution set, and we're processing those payments. The pipeline in only 30 days has candidly grown to a pretty nice number. We're getting ready to already close our first new bank in 30 days, and we have several others that are very interested, but we have a long list of fintechs that are very interested. So it creates an opportunity for us with a diverse revenue stream, creates opportunities for the banks to have diverse revenue streams as well. So we're very bullish on what this is going to bring. It creates some opportunities for some of our stablecoin strategy as well, and we're utilizing some of the technology in that front. But I view this acquisition as a real opportunity for Jack Henry to immediately play in a space that is expected to more than double in the next 2 to 3 years. Operator: The next question is from Ken Suchoski with Autonomous Research. Unknown Analyst: This is [ JD ] on for Ken. I wanted to ask about margins. I think the 1Q margin looked really strong, and I think there's some seasonality in there, but you landed well above the full year range. I think you mentioned some of it is timing and you feel confident about the full year, but when we think about 2Q, you obviously have Connect moving to September from October last year, how should we think about margins next quarter? And maybe if you can help us to shape the rest of the year. I want to make sure that we're not missing anything. Mimi Carsley: Sure. I think the first and foremost, I would encourage you to look at an annual basis for our performance. The individual quarters can have just different rhythms based on implementation or the comps from a year-over-year basis. And so while Q1, we're thrilled by the epic performance in Q1 and raising for the full year, I would say that there's things at play. There's a modest conservatism as well just because of the nature of some of that savings being personnel-related benefits and others, some of it based on the timing of some of the projects, also just -- so some of that we expect from a catch-up perspective and other opportunities for investments for growth plans. We have a modest forecast, but it also allows the opportunity to enhance or accelerate some of the activities we're doing in AI and platform projects. So again, looking forward to the full year, pleased to see the uptick from a guidance perspective for the full year. I think that's a natural course of the levers that are inherent in our business. Glad to see the compounding nature of the margin expansion, but I wouldn't look too much to any one quarter. Rather, I would look to the overall outstanding expectation for the year. Unknown Analyst: Great. And maybe if I can sneak one more in. I think you mentioned 56% of renewals in deal mix. I think that implies renewals were down quite a bit from last year. I guess is it fair to say that you'll see lower renewals this year compared to last year? And maybe if you could talk a little bit about how retention rates are trending. Gregory Adelson: Yes. And I apologize, but part of your, first part of your question broke up. So could you repeat the first part, please? Unknown Analyst: Yes. I think you mentioned in your prepared remarks how 56% of renewals were part of the deal mix, and I think that implies renewals are down year-over-year. So I just wanted you to comment on that. Gregory Adelson: Yes. So as I mentioned, last year, we had a significant number of renewals from even greater, I think it was 12% more than the year previous to that and much larger institutions that we renewed. It was $94 billion in assets versus $224 billion in assets. So just even last year, we had much larger renewals and a #2. So we have a smaller number of renewals this year and a smaller number of very large customers. But the processes that we put in place, part of it was to focus on ensuring that we were going after a larger number of new deals and not relying on the renewal process, pulling in any renewal sooner than it should be and things along that line. So the team has done a great job of adhering to those things, focusing on the new opportunities and managing the relative price compression that we typically see much better than we have in years past. Mimi Carsley: I think the only add-on I would say is that we have not seen any change from the incredibly high retention rate that Jack Henry has experienced historically. So absent M&A, near over 99% retention. So no changes there. So not only are we having great success with new customers and new product -- new prospects and renewing existing, but we're not seeing departures. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Vance Sherard for her closing remarks. Vance Sherard: Thank you, Jeannie. As Greg mentioned, our Annual Shareholder Meeting is on Wednesday, November 12, at noon Eastern Time. We look forward to hosting those who attended our headquarters in Monett, or those who joined the webcast. Management will present in person at multiple investor events, both domestically and internationally prior to the calendar year-end, and we thank all Jack Henry associates for their outstanding efforts and commitment, which contributed to the start of another successful fiscal year. Thank you for joining us today. Jeannie, please provide the replay number. Operator: The replay number for today's call is (877) 344-7529 and the access code is 3613183. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Mia Nordlander: Very welcome to Sinch Q3 2025 Report Presentation. My name is Mia Nordlander, and I'm Head of Investor Relations & Sustainability. With me here today, I have our CEO, Laurinda Pang; and our CFO, Johnas Dahlberg. We will hear them presenting the quarter and thereafter, there will be time for questions. [Operator Instructions] So once again, very welcome to this presentation. I hand over to you, Laurinda. Laurinda Pang: Thank you, Mia, and thanks, everyone, for joining us today. One year ago, at our first CMD, we shared a strategy for value creation and today marks a clear milestone of our disciplined execution and value delivery on that strategy. Let's turn to Slide 2 to look at the highlights from the quarter. As we begin, I will remind you of the continued large FX headwinds in the quarter, mainly due to a weak U.S. dollar. As we always do, we will point you to organic changes, which normalize these swings and are a consistent representation of the underlying business. I am pleased to report a quarter of continued organic gross profit growth, improved profitability and the initiation of our share buyback program. We delivered solid performance that demonstrates focused execution against our strategic priorities, even though currency effects obscure some of the underlying momentum. Gross profit of SEK 2.3 billion grew 5% organically year-over-year and roughly in line with last quarter. We expanded gross margin to 35%. Both the gross profit and gross margin development are a testament to the strength of our offerings and our focus on higher-value interactions and more profitable product lines. Our ability to expand profitability in a dynamic market highlights the resilience and efficiency of our business model. However, turning to the top line. Net sales were flat year-over-year at SEK 6.7 billion, and I want to be direct about this. While our profitable growth is very positive, this level of revenue is not what I expect nor is it the shape of the growth we are aiming over the long term. I'll address this further on the next slide when we break out the regional segments. Adjusted EBITDA of SEK 915 million increased organically by a strong 8%. This was an adjusted EBITDA margin of 14%, which was the highest on record since 2019 and was driven by gross profit growth and operational efficiency. As a reflection of our confidence in our strategy and financial strength, Sinch initiated its first ever share buyback program during the quarter with 1.8% of shares now held in treasury. Beyond the financials, we are proud that Sinch was named a leader in Gartner's Magic Quadrant for CPaaS for the third consecutive year, a powerful validation of our market position and strategy. We also ranked #1 in their critical capabilities for CPaaS report for multinational organizational use cases. This highlights the strength of our platform's ability to meet the complex needs of global enterprises. We also strengthened our position in AI during the quarter with leading innovators across all regions adopting our API products to power customer engagement, underscoring the scale and robustness of our platforms. And in an important milestone of conversational messaging, we launched RCS for business with all 3 major mobile operators in the U.S., cementing our leadership in this transformative channel. Let's look at Slide 3 next, please. To begin, let me provide some color on the flatness in net sales. This primarily reflects 2 factors: First, we've encountered competitive pressure in the traditional messaging space concentrated within a few large accounts in the Americas customer base and in the India market more broadly. Second, we have continued to steer away from fixed price contracts that have negatively impacted EMEA and, to a lesser extent, Asia Pac as these opportunities do not fit an acceptable risk profile. However, we're not standing still. We are proactively reshaping our revenue profile for more sustainable long-term success. This strategy is twofold: first, diversifying our customer base; and second, accelerating our leadership in conversational messaging. We are making excellent progress on customer diversification, having recently secured several notable new enterprise clients who are in the early stages of ramping up their volumes. While their full contribution is not yet reflected in our top line, they represent a significant driver of future growth. And the key reason we are winning in our leadership is our leadership in conversational messaging. We grow here by winning new customers directly on to modern channels like RCS and WhatsApp and migrating our existing base to these higher-value interactions. In India, for example, this combined success in over-the-top channels and strong growth in e-mail has neutralized the pressure on traditional messaging. In the Americas, while net sales were flat, the region delivered strong organic gross profit growth of 8%, with margins expanding by 2 percentage points. This was driven by a strong turnaround in our U.S. network voice business and solid performance in other product categories. In EMEA, organic net sales and gross profit declined by 2% and 3%, respectively. This was primarily due to the strategic decision I just mentioned regarding steering away from fixed-price contracts. Notwithstanding this, the underlying API business remains healthy and is growing. And in Asia Pac, organic net sales grew by -- I'm sorry, 7%. Organic gross profit increased by 1%. The strong net sales performance was driven by new large messaging wins, but was offset by competitive pressure in applications in Australia and the India SMS pressure I mentioned earlier. We've been experiencing this downward pressure for some time, but Sinch India has now stabilized sequentially. Before we leave this slide, let me reiterate the actions I mentioned diversifying our base, leading in next-gen messaging and e-mail and improving our commercial terms. These are fundamental to building a more resilient and sustainable business. They strengthen our foundation and position us to capture higher quality growth going forward. Next slide, please. Our strategy for value creation is very clear. We are executing with discipline. It is built on 3 core pillars: reaccelerating growth, expanding our EBITDA margins and disciplined capital allocation, all fueled by continued cross strong cash generation. The third quarter marks another period of significant progress across each of these pillars and is another firm step on our path to delivering our midterm financial targets of 7% to 9% organic growth and 12% to 14% adjusted EBITDA margin by the end of 2027. Next, on Slide 5, let's look at the progress for growth reacceleration. The 4 growth drivers we outlined are deeply interconnected. In enterprise expansion, we are winning with the world's most demanding businesses. Our large enterprise customer base has increased by 5% year-to-date, including the addition of companies like Nespresso, Visa, Dollar Shave Club and Nordstrom. Our self-serve products continue to be a powerful growth engine, delivering high-margin, double-digit growth year-to-date. As another proof point, our self-serve capabilities are resonating in the market. We have increased our customer count to more than 190,000. As it relates to RCS, our traffic has tripled year-to-date. And as mentioned in the third quarter highlights, we have now fully achieved coverage with all U.S. Tier 1 operators. Touching quickly on our continued strength in e-mail, volumes have increased nearly 40% since last year. And finally, partners and ecosystems, which is all about scale. We embed Sinch directly into the workflows of the world's leading enterprise software companies. The partner-enabled business has grown gross profit by 5% on a year-to-date basis. These growth drivers are powered by 2 major opportunities. The growth in conversational messaging and the rise of generative AI. Let's move to Slide 6 to take a look at our progress in conversational. We are a leader in this transformation and the momentum in conversational messaging is a clear testament to the market's demand for richer engagement to enhance the customer experience. Our RCS message volume growth is being led by India, LatAm and early adopter markets in EMEA, like France. And in the U.S., we have some great early use cases with brands like Enfamil and Omaha Steaks. We have launched WhatsApp upscale as a complement to RCS upscale. This is more than just switching channels. It's about delivering real business impact through better security and higher trust, improved conversion rates and more innovative customer communications. To illustrate the last point, our customers, Picard, Courir and Clarins were nominated for innovation awards for their high-impact RCS campaigns. Clarins took home the win. By transforming customer communications with rich interactive messaging, their campaigns deliver much higher engagement and stronger business outcomes. Next page. Generative AI is set to dramatically amplify the effectiveness of conversational messaging. While these 2 phenomena evolved independently, they are now creating a powerful synergy, where each makes the other more valuable. Put simply, consumers now expect conversations that are intelligent and context aware. AI provides the intelligence to meet this demand, while rich channels like RCS and WhatsApp provide the perfect vehicle to deliver those enhanced experiences. This powerful combination is creating an exciting new era for digital customer communications. In this era, machines themselves are becoming new buyers of communications. As autonomous AI agents begin to orchestrate interactions, they will drive a significant increase in overall communication volumes. On the next slide, I'll talk about what this inflection point means to Sinch. First, we see strong market validation that we are a platform of choice. The world's leading AI innovators are building their future on our infrastructure, choosing Sinch's APIs to power their communication needs across all regions. This reinforces our unique position as the trusted execution engine. These companies need to know that when AI triggers a message to be sent, it gets delivered securely and reliably every single time. That is our core strength. Our leadership in this new AI era is built on a foundation we have been laying for years. We have strategically embedded AI across our product suite to make our solutions smarter, more intuitive and more valuable. Let me give you a few tangible examples of how we are delivering value to customers today. In e-mail, Mailgun Inspect uses AI for quality assurance and our open source MCP server allows developers to query at e-mail analytics using natural language. In multichannel campaigns, our Sinch Engage platform uses AI to orchestrate campaigns, personalize experience and create content. In voice, our programmable voice API allows businesses to automatically capture and transcribe conversations for compliance analytics and deeper customer insights. And in our core messaging offering, AI is deeply embedded to enable our customers to recognize intent, perform sentiment analysis and protect their users from detecting -- by detecting profanity and spam. We are continuing to enhance our platform's capabilities and enabling campaigns and conversation orchestration. We have already seen a 41% year-to-date volume increase in conversations facilitated through our chat layer platform and are now developing AI agents directly within our Sinch Engage platform. We expect to launch a closed beta with our first customers before the end of the year. In summary, this trend directly fuels our platform's capabilities and growth. More AI adoption means more traffic generating more revenue in our existing core business. We are the essential communications layer for the AI economy, and we are well positioned to grow as it does. With that, I'll hand the word over to Johnas to take you through the financials in more detail. Johnas Dahlberg: Thank you, Laurinda. So let's get into the financials and we start at the top of the [indiscernible] with net sales. So first, a couple of words on our financials. When looking at Sinch's financials, it's important to understand a couple of things. The first thing is that we have a strong seasonal pattern, where there's typically the year-end, that's the strongest driven by the retail season. Secondly, we have significant FX effects. And our reporting currency is Swedish krona, but it's a very limited share of our business. In fact, the U.S. dollar is the dominant currency of trade with about 60% of the business. So there's a lot of FX effect, and that's why we always communicate organic numbers for comparability and communicated year-on-year. So in the quarter, net sales came in at SEK 6.7 billion, and that's down 7% due to currency translation effects. However, when adjusting for this effect, we have a marginal positive organic growth. Now under the surface, there's actually more excitement as we exhibit continued solid net sales growth in our high-margin products such as our e-mail product and several of our applications. Moreover, we continue to diversify our customer base and reduce customer concentration in all this provides a positive mix effect and stronger financial profile, both here and now and for the future. Next chart, moving on to gross profit. Looking at organic numbers, we continued with a stable 5% growth in the quarter with the strongest growth coming from our most important market, which is the Americas. The improvement in Americas is driven by all product categories, including our API and application business, but with a particularly strong quarter for our network business, which is now really back after the turnaround. What's positive in the quarter across the company is that all product categories contributed to organic GP growth as well as 2 out of our 3 regions. However, on a reported basis, we have this currency translation effects and the impact is 8 percentage points as a currency translation headwind. Moving to our margins. Combined, we have a very positive development of our margins with a strong 34.8% gross margin in the quarter, and this is an increase of 1.2 percentage points year-on-year. And this improvement is driven by a combination of both increased profitability at product level as well as a positive product mix shift. As I mentioned earlier, our most profitable products continues to grow faster than the average mix and this is mainly our e-mail products and application hence, contributes positively to the higher margin through a positive product mix shift. Disaggregating these 2 effects, about half of the margin increase comes from a positive development of product margins, while the other half comes from a positive product mix shift. Moving over to EBITDA margins. We delivered close to a record high 14% adjusted EBITDA margin. In fact, in modern Sinch time, I would say, it's highest post-2019 and acquisitions we did in '21, which truly transformed the company. And we also see a very strong margin on non-adjusted EBITDA and we're already now at the upper range of our 12% to 14% EBITDA margin target for the end of 2027 that we established 1 year ago at our Capital Markets Day. So in terms of the targets that we set out 1 year back, one is down and that's the EBITDA margin target and now it's one to go, which is really to get the gross profit growth also going. Moving to the next page to take a closer look at cost and EBITDA. Starting with operating expenses. We continue on our path of cost discipline and continued synergy extraction in the combined Sinch. So OpEx is down 5% compared to the same quarter last year, which represents a marginal 3% organic OpEx increase. Measures we're taking on the cost side are about leveraging truly the combined strength of Sinch, consolidating platforms and products, consolidating support functions to lower cost locations and recently leveraging AI to gain efficiency throughout our operations. I want to stress that this is not a one-off effort, but rather an ongoing effort over several years to increase our cost efficiency, and this effort will continue and there is more potential. It will both support the potential of increased profitability in line with our target as well as allowing for investments in future growth, predominantly through investments in sales, marketing and product development. So with an organic 5% GP growth with only 3% OpEx growth, we get a favorable drop down to adjusted EBITDA with an 8% organic improvement in the quarter. And since we have lower adjustment items, primarily through SEK 41 million lower restructuring and integration charges, we achieved 16% organic EBITDA improvement compared to the same quarter last year. Moving over to cash conversion and cash flow. Operating cash flow amounted to SEK 1.4 billion over the last 12 months, which corresponds to a 30% cash conversion rate and this is very close to our guidance of 40% to 50% cash conversion over a 12-month period. It's important to emphasize that we have some working capital swings between quarters, but this is quite normal for us. So I would like to say that the cash conversion rate going forward and what we report now is very much in line with what you can expect. So just to prove this point, I would like to move over to net working capital. Sequentially, we're essentially at the same level of receivables as the last quarter and the negative impact on working capital mainly comes from lower payables in the quarter. And in fact, it's the lowest level of payables in several years. But in all, we continue to operate the business with a negative working capital, although a slight increase from the previous quarter. So while we have and will likely to have variations in cash flow impacting quarterly, sorry, in net working capital influencing quarterly cash flows, we don't see any structural changes impacting our working capital and stay confident with our cash conversion guidance. Lastly, before handing back to Laurinda, looking at the balance sheet. We continue to have a strong balance sheet with net debt to adjusted EBITDA, slightly increasing to 1.4x. And as you know, in the last quarter, the BOD result activates the repurchase program mandated by the AGM, allowing for a repurchase of up to 10% of outstanding shares. And during the quarter, we repurchased 1.8% of outstanding shares for some SEK 519 million. And in addition, we spent SEK 241 million for an equity swap arrangement to hedge Sinch long-term incentive program. And in this program, a partner bank acquired further Sinch's stock for SEK 241 million. So in total, this corresponds to 2.7% of outstanding shares. And in combination, these are the drivers for a slightly increased leverage ratio in the quarter. What's worthwhile to mention also is that during the quarter, we also refinanced existing bank facilities at largely unchanged and very favorable terms, which means that currently have an additional SEK 4.2 billion in unused credit facilities. And with that, I'm handing back to Laurinda. Laurinda Pang: Thanks very much, Johnas. Okay. So before we go to questions, I just wanted to reiterate our value creation agenda here. It's around 3 pillars: reaccelerating growth, expanding EBITDA margins and a disciplined capital allocation strategy. We've in the third quarter, delivered on all 3 of those, an important step towards our midterm guidance, which we also reaffirm here today. So with that, I'll open it up for questions. Mia Nordlander: [Operator Instructions]. First, online we have Erik Lindholm-Rojestal. Erik Lindholm-Rojestal: Yes. So 2 questions. please, if I may. I'll start with one and then come back with the second one, perhaps. So just on API platform. You had quite solid development in this area in Q2 that seemed to slow quite clearly in Q3. I'm just wondering sort of what gives you confidence that you can reaccelerate in this area? And is it mainly sort of driven by these new enterprise wins and the conversational piece that you mentioned? Or -- and is it fair to say that the growth here maybe will be a bit lower during the period of shutting out these fixed price contracts in EMEA? Laurinda Pang: Yes. Thanks, Erik, for the question. To your point, the 2 pieces or the 2 headwinds that I called out do both affect the API platform. And to your point, the fixed price contracts will -- they will cycle out over the next several quarters. So that will continue to put pressure from a year-over-year standpoint. However, the increases in the new customer wins, those are within the API platform. And as those volumes come online, we've seen some of them, but they're not at full levels. But as those volumes come online, they will have a positive impact as well conversational messaging. It will show up in the API platform as well. So we've called out the headwinds, but we also have a good line on what the incremental growth will look like. And I'm sorry, one last point I would make is the AI contracts that I talked about that we have come to agreement within the third quarter. Those will also positively impact API over the long term. Erik Lindholm-Rojestal: Great. And just as a follow-up to that, perhaps, I mean how meaningful are those AI contracts today? And when do you think we will start sort of moving the needle meaningfully on the group level? Laurinda Pang: Yes, they're not meaningful today because they just got -- the agreement just came to term. So they've yet to ramp. The way that I see this -- this new way of doing business in this new AI world with these innovators is they're going to come to us with regards to specific use cases, and they will grow from there. So I do think that, as I mentioned in my prepared remarks, this combination between AI and conversational messaging will absolutely generate larger volumes for communications, ultimately, and again, these newer contracts are the first step to being able to capture those volumes. Erik Lindholm-Rojestal: All right. Perfect. And then just a question on customer connectivity. It's really a stellar quarter and it looks like more than 20% organic GP growth in Americas in this segment. I mean how sustainable do you think this gross profit level is? And yes, what are your sort of more long-term hopes for this business? Laurinda Pang: Sure. On the network connectivity side, if you remember a bit over a year ago, this part of the business was on a fairly rapid decline, and that resulted from some significant price increases from carriers in the U.S. And we have completely reversed that. So the performance in network connectivity today is as a result of turning around that business that comes after really 3 aspects. The first was price negotiations. The second was price increases to customers that leverage these services. But then the third was also the transition from the legacy network infrastructure into a go-forward infrastructure. And I think we've spoken about that quite a bit in the past. So the price increases to customers you can only go so far. I would say that we're getting closer to the end of that. The cost savings from price negotiations are fairly flat, I would say. But the larger opportunity for us is to get completely off of this legacy infrastructure that will have a very meaningful impact to us on the cost side. The other thing I would call out in Q3, and I apologize, is there was an actual release -- an accrual release that positively impacted us in Q3. So you should not look at Q3 performance for network connectivity and think of it as the new baseline. It's unusually high. Erik Lindholm-Rojestal: All right. Great. Are you able to quantify that one, the accrual? Johnas Dahlberg: I think what you should look at is more the sequential development and then from previous quarters, which is a step-up from previous performance. And then it's difficult to say with precision, of course, and we don't give exact guidance, but it gives you a hint. Mia Nordlander: Next online, we have Ramil Koria from Danske Bank. Ramil Koria: Just trying to parse out sort of the moving parts here. Trying to sort of understand what's new here in Q3, which you didn't know going into the quarter, so to say. So the pressure in Australia, competitive pressures on large U.S. customers, fixed price contracts in EMEA being phased out. Like what's new of this? And why did you decide to take the actions you took now in Q3? Laurinda Pang: Ramil, excuse me, it wasn't my voice. So if you remember, in Q2, what we said from a GP perspective was that you should expect the average of the first half of the year to look quite similar in the second half of the year. So I think we started in Q1 with 2% gross profit growth, and we went to 6%. Now we're roughly at 5%. So we actually did call for a fairly, call it, quarter-over-quarter stable quarter. And so the fixed price contracts is a continuation. I raised that in the first quarter. I wanted to remind everybody of that because it did dramatically affect the EMEA business this quarter. And then as far as the price compression or the price competitiveness, that's been going on, I would say, for roughly the last call it 6 months or so. And so we've had to make a few concessions there. But conversely, we've had some good wins. So these are pieces that we've known. And we're just telling you what the headwinds are that affected us this quarter. Ramil Koria: That's very clear, Laurinda. And then, I mean, I'm clear, clearly, there is some mix shift happening in the business as well. Year-to-date, the gross margin is up more than 80 basis points year-over-year. How dependent are you on volume growth into 2026 to deliver on the notion of Sinch being a growth company? Johnas Dahlberg: So first of all, the most important metric for us is GP growth. Having that said, over time, we obviously need net sales growth as well. I think it's -- the audience has to define what's a growth company. But we are progressing towards our target of 7% to 9% gross profit growth at the end of 2027. You remember that we set out 2 targets 1 year back. One was on profitability. We said we would deliver 12% to 14% EBITDA margin on an adjusted basis, we're now actually at 14% and nonadjusted 13%, so we're already at the upper range. So one down, one to go. But we also said it won't be a straight linear extrapolation when it comes to growth. So we are confident that we're on the right track towards our targets and we're progressing basically. Ramil Koria: Okay. And then a question I've asked before, perhaps I'm sounding like a broken record here, but trying to understand like where the competitive pressures are coming from because all your listed competitors operating in the U.S. have higher gross margins and they seem quite reluctant to dilute the gross margins? And you guys coming from sort of a lower base, so to say, in having the scale benefits, when you bargain with carriers. Could you shed some light on -- are these U.S., European or Rest of World players competing for these volumes? And where are the volumes originated that you're giving concessions on right now. Johnas Dahlberg: So first of all, the absolute level or the gross margin level with competitors depends on the mix. That doesn't mean that they have parts of the business where they can compete with us and be quite aggressive. And where we see competition is -- competitive pressures is mainly on a very limited number of very significant accounts, who basically set up multi-vendor relationships and there, it's highly competitive. Now this is a continuous competition. And we -- sounds like we're losing any customers. We may have lost a bit of volume, but we can fight back also. Laurinda Pang: And Ramil, the competitive pressure we're talking about is predominantly on the messaging side, the traditional messaging side, right? So yes, we've had a disciplined approach, but we also have the ability to change the product mix and deliver on higher-valued products, which do bring higher gross margin. So when you look at the overall mix of the business, to your point in shifting and it is maintaining our gross margin level. And so I would just make sure that that's not lost on the audience here. Ramil Koria: Okay. And then just geographically speaking, where are you seeing the competitive pressures in terms of termination of the volumes? Laurinda Pang: So it's -- as I mentioned, a few accounts in the Americas, we're seeing large pressure in the India market very specifically, but that is intra India. It is based off of the telcos getting into the SMS business for large local companies. Those are the 2 callouts that we would make. Mia Nordlander: Next one is Predrag Savinovic from DNB Carnegie. Predrag Savinovic: The first one, based on what you said, our network connectivity and on accruals, so if we think then of organic GP growth for Q4 and sort of start of 2026, will these growth rates be declining from the level we see now in the third quarter? Johnas Dahlberg: Sorry, I didn't exactly get your question here please. The accruals? Predrag Savinovic: And based on what you said in terms of network connectivity that the growth rate there could be on an alleviated level right now in the third quarter. So if we look down to Q4 into 2026, the start of '26, could we see that the growth rates will be declining from the levels we see now in the third quarter? Johnas Dahlberg: I think as Laurinda said, you can't use the third quarter as our new baseline for the sequential development of network voice. But -- so look more at the sequential numbers you've had earlier in the year, and then we continue to improve the business. But again, we can't give any precise guidance. What we can say is this business is turnaround, and we continue to work on the cost side. Shifting out legacy TDM technology with much more cost-efficient IP technology, and that will continue to drive margins, but that will mainly come in the next year. Predrag Savinovic: Sure. And I was unclear. I was thinking more of based on the potential extra tailwind in that segment and then refer more to the organic growth rates on group level, if 5% makes sense or 4% makes sense, average of Q1 to Q3 makes sense towards the next coming 1, 2, 3 quarters? Johnas Dahlberg: Yes. So what we've said and what we continue to say is the same thing that the second half of the year on average will be in line with the first year -- first half of the year. Predrag Savinovic: Okay. Super. Then in terms of the customer account growth of 5% that you call out in Q3, if you can relate this to the first and the second quarters, please? Laurinda Pang: We've been on this study -- this is 5% on a year-to-date basis per drag and so this has been steady since Q1. I think we actually called it out in Q1 as well at 5% and what -- the definition of enterprise customers is customers who are spending north of USD 150,000 per year with us. Johnas Dahlberg: U.S. Laurinda Pang: U.S. dollars, sorry yes, U.S. dollars. Predrag Savinovic: Yes. Super. So basically, you're continuing on a healthy net adds trend on the customer side is the message here. Laurinda Pang: Yes, absolutely. Predrag Savinovic: And then on a follow-up question on what you've discussed on AI so far and the benefit you see and what drives this. So I think from the outside, it looks to me that Sinch is mostly beneficiary from playing on the infrastructure level rather than the application level compared to, for example, Twilio based on the examples you gave, but I may be wrong here, I would love to hear it takes here and more on what Sinch could be powering on an application level as well if that would be the case. Laurinda Pang: Yes. So we actually do both. We have, on the application side, I actually called out a couple of examples of what we're doing there relative to our e-mail product as well as our Sinch Engage platform. So we are embedding AI capabilities into both of those platforms to enable customers to be able to develop their own campaigns, to personalize content, to create content, et cetera. And that -- the application side of the house is the side of the house, it's the highest margin and our self-serve business is growing at a healthy double-digit rate. So that's positive. The other piece to your point is the infrastructure side. Our infrastructure -- the fabric of the network and the capabilities that we have is the perfect vehicle for AI-powered communications. And so that, I think, comes through a couple of different ways. One is through the large innovators themselves and their needs to power their customers and then also with agents more directly. And those can come from the large innovators as well as enterprises as they become more -- they lean more and more into Agentic AI. Mia Nordlander: And next online, we have Laura Metayer from Morgan Stanley. Laura Metayer: 3 questions, please. The first one is on the -- on your midterm growth targets. What do you need to do to bridge your gross profit growth to your midterm targets? And what are the key priorities? Second one is, you talked about early success in terms of benefiting from increased communications from autonomous AI agents. Can you give us a sense of the kind of contract terms that you have on those first contracts that you've been signing? Are they aligned with your usual types of contracts? And then lastly, so AI is expected to reduce the cost of coding and software development, could you please get your view on whether you think Sinch is insulated from the risk of AI disruption in the form of in-housing? And if so, why do you think that's the case? Laurinda Pang: Okay. Laura, so midterm growth. To your point, we have organic growth of 7% to 9% that we've called out and what we need to do in order to bridge that is deliver on the growth drivers that we've called out. So that's expanding enterprise that's to continue this double-digit rate in self-serve -- it's to win in the conversational in the e-mail space. And then it's also the need to win in the partners and ecosystem space. So those are the 4 key growth drivers that we've called out. When we did call those out, we didn't have AI in the mix. And so I would say that AI will be in addition to that. In terms of the contracts with these AI innovators themselves, we're not going to talk about terms per se, but I wouldn't say that they're unusual at this point. I think that right now or I know right now, these sorts of contracts are coming in at a use case level. So they're pretty limited in terms of volumes. But I would imagine as we grow with them, that there'll be terms that will become a bit more aggressive or competitive. And then finally, the in-housing or the cost of coding. Did you -- was your question, do you think we're immune from that or? Laura Metayer: Correct. Yes. Johnas Dahlberg: If there is a risk that we will be disrupted. So if I start, really, the core of our business is a communications -- infrastructure that powers communications and that will not be disrupted. If anything, it will be enabled by AI, making the communication easier and also drive more communication. So the answer is no. Laura Metayer: One follow-up, please, when you talked about the growth drivers for your midterm targets, you said that you can have AI in the mix when you call those out initially. Does that mean that with AI now representing an opportunity for you, you think you could potentially grow faster than what you said are your midterm targets? Laurinda Pang: Yes. We haven't changed our midterm targets yet, but I'm being, again, full disclosure. We had those core drivers outlined 1 year ago, and AI was not a part of it. Johnas Dahlberg: The thing I'd like to add on the midterm growth is you're asking what do we need to achieve to get there? I'd like to remind you that there is a bit of drag currently from the fixed price contracts in India that influence how we deliver on, I guess, comparable numbers. So once we're out of that drag and obviously, assuming there is no new drag coming into the business, that's also positive. Mia Nordlander: Next one is Daniel Thorsson from ABG. Daniel Thorsson: Yes. 2 questions. The first one on the phasing of the fixed price contracts in EMEA and also related to your reasoning on the financial targets being in the upper end of the margin already and now looking to reinvest into growth. Does that mean that those fixed price contracts are actually loss-making because otherwise, they would likely help you to reach a higher GP growth as you are already within the margin range. So just to understand why you do this and also if you have more to come ahead as well? Johnas Dahlberg: Yes. Thank you, Daniel. Excellent question. So the problem with the fixed-price contracts are not really the margins per se. It's more the cash flow profile and the risk profile and if you go back a couple of years, you will actually see the discussion around this contract. So it's part of more risk management and also the sustainability of those contracts is more a transaction over a limited period of time, and it becomes pretty volatile. So -- this is more the logic why we're not super excited about those contracts. We haven't taken a decision to completely exit, but it's more taking a more cautious stance. To provide some numbers here at the peak, this represented maybe 3% of GP and now 2/3 of that is gone and that has happened over a 12- to 18-month period. And now what we need is another 12 months to get it out of the comps. So that gives you a little bit of guidance of that impact. And it's predominantly consolidated in the EMEAs. That's why you see the drag on EMEA. Daniel Thorsson: Okay. Excellent. That's very clear. And then the second one on the increased competition in certain markets you mentioned here. Does that increase your appetite for a return to M&A by consolidating some markets and become a larger player? Or do you view your options differently here? Laurinda Pang: Well, first, I would say that M&A continues to be a part of our strategy, although we've been quiet for the past couple of years as we've been integrating these companies. So very much, we have an appetite for that. Certainly, we've been spending the last 2 years cleaning up inside of Sinch and while we're not complete, we've certainly made progress. So -- we certainly are in a position at this point in time. The balance sheet is strong. So again, we are in a good position. Consolidation needs to happen. We're believers in it. This continues to be a fairly disjointed or disaggregated industry. So there are plenty of opportunities there to potentially consider. Daniel Thorsson: Okay. So can I just end with the final short one here. Is the emergence of RCS and WhatsApp volumes here growing 3x year-over-year? Is that hampering net sales growth, but enhancing gross profit growth due to potentially lower prices but higher profitability for you? Laurinda Pang: No. Mia Nordlander: Next one is Fredrik Lithell from Handelsbanken. Fredrik Lithell: I thought, Laurinda, maybe if we saw Twilio report a bit earlier here last week or something like that. And they had an organic growth of north of 10% and you're about flattish. I know -- I mean, your peers, but you're not apples to apples. So if you would pick some of your pieces apart and compare, where do you see you spend in comparison to Twilio's similar units would be interesting to hear your elaboration on it without sort of picking on Twilio necessarily? Laurinda Pang: Thanks, Fredrik. Yes, it's -- to your point, it's hard to do a direct comparison because certainly, I think the normalization of the business, I know how we do it, I don't know how they do it. So that's hard. The other piece is just the business mix is different, even though we sell similar products, just the segments as well as the geos that we sell in or at least have the majority of our business in is different. If I try to peel it apart and look at a more comparable Americas business, versus Twilio and the growth that we see in the underlying API business-specific to messaging. The comparison is that the gap is not nearly as large as one might look at, at the very highest of levels. So I think for me as the leader of this business, it's important for [ Sinchers ] to play our game and to win in the markets that we have invested in. And within the Americas right now, again, the teams are doing a very good job winning new business so that we can shorten or rather lower the customer concentration in that market. We're doing it with a disciplined approach. We're doing it with multi-products so that it provides a higher value to the customers. And we're also within this diversification also being able to address a market that's a bit lower and less price sensitive than what we experienced at the very highest ends of the market. Fredrik Lithell: But is it so that you feel that you are losing market share to Twilio when you meet Twilio? Laurinda Pang: No, I don't, actually. In fact, I mentioned a lot of the wins -- the good positive wins that we're seeing in Americas and then Asia Pac as good examples, where we, of course, are winning against our competitors. So -- and they happen to be one of them. Mia Nordlander: Next one is Thomas Nilsson from Nordea. Thomas Nilsson: Since you're spending quite a bit of money investing in your network and your infrastructure, how many of your competitors are investing into the network at such an ambitious level? And how do you view this will differentiate the various players in the CPaaS market in the coming years? Laurinda Pang: The network infrastructure, maybe that I'm not sure what you're looking at. Johnas Dahlberg: Can you repeat the question? Thomas Nilsson: I mean your level of investment in your -- in CapEx is quite high. And how many of your competitors do you see investing at such a high level as you and Twilio? And how do you think this will play out in the market in competitive terms in the coming years? How many of your competitors are really investing in the networks where you are? Johnas Dahlberg: Well, I think, first of all, I'm not sure I subscribe to the idea that we have a very high CapEx level, it's around SEK 1.5 billion a year in line with historical depreciation, give and take some change. It is a level we've been at. It's a level we think we will continue to do that. And it's -- don't expect any big changes, at least not material changes in the grand scheme of things. When it comes to our competitors, I can't really comment that and their investment plans. Laurinda Pang: The other thing I would call out is just on the network connectivity piece, we are -- and this might be what you're talking about, Thomas, is -- we have been investing in the migration from a legacy network to a digital or an IP network. That cost will go away roughly at about mid next year. Mia Nordlander: Thank you very much. I think that was it for today. Thank you very much to everyone who called in today. We will be back here with Q4 report on the 17th of February. And if you have any questions, feel free to reach out to the IR Department. We are very happy to answer your questions. Once again, thank you very much, and goodbye.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Sprott Inc.'s 2025 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, November 5, 2025. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking information and forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that may cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements, please consult the MD&A for the quarter and Sprott's other filings with the Canadian and U.S. securities regulators. I will now turn the conference over to Mr. Whitney George. Please go ahead, Mr. George. W. George: Thank you, operator, and good morning, everyone. I'll start on Slide 3. Thanks for joining us today. On the call with me is our CFO, Kevin Hibbert; and John Ciampaglia, CEO of Sprott Asset Management. Our 2025 third quarter results were released this morning and are available on our website where you can also find the financial statements and MD&A. On Slide 4, I'd like to review our third quarter and year-to-date highlights. Our assets under management increased by $9 billion during the quarter, driven by surging gold and silver prices. In October, subsequent to the quarter end, our AUM surpassed $50 billion for the first time. We reported strong sales during the third quarter, driven by interest in both precious metals and critical materials. Our managed equities business has delivered outstanding performance, both during the quarter and on a year-to-date basis with some strategies up more than 100% as of October 31. The active ETFs we launched earlier this year to leverage our strength -- the strength of our investment team have been among our most successful ETF launches to date. Since we acquired the Sprott Uranium Miners ETF in 2022, our ETF business has grown from under $400 million in assets to more than $4.4 billion today. Given the strength of our financial results and our confidence in Sprott's future, yesterday, our Board declared a third quarter dividend of $0.40 per share, an increase of 33%. And finally, today, we announced that we have strengthened our executive team with the appointments of Ryan McIntyre as President, and Kevin Hibbert and Arthur Einav as co-COOs of Sprott, while retaining their current positions as Chief Counsel and CFO, respectively. On behalf of our Board and the entire Sprott team, I'd like to congratulate Ryan, Kevin and Arthur on these appointments. And with that, I'll pass it over to Kevin for a look at our financial results. Kevin? Kevin Hibbert: Thank you, Whitney, and good morning, everyone. I'll start on Slide 5, which provides a summary of our historical AUM. AUM finished the quarter at $49.1 billion, up 23% from $40 billion at June 30 and up 56% from $31.5 billion as at December 31, 2024. On a 3 and 9 months ended basis, we benefited from strong market value appreciation across our fund products and positive net inflows to our physical trusts. As Whitney noted, subsequent to quarter end, on October 31, our AUM was $51 billion, up 4% from our September 30 AUM level. Our performance subsequent to the quarter end was the result of $1.2 billion of market value appreciation and $793 million in net inflows to our physical trusts. Slide 6 provides a brief look at our 3- and 9-month earnings. Net income this quarter was $13.2 million, up 4% from $12.7 million over the same 3-month period last year. And on a year-to-date basis, net income was $38.6 million, up 3% from $37.6 million this time last year. Our net income performance was primarily due to a change in accounting requirements brought on by our new cash-settled stock plan that took effect this year, largely offsetting much of the net income we otherwise generated on market value appreciation and inflows into our precious metals physical trusts and carried interest and performance fee crystallizations in our managed equities segment. As we discussed last quarter, cash-settled stock plans like the one we implemented this year require the use of mark-to-market and graded vest accounting under IFRS 2, which created transitional accounting noise for us in the form of accelerated vesting that occurs in the early years of the program, i.e., we have to expense 60% of the total cash settled RSUs under our 3-year program in 2025 alone and then 30% in 2026 and the final 10% in 2027. This compares to only 1/3 increments annually under our former equity settled program. And the second way in which this transition accounting noise impacts our net income is by adding market volatility to each accelerated vested amount and at a time when our stock has appreciated 97% on a year-to-date basis. So suffice it to say that our actual after-tax settlement obligation will be a fraction of these IFRS 2 derived amounts. Adjusted EBITDA, on the other hand, which excludes quarterly volatility from items like stock-based compensation and carried interest and performance fee crystallizations was $31.9 million in the quarter, up 54% from $20 million over the same 3-month period last year and was $79.3 million on a year-to-date basis, up 26% from $62.8 million this time last year. Adjusted EBITDA in the quarter and on a year-to-date basis from higher average AUM on market value appreciation and [indiscernible] inflows to our Precious Metals physical Trust. Finally, Slide 7 provides a few treasury and balance sheet management highlights. And as you can see, our cash and liquidity profile remains quite strong. And to Whitney's point, given the strength of our earnings, our free cash flow and overall outlook, our Board has declared a third quarter dividend of $0.40 per share, which is a 33% increase from the second quarter level. For more information on our revenues, expenses, net income, adjusted EBITDA and balance sheet metrics, you can refer to the supplemental information section of this presentation as well as our quarterly MD&A and financial statements filed earlier this morning. So with that said, I'll pass things over to John. John Ciampaglia: Thanks, Kevin, and good morning, everybody. Just turning to Slide 8. Our physical trusts finished October at $39.4 billion and now represent 76% of our overall AUM. Year-to-date, the growth has been tremendous at plus $15.4 billion or 64% with strong gains across the metals complex. As I've mentioned on previous calls, scale and liquidity are critical to attract institutional investors into our funds, and we believe we are still in the early phase of institutional investors allocating to metals. We are also seeing some new use cases for our trusts. For example, our Silver Trust, PSLV has experienced very high trading volumes of late as silver and ETF market participants are now using PSLV as a short-term trading and hedging instrument. In early September, the uranium Gold and Silver Trust became the first closed-end funds in Canada to have listed options on them. This is most significant for Sprott as it's now the only listed uranium investment vehicle in the world with options and open interest continues to grow. The scale and liquidity effect not only makes the funds more investable to ever larger institutions, but it also provides very valuable operating leverage, and we're starting to see the benefits with our margins being enhanced. Turning to Slide 9. We've often spoken about the ideal environment for our business, which is to have multiple metals working at the same time. While we've previously experienced periods where 1 or 2 metals are working together, we are currently experiencing an environment where just about all metals are benefiting from 2 powerful macro trends. The first trend is related to the geopolitical fractures being created as the global trading system is being reordered, precious metals as well as critical metals are the primary beneficiaries. The second trend is related to the AI infrastructure build-out, which will require significantly more energy, namely electricity. The generation, transmission and storage of electricity will be very mineral intensive, benefiting a wide range of metals and mining companies. These macro drivers are unlikely to be transitory as they represent pivotal shifts in energy and industrial policies. They also highlight the strategic importance of critical material supply chains, energy security, national security and the shift to dedollarized foreign exchange reserves by central banks. So far in 2025, we have already achieved higher net flows than our previous full year record, which was achieved in 2021. I'd like to highlight our net flows in the month of September, where we recorded our highest ever monthly sales number. What's more impressive is that we achieved this with 18 different funds contributing with positive sales. Our previous record in February 2021 was achieved largely from one fund, the Silver Trust. Our sales results reflect broad and growing interest in our funds and confirms the benefits of making the strategic decision in 2021 to extend our suite of funds to a broader range of metals and listing ETFs across multiple jurisdictions. Turning to Slide 10, our ETF product suite, very sharp AUM growth this year at plus 83%. Most of our ETFs now exceed breakeven AUM levels, which is very important for profitability. And we're also experiencing the same scale and liquidity effect as the funds grow in size, they are gaining access to ever more distribution platforms. Most of our ETFs have unitary or fixed fees, so scale helps to improve our profitability as many of our operating expenses scale down with size. And then finally, turning to Slide 11. Q3 represented the 16th consecutive quarter of positive flows. One ETF I'd like to highlight is the Sprott Silver Miners and Physical Silver ETF. The ticker is SLVR on the NASDAQ. We launched SLVR in January, and the ETF is already having very good success in taking market share from long-standing incumbents. AUM is currently $350 million and represents one of our fastest-growing new ETF launches. We continue to experience some redemptions from our uranium mining ETFs as investors have been chasing some high-flying stocks in the downstream segment of the nuclear fuel supply chain. We believe that uranium mining stocks are well positioned to benefit from the ever-growing supply deficit, which doesn't seem to be solvable in anytime soon. And with that, I'll turn it over to Whitney. W. George: Thanks, John. We'll move now to Slide 12 for a look at our managed equity segment. As I mentioned in my opening remarks, our managed equity strategies have performed well this year. Our flagship gold equity fund was up 44% during the quarter and has gained 105% year-to-date. We are pleased with the early response to our 2 active ETF launches. In recent years, investors have demonstrated a clear preference for ETFs over traditional mutual funds. Actively managed ETFs offer an excellent way for us to leverage the strength of our investment team in an ETF format. Investing in mining comes with a number of risks, and we think they're best mitigated through active management, and we'll continue to look for new ways to showcase that expertise. I'll now turn to private strategies on Slide 13. Private Strategies AUM was $2.1 billion, unchanged from June 30. The team continues to assess new investment opportunities for Lending Fund III and is actively monitoring our streaming and royalty portfolio investments. Slide 14, for some closing remarks. To recap, we are pleased with what we have accomplished so far this year. AUM has increased by nearly $20 billion, driven by rising precious metals prices and more than $3.5 billion in net sales. The rise in gold and silver prices has been dramatic and the recent technical correction was not unexpected. However, our view is while gold may be technically overbought, it is chronically under-owned. Despite recent inflows into physically backed gold, ETFs, most U.S. investors are still significantly underweight gold in their portfolios. Just a slight increase in this allocation could have a dramatic impact on the price. At the same time, price insensitive buying from central banks is likely to persist as it is driven by ongoing restructuring -- the ongoing restructuring of global trade and military alliances. The appeal of precious metals increases in uncertain times, and we expect the reshaping of the current world order to continue for some time with the ultimate outcome unknown. The outlook for critical materials is equally compelling. The U.S. government has ramped up its intervention in critical materials markets throughout 2025, implementing a multipronged strategy to secure supply and reduce reliance on foreign sources, particularly China. The Trump administration is moving aggressively on this track, even taking equity positions in critical material miners. Not to be outdone, the big banks are also getting in on the act. JPMorgan recently launched a $1.5 trillion security and resiliency initiative aimed at bolstering U.S. national security through strategic investments in critical industries. In closing, we are pleased to be delivering steadily improving results and investment performance. With our core positioning in precious metals and critical materials, we believe we are well positioned to benefit from the powerful global trends outlined above. That concludes our remarks for today's call, and I'll now turn it over to the operator for some Q&A. Operator? Operator: Your first question comes from the line of Matt Lee at CGF. Matthew Lee: Just one from me. Over the quarter, it seems like the spot price of uranium has ticked up and you've been pretty active in terms of picking up volumes. I just have a logistical question. Can you just talk about how challenging it's been to source material, particularly when the market is tight like it is today? John Ciampaglia: Matt, it's John. Yes, I mean, it's been pretty amazing because, obviously, the trust wasn't trading well for the first few months of the year, falling out -- fall out from the liberation day and uncertainty. Since late June, I think we've purchased about 7 million pounds of uranium in the spot market. So we've been very active. We're very focused on filling our allocation before the year-end, which is 9 million pounds under the current prospectus. There's always material in the spot market. It's lumpy. It's hard to find at times, but there's material. And I think what has influenced the availability of material so far this year is we don't see producers coming in the spot market in a meaningful way to buy. We don't see utilities coming into the spot market with the exception of 1 or 2 in a meaningful way. So we've been able to kind of soak up the pounds, which is fine with us because at current levels, we find it incredibly attractive to be buying uranium at $80. The term price is now at a multiyear high. It's ticked up to $86. I think that's a very good sign. And we're seeing a lot of utilities come back to market after largely standing on the sidelines as they're waiting for some clarity from the Trump administration on just about everything. So we're very constructive. We've raised about $700 million in the uranium trust since May. And I think that is a very strong vote of confidence in the market as well as the vehicle. Operator: Your next question comes from the line of Etienne Ricard from BMO Capital Markets. Etienne Ricard: So it's great to see the growth to your ETF franchise. Historically, physical trust accounted for the vast majority of your AUM. Now to the extent ETF's become more meaningful as a percentage of the mix, how do you expect this to impact the volatility of net flows through the cycle? W. George: Can you take that one? John Ciampaglia: I can take that one. Yes. Etienne, it's John here again. Yes, look, I mean, obviously, we've got 2 different dynamics. The physical trusts are obviously physical metals, and they obviously are not as volatile day-to-day and year-to-year as the underlying mining stocks, which represent the vast majority of the ETF exposure. What we obviously are seeing is kind of a staged approach where institutions put their toe in the water typically with an allocation to the physical because they've got a constructive view on the commodity itself. And then what we see them doing typically is to transition into some allocation into the equities. They're starting to do that. Obviously, there's a lot of capital flowing into the mining sector after a multiyear drought. And as Whitney mentioned, you've got governments now taking equity stakes in exchange for offtake agreements, loans and whatnot. So we haven't seen this dynamic in the mining sector, and we would expect the mining stocks to be bigger beneficiaries going forward here with -- on the back of renewed capital flows into the sector and obviously, governments are sending some very strong signals. Equity flows, they're more volatile for sure, but it comes with the territory. So it's nice to have a diversified suite between physical and mining across multiple, obviously, metals and jurisdictions. That's one way we can help to dampen the volatility. Etienne Ricard: Okay. I appreciate the details. And just to circle back on this morning's executive appointments, William. Why was this the right time to make this announcement? And how do you think about leadership planning as part of the regular risk management procedures? W. George: Well, I think the Board felt that the best time to think about the long-term future of the leadership is when things are going well as opposed to when you're in a more difficult environment. And certainly, this year, things have been going very well. So they hired an outside consultant to do an extensive review and profile of our existing leadership. And it came out very well, obviously, we're very pleased with -- I'm very pleased with my partners. And so again, I think what we wanted to signal to the market is the importance -- the important roles that Kevin and Arthur have contributed over time and the fact that they do more than just their initial titles of Chief Financial Officer and Head of Legal as for Arthur and because they really have been performing co-Chief Operating Officer roles for some time. And then Ryan is a fairly new addition to the team and has a lot of investment experience, has been President of a public company in his prior career and is a valuable member, and we'd like to highlight his contribution and presence to investors. Operator: Your next question comes from the line of Graham Ryding at TD Securities. Graham Ryding: Can you give us a feel for flows in the quarter and also October to date, just sort of the mix between retail and institutional? And can you maybe reiterate the case for -- it sounds like you think institutional demand is positioned to increase here? John Ciampaglia: Yes. Graham, John again. Yes, I mean, obviously, September was a record high for us. We've continued that momentum through most of October. Obviously, we hit a bit of an air pocket with a number of different categories on the back of escalating trade tensions with China and clearly some profit taking. We were quite extended technically. But I think it's important to note that the interest is growing. It's very broad. We're getting inbounds from everyone from family offices to institutions to registered investment advisers in the United States. We're seeing much more institutional allocation to the space. And to be candid, I mean, a lot of these institutions have had little to no exposure to the -- these categories for the last 10 years. So it's been a long time in the making, and we are working very, very actively to ensure we get our fair share of those flows. And we're very pleased with the result. The team has been incredibly busy talking to investors around the world. And we would expect institutions to continue to be the bulk of the allocations, but we're obviously seeing capital coming from advice channels and also individual investors, which you can't discount because there's a very large group of them out there that are more self-directed. Graham Ryding: So sorry, the flows in Q3 and Q4 to date have been largely institutional driven or you're saying it's a mix? John Ciampaglia: It's a mix for sure. I mean we don't have total transparency, obviously, with exchange-traded funds. So we have to self-identify, and we're obviously engaging with institutions and advice channel participants day-to-day. But it's a good mix. And I think it's been more skewed to institutional and advice channels thus far. Graham Ryding: Okay. That's helpful. Tokenization of sort of real assets seems to be a theme that's gathering momentum. Is that something you've looked at all like the idea of token backed by physical bullion, could that potentially open up a portion of the retail market that's maybe focused on digital assets, but not so much on precious metals or critical minerals? Have you looked at that? W. George: My predecessor made a variety of investments in digital gold. They were a little early. They didn't really work out. We've been watching it now very closely for -- since I've been here for 10 years. But in order -- in these new stable coins, in order to back the stable coins, you need the physical metal. And so we're paying very close attention. It could be a new factor, a new buying cohort of gold, in particular, on top of institutions and on top of the central banks that were underpinning it. But it will benefit our products one way or the other if people want gold back stable coins. We are watching it. We obviously have a strong brand in the space. We have a lot of technical expertise when it comes to purchasing and storage. But we lack some of the technology elements that you need to do to get into various cryptos. But there does seem to be a convergence now between the Bitcoins and physical gold in terms of people's investment. And even now with stable coins, they are more closely convergence where one can drive the other as opposed to be competing ways to get money out of the control of central banks. Graham Ryding: Okay. Interesting. And then private strategies, any update there on like expected fundraising? Or sort of should we expect you to just sort of maintain and sort of harvest the AUM at these levels? How should we think about that part of your business? W. George: Well, Fund II is very mature and probably in wind down. Fund III is still in the investment phase. And once we make some more progress on that, we can consider another product. So we're committed to that business. It's sort of lagged the rest of our business and maybe has an opportunity for a little focus in the next year to catch back up again. Graham Ryding: Great. And if I could get one more, just to be a little greedy. You've got $80 million of cash on your balance sheet. You've got some other liquidity that you flagged. What's your plan there? Are you happy to sort of sit with elevated liquidity or do you have a plan for allocating that? W. George: I'm committed to not building a money market fund. I think the dividend increase is a pretty strong indicator of how we view cash. Again, dividends that -- we are hopeful one day, there might be another acquisition or 2 out there. And we're hoping to grow the private business, which requires some co-investment, and we will continue to be buyers of our own shares opportunistically. Operator: Your next question comes from the line of Mike Kozak from Cantor Fitzgerald. Michael Kozak: GBP 9 million of purchases you can make in any given year. My question was, and this actually came in from an account the other day. Does that GBP 9 million, does that reset on Jan 1 every calendar year? Or is it like a rolling 12-month number? Because I think you're already at GBP 7.5 million for this calendar year or thereabouts. So you're bumping up against it. John Ciampaglia: Yes. Mike, it's John. Yes, that basically covers calendar years and the base shelf prospectus will expire at the end of January next year. So in the coming weeks, we will be starting the process to file a new prospectus. And our expectation is we will be able to roll that amount forward, but we haven't started that engagement yet. And we still have runway to continue to buy between now and the end of the prospectus. So it's business as usual. Michael Kozak: Okay. That's helpful. The second question I had was approximately how much of the uranium trust inventory is held at ConverDyn? And then as a smaller subset of that, what -- I suspect it's small, but what percentage would be of U.S. origin approximately? And the reason I ask is with U.S. government or various agencies increasingly getting involved in critical minerals, there's increasing chatter on my end anyway that there's a very real possibility that you're going to get some sort of bifurcated pricing on uranium, whereby U.S. origin or U.S. domiciled material get some sort of fixed premium pricing set by a government agency, similar to like what we saw with NDPR. So I just want to get a sense of where the inventories are at ConverDyn and what percent approximately would be of U.S. origin, if you can? John Ciampaglia: Yes. Okay. Interesting questions for sure. So out of our 72 million-odd pounds that we're holding, there's very little U.S. origin. And the reason is simple. There was obviously multiple years where there was no uranium mining in the United States. And as you know, even this year, it's going to be quite de minimis relative to annual requirements. Now let's take a step back. Obviously, in the Biden administration, the Department of Energy undertook the first step towards building a strategic uranium reserve. They had a grand total of $75 million to procure uranium. They went out, bought 1 million pounds. They ended up paying way over spot for U.S. origins that obviously was historically mined material sitting above ground. And I think more interestingly, in September at the IAEA, Chris Wright, the Department of Energy Secretary stated again the need for a strategic uranium reserve, which is obviously fanning a lot of speculation. Obviously, the U.S. is trying to reshore the entire supply chain. They're most focused on enrichment and conversion, obviously, made a huge announcement last week around the Westinghouse new build. And obviously, they're trying to resuscitate U.S. mining. We could see a 2-tiered pricing environment where if the U.S. government is willing to pay a premium for U.S. origin, that is entirely possible. We have seen in the past, bifurcated markets, mostly many decades ago kind of during the cold war. I think it's important to note that the U.S. is clearly focused on the reality that they are largely sourcing all of their uranium from outside the country. And obviously, with the recent announcement, their aspirations to build even more reactors is compounding. So it will be to be determined whether funds are procured to start building a strategic uranium reserve. In terms of where we're storing our material, we're only allowed to store in the 3 Western license conversion facilities. That's the Cameco facility, the Orano facility in France and the ConverDyn facility in the United States. If memory serves me, we have about 20-ish percent at ConverDyn. And the bulk of it is in Canada at this point. I think the main point I would leave you with is the U.S. is very focused on building its supply chain by building capacity locally. You're seeing them make investments, obviously, in enrichment facilities with Orano, with Urenco, with Westinghouse. They want to resuscitate mining. They're fast tracking, mining permitting. And I think what they're focused on is production and building capacity along the supply chain. Michael Kozak: Okay. That's helpful. And then one more, if I could, switching gears on silver. I'd love if you could give me some color on the tightness in the physical silver market from last month. There was all kinds of articles about, well, the potential squeeze on the physical metal, I think that the silver futures curve was in backwardation there for a few days. There's reports about traders chartering private planes taking physical silver from London to New York. And I think PSLV was issuing and buying in the market over that period. So any color you could give me on the physical silver market would be appreciated. John Ciampaglia: Yes. I think we're probably one of the largest buyers of physical silver in the world over the last 5 years. So we obviously have a lot of insights into what's going on there. And yes, a few weeks ago, there was clearly a dislocation, but the dislocation was really driven by a mismatch of inventories in different jurisdictions. So shortage of metal in London, which is the primary market and a surplus of metal in the COMEX markets, which is U.S. based. And there is a point in time where the pricing differential between those 2 markets incentivizes putting metal on ships, which is the primary way to move silver around, not airplanes like gold and move it across the pond and to capture that arbitrage. That is obviously happening. There's at least 30 million -- excuse me, 30 million ounces of silver that have left COMEX Vault in the last few weeks. And the situation is starting to abate in terms of that dislocation. But clearly, too much metal left London when there was concern about tariffs, which ultimately did not transpire. And now that metal is stuck and needs to go back. We've actually been big beneficiaries of that dislocation because as we've been raising money, we've been able to buy inventory that's stuck in the U.S. that people want to get rid of. So we've had no issues sourcing metal and a lot of the London metal is moving on to India where it seems as though it's relentless there in terms of how much silver people in India want to own right now. So it is abating, but I'd say it was actually a big help to us. Operator: Thank you. At this time, I will turn the call back to management for closing remarks. W. George: Thank you, everyone, for participating on this call. We appreciate your interest in Sprott. We remain contrarian, innovative and aligned and look forward to speaking to you again after our fourth quarter results. Operator: Thank you. This does conclude today's conference call. We thank you for attending. You may now disconnect your lines.
Operator: Welcome to Sleep Number's Q3 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, Wednesday, November 5, 2025. This conference call will be available on the company's website, ir.sleepnumber.com. Please refer to today's news release to access the replay. On today's call, we have Linda Findley, President and CEO; and Bob Ryder, Interim Financial -- Chief Financial Officer of Sleep Number. Before handing the call over to the company, we will review the safe harbor statement. The primary purpose of this call is to discuss the results of the fiscal period ending on September 27, 2025. Commentary and responses to questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in the company's earnings news release and discussed in some detail in the annual report on Form 10-K and other periodic filings with the SEC. The company's actual future results may vary materially. In addition, any forward-looking statements represent the company's views only as of today and should not be relied upon as representing its views as of any subsequent date. The company specifically disclaims any obligation to update these statements. Please also refer to the company's news release and SEC filings for a reconciliation of certain non-GAAP financial measures and supplemental financial information included in the news release or that may be discussed on this call. I will now turn the call over to Linda Findley, Sleep Number's CEO. Linda Findley: Thank you, Tiffany, and good morning. I have now been on the job for over 6 months. My learnings thus far make me incredibly optimistic about Sleep Number's future and the ability to create significant shareholder value in the coming years. But nobody should be confused. This is a full turnaround of an inherently great company. I came to Sleep Number because I saw huge potential for the company, and I remain excited about what's ahead. As in many situations like this, there were more challenges than I expected, which required us to move extremely fast to fix the business. The pace of our work, along with constraints imposed by our capital structure, has made the first 6 months choppy. We've accomplished a lot, and we're optimistic that the work that we've accomplished positions us to execute the turnaround in 2026. Importantly, after close collaboration with our banking partners, we have secured an amendment and extension of our bank agreement through 2027. This now provides financial flexibility to focus on sales-driving initiatives and execute our turnaround. Our new agreement, combined with meaningful fixed cost reductions achieved in 2025, will allow us to invest in growth in 2026, but more on these initiatives later. Q3 operating results were disappointing. I am not pleased, but we're on top of the reasons, and we're moving quickly to stabilize all elements of the company. As we articulated last quarter, we were hopeful that a more efficient marketing strategy could mitigate some of the top line headwinds associated with significantly cutting spend. Our results early in the quarter gave us confidence that this approach would be successful. However, competitive behaviors became even more aggressive than we had expected during the Labor Day period, and we did not have the financial flexibility to counter with our own messaging, which hurt our top line. We believe the new bank agreement and our fixed cost reductions will allow us to go on offense in the future. I want to take a few moments to explain why I'm confident that we can turn the top line in 2026. First, our new product initiatives will simplify our offering and should attract a broader set of new customers, while building on demand from our repeat buyers. This product evolution will capitalize on Sleep Number's strong differentiators in adjustable firmness and temperature. While other brands deliver elements of what we do, we deliver it all, and in my opinion, we do it better. Second, we are refreshing our creative to focus more on product value and benefits to drive greater interest and excitement about the brand. We are deploying our dollars into more efficient, higher-return channels to drive traffic to our stores and digital channels. When our customers arrive, we know they're going to like what they see. Across the organization, we are changing everything from creative to social to customer interaction. We're already seeing notable payback improvement with our new marketing initiatives. Third, we're taking a fresh look at our distribution strategy. While we continue to see big benefits in our vertically integrated model, we believe there are opportunities to expand distribution into new channels, both physical and digital. We are optimizing our store footprint and leaning into digital to meet customers where they are, while exploring selective partnerships and new routes to market. For example, next week, we will host a show on HSN with an exclusive bet as part of an ongoing testing of channel opportunities. Our vertical model is still our strategic advantage, but we feel strongly that we can build on that model, while retaining its strength. Finally, our substantial progress on fixed costs and our amendment agreement with our bank group means that the total marketing spend in 2026 will be slightly up compared to 2025, while still reducing our operating expenses. To put that in perspective, media investments in Q2 and Q3 of this year were down by 32%. Together, we are confident these initiatives put us on a path to stabilize our top line in 2026, while meaningfully growing our adjusted EBITDA and free cash flow. We are working with urgency and at breakneck speed. In my 6 months at Sleep Number, there is no part of the company that hasn't been touched. Before I turn the call to Bob, I wanted to take a moment to thank all Sleep Number team members. Their continued dedication is exemplary. They are urgently pacing, prioritizing and executing on the things we know [ we're ] going to bring the biggest value. I'm proud to stand shoulder to shoulder with them as we continue to forge ahead to bring Sleep Number back to growth. With that, I will now turn the call over to Bob. Robert Ryder: Thanks, Linda, and good morning, everyone. Third quarter results are certainly not where we want them to be. Profits and cash flow were well below expectations due to disappointing sales. I'll get into the details of the third quarter results in just a moment. As we shared 90 days ago, we're in the midst of a business turnaround that's comprehensive and will impact almost every aspect of the business. I want to highlight 3 important elements of our turnaround from a financial perspective. First, costs. We've made considerable progress on costs in 2025. Following 2 years of significant cost actions, we further reduced operating expenses, excluding restructuring and nonrecurring costs, by $115 million since the beginning of the year and now expect to exceed our $130 million cost-out target. These reductions have come from all dimensions of the business, headcount reductions, streamlining the organization, research and development costs, selling expenses and marketing. The goal was to reduce costs aggressively, while minimizing any negative business impact. The significant reductions in Q2 and Q3 media spend, however, did have a negative impact on the top line. And as aggressive as our fixed cost reductions were, they were not enough to offset the impact of reduced sales on our high-gross margin product. As such, we have reduced our full year net sales, adjusted EBITDA and free cash flow expectations. We're certainly not done reducing costs. There will be additional fixed cost reductions in Q4 and 2026 to further align our cost to our new lower sales base. Second, financing. We successfully executed an amendment and extension of our bank agreement, extending maturity to the end of 2027. The revised covenants and terms align with our planned turnaround trajectory and provide the flexibility to invest in specific parts of the business with strong returns. This agreement reflects lender alignment with our strategic reset and supports both near-term stability and long-term growth. Third, our commercial strategies. The greatest shareholder value will be created by implementing our commercial strategies. We have a strongly recognized brand and a highly differentiated product, but we do have room to improve. In 2026, we will be repositioning our product lineup to better resonate with a larger consumer base, execute a more efficient and effective marketing approach, and expand channels of distribution, including website improvements, to drive better conversion. We've been working on this commercial reset throughout 2025, and we will see the results of these initiatives in 2026. And importantly, our amended covenants provide us the flexibility to execute our plan. Now, let me walk through our Q3 results. Net sales of $343 million were down 19.6% year-over-year. This decline reflects the opportunity within our product portfolio and the impact of our significant marketing and media investment reductions. Marketing efficiency continues to improve as we saw cost per acquisition decline 6% versus the prior year. However, we need to drive more traffic into both our stores and our website. We expect our marketing efforts to begin to do that in the fourth quarter. Gross profit margin was 59.9%, down 93 basis points versus last year, but up 82 basis points from Q2. The year-over-year decline was driven primarily by unit volume deleverage, partially offset by favorable product mix and lower promotional activity. Operating expenses, excluding restructuring and other nonrecurring costs, were $204 million, an 18% decline from 2024. This reflects the continued cost-outs we've been implementing across the organization to align with our sales reduction. We recorded $41 million in restructuring and other nonrecurring costs in the quarter related to these ongoing transformation initiatives. These included severance and employee-related benefits, contract termination costs, and asset impairment charges. Approximately $30 million of these charges were noncash and are attributable to sunsetting technology assets and closing several underperforming retail locations. Adjusted EBITDA was $13.3 million, down $14.4 million from last year. The decline was driven by lower net sales and gross profit margin compression, partially offset by lower media, fixed operating expenses and variable selling expenses. In addition to reducing costs, we are also actively managing working capital with net year-to-date changes in inventory, accounts payable, receivables and prepayments being a $20 million source of cash. We have also reduced year-to-date capital expenditures by approximately $5 million compared to the prior year. We acknowledge current performance is not where we expected it or where we want it to be. However, we remain confident that actions we are taking will result in a turnaround of demand trends. As we are resetting the business and executing elements of our own plan, we are also realistic about the timing of the impact of our actions. We now expect net sales for the year to be approximately $1.4 billion and gross profit margin of approximately 60%. The incremental cost reductions, excluding restructuring and other nonrecurring items, are expected to result in a full year operating expenses of $825 million, or $135 million less than 2024. The resulting adjusted EBITDA is now expected to be approximately $70 million with negative free cash flow of approximately $50 million. With these anticipated outcomes, we expect to be in compliance with our new debt covenants. Looking ahead to 2026, we are approaching our plan process with 3 key objectives. First and most importantly, stabilize sales and return to growth after we revamp our product offering with more emphasis on serving the consumers' priorities of comfort, durability and total value. To support that endeavor, we will continue to modernize our marketing approach, improve our website and expand distribution into new channels. Second, continue to take fixed costs out of the business, including continued consolidation of our real estate footprint. And finally, as stated before, generate free cash flow to pay down debt. With that, I'll turn it back to the operator for questions. Operator: [Operator Instructions] Our first question will come from the line of Bobby Griffin with Raymond James. Robert Griffin: I guess, 2 questions here. One, just on more modeling, but can you tell us what is the cash part of the restructuring for all of '25 and the noncash part of the restructuring for all of '25? And then, what level of cash restructuring charges will carry over into '26? I'm just trying to get a cleaner view on just the cash flow generation capabilities as we stand here at today's revenue base. And then, my second question is, just the comments on the commercial strategies. I think you called out an expanded website, but any comments on wholesale? Just what is the expansion that you guys have been working on for the commercial strategies? Robert Ryder: Sure. I'll take the first half, right, and then I'll let Linda talk the second half. So the first half, look, of the cash restructuring charges, I'd say the cash charges are kind of the normal ones you see, contract termination costs and employee severance costs. And we're not giving guidance on what they will be in 2026, and there might be some more in Q4. But they are included in the $50 million negative free cash flow guidance that we provided -- I'm sorry, for 2025. And the noncash costs were primarily write-offs for stores that we've stopped operating. It was a big piece of it. You can see this in the free cash flow statement. And the second part was a write-off of some intellectual property assets that we had that we just don't think are worth as much as they -- we thought they had been historically. And the total noncash was about $30 million. Robert Griffin: Bob, that's for the year or for the quarter? I guess, I probably didn't ask it. Sorry. Robert Ryder: That's year-to-date. Robert Griffin: Okay. I was just trying to get a sense of the cash restructuring for all of '25, what it's expected to be. And then, what cash restructuring could carry over into '26, if you have any guidance? Just because when we look at free cash flow and cash flow from ops, we should kind of keep both of those in mind as we try to think about the level of what this business is doing today as hopefully, the cash restructuring won't be repeating at the same level in '26. Robert Ryder: Sure. And so, the -- for '25, the numbers I provided were year-to-date, right? You'll see them pop right off the GAAP cash flow statement. That's year-to-date '25, right? The negative $50 million, that would include all the cash -- well, it's just cash, all the cash charges that we expect for '25. And '26, we're not giving guidance on, but what you'll see when the debt agreement is filed on the 8-K and it might already be out there, there are some covenants around restructuring charges, right? So you can model a max at least. Linda Findley: Yes. But I will say, just jumping in on that to sort of finish up before I jump into the commercial side of it, we did take most of those this year. Like that's the focus. That's why we went so aggressively on some of these cost reductions this year. So, that is our intention is to really drive most of those into 2025. Robert Griffin: Okay. Perfect. And then, just the commercial strategies and larger consumer base you called out, things like that. Linda Findley: Yes, of course. So looking at the commercial strategies, a big part of this is what we talked about with sort of refining our product offering in order to drive to a much larger audience. We already have a significantly larger audience coming to look at our brand on our website, coming to check out the product. But we mainly convert a certain subset of that product today. And so, by expanding our website and actually expanding the product offering and simplifying the product offering, we are confident we're going to be able to appeal to that larger customer base that's already looking to us and already knows our brand and aspires to our brand [ but ] create more product value fit for them starting in 2026 to increase conversion for that group. So that's sort of the website and product part of it. That goes hand-in-hand with the distribution piece of it. So we just mentioned that we're doing our first test on HSN. There are several other wholesaler and other channel tests that we'll be announcing probably in the coming weeks and months. That will give you an idea of how we think we can expand while maintaining the strength of that vertical footprint, but actually supplementing it -- not cannibalizing it, but supplementing it with additional channels that reach some of those different expanded audience segments. So that's really how we're approaching this. We think that a lot of those aren't necessarily traditional wholesalers from a mattress industry perspective, but rather broader value-add channels that we can lean into that will add to the distribution and create additional brand awareness of the business. So again, look in the coming weeks and months for some more announcements on what some of those are, but that is a big part of our strategy going forward is how can we supplement with distribution. Operator: Our next question comes from the line of Daniel Silverstein with UBS. Daniel Silverstein: Maybe just to start, just to level set, what are the biggest strategic changes that Sleep Number can make to improve the sales trajectory in the near term? I guess, if the competitive environment remains aggressive like it was in the third quarter, how can Sleep Number drive that improved traffic that Bob mentioned with kind of the marketing budget it has today? Linda Findley: Sure. Well, I think that's actually an important part of it is, it isn't just about the marketing budget we have today. So first of all, I do think the competitive environment will remain intense and it should remain intense. That's actually part of what makes this industry what it is. So we are anticipating that, that intensity will continue, the difference being that we took about a 32% year-over-year cut in our marketing -- sorry, media spend specifically in Q2 and Q3 because we needed to move aggressively while we were negotiating with the banks. That reduction is very, very impactful on our ability to scale the business. Now, at the same time, that reduction also helped us reset our marketing stack to be more efficient in the future and to lean into more channels more effectively. So we are seeing those efficiency improvements already play out. But we were capping our spend not just in an overall year-over-year reduction, but it's important to note that we were looking at marketing spend that would only pay back in the quarter previously because we were managing to our bank debt. With the new covenants that we've put in place and with the negotiations with the bank, we've allowed ourselves the room not only to reinvest back into marketing, so we will be putting more dollars back and have already started putting more dollars back into marketing into Q4 based on efficient return on spend. So we're not -- we aren't going inefficient on any spend because we've been leaving money on the table in the past, while we are constraining spend. And that spend will not only benefit us in Q4 but again will benefit us in Q1 going forward because when you're rolling into marketing spend, you not only want to spend for where you are now, but you want to continue to build the pipeline for future quarters, and we couldn't afford to do that before. So with the way that we both created more efficiency in marketing and been able to get leeway on our covenants to be able to lean in not just to spend that benefit this quarter, but spend that builds the pipeline for future quarters. That's how you restart that flywheel, and that's the process that we're in right now. So it's all of those things together. But I want to be really, really clear that there are multiple aspects that we are looking at in the business here. It isn't just about that marketing efficiency. It is also about this product reset. And we do still see continued cost reduction opportunities in the fixed costs that were built and are not necessarily contributing to the longer-term profitability of the business. So, as Bob said in his section of the script, we are really focusing now on how can we take those fixed costs out of the business strategically and over time without actually incurring additional expenses to take those costs out of the business. And that's mostly going to be on the real estate front as we consolidate our sales into our highest-performing stores. Daniel Silverstein: Very helpful and a good segue into our next question. As you're thinking about the larger scale strategic initiatives you laid out for 2026, is it fair to assume that rationalizing the store fleet is kind of the most tangible piece of that today? Any update on kind of the rank order of those things you mentioned would be really helpful. Linda Findley: Sure. So just to give a little bit of context, as you know, we've gone very aggressively on cost savings. And as a little bit of just mental background and level setting, our headcount is currently now back at 2017 levels. So we went very aggressively on our headcount moves, and that is really, really impactful to the bottom line once we start to scale again. So we've been able to move quite a bit on creating, again, not only cost efficiency in some of our corporate costs, but also be able to create that scale and that speed of operations within the business. So yes, real estate and store footprint would be the next level of what we can look at. We have very, very high transfer rates when we're strategic about the stores that we actually shift and close down, and we've done several of those so far this year. But I think very specifically, it's important that we look at our strategic benefit of where we can actually have the most productive stores and make each one of those stores more efficient and drive more sales to the leaders in each of those stores so they can create that volume on top of a lighter fixed base from what we've had in the past. Operator: Our next question comes from the line of Brad Thomas, KeyBanc Capital Markets. Bradley Thomas: Linda, I was hoping to follow up just on your thoughts on product and product evolution. We've talked in the past about an opportunity to bring in lower price point items. Could you just give us an update on your thinking and perhaps the timing of refreshed assortment? Linda Findley: So I will give you as much detail as I can, given we are still under wraps, so to speak. But we are still looking at early 2026 in timing, just as we had mentioned before. And it's important to note that it's partially about price point and it's partially about value at that price point. So this is really a radical focus on the consumer and what the consumer is looking for. So you will see price point moderation, but it's not necessarily going low end. I want to be super clear about that. We are a premium product, and we have a very, very loyal and excited customer base that loves the products that we have. What we're looking to do with the new product assortment, which will include simplification of our product assortment, is how do we actually bring more value to a broader audience of people. So, that means driving value into price points that are more accessible to a broader amount of people still in the premium space. So, that's where we see the fact that we have strong differentiators in adjustability. We have strong differentiators in creating better sleep night after night. We have some of the best differentiators when it comes to temperature and adjustability. How can we bring that to a broader audience by creating that value alongside comfort and durability that we're known for into a broader audience? So I can't give you much more detail than that, but it isn't just about price point. It's about driving value deeper into our lower price points. Bradley Thomas: That's very helpful. And if I could follow up on sales. Could we just touch a little bit on what the trajectory was through the quarter, what you're seeing more recently? And then, what the sort of underlying assumptions are in terms of the new revenue guide and what you're expecting for 4Q here? Linda Findley: Sure. So I'll start on that, and then Bob, feel free to jump in and add anything you would like. But what we saw is, we actually saw a strong start to the quarter, and we saw pretty good performance in the beginning of the summer. And then, we saw it get very, very choppy. And what I mean by that is, we saw a lot of spikes and phases of demand as you got closer to the Labor Day cycle. And then, as I mentioned, for us, we were managing our cash very carefully. We were managing our cash probably more than I would normally want to manage on a marketing program. And we were not as able to lean into the highly competitive Labor Day cycle as maybe others would have been able to do so from a marketing spend. So, that impacted our demand towards the end of the quarter. So the quarter started off quite positively. And then, sort of our biggest challenges came around the Labor Day, highly competitive cycle just because of our constraints that we had put into place in order to negotiate our debt. Robert Ryder: Yes. I'll just follow up on that, Linda. So for Q4, we are expecting some improving trends, certainly not where we want it to be long term. But our Q4 media spend will be a little less than Q4 last year, but not the down 30% or so we saw in Q2, Q3. So we think that should help us some additional media focused on the things that we think have returns. Also last year's Q4 was a pretty down quarter. So I think the overlap helps us a little bit. But it will all get a little bit confusing because remember, the fourth quarter has that dreaded 53rd week, which just confuses everybody. But we do expect slightly better sales in Q4, but not where we expect them to be in '25. Linda Findley: Yes. And I think one other important... Robert Ryder: [indiscernible] '26. Linda Findley: One other point I want to make about that, and then happy to take another follow-up, Brad, if you need it. But the spend that we're leaning into in Q4, as I mentioned in my previous comments, not only will benefit us in Q4, but it will also benefit us in Q1. So we are now back in a cycle of doing what you would normally do in a business, which is invest not just for that quarter, but be able to invest and start to set up the next quarter as well. So that's a factor there. You also asked a little bit about some of the trends that we're seeing so far in Q4. The most I can give you on that is, we just completed this renegotiation with our banks, and we just gave guidance, and we are in line with both of those models that we have put in place to date as far as performance. Bradley Thomas: Great. If I could just ask 2 quick clarifying questions. So for the fourth quarter, is it fair to assume that you all are thinking about the underlying sales trends improving slightly? And then, on a reported basis, we also get the lift of the 53rd week. Is that the way to think about it? Linda Findley: Yes. That's the way to think about it. Bradley Thomas: Great. And then to be clear, when we think about the marketing underlying run rate, Linda, have we passed the kind of most conservative point you've been at and are now at a point where you can test and start to lean in a little bit more because you've got this new bank loan? Is that the way to think about the marketing opportunity ahead? Linda Findley: Correct. Yes. Correct. So the 32% down on media spend, and that's -- again, we called out 32% down on media spend. There is obviously some broader marketing spend on top of that. But the 32% down on media spend only applied to Q2 and Q3. Q4 will only be slightly down, as Bob said, on media spend year-over-year, and we do not anticipate any of that baseline for 2026. Now, I want to be also very clear that we are seeing efficiencies, and we don't ever expect to get to the spend levels that we were at before because we think that we are building a more efficient marketing program that, with the right level of investment, will continue to pay off. Operator: Our next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: Following up on one of Brad's questions regarding the new products. Could you give us a sense of timing when we might start to see some of the newness in 2026? Linda Findley: Again, all we've said publicly is early 2026, and so we're staying with that. But I will tell you this team is working at lightning speed on everything that we're doing. So I can't give you much more detail than that, unfortunately. Peter Keith: Okay. Fair enough. And then, I guess, going back 3 months, a lot of the theme from the Q2 call was the improved conversion rates that you were seeing in late Q2 and July. And I guess, what happened there? Was it -- did the conversion rates go down or did the competitive advertising kind of [ drain ] you out? Just help me understand what changed so much. Linda Findley: Sure. Well, again, the conversion rates did not go down. As a matter of fact, we continue to see improved efficiency. This is the reminder that a 32% decrease in media spend, even with conversion improvements, resulted in a 19-ish percent down on revenue. So we are actually continuing to see those conversion improvements. We mentioned a 6% lift in -- or improvement in overall cost of acquisition. So we're continuing to see that cycle pay back faster and faster. We are also shortening our payback times as part of that. So all of that is actually going really well. We just simply had to limit the number of actual dollars that we can put out that would apply in the quarter. And particularly in Q3, when you have the Labor Day [ MSC ], which is the most competitive of all the [ MSCs ], cost of media goes up because everyone is pushing into the same channels. And so, we were not able to lean into that spend based on restrictions from our current negotiations. So that's really what I mean by that. We're still seeing all of those efficiencies, and we're seeing even more so. And we continue to see improvement as we run into new channels. It's just that previously, we were restricted on the actual dollars we could put against that. Peter Keith: Okay. Fair enough. And then, I guess, I was kind of curious if you're doing anything different at the store level. Certainly, you have a lot of employees that are commission-based. And with the big cut in advertising, it's probably making them harder to get paid. So how do you resolve that issue? Are you seeing more turnover at the store level? Or can you, I guess, recompensate people next year? Linda Findley: So we continue to actually look at our compensation structures to think about the right way to generate the best environment for our employees. So we're currently about 50-50 on commission and fixed. And we continue to actually look at it and we continue to evolve those programs as we go forward. We have actually simplified the selling process as well. So we just went through a big process where we created new sort of simplified selling paths for our employees so they could actually drive more conversion. And we did see decent conversion lift in store same-day sales during not just Labor Day, but during the entire quarter. So we're confident that we're making the right moves to improve our actual in-store sales process. But yes, a big part of the initiatives that we're doing are focused on getting that funnel bigger into the stores so that we can drive more traffic into the stores and drive more traffic via the website into the stores in order to increase the volume that we can actually convert off of. Peter Keith: Okay. All right. Great. One last question then I had for Bob. Just on the new -- the debt structure. So the press release notes a 5.25 debt covenant limit. Is that -- does that scale up or down like the previous debt agreement? And then, what's the new interest rate? Robert Ryder: It does scale up and down. Q4, Q1 and Q2 are all a little bit different. And then, the covenants get tighter in Q3, Q4, right? I think you'll see that in the in the 8-K. And yes, all the fees and interest rates also changed, which you'll also see in that 8-K release. Operator: As we have no further questions, ladies and gentlemen, this will conclude today's question-and-answer session. I'd like to turn the conference call back over to Linda for any closing comments. Linda Findley: Thanks, everyone, for your time today. Our teams remain focused on the work ahead, and I look forward to updating you on progress in the coming months and quarters. Should you have any further questions, please contact us directly. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Avient Corporation's webcast to discuss the company's third quarter 2025 results. My name is Dede, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe Di Salvo, Vice President, Treasurer and Investor Relations. Please proceed. Giuseppe Di Salvo: Thank you, and good morning, everyone joining us on the call today. Before we begin, we'd like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will have current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. We encourage you to review our most recent reports, including our Form 10-Q or any applicable amendments for a complete discussion of these factors or other risks that may affect our future results. During the discussion today, the company reviews both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Investor Relations section of the Avient website, where the company describes the non-GAAP measures and provides a reconciliation to their most directly comparable GAAP financial measures. A replay of this call will be available on our website. Information to access the replay is provided in today's press release, which is also available at avient.com in the Investor Relations section. Joining me today is our Chairman and Chief Executive Officer, Dr. Ashish Khandpur; and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now hand the call over to Ashish to begin. Ashish Khandpur: Thank you, Joe, and good morning, everyone. I am pleased to report third quarter adjusted EPS of $0.70, in line with our guidance despite slightly weaker-than-anticipated sales. The subdued market demand in several of our key markets, affected revenue growth compared against our strongest quarter in 2024, where we had realized 8.5% organic revenue growth in the third quarter last year. Our focus on increased productivity, cost containment and portfolio prioritization helped expand adjusted EBITDA margin 60 basis points to 16.5%. This offset the slightly lower sales compared to the prior year third quarter to still grow adjusted earnings year-over-year. Strong operational performance resulted in adjusted EPS growth of 7.7% as reported and 4.5%, excluding the impact of foreign currency translation. On a year-to-date basis, through the third quarter, our team's ability to execute in a tough and uncertain macro environment has resulted in 4.1% adjusted EPS growth on flat year-over-year sales. This earnings growth is attributable to favorable mix from consistent innovation-driven growth in health care and defense portfolios as well as our ongoing productivity initiatives which has year-to-date enable 40 basis points of adjusted EBITDA margin expansion compared to last year. In our last 2 earnings calls, we have referenced our operational playbook for the current low demand, high uncertainty environment, which is primarily to focus on our customers and what we can influence in particular, efficiency gains. As a result, we are on track to realize approximately $40 million of productivity benefits in 2025 versus last year. These benefits come from a combination of initiatives in sourcing, Lean Six Sigma, operations productivity, plant footprint optimization and tight SG&A and discretionary spending control. Our team's execution has more than offset inflation, primarily from wages as well as our investments in growth vectors that are critical for advancing our strategy. Additionally, we have been able to convert our profits into robust generation of cash, which is helping us to strengthen our balance sheet. General market conditions remain largely unchanged from August when we reported our second quarter results. This includes an uncertain global macro environment where customers in most markets and regions are waiting for clarity on trade policies, Geopolitics is fast reshaping global businesses and supply chains and the war in Europe continues. While the general market conditions are consistent with what we saw in the second quarter, there have been changes in certain end markets that affect customer demand. We want to provide some context around how things are playing out in our markets especially versus our previous expectations. Consumer and Packaging, which are our 2 largest markets remain subdued in the third quarter. Packaging demand was lower than anticipated, especially in EMEA, our largest packaging market. Consumer sales were down high single digits in the third quarter. Notably, the weakness in consumer demand was broad-based globally. Following a weak Q2, we had expected continued negative growth in Q3, but the customer demand was weaker than what we had anticipated in Asia where our consumer sales ended being down double digits for the quarter. Having said that, we did see some encouraging trends for our global consumer business in September. And while it is too early to call if it is inflecting to growth, we do expect year-over-year consumer sales performance to be better in the fourth quarter. Industrial and Building & Constructions have been in negative demand territory and we don't see signs of a significant recovery in the fourth quarter. Energy, while a small percentage of the total company sales was down much more than anticipated in Q3. The U.S. government's pause of Infrastructure Investment and Jobs Act funding to utilities in early 2025 has not fully resumed impacting both grid modernization and green energy projects. Moreover, additional and changing tariffs, higher interest rates as well as shortage of long lead time critical components for grid infrastructure is causing project delays and/or changes. Our customers remain hopeful that this is a temporary situation and believe that the inventory levels at both utilities and distributors are once again in a healthy state. However, as a matter of caution, we have now modeled continued weak Q4 demand for our energy markets. We experienced some growth in transportation, driven by incremental light vehicle production and an increase in demand for our Dyneema materials used in marine applications. In the fourth quarter, we expect flat to modest growth for this end market. As expected, defense, health care and telecommunications remained resilient in Q3 with high single-digit growth in all 3 markets. We expect these markets to continue to do well in Q4. Overall, for Q4, we expect growth in our Color, Additives and Inks business to be under pressure due to the subdued market demand for packaging and consumer applications while our Specialty Engineered Materials business is expected to grow, supported by customer demand and growth of some of our recently launched innovative products in health care and defense markets. Though we remain cautiously optimistic that end market demand will improve in the near future, there continue to be many unknowns and uncertainties surrounding our macro. Accordingly, we are proactively working on an action plan in the event that the slow or no growth period ensues for an extended period. This includes additional productivity actions and organizational complexity reduction so we can continue to grow our margins and earnings. I'll now hand the call to Jamie to cover our third quarter segment and regional performance as well as provide some color on our updated guidance. Jamie Beggs: Thank you, Ashish, and good morning, everyone. I'll begin with the performance of our Color, Additives and Inks segment. Continued strength in health care was not enough to offset demand conditions in consumer, packaging and building and construction which led to a 4% decline in organic sales for the segment in the third quarter. Despite lower top line results, the segment expanded EBITDA margins 20 basis points through favorable mix and cost improvement initiatives. This included ongoing plant footprint optimization and streamlining the segment's organizational structure, which has not only reduced costs, but is also allowing us to serve our customers more efficiently. Organic sales for the Specialty Engineered Materials segment were down 1%, excluding FX, as strong growth in defense and health care largely offset lower sales in consumer, energy and industrial end markets. Health care continues to deliver growing high single digits due to our innovative and specified materials for use in medical devices, equipment and supplies. Defense also grew high single digits, supported by strong demand in the U.S. and Europe, underpinned by increased law enforcement and military spending. We are also benefiting from new product innovations in our Dyneema line which provides next-level performance through our recently launched next-generation materials. Favorable mix and productivity initiatives also resulted in margin expansion in SEM, which was up 50 basis points compared to prior year. This margin expansion led to modest EBITDA growth despite slightly lower sales on a constant currency basis. Looking at regional performance. U.S., Canada and EMEA sales decreased 5% and 3%, respectively, versus the prior year quarter. Trade policy uncertainty, inflation and higher interest rates, particularly in the U.S. have weighed on Consumer, Packaging, Industrial, Energy and Building and Construction markets, which account for approximately 65% of sales in these regions. In Asia, sales were down 1%, primarily due to consumer. Nearly offsetting this was growth in packaging, healthcare and telecommunications. The enhanced focus on high-performance computing and semiconductor manufacturing in Asia is creating new opportunities for our materials and we continue to see robust growth in this area, supported by secular trends. And lastly, Latin America grew revenue 1%. Though a modest increase, this marks the seventh consecutive quarter of growth and lastly comparison where the region grew 27% in the third quarter last year. Credit for the region's consistent performance goes out to our local team who is winning new business and gaining share. Turning to our guidance for the remainder of the year. We are narrowing our range to account for the third quarter results, the end market dynamics that Ashish shared earlier and current customer order patterns. For the fourth quarter, we expect year-over-year sales performance to be slightly better than what we experienced in the third quarter. Strong growth in defense, health care and telecommunications expected to continue while sales in other key end markets will be flat to slightly down versus the prior year quarter. We are also acknowledging that there is added uncertainty related to the U.S. federal government shutdown and how that may affect demand in the U.S. Overall, we expect organic sales will likely be flat to down low single digits in the fourth quarter, but still with the potential for low single-digit growth depending on the timing of certain defense orders as well as the restart of certain energy projects in the U.S. Accordingly, our updated adjusted EBITDA range for the year is now $540 million to $550 million. Lower interest expense from paying down debt and a favorable tax benefit in the third quarter are offsetting the slightly lower adjusted EBITDA range, allowing us to maintain our previous adjusted EPS guidance range of $2.77 to $2.87. For the full year, adjusted EPS growth will be driven by higher margins from favorable mix and productivity initiatives as well as lower interest expense. We expect to reduce debt in total by $150 million this year, having already repaid $100 million year-to-date. We have made no changes to our expected capital expenditures forecast for the year of approximately $110 million, and we anticipate free cash flow will range from $190 million to $210 million, also unchanged. I'll now turn the call back over to Ashish for some closing comments. Ashish Khandpur: Thank you, Jamie. Thus far, 2025 has been characterized by trade wars, shifting supply chains, labor market challenges, weak consumer sentiment and most recently, a U.S. government shutdown, all of which have negatively impacted demand. But amidst all of that, our teams have navigated the challenging operating environment and delivered positive earnings growth. I would like to thank the Avient team for their tireless and focused efforts on serving our customers and executing with discipline. With that, we would be happy to take any of your questions. Operator, please begin the Q&A session. Operator: [Operator Instructions] And our first question comes from Michael Sison of Wells Fargo. Michael Sison: Nice quarter. I know it's a little bit early, but when you think about 2026, Ashish and most companies that have reported have suggested sort of similar difficult slow conditions heading into the first half. What do you think your growth algorithm for next year on just -- could be if this environment persists? Ashish Khandpur: Yes. Thanks, Mike, for the question. Obviously, the uncertainty is continuing and not much clarity has happened. So although we are hoping for the best, we are also preparing for Plan B, which is in case things don't turn around. And we'll provide more details on our guidance in the next fall. But just from where we are sitting and based on the business segment, I think if the market conditions persist like this then, the consumer business, the CAI business not consumer, the CAI business will probably continue to face headwinds, while we have good growth coming from SEM based on some new product launches and some innovation and growth vectors kick in there. So overall, it's going to be a mixed bag between the 2 segments. But I think we should be still able to grow in an environment where assuming that those things don't change much. Of course, as we telecasted in the presentation, if things get worse because of the enhanced shutdown or consumer sentiment deteriorates further then we have additional productivity and plans in place that we will enact as things go in this quarter and early first quarter of next year. Michael Sison: Got it. And then as a follow-up, it sounds like your innovation, new product momentum is gaining some traction. You might see some growth there in the fourth quarter in Consumer, which is great. How much momentum do you have heading into 2026? Is there sort of a base level of growth you're going to see from those initiatives next year? Ashish Khandpur: Yes. I mean I just want to say that growth vectors in our strategy, we highlighted the growth vectors are our primary sources of growth creation. And that's exactly what we are seeing right now. I mean, actually, if you look at our portfolio, growth vectors have grown much, much higher than the GDP and actually creating most of the growth for the company. The rest of the portfolio without the growth vectors is actually in the negative territory. So they are carrying a lot of lifting right now with respect to growth, and we expect that to continue next year, especially as more new products come to innovation next year in the market. But there are smaller -- the growth vectors are smaller component of the total portfolio, less than 20%. And so the rest of the 80% of the portfolio needs to get some tailwinds from the market for us to grow consistently. But I think we are really making a lot of progress in that area. And I have to remind this audience that the growth vectors are both in our core as well as in new platforms of scale that we are building around secular trends. So as you are seeing this year, our health care and defense, those are what are growth vectors that we had highlighted and those are growing very well. And then we might highlight some more growth vectors going into the new year, especially around some of the trends that you're seeing around artificial intelligence and data center inputs that are happening. And as a material player, we want to play in that market in a better way. And we have been doing that in the background, but we have not telecasted that. So we'll provide more feedback on that as well in the future. Operator: And our next question comes from Frank Mitsch of Fermium Research. Frank Mitsch: Nice result in a difficult period. Just curious, on Slide 8, the geographic sales changes, the EMEA depiction had always been a tool up field and windmills. And now you're showing a German castle. Are you signaling a new initiative to expand into Germany with that change? Is that how we should be assessing that? Ashish Khandpur: We just thought that we would be bored of the windmills and -- but no, Frank, it's just a choice of a picture. So nothing related to that, don't read too much into that. Frank Mitsch: Okay. The discussion of the government shutdown, are you seeing any changes with respect to defense order patterns, you did indicate something with the Inflation Reduction Act or what have you. But what are you seeing on the defense side of things potentially being impacted by the government shutdown? Ashish Khandpur: Not a lot right now, Frank. I mean, our orders for defense remain robust. And actually, we expect demand to continue both in United States as well as in Europe because of the things that have been happening in the world. So right now, we don't expect much issue from the U.S. government shutdown. However, if the shutdown continues for a very long time, maybe into Q1 or something then at some point in time, our products have to go through inspections and clearances by certain third-party and government agencies. And at that point, it would start affecting the outflow from us. We don't expect change in orders or the demand part, but these products cannot be sometimes delivered until they are cleared by these agencies. So if the agencies are closed, that might create some issues. But for now, in Q4, we don't expect any of that to happen. Frank Mitsch: Okay. Great. I don't think that, that will happen either. I don't think it's going to spend that long. And then lastly, the range that you offered on EPS, you gave us a point range for 3Q and then we have a $0.10 range on 4Q. Can you speak to what gets you to the low end and what gets you to the high end of that EPS range? Jamie Beggs: Yes. So Frank, I'll take that one. So from a high range perspective, part of this goes into the lumpiness that we sometimes see in defense. And to the high end of that, if we're able to close on some of those orders and get them into Q4, that could definitely be a catalyst to get on the higher end. Ashish also mentioned these energy projects, which we have seen some delays. We've been in close contact with several of our key partners and a customer perspective. And they're optimistic that we may be able to see some of those projects come into the Q4. We're not counting on it at this juncture just because of the slowdown in the U.S. and there's a little bit of volatility there. But there are 2 items that I think could push us on the upper end of that range. From a downside perspective, if we see continued weakness in consumer and packaging which are our 2 largest markets. There is some uncertainty there. We do have some favorable comparisons in Q4 versus Q3. So we don't anticipate there to be any significant deterioration. If anything, we think things will get better on a year-over-year comparison. But obviously, we're living in a very uncertain macro environment. So we want to be a little bit cautious and that's why the range for Q4 is represented as such in what we provided out in the earnings release. Operator: And our next question comes from Aleksey Yefremov of KeyBanc Capital Markets. Aleksey Yefremov: I wanted to ask you about the level of inventories at your customers. Do you have any insight into whether they're still reducing inventories or they're happy with their level of inventories? Or perhaps if that level is too high or too low? Ashish Khandpur: Yes. So maybe I'll break it down for the 2 different kinds of business segments. For the Color business, our customers have -- they have started ordering smaller lots and more frequently because we have been -- we can serve them on a short cycle time period. So there is no need for them in this whole dynamic emerge during the COVID times. And so I think that pattern continues. Our customers count on us for delivering on a short notice and don't carry much inventory. And then we are in the same situation. So we don't have much visibility with this Color customers for typically for 2 to 3 weeks -- beyond 2 to 3 weeks. And from what we can say there is not any inventory sitting in the channel or with the customers. With respect to the SEM business, that's mostly a spec-in business although we do have a bit of a business that goes through distribution. And really, there is not an issue of inventory there. The only inventory that we were worried about is because of this energy demand that we signal that the energy projects were put on pause and for a while, the customers who are carrying because these are big projects and our customers have started building inventory. And when the projects were paused then the inventory destocking took some time. Based on our current knowledge and talks with our customers, they are getting back to normal levels of inventory both at their own level, distributor level as well as the utility level. But -- and we have started seeing some orders trickle in from energy side, but we are not counting on them to come in Q4. Our expectation is most of that action will take place in Q1, the orders to come back to us. And so overall, I would say inventory is pretty healthy now in SEM side as well. Aleksey Yefremov: And I've seen some headlines about just consumer companies noting a little bit of an uptick of consumer demand in China. I know you have some business that's China for China. What are you seeing on the ground there? Ashish Khandpur: Yes. I think what we are seeing is that we are seeing more demand coming from local China OEMs versus for export. If you think about our consumer businesses in China, the consumer discretionary is the bigger part of it and most of it gets exported out, which is in textiles and apparel materials and also small appliances are the other part of it. But I think most of it is apparel, about 40% or so is apparel. And that was down double digits in Q3 for us there. So really, China was not exporting much outside. And a lot of that material goes to Europe, but some to United States as well. So China was not exporting a whole lot in Q3 in terms of clothing and textile-related stuff. But we do continue to win share on the flip side with the local OEMs. And so I think to answer your question in a succinct way, we are seeing demand from the local OEMs, but not from the global OEMs who are playing in China. Operator: And our next question comes from Graham Panjabi of Baird. Joshua S. Vesely: This is actually Josh Vesely on for Ghansham. Maybe the first one just on Slide 4. You mentioned consumer showing some signs of recovery in September. Can you just help us reconcile those comments relative what you're hearing in the news and what you're seeing throughout reports through 3Q, just about sequentially weaker consumer. What's specifically driving that for you guys? And is that any particular region that you're seeing that? Or is it more broad-based? Ashish Khandpur: Yes. So maybe I'll paint the picture this way. Let me start by saying that consumer last year so Q3 of 2024, we were up 11%. So the comps were extremely tough for us as we were walking into this quarter for consumer. And so when we go through -- and then when I come to this year, and I go month by month. So in July, for example, our consumer was down minus 14% year-over-year. In August, it was down minus 8%. And in September, it was plus 1%. So we could see the sequentially our results getting better compared to last year. And it's largely coming from 2 things. One was comps because the comps were getting better versus every month. And then the second part was that we did see an uptick in our consumer staples business. Consumer for us is 2/3 discretionary and 1/3 staples. And we did start seeing uptick on the staple side, especially on the SEM part of the business. As we go into Q4, comps get really better. So consumer goals went from plus 11% to plus 4% in 2024. So Q4 was 4% growth. So that's a much better comp than against 11%. But on top of that, we are seeing -- there is some -- even in the discretionary side of business, especially in SEM where we are going to -- where we had a bad year because of another specific reason and that this year, it's just getting normal demand from that perspective. So we do have a little bit of a tailwind from a certain business on the SEM side, which is causing consumers to get split positive beyond the comps getting easier. So that's the commentary I can give. And as I telecasted, it's hard to say whether it's true demand or it's just a comps thing because the comps were so dramatic. But we do believe that some of the consumer part, especially the staples is coming back and some of the parts of discretionary is coming back as well for us. Joshua S. Vesely: Okay. Great. That's super helpful. And then maybe a question for Jamie on capital allocation. You talked about paying down $150 million in debt this year. It looks like your balance sheet is roughly 2.8x net debt-to-EBITDA current. Just given the year-to-date share performance, is there any preference or opinion from you guys just in terms of being a little aggressive in the near term just when it comes to share repurchases. Any thoughts there would be great. Jamie Beggs: Yes, Josh, that's a great question. I will tell you, if our leverage is in a better spot, closer to 2.5x, we'd be buying back shares. We do believe our multiple is at a historic low based on the quality of the portfolio changes that we made today. But we also be cautious that this is an uncertain macro environment and a lot of our major investors really want to ensure that our balance sheet is strengthened as we continue to see this macro uncertainty. We do expect to get to 2.5x probably back half of 2026 at this juncture. And once you see that, if our stock price still hasn't recovered from the standpoint, I imagine we'll have some conversations on what's the best capital allocation to make sure that we're returning value back to our shareholders. Operator: And our next question comes from Vincent Andrews of Morgan Stanley. Vincent Andrews: Just wondering if you could talk a little bit more on the packaging side and just help us understand sort of what the rate of change is in the various end markets within there. And if you're seeing any signs of life in certain areas versus incremental challenges and others? Ashish Khandpur: Yes. So Vincent, let me just start by saying that year-to-date packaging is plus 1% for us. So it's low single digits positive. And now having said that, let me just tell you what happened in Q3 and so on and so forth going into Q4, what we are seeing. So we saw a negative high single-digit growth so degrowth of packaging in both United States and specifically, EMEA, which is our biggest packaging market. But also packaging was negative in Latin America. So the food and beverage industry there utilizes quite a bit of our packaging and that was negative as well. So 3 out of the 4 geographies were negative on packaging. The only geography that was positive was in Asia and part of that was that our team is getting some business there on local food and beverage, but also part of it is our packaging systems that go into semiconductor and wafer packaging and all that. So it's not traditional consumer packaging, so to say. So I think overall speaking, that we saw a positive growth in positive high single-digit growth in Asia, but negative everywhere else. When I go into Q4, I think the big piece is that we are seeing some business gains on packaging in the United States. At least EMEA will continue to be a little bit weak for us. But Latin America, because it's summertime there will be in Q4, we generally have a seasonality of positive food and beverage there. And so that's what's baked into our numbers, and we would -- we expect to grow positive on Latin America side. Vincent Andrews: No, go ahead, Ashish -- sorry. Ashish Khandpur: I was going to say in Asia, we continue to see positive packaging driven by the semiconductor trend. Vincent Andrews: Okay. And maybe, Jamie, just remind us what's the minimum level of cash you need to hold versus where you are now? Jamie Beggs: That range is around $350 million. I think we ended the quarter, Joe, at about $450 million. Yes. And maybe as a reminder, we do generate quite a bit of cash in the fourth quarter mainly as a lot of our cash uses happened in the first half of the year. And then with working capital coming down as sales come back from seasonality, we do expect to have quite a bit of cash generation. So going into the fourth quarter, as we kind of telecasted in our comments earlier is that we do expect to pay down another $50 million within the quarter, and that's going to be reflected once we get to the year-end cash balances. Operator: And our next question comes from Michael Harrison of Seaport Research Partners. Michael Harrison: Was hoping that we could address a couple of questions that I had in packaging. First of all, is there any sense that you might be losing some market share either to competitors or to paper or other types of packaging, why don't you go ahead on that? Ashish Khandpur: Yes. We don't think so. Our teams doesn't think so. And as I said, overall, when we compare ourselves to some of our competitors seems like we are printing better numbers. Also, we have pretty good insights with our converters and suppliers on the other side and these suppliers supply to most of our competition as well. So we believe that this is real slowdown. And both consumer and packaging, if you look so broad-based down across the globe, it's really a reflection of all the uncertainty that the globe is facing and the consumer sentiment across the globe is bad. And that's what it reflects, Mike. I don't think it's a matter of losing share. I think if anything, we might be gaining share in certain places. Michael Harrison: All right. That's very helpful. And then you had previously been optimistic or at least expected that you could see some growth in packaging as a result of more recycled content starting to drive greater consumption of Color and Additives. I was wondering if you could give an update on what you're seeing with that trend? Are your big CPG customers still committed to increasing the amount of recycled content? Or have they stepped back from some of those goals? Ashish Khandpur: So Mike, I think that phenomena still very much exists both in Europe and Latin America. We are seeing our customers to continue on that front. I think in the United States, it has taken a little bit of a backseat, but it was never a big piece here. But I think that trend continues. And we are seeing supply chains moving from Europe to Latin America. Originally, some of that recycled content was being supplied from Europe to Latin America for their local packaging and now the supply chains are moving into Latin America. So our job in this case is to make sure that we don't lose businesses as they move across the ocean. And that we continue to qualify ourselves as the right partner for our customers. But no, we are not seeing any change outside the United States on that front. Operator: And our next question comes from Laurence Alexander of Jefferies. Laurence Alexander: There's been a flurry of announcements of new reshoring capacity in the U.S. around appliances and durable goods. Can you give us a sense for how much visibility that might give you for demand in the back half of '26, '27, like when you think that will start to have an impact? And secondly, can you give a characterization of what you're seeing in terms of competitive intensity in both the color side and the engineered materials from regional players or emerging market players. I mean are they -- is the competitive intensity intensifying given the weak demand environment? Ashish Khandpur: Yes. So maybe I'll take the second one first. And from a competitive perspective, yes, I mean, there is, as you know, quite a bit of overcapacity, especially on the color side of business. And especially if you think about it from Chinese competition in different parts of the world. And that has been always there. Our strategy has been always focused on rather than just providing a commodity, providing a solution working with the customer all the way from the design stage of the product to then helping them pick the right thing and then qualifying it for them. So it's not just selling a commodity to them. It is working with them all the way from inception to finally, the product is launched and then serving them globally with great quality and service on time. And I think that's what our customers pay us for that's where our positioning is. We don't chase commodity business, which is where most of this competition is coming in. Having said that, competition is getting aggressive and we have to deal with that, and we are dealing with that. Our teams are doing a good job. As you probably saw, Laurence, our price/mix is still positive, and we are still expanding margins on the color side of our business as well. So -- and we have done that 3 quarters in a row. So Q1, Q2, Q3 there has been margin expansion in that business. So the teams are doing a great job passing on the price and still not losing to competition because of the value that we bring to the customer. With respect to competition on the SEM side, I would say that the fact that our businesses are growing there, and the only reason SEM didn't do as well as we thought it would do in Q3 was because of this energy dynamics that we highlighted. There is pretty much I mean, the competition is there, but there is no direct competition to some of the new innovations that we have launched out of our personal protection business in Dyneema lines. And that's a true differentiator, and we feel that because of that, we can keep winning share and be relevant in the market for times to come. So our innovation is kicking in on the SEM side, and we are beginning to differentiate our product lines, and that's how we are dealing with competition there. Now with respect to the appliance question, sorry, I'm going a little long here. We do work with the global appliance makers all across the globe. And as supply chains shift from 1 region to another, it's hard for us to say whether it's going to create additional volume for us because for all -- pretty much all big appliance makers, we are already spec'd in. And so for us, in that case, the option would be to more make sure that we don't lose that business as it moves. So that's all I can share at this point, Laurence. Operator: And our last question comes from David Begleiter of Deutsche Bank. David Begleiter: Ashish, looking at 2026, can you discuss what's in your control such as productivity and what headwinds you might face from either wage inflation or other costs impacting you? Ashish Khandpur: Yes. I mean it's a similar story like this year with flat sales and growth, we still drove EPS growth of -- if you look at our range, it's 3% to 8%. So I mean I think that's a great example of what this team can do under stressed conditions. And I think we will obviously make sure that we are if the demand doesn't come, as I said earlier, I think we still believe that on the SEM side of our business, there is enough growth there to drive some growth on the top line, and that will help us bring more on the bottom line. So that's one thing we can influence, commercialize our innovation quickly and to scale on that side of the business because the demand is there. And in certain markets, how much can we supply will also depict how well we do. So that's something that we influence and our teams are working on that side. On the other side of our business, where the demands are not great we are driving productivity and structure reduction and also footprint optimization. And we have done that this year, and we'll continue to do that going into the next year. Either way, I mean that just has to happen anyways. And if demand really falls off the cliff, then we have another plan to go deeper into that playbook. David Begleiter: And just lastly, as you move through Q4, are you seeing or expecting to see below normal seasonality? Ashish Khandpur: We've just seen 1 month of Q4, and it has really come actually a tad bit better than what we had thought, but it's too early to say because in our business, things can shift around quickly. But October clicked pretty okay based on what -- where we were expecting it, and as I said, a tad bit better. So I don't see -- I think that the comps are favorable for us, and that's going to help us. So year-over-year, it's going to be a better situation, but also seasonality in certain areas, kicks in Latin America, I mentioned earlier, but not a whole lot change, I think comps and then just executing in the current environment. And we are winning some share in packaging in the United States, as I said earlier so that would help. But no, nothing unusual. Operator: This concludes the question-and-answer session and also our conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to the Marks and Spencer Analyst Call. This meeting is being recorded. At this time, I'd like to hand the call over to your host, Archie Norman. Please go ahead, sir. Archie Norman: Well, good morning, everybody. It's Archie here, and I'm joined by Stuart and Alison, obviously. Thank you for joining us today. I was going to say, great to see you,, but I can't see any of you. So look, I think this is a set of results where we slightly feel we've said all there is to say about it, but I'm sure you'll think of some interesting questions. So let's crack on. Stuart is going to make a brief introduction, and then we'll take whatever questions there are. Thank you, Stuart. Stuart Machin: Well, good morning, everyone. Thank you for joining us. As Archie said, Alison joins me in the room today. We've also got Fraser and Helen, so they're on hand for any follow-up questions you may have throughout the day. I'm going to start with a look back at the half from April to September before moving on to give you some detail on where we are today. I will then look ahead to Christmas before finishing with the outlook for the rest of the year. I want to cover 3 objectives that we set out a couple of months ago, which were, firstly, to regain momentum; secondly, get back on track with growth; and thirdly, accelerate the pace of our transformation. So let's start with the last 6 months. The first half, as I've said, was an extraordinary moment in time for M&S. I'm not going to go over all the old ground today because I briefed everyone on the incident during our call in May. But everything regarding the incident has been well documented, and we are now getting back on track. Our customers have been fantastic as always, and I want to thank them again for their continued support and loyalty during the period. I also want to thank our supply partners and of course, our colleagues across the whole of M&S, who showed real determination and grit. This support, together with the underlying strength of our business, our healthy balance sheet and robust financial foundations gave us the resilience to face into the incident and deal with it. At the prelims in May, we anticipated the material impact of the incident on group operating profit to be around GBP 300 million this financial year, and we are broadly in line with that. I can confirm that this is mitigated by GBP 100 million of insurance that we claimed and received during the period. This is the first set of results where we have consolidated Ocado Retail into our numbers. This is just an accounting change as part of the original joint venture, and it has no impact on our share of the business. Now let me just touch on the headline numbers because across M&S, group sales grew 22% versus last year, but that was driven mainly by the accounting inclusion of consolidating Ocado Retail. Excluding the consolidation of Ocado Retail, M&S sales were broadly flat with last year. Group profit before tax and adjusting items was GBP 184 million. And excluding lease liabilities, we are still in a net funds position. Now we put customers first and prioritize availability, which did drive waste and therefore, increased costs in our food business. With our systems off, we didn't have a clear stock view. And of course, we were using manual processes, but we took the decision to allocate stock out, fill the shelves, and that was the right thing to do for our customers. Despite the disruption in food, the business was resilient with robust sales growth of 7.8% in the half. Fashion, Home and Beauty sales in the half were down 16.4%. We had a particularly tough time here due to 3 key challenges. Firstly, we paused the online operations for just over 6 weeks and then brought them back gradually. Secondly, this impacted click and collect, which affected footfall into stores. And thirdly, supply chain disruption caused availability issues. As I said, this incident was an extraordinary moment in time. But change, on the other hand, is not a moment. And in M&S, change is a constant. We have a clear plan to reshape M&S for continued growth, and we have never lost sight of this despite the disruption. That is why we accelerated our transformation during the half with investment in our 3 priority areas of store rotation and renewal, supply chain modernization and technology transformation. On store rotation, we opened 15 new or renewed stores in the first half and we will open more than 20 in the second half. This includes opening 2 flagship full-line stores, Bristol Cabot Circus, which opens next week, and Bath open in February. On supply chain, in August, we announced a new 1.3 million square foot automated food distribution center in Daventry, which opens in 2029 to boost capacity for future growth, lower our cost to serve and improve product availability. A new regional food depot also opened in Bristol in 2026, increasing the proportion of stores served from their nearest depot. These investments are helping us get ahead of the growth curve and build a bigger, better food business. And on technology, we use the incident as an opportunity to strengthen our technology foundations and fast track some time lines, including the new Fashion, Home and Beauty planning platform. Our job is to ensure we continue to transform and grow M&S while maintaining a strong investment-grade balance sheet. That means being disciplined in our investments and their hurdle rates. Let me add a little color to each of our businesses. In Food, sales and market share growth are back on track. With 3 years of consecutive monthly volume growth outperforming the market, more customers are filling up their basket to M&S more often. In fact, the latest Kantar figures show that M&S is the fastest-growing store-based retailer in volume over the last 4-week period. In the last 12 weeks, we served 800,000 more customers year-on-year. In the half, customers made 14 million more shopping trips to M&S Food than the same period last year, demonstrating more people are shopping with M&S Food more often. You've heard me talk about our strategy, protecting the magic and modernizing the rest. In food, the magic means going to great lengths to ensure the absolute best quality, the leading on innovation and delivering trusted value. Our obsession with delivering world-leading quality continues to drive sales. Take our upgraded Italian meals range with sales up 1/3, for example. And our focus on innovation brings new products and new customers to M&S. Our viral Strawberry Sandwich sold 1 million units in just 4 weeks. In fact, we launched 700 new more quality upgrade products in the first half of this year alone. At the same time, offering trusted value is at the very heart of what we do. Sales of our value ranges are up 29%. Alex and the Food team have made good progress, but we have so much opportunity ahead of us as we work towards becoming a full shopping list retailer and doubling the size of this food business. Now turning to Fashion, Home and Beauty, where the recovery curve in this part of the business has been slower than in Food, as I said, due to the pause in online sales and stock flow disruption. But now with online back up and systems running, we're making progress every day. And over the coming weeks, we expect stock flow to settle into a more normal rhythm. Despite this, we used the period to make further progress in improving our product ranges because outstanding product sits at the very heart of our strategy for Fashion, Home and Beauty with the M&S magic being a combination of quality, value and style. We consistently lead the market in value and quality. And now I can say for the first time, based on YouGov report yesterday, we're #1 for style too. And the latest Kantar figures just out show M&S #1 in fashion market share in the last 12 weeks. This includes leading the market for womenswear and lingerie. So look, we're making progress, and this is encouraging, but there is so much opportunity in this part of the business, and there's lots for us to go after. John, as the MD has been here now 6 months and has started to accelerate the strategy, being laser-focused on the big rocks that we haven't yet really tackled, mainly the foundations of the business from sourcing through supply chain, through merchandise planning and accelerating our online performance. In international, sales were down 11.6% due to our international websites being offline and shipment disruption. However, during the second quarter, performance improved as we restored systems and websites. Mark and the team have now made encouraging progress resetting commercial terms with some of our franchise partners, which has helped enable investment in trusted value. We expanded our partnerships with Zalando and Amazon and put in place new wholesale arrangements, for example, launching lingerie in David Jones, Australia, already performing ahead of plan. The summary for international is we continue to -- it continues to be a growth opportunity in the medium term, but performance over recent weeks has been encouraging. Touching on Ocado Retail, sales were strong with growth of 14.9% over the half, driven by sales of M&S products, which grew faster at 20%. Sales growth has been encouraging, but we know there's lots to do to the path to profitability. Key opportunities include improving delivery efficiency with more same-day slots available, extending picking hours and rolling out further automation. These initiatives will boost capacity over the next few years and support the path to profit. To finish, I will turn to the outlook. As we enter the second half, the consumer environment remains as uncertain as ever. As always, our priority is to offer the best product value, quality, innovation and of course, in fashion, style. We will continue to drive our transformation and to structurally reduce our costs to offset external headwinds. For context, during the first half alone, the increase in national insurance contributions and packaging tax cost an extra GBP 50 million. But there is much in our control and the increase in our cost reduction ambition will help to address this. We're confident we will be recovered and fully back on track by the end of the financial year. In the second half, we therefore anticipate profit at least in line with the prior year as residual effects of the incident continue to reduce in the coming months. Our plan to reshape M&S for sustainable long-term growth is unchanged. Our ambitions are undimmed and our determination to knuckle down and deliver is stronger than ever. To date, we have delivered meaningful progress, but that's what's exciting because there remains so much more to do. And for us, it's all to play for. I'll hand back to Archie for questions. Archie Norman: Brilliant. Thank you, Stuart. Okay. We've got a few hands up for questions. So let's just crack on Frederick Wild from Jefferies. But by the way, could you be helpful if just one question at a time because our memory is not very good. And -- we take a couple each. All right, Frederick? Frederick Wild: So first of all, I'm going to ask a terrifically boring question, I'm afraid. Could you give us a few more details on October trading in Fashion, Home and Beauty, what sort of the overall sales growth was have you seen versus the market? Stuart Machin: Well, look, I mean, top line, as you can see, the market has been soft. You can look at the graphs in the RNS because we put those in to help people understand. And there's a couple of things. I do think people are holding back a bit because of the budget, but also the market is soft because the weather -- I'm looking here, I mean water side and it's bright sunshine. Autumn hasn't even hit yet, never mind winter. So the market is somewhat soft, and the market is very promotional. I think the latest stats I saw was high promotional participation averaging 50% already. For us, look, it is behind the curve slightly. I think there's some good news because we're not quite where we want to be yet on Fashion, Home and Beauty, but every day is getting better. And I think by the time the cold snap arrives, we will have pretty good availability, especially around fashion. So I think it's working in our favor at the moment. Frederick Wild: And then beyond that, with the -- at least in line guidance for half 2, can you help me understand the sort of moving parts within that, what could get you above be in line? And is it the consumer backdrop? Is it the speed of your availability? How should we measure that and think about that? Stuart Machin: I'll give a high level and hand over to Alison for some detail on this. But Look, in half 2, if you just compare last year, I think in Food, we're on track. I mean it could be a bit better. We're planning for a good Christmas. But I never like to overpromise and underdeliver, but we're getting back to stronger growth in food, and it's all to play for, as I say in my opening. In Fashion, Home and Beauty, we are concerned about the weather. It is something that I don't like to talk about internally, if I'm honest. I always say don't blame the weather. But on an analyst call, it is helpful just to bring it to life because if we do have a cold snap, I think we'll be pretty well set up. So my summary, Food could be a bit better and Fashion & Home could be a bit softer, but we're planning for a good Christmas, and we'll see. I'll hand over to Alison for some detail. Alison Dolan: Thanks, Stuart. So really, I would say it's all about the pace of recovery in both businesses. As Stuart has already said, we're gearing up for a strong Christmas in Food and then a good new range to launch in the fourth quarter. All of the systems that we need now to manage waste and stock loss are fully back and each week sees an opportunity -- season improvement, sorry, in waste, and we are getting to grips with it. In Fashion, Home and Beauty, I think for the third quarter, as the systems come back online, they are now all back, but stock is not in the right place everywhere. If you think about all the moving parts in our distribution network, getting stock out of ports into the right DCs that allow us to fulfill online orders as well as dispatch stock into stores. That is still being worked through in the third quarter. We expect it will be fully done, certainly by the financial year-end, but operational in the fourth quarter as well. And then Ocado, we expect to continue with their strong sales. International really to have a good strong year. And as far as cost is concerned, we continue to focus on cost elimination, as you've already heard. So really, that is all playing into an expectation that at least we will be flat in the second half to the comparable period last year, and then you'll have a judgment to make as to where to take us up from there. Archie Norman: I think Alison and [ Fredrik ] just quickly raises a good point on food waste. We're getting back now online. Clothing, we're just mindful we're holding a bit more stock for the second half. So we need to manage that. There is some good news on new stores in H2. We've got 10 new food halls, 4 food store extensions, 7 renewals and 2 new full-line stores. So there's some positives. I think my summary would be we're confident we're going to start FY '27 in a good place. Okay. Good questions. Thanks, Fred. James Anstead. James? James Anstead: So you've had this cost of GBP 324 million in the first half of the year. I just wonder, you're clearly now getting very close to being back to normal, but how much more do you think that might tick up in the second half? And associated with that, and I do appreciate fully that you rarely give PBT guidance for the current year, let alone next year. But if effectively, you're guiding for PBT of at least GBP 652 million this year and the cyber impact, which is probably going to tick up a bit from GBP 324 million. Is there anything wrong with starting my spreadsheet for next year with a PBT of about GBP 1 billion. I appreciate there's a consumer outlook that we have to take a view on, and there's hopefully some underlying growth in the core M&S business. But are there any technical bits, Alison, you would say that's far too naive a starting point? Alison Dolan: Well, I'll start with the first question, James. So above the line in terms of any lingering impact on trading, you've already heard all the detail there. There's nothing beyond everything that we've set out, which is largely about the pace of recovery, particularly in FH&B and making sure that stock is in the right place. And that is in relation to the GBP 324 million impact. Below the line in adjusting items, there will be about GBP 30 million of incremental cost in the second half as we finalize standing down all of the incremental resource that we've talked about earlier, largely replacing offshore E&P colleagues with onshore resource augmentation. That will carry through into the first couple of months just as we stand that resource down. But beyond that, there's nothing. And then with respect to your second question, James, no, not really. The only thing in addition to, there's nothing technical from our side. As Stuart already said in relation to the last question, our expectation is that we are fully back to normal by the fourth quarter of this year, so that FY '27 is a clean, unimpacted year. And the forecast that you had previously in place are good for FY '27. There's nothing beyond that. Stuart Machin: I think, James, just to build on that, only a couple of summary points, a bit cheeky question on the numbers. But there's no change to our view for next year. We're in line with sort of where the consensus is currently, free to take your own view on that. But I would say we've got quite a bit of recovery in the next 6 months in Fashion, Home, Beauty and the consumer outlook is still uncertain. We're getting a lot of feedback about the sort of nothing presentation yesterday. Everyone's waiting for the 26th of November. And so the next 6 months is going to be a bit uncertain. We're hoping to start fresh, as I said, in FY '27 and be back by then. But I wouldn't overdo the ambition. Archie Norman: Okay. Thank you, James. And -- if you need help with your spreadsheet, Fraser can help -- you got a computer program. Let's go to Anne Critchlow and then we'll see Clive Black has joined us. So we'll go to Clive afterwards. Anne? Anne Critchlow: I just wanted to ask about the spring/summer fashion stock from this year. Is there any stock overhang as into the not marked down or sold through? Anything you're overwintering, anything that might need to be written off or down in the future, please? Stuart Machin: Well, it's a good question, Anne. I mean we have provided for that in the numbers. If you look at our stock cover, I'm a few days out, but as of a few days ago, we had 13 weeks stock cover. So that was 2 weeks more than last year. So we have provided for some of that in H1 already and we are holding more stock as of the half year. So it's in the H1 gross margin, you can see where we provided for it. And unfortunately, my whole strategy about not having a sale is not going to be achieved this year because when John joined us as the new MD, I said one of the key objectives is everyday pricing, let's get rid of sale and not do it. And then obviously, within 1 week of him joining the incident happened. So there's a lot to go after, though, and it is a bit uncertain, but we provided in H1. And now we'll see how winter trades, and we are going to make sure we sell our way through in H2. And that's a bit uncertain as we sit here today in the sun. Anne Critchlow: Okay. That's helpful. And could I ask -- could I ask a second question, please, on systems. So just wondering to what extent there's been a temporary fix that will perhaps need redoing. And to what extent the cyber incident might have accelerated? What you're going to do anyway and perhaps even made it simpler and better, and any examples you can give? Stuart Machin: Well, I'll start and maybe Alison has some thoughts as well. Our biggest priority for technology is recovery. And as part of that, there are some things, by the way, that we didn't bring back up. I mean there's a system in food called RTA that was very old, very clunky. It used to basically give better split of products in our DCs in different price. But actually, we haven't brought that up because we're going to buy a more simpler modern system. But really, it's all been about recovery. And now if I'm honest, it's all about resilience for Christmas. So there are some things like that food system. In John's business, he's taken a fresh look at the o9 planning platform and has actually sped that up. I mean it's going to take half the time of what it was going to take. And there are some other things we're doing like investing in loyalty, which really we're playing catch-up on. So my summary is, we haven't really accelerated a lot. We haven't really opened some systems that we didn't think -- either we thought we didn't need. But really, our transformation is going to get back on track by the end of the financial year. And we'll also talk about this at the Capital Markets Day. Archie Norman: Clive, we assume that you -- I didn't want to apply your late meeting, by the way, but we assume you're celebrating in Liverpool. Clive Black: Indeed, Archie, I was actually on time, but your systems clearly haven't got up to speed yet. But -- and also, Archie, it's great to know that you're going to be hanging around Paddington for a little bit longer than they have been the case, which is good news for everybody in my book. So first question, if I may. I'm going to try and stay away from everything from the spring. And I know you have a Capital Markets Day coming up. But Stuart, in your video this morning, you talked about M&S being a shopping list grocer. I just wondered what does the firm need to do to reach that aspiration? And what does it actually mean to M&S? Stuart Machin: I mean, Clive, in simple terms, what we're realizing in our bigger food halls, where we've got more of a grocery range that includes frozen food, our customers are relying on us to do a fuller trolley shop. I see this in my local store in [indiscernible] where over half of the shopping trips are in big trolleys and the other half of baskets. And if you look at all of our data, not just recent, but the trend in the recent years, more customers shopping more frequently and our spine of the basket, which we call center of plate, the key commodities customers buy and could buy elsewhere, that has actually grown in this half by 12%. So the key to this is the store rotation program. As you know, we're only 4% market share. I will say to Alex, it's still piddly, is the term I use, it's still small, which really just encourages us because we've got more than 50 food stores in the pipeline already approved. And that means that gives confidence. Now one of the key investments that we made during the last 6 months was -- which I called out in my opening and it's in the RNS, which is our Daventry new distribution center. Now that's 2029. But the reason we needed to commit and invest in supply chain is so we get ahead of that growth and enable that growth. So I think we're well on track. The food business is in a strong position, whether it's building a better supply chain, the work Alex and the team are doing on what we call factory resets and fortress factories, the strategy about really close partnerships and the work we're doing on range, importantly, the work we're doing on value. And we're tracking all of those top 200 items every day. Inflation is a challenge for us to manage with the extra costs headwinds that not just us, our suppliers have had, that all gets passed through to us and it becomes a challenge. But our value lines are up 30% in the year, and our value perception has the greatest increase of any other grocer in the last 3 years. So all of that added together should enable the food business to be more of a bigger shopping list retailer. Clive Black: And of course, I think you also said you still plan to double your market share in your statement this morning. And then in a similar vein, if I may, you talked about also seeing the opportunity to double your online sales in Fashion, Beauty and Home. And I guess, again, what are the mechanics by that? And just as a sub-question, I presume you still have ambitions to build, to grow your in-store activities in this respect as well. Stuart Machin: Well, I think the key thing, online sales, I mean, we said double the online sales, I think, from FY '22, which were GBP 1.1 billion. And our plan is to double that. At the moment, only 1/3 of our Fashion, Home and Beauty sales are online. And of course, that's been impacted in the last few months. But we have not lost sight of that long-term ambition. And that's very clear. Don't forget in Home and Beauty, our participation is actually very small. It's not going to be the biggest part of our strategy, but there is opportunity to grow and improve our home offer, and we will be doing that over the coming years and resetting our beauty categories, which is under review now. I think the biggest thing, just to go back on Food, just to clarify, we said double the food business. We really mean sales hopefully, that leads to a much bigger market share, of course. I think we're in a good place online. We serve over 21 million customers, but let's be really frank, we have got to do a better job online. We want to do much better on service, much better on availability, much better on personalization. There is no short of demand when it comes to our customers wanting more, whether it's in store or online. So we've got to be quite ambitious, but there's quite a lot to go for over the coming years. Clive Black: Do you see a switch out of in store into online, sorry, Stuart, just to finish as part of that process? Stuart Machin: Well, I'm hoping not, but I'm hoping we hold a lot of our stores flat at the same time. I mean online market share for us is 7% stores is higher at 12% and obviously, the focus is going to be online. If we could hold the stores, that would be good news. Clive Black: Sorry to interrupt you, Archie. Archie Norman: No, no. Thank you, Clive. Good clarification. Just to be clear, the doubling of the online is from 2022. So that would take us to 50%, the objective to get to 50% of total sales. Thanks, Clive. That's great. Let's go to Georgina Johanan, and then we'll move on to Richard Chamberlain. Georgina? Georgina Johanan: I've got 3, please. I'll ask them one at a time. The first one was just in terms of the Fashion, Home and Beauty sales, obviously, I appreciate the consumer environment and so on, but it would be good to understand what you've got planned in terms of any activities to sort of reengage that consumer and also the time line on that because presumably, you don't want to be sort of overly reengaging at a time when availability is still a little bit below where you'd like it to be. That's my first one, please. Stuart Machin: I mean, Georgina, in simple terms, I mean, where you're dead right is we could probably say we reengaged our customers too quickly before we were really ready with availability online. But we've got no issue with customers' engagement, but we have got to get the stock flowing better. And the only thing working in our favor, by the way, is that, as I said, it's very sunny here in Waterside. I don't know where you are, and we're hoping the cold snap will arrive just in time when our winter product arrives and we're ready to serve. But we don't have an issue with demand, but we are a bit slower than we would like in getting the stock from supply through to our ports, through to supply chain, through to stores, through to online. And this is John's priority as we plan for Christmas. Georgina Johanan: And perhaps just a follow-up one there, Stuart. When you're saying you don't have an issue with demand, is there something that you can sort of point to for that? Like, for example, is web traffic a lot stronger than we can see in terms of the actual sales data and perhaps conversion is down? Is there anything sort of tangible that we can point to there? Stuart Machin: Well, it's a good point. The reason I don't say there's a problem with demand is we're holding our own. In fact, our market share has improved in the last 4 weeks, if you look at Kantar. If you look at the YouGov results yesterday, it's encouraging. We're back to #1 on brand buzz. And as I said, for the first time ever in history, we're #1 on style. Now that doesn't mean we'll always be #1 on style, but it is the first. And if you look at traffic, I haven't got the number. I can't remember it, and [ at the start, ] but we'll get someone to find the number, but traffic is actually sharply up on last year. To your point, online sales are up over recent weeks. Transactions are up, but we have got to get a better availability. By the way, a session I had with Maddy and Helen just last week, you will probably notice this, but we do have a bigger demand for smaller sizes. And that's been a trend over the last 3 years. But actually, it's one of our biggest problems today online. I've just been given a scribbled note from Fraser that says September traffic was -- September traffic was up last week, 17% on last year. Traffic September up 21% in September, last week up 17%. Another one? Georgina Johanan: Yes. If that's right, please, it was just on CapEx. I guess just understanding if I was understanding right in the release that it's actually going to sort of GBP 650 million to GBP 750 million for this year, what we should be looking for in the outer years and why we're seeing that increase, please? Stuart Machin: Okay. It's a good question. I'll hand to Alison. Alison Dolan: Georgina, thanks. So you'll be aware that we have continued through the half with our strategic programs investments, so in supply chain, in stores and in D&T. Obviously mindful to protect our investment-grade rating, and that is a key priority. But as the cash generation comes through, our ability to maintain that investment, see the returns coming through, invest, as Stuart said, in the online experience, both on the website and on the app behind growing that traffic means that we can increase the envelope slightly. Depending on a particular year, there will be some disposals that we can offset that with. But we are a growth business. We have opportunities to invest behind, and we'll talk a lot more about the details behind that at next week's CMD [indiscernible] just all while aiming to grow the dividend as you've seen today. Stuart Machin: I think that's right. I mean, I would say strong discipline. We've got clear hurdle, right, Georgina. But as you know, some of the big bumps in that CapEx will be things like the NBC, which we've already announced as well. And the focus areas of stores, supply chain, D&T, and that includes online as well. Archie Norman: All right. Thank you, Georgina. We're eating up the time. So I just ask people to go at a bit of a cliff if we can. Richard Chamberlain from RBC, and then we'll go to Adam Cochrane and Deutsche. Richard? Richard Chamberlain: I'll stick to 2. I know you've got your CMD next week. So both on the clothing side, please. What's the timetable now for upgrading Sparks next year, I think you're talking about and what needs still to happen for that to take place? That's my first one. Stuart Machin: Thank you, Richard. Well, it's a short answer because in Sparks, we had a plan 6 months ago that we literally just paused and said we will come to it when we're through these last 6 months and the incident. And we've only just started to put resources from D&T back onto that program. What that will focus on is real personalization. It will focus on experience, but it won't be a big bang relaunch. There will be some good news, some good partnerships, but it will be a better way of engaging with customers and giving them a more personal service. It won't be a rewards, i.e., a different price architecture for those customers. I've never been a fan of loyalty card pricing. We research this all the time. But for us, to stand out from the crowd and try and deliver better value and value every day is an important underpin to our strategy. But really, this is all a way of getting closer to customers. It's not going to be one big bang. It will be a relaunch in March or April. And then basically, every 6 months, we will continue to improve loyalty over the coming years. Richard Chamberlain: Got it. Okay. And my other one is just on marketing spend. I'd just be interested in what's been happening on that and thoughts on whether you need to step that up now to continue sort of regaining the top line momentum in clothing. I think you rephased some marketing from sort of earlier in the summer to early autumn, if I'm not mistaken, I mean, for obvious reasons. But just wondered, yes, thoughts on sort of marketing, whether that needs to go up a bit now. Stuart Machin: I mean my summary for this, it won't be more spend. I'm not giving our marketing team any license to spend more, but it is about relooking on how we spend it. I mean, for example, there is no big fashion Christmas advert this year. We have decided to do more product ads more through social. There's different ways, we want to use YouTube and social media. So I think it's about spending it differently. The thing we've been conscious of and we're watching is making sure we spend it in line as product availability improves constantly, and that's across Fashion, Home and Beauty mainly. In Food, we're on track, and we're spending in line with the budget we laid out. Archie Norman: Thank you, Richard. Okay. We'll go to Adam at Deutsche, and then I'll take a couple more. I think we're going to run out of time. So I know everybody has been waiting very patiently. But Adam, crack on. Adam Cochrane: Just the first one, you talked about the confidence of clothing being back on track. I know over the summer, you possibly lost some customers to other retailers. Is it apparent that you're already regaining those customers who have shopped to other retailers and are now coming back to M&S? Stuart Machin: Thank you, Adam. Well, I'm saying getting back on track. So I haven't said we're back on track. We are planning that by the end of this financial year, our Fashion, our Home and Beauty business will be back on track. I mean, I think the biggest issue we had, obviously, through the incident was the lack of availability and the online business being paused. And therefore, that obviously did set us back. But as I said at the start, we're back to #1 market share in the last 4 weeks when you look at Kantar out this morning. So we're back to #1. Our product is definitely resonating. Our value is resonating. And as I said, we're #1 for style on YouGov, which came out yesterday for the first time ever in our history. So you would have seen in Kantar the improvement every month. And I think we put some of that in the RNS. So the reason I don't want to get overpromising is there is a tendency for us to say, isn't this great? We're all back to normal. But actually, it takes a bit longer in Fashion for the stock to flow, for the systems to reconcile the stock, so we know exactly where it is. And we are carrying a bit more stock than we would like. We've got to get through that. We've got to look at what's going to happen over autumn/winter. There's no autumn yet. It's not an autumn yet. Let's hope for a cold snap winter. And then we need a really clear plan as we get into the Q3, Q4. So I think it's all to play for. There's no short of demand, but stock flow has to catch up, and it's on John and his team's priority list. We go through it daily. Adam Cochrane: Okay. And on the international. And just very quickly, the expanded agreements with Amazon and Zalando, what proportion of the range are they able to access? How excited are you about increasing the growth internationally by the aggregators? Stuart Machin: I think it's a very good question. What I would say is it's very, very small. It's really testing and learning. If you look on there, you'll see on Zalando and Amazon. It is encouraging because the brand resonates, so we know that, and it's slightly ahead of our plan, but it's very small in the grand scheme of things. But I think in a year from now, this will be a good opportunity for our international business as we get more of our range on both of those sites. And I think more broadly, what Mark and the team are doing with our partners will set us up for future growth. The reset with our franchise partners in terms of how we do the agreement encourages our partners to invest. It encourages our partners to deliver better value. And in some markets, I mean, last week, I was looking at the UAE and Food is very small and the volumes are small. But just by right pricing, that business was already up 70%. Now I will say 70% up on things that never really sold much volume. I think resetting all of that is good news. And the third, the wholesale partnership, it's not just about Percy Pig in Target, although the sales of Percy Pig in Target U.S. are way beyond what we expected. So we're now putting more runs of Percy Pig on. But the wholesale partnerships, I do think in the medium-term is a growth opportunity, whether it's David Jones Lingerie, we're going to launch womenswear as well soon, then menswear. So I think there's good opportunities in the medium- to long-term for us to be this global brand that we set out last year. Archie Norman: Okay. Thank you. Well, now look, we're over time, but I'm going to go to Monique Pollard because you've been waiting very patiently. And then Warwick Okines and then we [indiscernible]. Monique? Monique Pollard: The first question I had was just on this availability issue. So what I understood that you were saying, Alison, is that the -- am I right to understand that the availability issue is more acute in online for Fashion, Home and Beauty than it is in store? If you could just give us some color on the sort of the differences in availability store versus online? Alison Dolan: Not particularly, Monique. Availability was affected by the slower stock flow, and that applied to both businesses. In online, it's slightly compounded because we don't fulfill online orders from all of our DCs. So there was that additional complication, but really both businesses were impacted. Stuart Machin: I think the summary, Monique, is we're about 5% off at the moment where we want to be. But every day is getting a bit better. Our online availability this morning, for example, was down 1% on last year. So every day is getting better, but it is split between stores and online. Your second question, Monique. Monique Pollard: Yes. The second question, just a quick one. It's on the U.K. budget and the potential for business rate increases. So if we do see business rates increase for ratable values over GBP 500,000, what kind of impact does that have on your cost base on an annualized basis, please? Stuart Machin: Well, that's a complicated one. I'll hand over to [ Alison Dolan. ] I think the -- a couple of things to just summarize, as you probably know, is this half year, with a GBP 50 million. And that's only on 2 things: one, the packaging tax; and two, the increased, what I call the double whammy on national insurance. So that was GBP 50 million for the half. When you add that to living wage, which for us, we already plan to increase wages for frontline colleagues. So we look at that as a good cost, but that is GBP 150 million for the year. I think what really worries us is what's coming down the line. We have this deposit return scheme, which is a huge headwind, a challenge in stores operationally. The setup of that is nearly GBP 30 million. Running that is a GBP 7 million cost every year for these huge monstrosities of this unit in every store for customers to bring plastic back. And by the way, in the Republic of Ireland, they break down every 5 minutes. And on top of that, you've got other big impacts because it's not just about us. All of these impact our farmers, impact our suppliers and then all of those costs get transferred to us, and then we try and mitigate them in order to provide value. So -- and I think it's not just that it's other regulatory stuff. So we've been working quite closely with people in government, talking to them about these challenges every day, hoping to influence in some way. I've met Rachel Reeves a few times now, but it is top of our mind, and we're hoping. Well, we're preparing for the worst on the 26th because everybody -- it's a bit of a nothing speech yesterday. We all sort of finished it saying, well, what did that really mean? But we're sort of planning for the worst and hoping for the best. Alison, on our particular numbers. Alison Dolan: Yes. So I would just say that at the moment, our business rate still is about GBP 180 million a year. So it's clearly material talking about that one specific item. And obviously, any increase also has the potential to be material. About 60% of our properties have a ratable value of over GBP 0.5 million. So the rumored break for larger stores would clearly be welcome for us. But that's about the scale of the bill right now. But I think... Stuart Machin: About GBP 7 million benefit. Alison Dolan: It's about GBP 7 million saving if we were to get that break, yes. But I think the bigger point really is in the aggregate of all of this new government-induced incremental charges. The EPR, for example, alone that Stuart talked about was a GBP 40 million charge for the year. The deposit retention scheme, big one-off upfront. NIC business rates, the apprenticeship levy, we can only use about 20% of it, and that cost us about GBP 7 million a year. So it's a combination really of all of these official regulatory costs. Stuart Machin: I think the only good news, Monique, for us is there's a lot in our control. Our investment in things like supply chain automation will help give better productivity. So that's why we've increased our cost saving program -- so there's a lot for us to go after as well. Archie Norman: Okay. All very good points. Thank you, Monique. Right. Look, apologies for those who haven't got in. I appreciate people have been waiting, but we're running down the clock. And we will make sure we get back to you those of you've been waiting. So I appreciate that. Last one, last shout from Warwick Okines at BNP. Alexander Richard Okines: Just 2 quick ones to finish off, and I'll do them both at once and test your memory actually. These are quick ones. Firstly, on costs, you may have answered this already, Stuart, but you've raised the structural cost savings target to GBP 600 million. So is there anything particular to call out on where those savings have come from? And then secondly, could you give us a bit more detail about what your customer barometer is telling you? Stuart Machin: Okay. I'll kick that off. On GBP 600 million, we set by FY '28, mainly through end-to-end supply chain. There's quite a lot in our plans for that and also some of our factory to floor programs and store productivity programs. By the way, we've never really got under store-friendly deliveries, which means our stores spend a lot of money unpacking things 3 or 4 times. And the good news is it's the first thing John Lyttle raised when he did his first month in stores. So whether it's supply chain or end-to-end through our stores. Look, it's a challenge, but there's plenty of us to go after on the cost side. That's why we set the GBP 600 million to start to mitigate some of the extra headwinds coming our way. In terms of customers, I mean the good news is we talk to quite a few customers every month. We have a collective where we talk to about 40,000 customers, and we ask their view, and we have 1,000 customers in Fashion, Home and Beauty and we get their views. There's never big changes, I have to say. The October survey really calls out customers talk more about rising costs. They talk a lot about the budget. There was a lot of questions, why does it take so long to set the budget. There's a lot of emotion in there about blaming the past all of the time that this is going to be a break in the manifesto and therefore, does it mean I'm paying more tax. Pension -- slightly older customers have pensions on their mind. and capital gains on their mind. So there's no doubt that takes the big part of the feedback we get. But at the same time, it's not all doom and gloom because when you get those issues on the table, what actually comes out is, well, we're looking forward to a bigger, better Christmas. And actually, we measure what we call excitement and positivity about Christmas and how you plan to celebrate. And that for our customers, of which now there's a few thousand in that pot, as I said, that's been the highest it's been. And if we just look at the early indicators, Christmas food to order is already up 7% on last year. We launched third-party food in stores. It's always an introduction, but that exceeded our expectations. And even if we look at some of the other things like Christmas decorations or the gift shop, I still think we need to relaunch this in a much better way in the years to come. But even that's trading 20% up. The softness is in fashion, but that's because of the weather and us catching up. But that's really the summary. I hope that helps. Archie Norman: Good. Well, look, thank you so much, everybody. All good questions, and there's a lot we could still talk about. But I think we should draw a line there. There's a lot of work to do, obviously. And just to remind you, those of you who are coming or able to watch, we have got a Capital Markets Day next week. By the way, we're not really expecting to mention the C word on that day at all. Stuart looking at me grinning. And there's going to be a forward-looking event and a chance to able to meet the management team. So I hope those of you who are coming will enjoy that. So we look forward to seeing you all there or thereabouts shortly. Stuart Machin: I thank everyone for your support and questions, and please shop with us this Christmas. Thank you. Operator: Thank you so much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. Have a good day, and goodbye.
Operator: Good day, and welcome to PFG's Fiscal Year Q1 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for PFG. Please go ahead, sir. Bill Marshall: Thank you, and good morning. We're here with George Holm, PFG's CEO; Patrick Hatcher, PFG's CFO; and Scott McPherson, PFG's COO. We issued a press release this morning regarding our 2026 fiscal first quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026 or specific quarters refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. With that, I'd now like to turn the call over to George. George Holm: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Performance Food Group is off to a great start in fiscal 2026, building upon the momentum when we saw exiting 2025. All three of our operating segments are contributing nicely to our profit performance, and we are seeing a nice combination of revenue performance and margin expansion. This morning, Scott, Patrick, and I will share an update on our company's progress and provide our thoughts on the industry and external environment. We finished our first quarter with excellent results, including double-digit top line growth, acceleration in our independent restaurant case volume and gross margin expansion. Our diversified approach to the food-away-from-home market continues to pay off as we are seeing broad-based market share gains. Our success is a direct result of our team's ability to execute in the current market environment. Within our Foodservice business, independent case growth exceeded 6%, propelled by market share wins and increases in customer penetration. We have continued to see case performance in our independent business gain momentum since early in the calendar year. Also, during the final weeks of the quarter, Core-Mark began shipping to Love's Travel Stops. The first of two large new account wins that we are onboarding in the Convenience space during the fiscal year. Scott will share more details on our progress in the Convenience segment in a moment. Our Specialty segment continues to navigate the economic backdrop by driving efficiencies through the business leading to double-digit adjusted EBITDA growth in the quarter. We are seeing pockets of strength in our Specialty business, including vending, office coffee, campus, retail and e-commerce fulfillment channels. Our teams are capitalizing on our PFG 1 approach, which encourages collaboration across our business segments to drive revenue and profit growth. We believe we are in the early stages of this initiative, but have already begun to see the benefits due to market share wins, sales growth and margin expansion. We are investing in our people and technology to support our growth profile. In the first quarter, our Foodservice salesforce head count increased about 6% compared to the prior year. We are committed to adding talented salesforce head count. The slight deceleration from the fourth quarter to the first quarter was due to normal fluctuation in hiring across the organization. We continue to attract high-caliber sales associates and believe this will be an important contributor to our growth in the years ahead. Before turning it over to Scott, who will provide more detail on our results. I'd like to reinforce how pleased I am with our organization and the efforts from our 43,000 associates. Their hard work and dedication directly reflect our company's success. Our diversified structure across the entire food-away-from-home market is well designed to succeed, and I'm excited for the future with PFG. With that, I'll turn it over to Scott. Scott? Scott McPherson: Thank you, George, and good morning, everyone. Let's jump in and review some highlights of our first quarter results. As George mentioned, we are very pleased with our start to the fiscal year and are seeing contribution across the organization due to our team's solid execution. Starting with Foodservice, the segment built upon its momentum by accelerating independent case growth compared to Q4 and maintaining chain case growth in the low single digits. Total Foodservice cases were up 15.6% in the quarter, including incremental sales from Cheney Brothers, which we began lapping in early October. On an organic basis, Foodservice cases grew 5.1%, fueled by 6.3% organic independent case growth. Our independent case growth was driven by a 5.8% increase in new customers year-over-year and an increase in customer penetration. We were encouraged to see our lines for drop increase in the quarter, which is a key driver of long-term profitability. Our chain business grew cases 4.4% in the quarter as we continue to benefit from new account wins that were onboarded last year. Our pipeline of potential new chain business remains robust. In total, sales for our Foodservice segment increased 18.8% in the quarter, with organic top line growth increasing 7.7%. Shifting to margins, positive mix shift, low single-digit inflation and procurement efficiencies drove gross margin expansion. Cost inflation during the first quarter was 2.5%, roughly in line with the fourth quarter and a modest deceleration from what we experienced over the full year of fiscal 2025. Double-digit inflation in beef was largely offset by lower poultry and cheese prices in the period. Taking a look back at the quarter, the balance of growth, margin expansion and operational execution led to very strong segment adjusted EBITDA growth of 18.1%. Excluding the contribution from Cheney Brothers, our Foodservice segment adjusted EBITDA was up by low double digits. We could not be more pleased with the performance of our largest segment. We are optimistic that these results will continue through the fiscal year as we remain laser-focused on capturing profitable market share wins and continuing to execute operationally. Turning to Convenience. During the quarter, our Convenience segment saw a 3.5% sales growth on a modest volume increase and the benefit of inflation. Once again, our Core-Mark business outperformed the industry, delivering strong relative volume performance in many key categories, including Foodservice, snacks, and health and beauty care. Core-Mark is also seeing sizable growth in the non-combustible nicotine space led by the popularity of oral nicotine products. Core-Mark is just beginning to see the positive impact from the onboarding of one of two recent chain account wins, which George mentioned earlier. In mid-September, Core-Mark began shipping to hundreds of additional Love's Travel centers, and in December, will begin delivering to RaceTrac locations nationwide. I'd like to thank our Convenience associates who manage this onboarding process, which has gone extremely well to date, positioning us to build upon our partnership with these two industry-leading retailers. We believe these wins, coupled with a strong pipeline will continue to fuel top and bottom line performance in the quarters ahead. The Core-Mark organization has been working diligently to win new business, increase efficiency and produce strong bottom line results. In fiscal 2025, our Convenience segment saw these efforts translate into double-digit adjusted EBITDA growth. With the new business wins that have just started to roll in, we believe fiscal 2026 will deliver another year of excellent sales and profit performance. We recently passed the 4-year anniversary of PFG's acquisition of Core-Mark, which has provided PFG's shareholders an impressive return with significant growth potential in the years ahead. I'll finish our segment commentary with Specialty. Similar to our Convenience segment, Specialty has been impacted by a slower industry backdrop, partially due to persistently high price points in the candy and snack categories. While this continues to impact sales growth for Specialty, the segment's ability to improve operating leverage resulted in an outstanding profit performance in the quarter. During the first quarter, Specialty's net sales declined 0.7% due to a challenging quarter for theater and value. However, as George mentioned, there were some bright spots, including vending, office coffee, campus, retail and our growing e-commerce channel. We are also very encouraged by the pipeline of new business opportunities for Specialty and expect to onboard several new accounts in the back half of the fiscal year. Specialty is unique in the food distribution industry, which positions us to efficiently deliver to a broad range of channels and customers, which in aggregate, provide the company with a very strong return. This, along with our focus on operating efficiencies led to 13% adjusted EBITDA growth for the segment in the quarter. We expect to see improvements in volume performance over the next several quarters, blazing the path for continued contributions to PFG's EBITDA growth. To summarize, we're extremely pleased with all three of our operating segments, each of which contributed to our strong first quarter results. Our diversification provides consistent performance in a range of economic scenarios and our strong pipeline of potential new business should result in consistent long-term revenue and profit growth for PFG. I'll now turn it over to Patrick, who will review our financial performance and outlook. Patrick? Patrick Hatcher: Thank you, Scott, and good morning. Today, I will review our financial results from our first quarter, provide color on our financial position. I'll review our updated guidance for 2026. To echo both George and Scott, we are very pleased with our start to fiscal 2026, which helped us maintain our solid financial position. In the quarter, we achieved net sales above the top end of our guidance range we announced in August and adjusted EBITDA at the upper end of the guidance range. As a result of the strong performance, we are raising our sales guidance for the full year and reiterating our adjusted EBITDA targets, which we have a high degree of confidence in. We also remain on track to achieve the 3-year sales and adjusted EBITDA targets announced at our Investor Day in May. Before I give more details on our outlook, let me highlight our financial results for the quarter. PFG's total net sales grew 10.8% in the first quarter due to strong underlying trends in our three operating segments and the addition of Cheney Brothers. As a reminder, we started lapping the José Santiago acquisition at the beginning of the first quarter and closed on the Cheney Brother acquisition in the second week of October last year. This means that Cheney will be organic for 12 of the 13 weeks of the second quarter. Total company cost inflation was about 4.4% for the quarter, which is slightly higher than what we experienced in the prior quarter. Foodservice inflation of 2.5% was in line with the prior quarter and roughly in line with our model. While certain commodities have been volatile, headline inflation in the Foodservice space remains in the low single digits, which we view as a normal level for our business. Specialty segment cost inflation was up 3.8% year-over-year, about 50 basis points higher than the fourth quarter, mainly the result of candy price inflation. Convenience cost inflation increased 6.8%, again, slightly higher than the prior quarter. As we have demonstrated over the past few years, our company is well equipped to handle a range of inflationary scenarios. The current inflationary environment has been consistent with our modeling, which has rates remaining in the low to mid-single-digit range throughout 2026. As a reminder, we source the majority of our inventory from domestic suppliers, and therefore do not expect a material impact from tariff increases. Moving down the P&L. Total company gross profit increased 14.3% in the first quarter, representing a gross profit per case increase of $0.32 as compared to the prior year's period. In the first quarter of 2026, PFG reported net income of $93.6 million, and adjusted EBITDA increased 16.6% to $480.1 million with all three operating segments contributing to our strong performance. Diluted earnings per share for the fiscal first quarter was $0.60, while adjusted diluted earnings per share was $1.18, representing a 1.7% increase year-over-year. Our effective tax rate was 23% in the first quarter. At this time, we continue to expect our 2026 tax rate to be closer to our historical range. Turning to our financial position and cash flow performance. In the first quarter of 2026, PFG used $145.2 million of operating cash flow to invest in working capital to take advantage of favorable inventory buys. We invested about $79 million in capital expenditures during the quarter. We continue to anticipate full year 2026 CapEx to be approximately 70 basis points of net revenue, in line with our long-term target. Our investments in CapEx are primarily focused on maintaining and supporting growth within our infrastructure and high-return projects that we believe will support our long-term growth goals. We did not repurchase any shares in the quarter. Looking ahead, we will continue to prioritize debt reduction. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. PFG has a history of successful acquisitions to drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance. Today, we announced guidance for the second quarter of 2026 and updated our range for the full year. For the second quarter, we expect net sales to be in the range of $16.4 billion to $16.7 billion and adjusted EBITDA between $450 million and $470 million. For the full fiscal year, we are increasing our sales target and now project net sales of between $67.5 billion and $68.5 billion. This new range represents a $500 million increase to the top and bottom end of the previously announced range. We are reiterating our full year adjusted EBITDA range and continue to expect results between $1.9 billion and $2 billion in 2026. We have a high degree of confidence in our adjusted EBITDA range. Our results keep us on track to achieve the 3-year projections we announced at Investor Day, with sales in the range of $73 billion to $75 billion and adjusted EBITDA between $2.3 billion and $2.5 billion in fiscal 2028. To summarize, PFG began fiscal 2026 with strong results. All three of our operating segments are performing well, contributing to our overall results. We are in a solid financial position which supports our growth investments and capital return to our shareholders. We are excited about the future and believe we are well positioned to continue to win business within the food-away-from-home market. Thank you for your time today. We appreciate your interest in Performance Food Group. And with that, George, Scott and I would be happy to take your questions. Operator: [Operator Instructions] We'll take our first question from Mark Carden with UBS. Mark Carden: So, to start, you guys posted another quarter of solid top line results against what's been a pretty uneven backdrop in the restaurant channel. Just curious, how did your independent case growth progress by month? How is it trending quarter-to-date? And then related, is it simply the strength that you've seen to date that led you to bring up the top of your guidance? Or are you any more optimistic about the go-forward as well? George Holm: Well, we saw consistent growth through Q1. We had a very strong October. The last few weeks, kind of since, the shutdown, we've seen a little softening. And as far as our confidence to raise it, we have some additional new business coming in primarily in the Convenience area. We've got some business in the national count within our Foodservice area that we thought we had kind of over the hump to come with us and they want to sit on the fence until it's determined what happens in our clean room. But you add all that together, and we have real good confidence in bringing up that annual sales growth number. Mark Carden: Got it. That's helpful. And then, you talked about the slight deceleration on sales force hiring, but it seems to be in line with normalized fluctuations. Just curious, does the heavy commission focus that you guys have ever make it any more difficult to attract talent if the environment remains challenging over an extended period of time? Any impacts from just any uncertainty related to U.S. or what you're seeing with Cisco having passed through some of the hiring challenges in the past? Scott McPherson: Well, first off, I'd say that I think our commission structure has been a great tool to attract great talent and people that want to grow their business. When I think about the hiring pace, we came out of last quarter at 8.8%. That's pretty rich. We feel really comfortable in that 6% to 8% range. This quarter, we were at 6%. So, if you look at the two-quarter stack being at 7.5%, we feel really good about that hiring pace. The other thing I'd say is if you just look at how we're structured from a decentralized state, we really rely on our OpCo presidents to make those hiring decisions. And George and I don't go out there and say, you've got to hire at a pace of 6% or 7% or 8%. We really let those folks make those decisions. Clearly, they're finding great talent on the street, and we've been able to continue to hire at that pace in that 6% to 8% range. George Holm: I would also add that we're very committed to having a commissioned sales force. But we also have a structure in place where we compensate them above the commission for a period of time, to make sure that we keep good people. And once we realize that someone's talented that they'll put in the effort, that they're committed to getting on commission, then we become very patient people. Operator: Our next question comes from Alex Slagle with Jefferies. Alexander Slagle: You talked about some of the big chain business wins in Convenience. I imagine that remains a big needle mover there. But just kind of curious if you could fill us in on progress you're making, some of the smaller chains and independents just in terms of sort of winning new accounts and finding ways to accelerate the penetration of the Foodservice programs to those customers and how we should kind of think about that through the course of the year? Scott McPherson: Yes, Alex. When I think about Convenience in particular, we're really happy with what they've done from a growth standpoint. And we're specifically talking about those two big accounts just because they're sizable. But our Convenience segment has done a great job picking up regional accounts as well. And I think through Service, everything you hear in the Convenience industry did today, we just returned from the big Convenience show, and there's so much focus on Foodservice. And if you look across the Convenience landscape, the chains and the customers that are performing well are the ones that are deeply ingrained in Foodservices. So, we think that's a huge competitive advantage for us. We think that was a prevailing reason in us getting some of these big and regional chain wins, and we expect that to continue. Alexander Slagle: Got it. And then, on the guidance. Can you ballpark interest expense and depreciation at all just to help us calibrate our models. It seems like these were a bit higher than I expected in the quarter, but any help there would be appreciated. Patrick Hatcher: Yes, Alex, I'll take that. I mean, what I would do is take this quarter and use that as a strong run rate. I mean again, we continue to invest in the business. So, we've added some new buildings that are increasing depreciation. We continue to add fleet, but continues to increase deflation. And obviously, as you saw in the quarter, we invested a lot in inventory. So, maybe a little more borrowing than normal, but that should come down a slight bit. But I think if you take this quarter as a run rate, that will be a good indicator of the future quarters. Operator: We will move next with Edward Kelly with Wells Fargo. Edward Kelly: I wanted to dig in on the Foodservice EBITDA growth for the quarter. If you look at EBITDA growth relative to revenue growth, they were a bit more similar, which is not typically the case for you. It seems like OpEx per case was a little high. I'm just kind of curious as to what's happened with the OpEx side of the business within Foodservice that maybe prevented you from delivering a little bit better organic EBITDA growth in the quarter. And how we should think about that relationship moving forward the rest of this year? George Holm: Yes. Ed, we've invested a good bit in brick-and-mortar for one. And in these new distribution centers, you tend not to be as efficient in the early going. And obviously, you got a little bit more expense. We've had higher expense in our acquisitions, particularly in Florida, because we're investing, and we're investing heavily, and we're doing that during their slow time of the year. We're just so satisfied with these acquisitions and with the talent that we received, we're going to make sure they have the capacity available. We also are in the midst of a big freezer addition at our Jose Santiago building. With that, I'll turn it to Patrick too, to see if you have some other comments. Patrick Hatcher: Yes. Just to touch a little bit more on that, Ed. One, again, if you look at all three segments, actually, we saw a really nice OpEx leverage organically, specifically to Foodservice, George already mentioned. If you take out Cheney, there was OpEx leverage. Cheney, just again, it's their slowest quarter. It's similar to Foodservices Q3. So they reduced some leverage there. And then as George mentioned, we're taking on some additional expenses. But those are really the reasons why you saw that this quarter. Edward Kelly: Okay. Great. And then, I wanted to follow up on a response that you made on independent case volume momentum. October seemed good, especially at the start, but I think your compare was easier maybe with weather. It sounds like recently, there's been a little bit of slowing there. Could you just talk a bit specifically about independent case momentum for the industry, what you're seeing there in terms of like real time, I guess? And then, how are you feeling about sustaining a 6% or a better rate in Q2? Scott McPherson: Ed, this is Scott. So, I think you hit it as we came out of Q1 and started into Q2. It continued to be strong over the first few weeks. But then we did have a little bit of choppiness over the last few weeks when we think about kind of lapping some of the weather from last year. So, it's a little tough to get a read on it right now. I wouldn't set a target for this quarter as far as independent case growth. Well, I would say is, we still feel good about the full year targeting 6%. And what's really driving that for us is just our independent account wins. As we mentioned, those are up 5.8%, and that's really what's driving our case growth. Operator: Our next question comes from John Heinbockel with Guggenheim. John Heinbockel: Can you guys parse out the 5.8%, that's a net growth in new accounts. When we think about sort of the gross wins, I don't think you've ever had real elevated losses, but the wins, the losses. How does that kind of shake out? Or how has it shaken out here? And then, you talked about the lines per drop. We were waiting for a long time, right, for penetration to pick up. Is it possible we're at the early stages of that and what may be driving that? Scott McPherson: John, this is Scott. First off, I would say we don't call out a gross number. So you're right, the 5.8% is net. I would say that our customer churn hasn't really changed materially. So, we feel that our reps are out there doing a great job retaining customers, and really happy with the 5.8%. The penetration now has been a couple of quarters. So we're really optimistic about that. If the macro gets better, that really positions us exceptionally well. And so, that's something we're focused on. And for us, I think the differentiator out there has been our area managers. It's been our folks that are in front of our customers, working with them every day, growing those lines for drop, and that's been critical. George Holm: Yes. What I'd like to add, John, this is George. We continue to see SKUs grow faster than our penetration number into independent customers. So that tells me that they're probably in aggregate, running same-store sales declines still. And as far as lost business, we spent a lot of years working hard to get that number to single digit. And it's a rare month that we don't come in with single-digit loss in accounts. And I think when you look at the percentage of accounts that don't make it in our difficult industry, I think, we're doing a good job of making sure we don't lose accounts. So we always, and I mean always, have a nice spread between our lost business and our new business. John Heinbockel: And then maybe as a follow-up. I know you guys have targeted the $100 million to $125 million of COGS savings. Just remind us maybe the cadence of that. I don't think it was quite linear. And then, when you look longer term, right, is there still, because you guys have now right been breaking out segment margins. And I know customized is a drag. But when you think about the opportunity beyond the next 3 years, would still seem fairly substantial, correct? Patrick Hatcher: Well, John, on the COGS savings, yes, at Investor Day, we laid it out. And I think the way to think about it is just, we always are doing work here. So this wasn't something new. I've given you guys a target was maybe something we haven't done in the past. But, we look at that as being pretty evenly spread over the 3 years, and each year pretty evenly spread over the quarters. We're actively working on those savings, and we're seeing some good opportunities out there. Operator: We will move next with Kelly Bania with BMO Capital. Kelly Bania: I wanted to just follow up on the Specialty segment. The profitability was quite strong there despite what seems like a pretty still soft candy snack consumer backdrop. So, just curious if you can add more color on what drove your ability to achieve that? How much more that could continue if that backdrop remains soft there? George Holm: Yes. I mean, we've made real good progress with most of the channels. If you look at the margin aspect, our theater business has been down fairly substantially. A couple of account losses plus the theater industry is not very robust at this point. That is our lowest margin business that we have within our Specialty business. And then, the value area has also been slow, and that is our lowest gross profit per case. So, our improvement is somewhat expense control, but it's also really led by just a change in mix of business, which has been a real positive for us. And as Scott mentioned, we've got a real good sales fund when we've got some nice business coming in the back half of the year. So, we're feeling really good with Specialty. Now, if you look at inflation and you look at pre-COVID and you look at today, candy and snacks are way up close to the top as far as price increases. And it may appear that those are very discretionary purchases and not real price sensitive, but that's not the case. The big consumer of those products is very price sensitive. And they just got to get used to higher prices, and I think we'll see some comeback in that. When you look at the things that our Specialty area has been up against, they're doing exceptionally well. Kelly Bania: That's very helpful. Also just wanted to ask, it seems like a growing number of complaints regarding the state of the consumer, particularly with younger consumers. And just curious if you could talk a little bit more about if you would agree with that as you look at your kind of diverse channels and customers that you serve, if you see that and if there's anything that you are doing to kind of help that either with private label or other promotional activity with vendors that you're working on to help those end customers? Scott McPherson: Kelly, this is Scott. Certainly, we've heard that same message around the younger generation consumer. I wouldn't say that we've seen that specifically in our business. If I look across our chain segments, I mean, obviously, QSR remains highly pressured. I think that low-income consumer continues to struggle. I think for the last year, you've seen some of these fast casual concepts, I'd call them the high flyers that we're seeing double-digit same-store comps. They've kind of come back or normalized. And we've also seen some others sprout up. And I think really, right now, what we're seeing is that value proposition is what's really making the day for concepts. If they've got a really good value proposition that resonates, they're seeing reasonable same-store sales comps. For us, I think you hit it right on the head. We're focused on brands. We think that, that's the best value we can bring to our customers. We've seen our brand share grow with independents and chains. And so that's been -- I wouldn't say it's a positive for us. We'd like to see more store traffic and a more robust consumer, but we feel like we're in a really good position. Operator: Our next question comes from Lauren Silberman with Deutsche Bank. Lauren Silberman: I want to start, if you could just clarify, are you guys seeing disruption in your salesforce or the ability to track new customers, because of the news of the deal? Just trying to understand and how much is seasonality versus influx of new hires and what's going on there? George Holm: Well, we've just -- this is George. We just had a couple of large events, which we have at the same time of the year every year. One is what we call Circle of Excellence, where we honor our top salespeople and sales management with most of our OpCo presidents at that event. And then, we do a food-centric where it's more customer focused, and we have some large particularly independent customers from around the country come. And we have every Opco President that's present at that. And what I would say is that morale is extremely high, particularly with the sales force. The only negative being some national accounts, like I said, sitting on the fence. And we're consistent with our people or as transparent as we possibly can be. And I don't really think that we're experiencing disruption. It doesn't seem to affect our hiring right now. It hasn't had any negative impact on our turnover. And I'll turn it over to Scott. He's a little closer to it than I am, but that's why I see it right now. Scott McPherson: No. I think I'm totally aligned with George's comments. We have -- we've seen great availability of reps on the street. Hiring at 6% versus last quarter at 8.8%, like I said earlier, that doesn't concern me at all. We kind of bounce back and forth between that range of 6% and 8%. There may have been a handful of reps here and there that took a pause, because they were waiting to see what happened. But I would say, overall, I think I just look at our results, our independent case growth, our new account growth, and that gives me great confidence that our Opco presidents and our area managers are focused on the right things, and we continue to grow share and grow our independent business. Lauren Silberman: Great. On the OpEx side, what seems like some incremental investments in Cheney, should we assume some pressure on that line over the next few quarters? Or is this the bigger investment in this quarter, a bit more onetime? I know there's some seasonality, but just trying to understand the magnitude and how that is based? Patrick Hatcher: Yes, do you want me to... George Holm: Yes. I'll take it real quick. And then you can add to it. I think that the seasonality change will help a lot in Florida. We have also seen the international traveler and Canadian travelers just haven't shown up in Florida like they typically do. But I think a lot of this will alleviate itself as we get into season. And they're very, very focused company and a great morale there as well. And we just feel like it's just a company that's going to flourish. Go ahead, I'll turn it to you. Patrick Hatcher: Yes. I'll just add a couple more things. One, as George mentioned, there's a little reduction in leverage in the first quarter. And again, they're 1 year in. And so we've been also doing a lot of integration, but the integration that happened early on is usually around IT, HR. So, sometimes that can add some additional expenses. But when I look at how they performed in the first quarter, it was very much in line with our expectations, and it's very similar to prior year. So, we do expect that as we go a little further out, we'll start to see the synergies. As we've said, we'll really see the bulk of the synergies at the end of year 2. But we're doing a lot of integration work as we speak. So, it should dissipate as we go through the year most importantly, is what George said, though, as we get out of -- into the high season, it will definitely help. Lauren Silberman: Great. Just a final follow-up. The independent sales growth that you're seeing in October, understand started strong, a little bit slower with the government shut down. We've heard a bit of a range in restaurant world. I guess, are you guys still running in the mid-single digits? It's just hard to understand what's going on with the magnitude of a step down, particularly for the independents. Scott McPherson: Yes. We're still running in that mid-single-digit range. Like we said, we've seen some volatility as of late, but we're still running in that range. Operator: Our next question comes from Jeff Bernstein with Barclays. Unknown Analyst: Thanks. This is [ Pratik ] on for Jeff. You've talked about taking share for a while now. And I believe you mentioned that some of the segments like QSR and fast casual have been a bit more challenged of late. So, just wanted to unpack where you're seeing strength, what particular segments of the industry. ?And are your share gains coming from your larger peers or smaller operators? Or is it all of the above? George Holm: Well, I'll start with the last comment. We don't have a good method of knowing where our share gains come from. We have a tool report that we use that shows how we did and how the rest of the market does. So, we don't really know how anybody specifically does. So, I don't know that we can really comment that, on that. But just to give you an idea where it's slower and where it's done better. the shutdown, of course, has affected our Virginia and Maryland company the most, and both of those were on extremely good growth rates going into that. Not much anywhere else. The international tourism, it's been the upper Midwest, where we've seen -- I mean, I'm sorry, the Upper New England area, where we've seen the total market slow. But actually, our companies there have been gaining significant share. So, it hasn't had much of an impact on us. And of course, Florida and then Vegas has been affected quite a bit, and we do very little business in Vegas so that hasn't had much impact. Where we've seen market slowness the most has been the Midwest, the upper Midwest. And we have markets there where we're negative to last year and gaining share, which is a really unusual situation for us. So that's how I would put it. But we don't want to overdo this. I mean, we're still running good independent growth. And if the -- I think, if we didn't have the shutdown and the slower business in a couple of markets, we would be just as we were in the first quarter. Unknown Analyst: That's very helpful. And then Patrick, on the inflation outlook, you reiterated your expectation for low to mid-single digits. Anything that would cause you concern and would maybe push that to the upper end of the range? I know you mentioned some of the Specialty and snacks items that are seeing high degrees of price increases. But anything else on the commodity side or other product lines that may kind of push that to the upper end of the range? Patrick Hatcher: Yes, great question. Honestly, a lot of the candy price increases we've already seen those and other suppliers taking price. On the commodity side, so I would again just reiterate on Convenience, we expect them to be in that 6 plus range, mid-single digits, Specialty a little bit lower, but staying very consistent for the rest of the year. And Foodservice, as we mentioned, is in the low single digits, and we do expect that to continue lots of commodities. And as everyone knows, beef and pork has been pretty high lately and inflationary, but we also over-indexed in cheese, and that's been deflationary. Poultry has been deflationary. So, the way we look at it, we -- that market basket of commodities should keep us in that low single-digit range. Operator: We will move next with Danilo Gargiulo with Bernstein. Danilo Gargiulo: I was wondering if you just take a step back and we look at your very long-term strategy. How do you plan to strengthen your ROIC? And what do you think is a realistic timeline for the ROIC to be increasing by mid-single digits. So what would be the key levers to that? Patrick Hatcher: Yes. Good question. We obviously look at ROIC very closely, too. And as you know, we've recently made some larger acquisitions. We've also been, as George mentioned earlier, we're investing a lot into capital for buildings and fleet. And all those things are really surrounded by growth. So, we've given you, obviously, our projections on EBITDA growth for the year, and we continue to work very closely on driving higher growth on income as well as managing our capital. So I would say, over the balance of this year, we should see improvement in ROIC. Danilo Gargiulo: Okay. And then, I want to follow up on the comments that you made on the M&A pipeline remaining robust. And specifically, the evaluation of strategic M&A and in light of the potential synergies that you might be having with a business combination with U.S. food. I was wondering if you can help us understand a little bit better what will you need to see in the data or in the strategic evaluation for the decision to have a positive or maybe a negative outcome? So what are the puts and takes on that? Patrick Hatcher: Yes. On that, the process is ongoing. We've disclosed what we're doing in terms of the clean room. We really don't have an update to share at this time and just would ask that we keep our questions focused on our Q1 results and guidance. Scott McPherson: Just adding on to the M&A pipeline. We talked about that. We're very active in the market. We talked about a small acquisition in our Convenience segment. And George and I continue to talk to a number of different people about opportunities primarily in the Foodservice space, but also across our other segments, we're always looking at opportunities. So, I still feel like that pipeline is robust. Danilo Gargiulo: And then focusing on the more near term. You mentioned the kind of market fluctuations that you're witnessing as we are in the overall restaurant segment. So, I'm wondering if there are any actions that you might be exploring in the near term to increase the capture rate of independent cases therein the better near term without necessarily compromising the quality of power, which has been extremely strong over the past few years? Scott McPherson: Well, I would say, first off, philosophically on the street, we're decentralized. We let our OpCo presidents really drive their market area. And we're really happy with how we prepared our area managers from a training standpoint. I mentioned earlier, I think brands has been our calling card and is a big driver for us, especially in an environment where cost of goods is critical and menu pricing is critical. But I don't see anything philosophically that we're going to change materially in our approach. We believe in the partnership with our customer, and we believe in the strength of our area managers on the street. Operator: [Operator Instructions] We will move next with Karen Holthouse with Citi. Karen Holthouse: A couple kind of more on the C-store side of things. Thanks for the guidance for mid-single-digit inflation. And I can appreciate that your suppliers are domestic. Have your conversations with them that are getting you to mid-single-digit number contemplated how tariff -- tariff-related inflation and more of like the packaging side of things might ultimately impact that number? Scott McPherson: Yes. I think if I understand the question right, I mean, we talked about cost of goods being domestically sourced and not having a big impact there. But to your point, I think there are other inputs that could cause inflation, whether it's packaging, and for us, when we look at the broader picture of inflation, it's not as much cost of goods, it's probably share of wallet. And as we see consumers be pressured, whether it's other SNAP benefits going away or other things that are happening in the market that affect discretionary income, that definitely could have impacts. But to this point, we haven't seen anything material. Karen Holthouse: Okay. And then is there anything to consider as you're starting to onboard Love's and RaceWay (sic) [ RaceTrac ] in terms of margin profile of those businesses versus the existing business? Scott McPherson: So first off, I would say the Love's piece, I do want to just take this opportunity to shout out to our Convenience segment. They onboarded over 600 Love's locations in September in the last couple of weeks. I did just an incredible job, including opening a new facility to help accommodate that. And it's actually RaceTrac. They are also the master -- they're the owner of the franchise RaceWay. So, you were right there, RaceTrac, we rolled out in December. So again, preparing for that, I feel like we're in a great position. And when I think about the margin profile, I would say it's consistent with the rest of our Convenience business. Karen Holthouse: And then one final one on Convenience margins. I think there was a comment in the prepared remarks about stronger performance in tobacco with growth of oral nicotine. Is that getting you to a point where like tobacco as a share of total Convenience sales is stable or even increasing? Scott McPherson: No. I mean, I would say cigarettes, because of taxation are always the revenue driver. When you think from a margin standpoint, oral nicotine and the other alternative nicotines are really accretive to margin, but because of taxation, cigarettes are definitely a revenue driver. Operator: We will take our last question from Peter Saleh with BTIG. Peter Saleh: Great. I apologize if you guys covered this already. But just curious if you can comment, I know we've been seeing across the restaurant space that really casual dining has really been outperforming QSR and fast casual. And it seems like fast casual has really taken us a leg down in the most recent quarter or 2. Just curious if you guys can comment on if you're seeing the same thing within your customer base? And any thoughts on why the -- maybe why the customer shifted so much in the past couple of months? George Holm: Well, casual dining has been a big part of our business for many years, and we supply a lot of the large casual dining chains. And they're doing better versus the previous year in many instances, but they're doing much worse than they were doing in 2019. So, there's a little bit of the kind of bouncing off the bottom. I think there's some that have done some great marketing. They have their pricing to where their -- at least a similar value to fast casual with a higher touch with the customer. So, I think that's helping them. I don't know that there's a long-term change with what we're seeing today. Just got to watch it and see what happens, but I don't think there's a long-term change. Operator: Thank you. And this concludes our Q&A session. I will now turn the call back to Bill Marshall for closing remarks. Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations. . Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good day, and welcome to the Great Elm Capital Corp. Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Adam Yates, Managing Director. Please go ahead. Adam Yates: Hello, and thank you, everyone, for joining us for Great Elm Capital Corp's Third Quarter 2025 Earnings Conference Call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcc.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. On our website, you can also find our earnings release and SEC filings. I would like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our securities. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp.'s filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of our SEC filings, please visit Great Elm Capital Corp.'s website under Financials, SEC filings or visit the SEC's website. Hosting the call today is Matt Kaplan, Great Elm Capital Corp.'s Chief Executive Officer, who will be joined by Chief Financial Officer, Keri Davis; Chief Compliance Officer and General Counsel, Adam Kleinman; and Mike Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC's CEO, Matt Kaplan. Matt Kaplan: Thanks, Adam, and thank you all for joining us today. After a very strong first half of 2025 we had a solid start to the third quarter, and we're on pace to meet and potentially exceed our internal income generation targets for 3Q. In August, and through the first half of September, we raised significant equity at NAV, doubled the size of our revolver, reduced the revolver's interest rate by 50 basis points and successfully refinanced our highest cost 100 basis points lower. These transactions leave us with ample deployable cash and capacity to invest in income-generating opportunities in the coming quarters, leaving us in a position of strength to capitalize on attractive risk-adjusted investment opportunities and further our long-term growth strategy. In contrast to a positive start to the quarter, our results are colored by First Brands, which traded down sharply in the back half of September before filing for bankruptcy at the end of the quarter. GECC has held exposure to First Brands through syndicated loans since 2020 with a portfolio allocation of over 5% to First Brands since 2023, as noted in our recent 10-K. First Brands was paying cash income to GECC and we received our last regularly scheduled full cash quarterly interest payment at the end of July this year. As outlined in our October 7 press release, our direct exposure to First Brands adversely impacted NAV by approximately $16.5 million in the third quarter. In addition, we put loans on nonaccrual, which adversely impacts our income generation. On the other side of the spectrum, I want to highlight the tremendous success we had in the quarter with Nice-Pak. In 2022, we funded a secured loan with warrants to Nice-Pak, a wet wipes producer. The company was acquired this past quarter, generating an approximately 38% IRR to GECC over the 3-year holding period. Over the last few years, we have found certain select and unique income-generating opportunities to deploy capital into with strong upside convexity, like Nice-Pak as well as some of our insurance and CoreWeave related investments. I am confident that our strong sourcing engine is intact, and I remain excited about the future of GECC. We entered the fourth quarter with leverage in line with our target and ample liquidity with over $25 million of cash to deploy. In addition, we expect to begin harvesting nonyielding assets in excess of $20 million to prudently deploy into cash-generating investments. As we enter this final quarter of 2025 on a strong foundation, our Board of Directors has approved a $0.37 dividend for the fourth quarter of 2025. Furthermore, the Board has approved a $10 million share repurchase program. I'm confident that with our strong capital position, our focus on risk management and further portfolio diversification, we can rebuild income and NAV from the third quarter to deliver strong returns to shareholders. Before diving into the numbers, I want to further touch on First Brands. In retrospect, our exposure to First Brands was too large. We are fortunate to have a strong balance sheet and ample liquidity and will be focused on driving further portfolio diversification and reducing our average position sizing as we deploy capital. Now turning to our third quarter numbers. our NII was $0.20 per share. The decrease from the second quarter was largely due to the anticipated decline in distributions from our CLO JV, which totaled $1.5 million in the third quarter down from $4.3 million in the second quarter. Also, NII was impacted from elevated interest expense associated with the refinancing of our high-cost GECCZ notes, where we wrote off approximately $1 million of deferred offering costs and had double interest expense for most of September. In addition, our preference shares in an insurance-related investment did not pay a dividend this quarter as we expected, after paying $2.1 million in the second quarter. In the fourth quarter to date, we have received $4.3 million of distributions from our CLO JV but do not expect a distribution on our insurance-related preference shares until potentially 2Q of 2026. I would like to note that even with all of the moving parts in our numbers, we reported NII of $0.40 per share in the first quarter, $0.51 in the second quarter and now $0.20 in the third quarter, which totals $1.11 and compares to $1.11 per share of regular quarterly distributions in the first 3 quarters of this year. As we look into the fourth quarter and our modeling today, we expect NII to significantly rebound from the third quarter based on increased CLO distributions, normalized interest expense and income generated from our capital deployments. It's worth noting that our share count has increased over the past year as a result of our capital-raising programs, which have successfully led to GECC issuing shares and transactions that did not dilute NAV like past rights offerings. These transactions have been a huge positive to scaling our platform. However, they have led to short-term cash drag impacts and have modestly offset our absolute NII growth on a trailing 12-month basis. Moving on to portfolio performance. Our NAV per share declined to $10.01 from $12.10 as outlined on Slide 9. The decrease in NAV was primarily driven by unrealized losses associated with First Brands and to a lesser extent, an unrealized decline in the fair value of our investment in CW Opportunity 2 LP as the underlying CoreWeave common stock declined approximately 16% in the quarter. Looking ahead, we have ample liquidity and are actively working to further diversify our portfolio across senior secured investments that we believe are well positioned to perform amid evolving market conditions. With a solid foundation and disciplined investment approach we remain confident in our ability to generate sustainable returns and deliver increasing value to our shareholders. With that, I'd like to turn the call over to Keri Davis to discuss our third quarter 2025 performance. Keri Davis: Thanks, Matt. I'll go over our financial highlights now, but we invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. During the third quarter, GECC generated NII of $2.4 million or $0.20 per share as compared to $5.9 million or $0.51 per share in the second quarter of 2025. The decrease in NII was primarily driven by the lack of the distribution from an insurance-related investment and lower income from our CLO JV. Our net assets as of September 30, 2025, were $140 million, consistent with $140 million as of June 30. Our NAV per share was $10.01 as of September 30 versus $12.10 as of June 30. The decrease in net asset value was primarily driven by losses on First Brands as noted. Details for the quarter-over-quarter change in NAV per share can be found on Slide 9 of the investor presentation. As of September 30, GECC's asset coverage ratio was 168.2% compared to 169.5% as of June 30. As of September 30, total debt outstanding was approximately $205 million, and we had nothing outstanding on our $50 million revolver. Cash and money market securities totaled approximately $25 million and we have $50 million of availability under our revolver. Our Board of Directors authorized a $0.37 per share cash distribution for the fourth quarter, which will be payable on December 31 to stockholders of record as of December 15, from distributable earnings. The distribution equates to a 14.8% annualized dividend yield on our September 30 net asset value. I'll turn the call back over to Matt. Matt Kaplan: Thanks, Keri. We continue to enhance our portfolio strength by maintaining a focus on secured debt positions. Our corporate portfolio is comprised of over $220 million of investments and first lien loans comprised 2/3 of the corporate's portfolio as of September 30. As we deploy capital, we are focused on increasing our allocation to first lien senior secured investments. This demonstrates our commitment to enhancing portfolio quality while maintaining a focus on secured income-generating assets. Before moving on to more portfolio detail, I think it is important to highlight our nonyielding other equity mix as outlined on Slide 17. The bulk of this is attributable to CW Opportunity 2 LP the vehicle we discussed last quarter that initially held a preferred investment in CoreWeave, which converted into common equity in connection with the IPO. While there is no more income from the coupon on the preferred to distribute going forward, reducing our gross portfolio yield, this investment is a meaningful positive to our shareholders. In the third quarter, we began to receive capital distributions as the vehicle took steps to generate liquidity for its investors. We received $2.9 million of capital distributions in the quarter, almost half of our original $6 million investment, and the post distribution value was $14.8 million as of September 30. In October, we received an incremental $2.8 million, bringing our life-to-date income and capital distributions to $6.1 million or 102% of our original investment in CW Opportunity 2. Importantly, as we receive distributions from CW Opportunity 2 and monetize other non-yielding equity investments in the coming months, we will rotate this capital into cash income generative investments and further diversify our portfolio. As of September 30, our nonaccrual positions included investments in First Brands, Del Monte and Maverick Gaming, representing 1.5% of portfolio fair value. Aside from our nonaccrual investments, our corporate portfolio has performed well on the whole, and we saw solid performance in Specialty Finance. Importantly, we have no exposure to nonprime consumer finance issuers or tricolor. In addition, we have limited exposure to software and have been monitoring portfolio investments for signs of disruption from AI. There are many widespread concerns about businesses at risk from AI disruption. We believe caution is appropriate but needs to be addressed on a case-by-case basis. To date, we have otherwise seen minimal direct impact of tariffs on our portfolio. Our portfolio maintains broad diversification with a predominantly domestic focus and minimal exposure to China. We continue to monitor the changing landscape and also work to evaluate the second and third order effects on tariffs and shifting trade dynamics. With our defensive portfolio structure, we believe we are well positioned to navigate the ongoing tariff uncertainty. As we look ahead, we are focused on deploying capital into high-quality income-generating investments. We are taking a measured approach to new originations, prioritizing credit fundamentals and downside protection along with increased portfolio diversification. With $25 million of deployable cash, monetization of our non-yielding equity investments and $50 million of revolver availability, we have significant dry powder and financial flexibility to capitalize on opportunities. We remain excited for the future of GECC and with that, I would like to turn the call over to Mike Keller to provide an update on Specialty Finance. Michael Keller: Thanks, Matt. Great Elm Specialty Finance had a very strong third quarter and increased its distribution to GECC to approximately $450,000 from $120,000 last quarter. We continue to execute on GESF's strategic transformation by simplifying our business model and securing favorable financing arrangements, successfully repositioning the platform for future growth and improved profitability. In April, we completed the rebranding of Sterling as Great Elm Commercial Finance, which now offers traditional asset-based lending solutions to a broad range of industries. In July, GECF upsized its back leverage facility by more than 20%. We continue to work with lenders to scale this platform as our deal pipeline remains robust. As part of our strategic changes made earlier this year, we are pleased to report that Great Elm Healthcare Finance is now better positioned for profitability and generated strong distributable income in the third quarter. Prestige, our invoice financing business had a phenomenal quarter. As a reminder, Prestige provides spot invoice financing solutions and has exhibited high ROEs over the course of the year but can be lumpy quarter-over-quarter. In summary, these initiatives have streamlined our operations and better aligned our platform with long-term growth objectives. We're seeing the benefits of our strategic repositioning take hold, and we remain confident in our ability to generate improved sustainable returns going forward. Matt Kaplan: Thanks, Mike. In closing, we had a challenging end to the third quarter. However, we remain well capitalized and are focused on protecting NAV and generating NII. We are excited to close out 2025 with a strong balance sheet and ample liquidity as we look to execute on our growth and optimization initiatives. We believe we remain well positioned to rebuild our NAV over time and to deliver attractive risk-adjusted returns for our shareholders. With that, I'll turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question on CoreWeave and the capital distributions you've started to receive. Curious if you could provide any kind of color expectation into the cadence and timing of any future distributions if there's been something kind of formal announced? Or if you just kind of perceive them periodically? Matt Kaplan: I think we provided the color on the capital distribution in the September period as well as October. I think importantly, we've received distributions that cover all of our cost basis and the investment and everything from here on out is going to be generating additional capital for GECC to invest in income going forward, we'll provide the market an update next quarter when we report on where we've been seeing the distributions. But again, that vehicle has been making returns of capital, and we're fortunate to be able to be in a position to redeploy that income-generating opportunities going forward here. Erik Zwick: And then you kind of combine those distributions with your expectations to harvest. I think you mentioned kind of $20 million of kind of capital from nonyielding assets. Is those $20 million separate from any future expected distributions from CoreWeave? And yes, maybe kind of answer that question first, would be great. Matt Kaplan: Sure. I think the $20 million or over $20 million includes CoreWeave and a couple of other non-yielding assets that we've identified that we believe we'll be able to harvest over the coming months here into 2026, early '26. Erik Zwick: Great. And then just kind of taking that to the next step, you've got this kind of capital coming, you've got liquidity in your revolver. Can you just talk maybe about the opportunities that you're seeing in your pipeline today? How you evaluate them from kind of a risk-adjusted perspective and just the size of the pipeline relative to maybe kind of 3 months ago? Matt Kaplan: Yes. I'd say spreads in the public markets are tight right now. We're not reaching for yield. We're very focused on secured and income-generating opportunities, investing at the top of the capital structure. We continue to work on various private credit transactions and are expanding the funnel, also working to get more granular in the portfolio and diversify. There's one private credit transaction that we're working to close on this week. That is a teens-type return profile and comes with warrants. I highlighted Nice-Pak, which was a tremendous success in the quarter, which had a warrant package as well. So as we look to rebuild NII and NAV, we're focused on trying to find those interesting opportunities and that's at the top of the capital structure and find certain situations that provides some upside complexity going forward. Erik Zwick: And if I can squeeze one more in, and then I'll jump back in the queue. My understanding, most CLOs make their distributions towards the beginning of the quarter. So the $4.3 million that you mentioned that you received so far in 4Q. Is that likely to be pretty close to the full number for 4Q? Or is there anything else you're expecting to receive later in the quarter? Matt Kaplan: I would say you should use that number for the quarter. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Matt Kaplan for any closing remarks. Matt Kaplan: Thank you again for joining us today. We look forward to the continued investor dialogue, and please let us know if we can help with any follow-up questions that you may have. Thank you again. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Mia Nordlander: Very welcome to Sinch Q3 2025 Report Presentation. My name is Mia Nordlander, and I'm Head of Investor Relations & Sustainability. With me here today, I have our CEO, Laurinda Pang; and our CFO, Johnas Dahlberg. We will hear them presenting the quarter and thereafter, there will be time for questions. [Operator Instructions] So once again, very welcome to this presentation. I hand over to you, Laurinda. Laurinda Pang: Thank you, Mia, and thanks, everyone, for joining us today. One year ago, at our first CMD, we shared a strategy for value creation and today marks a clear milestone of our disciplined execution and value delivery on that strategy. Let's turn to Slide 2 to look at the highlights from the quarter. As we begin, I will remind you of the continued large FX headwinds in the quarter, mainly due to a weak U.S. dollar. As we always do, we will point you to organic changes, which normalize these swings and are a consistent representation of the underlying business. I am pleased to report a quarter of continued organic gross profit growth, improved profitability and the initiation of our share buyback program. We delivered solid performance that demonstrates focused execution against our strategic priorities, even though currency effects obscure some of the underlying momentum. Gross profit of SEK 2.3 billion grew 5% organically year-over-year and roughly in line with last quarter. We expanded gross margin to 35%. Both the gross profit and gross margin development are a testament to the strength of our offerings and our focus on higher-value interactions and more profitable product lines. Our ability to expand profitability in a dynamic market highlights the resilience and efficiency of our business model. However, turning to the top line. Net sales were flat year-over-year at SEK 6.7 billion, and I want to be direct about this. While our profitable growth is very positive, this level of revenue is not what I expect nor is it the shape of the growth we are aiming over the long term. I'll address this further on the next slide when we break out the regional segments. Adjusted EBITDA of SEK 915 million increased organically by a strong 8%. This was an adjusted EBITDA margin of 14%, which was the highest on record since 2019 and was driven by gross profit growth and operational efficiency. As a reflection of our confidence in our strategy and financial strength, Sinch initiated its first ever share buyback program during the quarter with 1.8% of shares now held in treasury. Beyond the financials, we are proud that Sinch was named a leader in Gartner's Magic Quadrant for CPaaS for the third consecutive year, a powerful validation of our market position and strategy. We also ranked #1 in their critical capabilities for CPaaS report for multinational organizational use cases. This highlights the strength of our platform's ability to meet the complex needs of global enterprises. We also strengthened our position in AI during the quarter with leading innovators across all regions adopting our API products to power customer engagement, underscoring the scale and robustness of our platforms. And in an important milestone of conversational messaging, we launched RCS for business with all 3 major mobile operators in the U.S., cementing our leadership in this transformative channel. Let's look at Slide 3 next, please. To begin, let me provide some color on the flatness in net sales. This primarily reflects 2 factors: First, we've encountered competitive pressure in the traditional messaging space concentrated within a few large accounts in the Americas customer base and in the India market more broadly. Second, we have continued to steer away from fixed price contracts that have negatively impacted EMEA and, to a lesser extent, Asia Pac as these opportunities do not fit an acceptable risk profile. However, we're not standing still. We are proactively reshaping our revenue profile for more sustainable long-term success. This strategy is twofold: first, diversifying our customer base; and second, accelerating our leadership in conversational messaging. We are making excellent progress on customer diversification, having recently secured several notable new enterprise clients who are in the early stages of ramping up their volumes. While their full contribution is not yet reflected in our top line, they represent a significant driver of future growth. And the key reason we are winning in our leadership is our leadership in conversational messaging. We grow here by winning new customers directly on to modern channels like RCS and WhatsApp and migrating our existing base to these higher-value interactions. In India, for example, this combined success in over-the-top channels and strong growth in e-mail has neutralized the pressure on traditional messaging. In the Americas, while net sales were flat, the region delivered strong organic gross profit growth of 8%, with margins expanding by 2 percentage points. This was driven by a strong turnaround in our U.S. network voice business and solid performance in other product categories. In EMEA, organic net sales and gross profit declined by 2% and 3%, respectively. This was primarily due to the strategic decision I just mentioned regarding steering away from fixed-price contracts. Notwithstanding this, the underlying API business remains healthy and is growing. And in Asia Pac, organic net sales grew by -- I'm sorry, 7%. Organic gross profit increased by 1%. The strong net sales performance was driven by new large messaging wins, but was offset by competitive pressure in applications in Australia and the India SMS pressure I mentioned earlier. We've been experiencing this downward pressure for some time, but Sinch India has now stabilized sequentially. Before we leave this slide, let me reiterate the actions I mentioned diversifying our base, leading in next-gen messaging and e-mail and improving our commercial terms. These are fundamental to building a more resilient and sustainable business. They strengthen our foundation and position us to capture higher quality growth going forward. Next slide, please. Our strategy for value creation is very clear. We are executing with discipline. It is built on 3 core pillars: reaccelerating growth, expanding our EBITDA margins and disciplined capital allocation, all fueled by continued cross strong cash generation. The third quarter marks another period of significant progress across each of these pillars and is another firm step on our path to delivering our midterm financial targets of 7% to 9% organic growth and 12% to 14% adjusted EBITDA margin by the end of 2027. Next, on Slide 5, let's look at the progress for growth reacceleration. The 4 growth drivers we outlined are deeply interconnected. In enterprise expansion, we are winning with the world's most demanding businesses. Our large enterprise customer base has increased by 5% year-to-date, including the addition of companies like Nespresso, Visa, Dollar Shave Club and Nordstrom. Our self-serve products continue to be a powerful growth engine, delivering high-margin, double-digit growth year-to-date. As another proof point, our self-serve capabilities are resonating in the market. We have increased our customer count to more than 190,000. As it relates to RCS, our traffic has tripled year-to-date. And as mentioned in the third quarter highlights, we have now fully achieved coverage with all U.S. Tier 1 operators. Touching quickly on our continued strength in e-mail, volumes have increased nearly 40% since last year. And finally, partners and ecosystems, which is all about scale. We embed Sinch directly into the workflows of the world's leading enterprise software companies. The partner-enabled business has grown gross profit by 5% on a year-to-date basis. These growth drivers are powered by 2 major opportunities. The growth in conversational messaging and the rise of generative AI. Let's move to Slide 6 to take a look at our progress in conversational. We are a leader in this transformation and the momentum in conversational messaging is a clear testament to the market's demand for richer engagement to enhance the customer experience. Our RCS message volume growth is being led by India, LatAm and early adopter markets in EMEA, like France. And in the U.S., we have some great early use cases with brands like Enfamil and Omaha Steaks. We have launched WhatsApp upscale as a complement to RCS upscale. This is more than just switching channels. It's about delivering real business impact through better security and higher trust, improved conversion rates and more innovative customer communications. To illustrate the last point, our customers, Picard, Courir and Clarins were nominated for innovation awards for their high-impact RCS campaigns. Clarins took home the win. By transforming customer communications with rich interactive messaging, their campaigns deliver much higher engagement and stronger business outcomes. Next page. Generative AI is set to dramatically amplify the effectiveness of conversational messaging. While these 2 phenomena evolved independently, they are now creating a powerful synergy, where each makes the other more valuable. Put simply, consumers now expect conversations that are intelligent and context aware. AI provides the intelligence to meet this demand, while rich channels like RCS and WhatsApp provide the perfect vehicle to deliver those enhanced experiences. This powerful combination is creating an exciting new era for digital customer communications. In this era, machines themselves are becoming new buyers of communications. As autonomous AI agents begin to orchestrate interactions, they will drive a significant increase in overall communication volumes. On the next slide, I'll talk about what this inflection point means to Sinch. First, we see strong market validation that we are a platform of choice. The world's leading AI innovators are building their future on our infrastructure, choosing Sinch's APIs to power their communication needs across all regions. This reinforces our unique position as the trusted execution engine. These companies need to know that when AI triggers a message to be sent, it gets delivered securely and reliably every single time. That is our core strength. Our leadership in this new AI era is built on a foundation we have been laying for years. We have strategically embedded AI across our product suite to make our solutions smarter, more intuitive and more valuable. Let me give you a few tangible examples of how we are delivering value to customers today. In e-mail, Mailgun Inspect uses AI for quality assurance and our open source MCP server allows developers to query at e-mail analytics using natural language. In multichannel campaigns, our Sinch Engage platform uses AI to orchestrate campaigns, personalize experience and create content. In voice, our programmable voice API allows businesses to automatically capture and transcribe conversations for compliance analytics and deeper customer insights. And in our core messaging offering, AI is deeply embedded to enable our customers to recognize intent, perform sentiment analysis and protect their users from detecting -- by detecting profanity and spam. We are continuing to enhance our platform's capabilities and enabling campaigns and conversation orchestration. We have already seen a 41% year-to-date volume increase in conversations facilitated through our chat layer platform and are now developing AI agents directly within our Sinch Engage platform. We expect to launch a closed beta with our first customers before the end of the year. In summary, this trend directly fuels our platform's capabilities and growth. More AI adoption means more traffic generating more revenue in our existing core business. We are the essential communications layer for the AI economy, and we are well positioned to grow as it does. With that, I'll hand the word over to Johnas to take you through the financials in more detail. Johnas Dahlberg: Thank you, Laurinda. So let's get into the financials and we start at the top of the [indiscernible] with net sales. So first, a couple of words on our financials. When looking at Sinch's financials, it's important to understand a couple of things. The first thing is that we have a strong seasonal pattern, where there's typically the year-end, that's the strongest driven by the retail season. Secondly, we have significant FX effects. And our reporting currency is Swedish krona, but it's a very limited share of our business. In fact, the U.S. dollar is the dominant currency of trade with about 60% of the business. So there's a lot of FX effect, and that's why we always communicate organic numbers for comparability and communicated year-on-year. So in the quarter, net sales came in at SEK 6.7 billion, and that's down 7% due to currency translation effects. However, when adjusting for this effect, we have a marginal positive organic growth. Now under the surface, there's actually more excitement as we exhibit continued solid net sales growth in our high-margin products such as our e-mail product and several of our applications. Moreover, we continue to diversify our customer base and reduce customer concentration in all this provides a positive mix effect and stronger financial profile, both here and now and for the future. Next chart, moving on to gross profit. Looking at organic numbers, we continued with a stable 5% growth in the quarter with the strongest growth coming from our most important market, which is the Americas. The improvement in Americas is driven by all product categories, including our API and application business, but with a particularly strong quarter for our network business, which is now really back after the turnaround. What's positive in the quarter across the company is that all product categories contributed to organic GP growth as well as 2 out of our 3 regions. However, on a reported basis, we have this currency translation effects and the impact is 8 percentage points as a currency translation headwind. Moving to our margins. Combined, we have a very positive development of our margins with a strong 34.8% gross margin in the quarter, and this is an increase of 1.2 percentage points year-on-year. And this improvement is driven by a combination of both increased profitability at product level as well as a positive product mix shift. As I mentioned earlier, our most profitable products continues to grow faster than the average mix and this is mainly our e-mail products and application hence, contributes positively to the higher margin through a positive product mix shift. Disaggregating these 2 effects, about half of the margin increase comes from a positive development of product margins, while the other half comes from a positive product mix shift. Moving over to EBITDA margins. We delivered close to a record high 14% adjusted EBITDA margin. In fact, in modern Sinch time, I would say, it's highest post-2019 and acquisitions we did in '21, which truly transformed the company. And we also see a very strong margin on non-adjusted EBITDA and we're already now at the upper range of our 12% to 14% EBITDA margin target for the end of 2027 that we established 1 year ago at our Capital Markets Day. So in terms of the targets that we set out 1 year back, one is down and that's the EBITDA margin target and now it's one to go, which is really to get the gross profit growth also going. Moving to the next page to take a closer look at cost and EBITDA. Starting with operating expenses. We continue on our path of cost discipline and continued synergy extraction in the combined Sinch. So OpEx is down 5% compared to the same quarter last year, which represents a marginal 3% organic OpEx increase. Measures we're taking on the cost side are about leveraging truly the combined strength of Sinch, consolidating platforms and products, consolidating support functions to lower cost locations and recently leveraging AI to gain efficiency throughout our operations. I want to stress that this is not a one-off effort, but rather an ongoing effort over several years to increase our cost efficiency, and this effort will continue and there is more potential. It will both support the potential of increased profitability in line with our target as well as allowing for investments in future growth, predominantly through investments in sales, marketing and product development. So with an organic 5% GP growth with only 3% OpEx growth, we get a favorable drop down to adjusted EBITDA with an 8% organic improvement in the quarter. And since we have lower adjustment items, primarily through SEK 41 million lower restructuring and integration charges, we achieved 16% organic EBITDA improvement compared to the same quarter last year. Moving over to cash conversion and cash flow. Operating cash flow amounted to SEK 1.4 billion over the last 12 months, which corresponds to a 30% cash conversion rate and this is very close to our guidance of 40% to 50% cash conversion over a 12-month period. It's important to emphasize that we have some working capital swings between quarters, but this is quite normal for us. So I would like to say that the cash conversion rate going forward and what we report now is very much in line with what you can expect. So just to prove this point, I would like to move over to net working capital. Sequentially, we're essentially at the same level of receivables as the last quarter and the negative impact on working capital mainly comes from lower payables in the quarter. And in fact, it's the lowest level of payables in several years. But in all, we continue to operate the business with a negative working capital, although a slight increase from the previous quarter. So while we have and will likely to have variations in cash flow impacting quarterly, sorry, in net working capital influencing quarterly cash flows, we don't see any structural changes impacting our working capital and stay confident with our cash conversion guidance. Lastly, before handing back to Laurinda, looking at the balance sheet. We continue to have a strong balance sheet with net debt to adjusted EBITDA, slightly increasing to 1.4x. And as you know, in the last quarter, the BOD result activates the repurchase program mandated by the AGM, allowing for a repurchase of up to 10% of outstanding shares. And during the quarter, we repurchased 1.8% of outstanding shares for some SEK 519 million. And in addition, we spent SEK 241 million for an equity swap arrangement to hedge Sinch long-term incentive program. And in this program, a partner bank acquired further Sinch's stock for SEK 241 million. So in total, this corresponds to 2.7% of outstanding shares. And in combination, these are the drivers for a slightly increased leverage ratio in the quarter. What's worthwhile to mention also is that during the quarter, we also refinanced existing bank facilities at largely unchanged and very favorable terms, which means that currently have an additional SEK 4.2 billion in unused credit facilities. And with that, I'm handing back to Laurinda. Laurinda Pang: Thanks very much, Johnas. Okay. So before we go to questions, I just wanted to reiterate our value creation agenda here. It's around 3 pillars: reaccelerating growth, expanding EBITDA margins and a disciplined capital allocation strategy. We've in the third quarter, delivered on all 3 of those, an important step towards our midterm guidance, which we also reaffirm here today. So with that, I'll open it up for questions. Mia Nordlander: [Operator Instructions]. First, online we have Erik Lindholm-Rojestal. Erik Lindholm-Rojestal: Yes. So 2 questions. please, if I may. I'll start with one and then come back with the second one, perhaps. So just on API platform. You had quite solid development in this area in Q2 that seemed to slow quite clearly in Q3. I'm just wondering sort of what gives you confidence that you can reaccelerate in this area? And is it mainly sort of driven by these new enterprise wins and the conversational piece that you mentioned? Or -- and is it fair to say that the growth here maybe will be a bit lower during the period of shutting out these fixed price contracts in EMEA? Laurinda Pang: Yes. Thanks, Erik, for the question. To your point, the 2 pieces or the 2 headwinds that I called out do both affect the API platform. And to your point, the fixed price contracts will -- they will cycle out over the next several quarters. So that will continue to put pressure from a year-over-year standpoint. However, the increases in the new customer wins, those are within the API platform. And as those volumes come online, we've seen some of them, but they're not at full levels. But as those volumes come online, they will have a positive impact as well conversational messaging. It will show up in the API platform as well. So we've called out the headwinds, but we also have a good line on what the incremental growth will look like. And I'm sorry, one last point I would make is the AI contracts that I talked about that we have come to agreement within the third quarter. Those will also positively impact API over the long term. Erik Lindholm-Rojestal: Great. And just as a follow-up to that, perhaps, I mean how meaningful are those AI contracts today? And when do you think we will start sort of moving the needle meaningfully on the group level? Laurinda Pang: Yes, they're not meaningful today because they just got -- the agreement just came to term. So they've yet to ramp. The way that I see this -- this new way of doing business in this new AI world with these innovators is they're going to come to us with regards to specific use cases, and they will grow from there. So I do think that, as I mentioned in my prepared remarks, this combination between AI and conversational messaging will absolutely generate larger volumes for communications, ultimately, and again, these newer contracts are the first step to being able to capture those volumes. Erik Lindholm-Rojestal: All right. Perfect. And then just a question on customer connectivity. It's really a stellar quarter and it looks like more than 20% organic GP growth in Americas in this segment. I mean how sustainable do you think this gross profit level is? And yes, what are your sort of more long-term hopes for this business? Laurinda Pang: Sure. On the network connectivity side, if you remember a bit over a year ago, this part of the business was on a fairly rapid decline, and that resulted from some significant price increases from carriers in the U.S. And we have completely reversed that. So the performance in network connectivity today is as a result of turning around that business that comes after really 3 aspects. The first was price negotiations. The second was price increases to customers that leverage these services. But then the third was also the transition from the legacy network infrastructure into a go-forward infrastructure. And I think we've spoken about that quite a bit in the past. So the price increases to customers you can only go so far. I would say that we're getting closer to the end of that. The cost savings from price negotiations are fairly flat, I would say. But the larger opportunity for us is to get completely off of this legacy infrastructure that will have a very meaningful impact to us on the cost side. The other thing I would call out in Q3, and I apologize, is there was an actual release -- an accrual release that positively impacted us in Q3. So you should not look at Q3 performance for network connectivity and think of it as the new baseline. It's unusually high. Erik Lindholm-Rojestal: All right. Great. Are you able to quantify that one, the accrual? Johnas Dahlberg: I think what you should look at is more the sequential development and then from previous quarters, which is a step-up from previous performance. And then it's difficult to say with precision, of course, and we don't give exact guidance, but it gives you a hint. Mia Nordlander: Next online, we have Ramil Koria from Danske Bank. Ramil Koria: Just trying to parse out sort of the moving parts here. Trying to sort of understand what's new here in Q3, which you didn't know going into the quarter, so to say. So the pressure in Australia, competitive pressures on large U.S. customers, fixed price contracts in EMEA being phased out. Like what's new of this? And why did you decide to take the actions you took now in Q3? Laurinda Pang: Ramil, excuse me, it wasn't my voice. So if you remember, in Q2, what we said from a GP perspective was that you should expect the average of the first half of the year to look quite similar in the second half of the year. So I think we started in Q1 with 2% gross profit growth, and we went to 6%. Now we're roughly at 5%. So we actually did call for a fairly, call it, quarter-over-quarter stable quarter. And so the fixed price contracts is a continuation. I raised that in the first quarter. I wanted to remind everybody of that because it did dramatically affect the EMEA business this quarter. And then as far as the price compression or the price competitiveness, that's been going on, I would say, for roughly the last call it 6 months or so. And so we've had to make a few concessions there. But conversely, we've had some good wins. So these are pieces that we've known. And we're just telling you what the headwinds are that affected us this quarter. Ramil Koria: That's very clear, Laurinda. And then, I mean, I'm clear, clearly, there is some mix shift happening in the business as well. Year-to-date, the gross margin is up more than 80 basis points year-over-year. How dependent are you on volume growth into 2026 to deliver on the notion of Sinch being a growth company? Johnas Dahlberg: So first of all, the most important metric for us is GP growth. Having that said, over time, we obviously need net sales growth as well. I think it's -- the audience has to define what's a growth company. But we are progressing towards our target of 7% to 9% gross profit growth at the end of 2027. You remember that we set out 2 targets 1 year back. One was on profitability. We said we would deliver 12% to 14% EBITDA margin on an adjusted basis, we're now actually at 14% and nonadjusted 13%, so we're already at the upper range. So one down, one to go. But we also said it won't be a straight linear extrapolation when it comes to growth. So we are confident that we're on the right track towards our targets and we're progressing basically. Ramil Koria: Okay. And then a question I've asked before, perhaps I'm sounding like a broken record here, but trying to understand like where the competitive pressures are coming from because all your listed competitors operating in the U.S. have higher gross margins and they seem quite reluctant to dilute the gross margins? And you guys coming from sort of a lower base, so to say, in having the scale benefits, when you bargain with carriers. Could you shed some light on -- are these U.S., European or Rest of World players competing for these volumes? And where are the volumes originated that you're giving concessions on right now. Johnas Dahlberg: So first of all, the absolute level or the gross margin level with competitors depends on the mix. That doesn't mean that they have parts of the business where they can compete with us and be quite aggressive. And where we see competition is -- competitive pressures is mainly on a very limited number of very significant accounts, who basically set up multi-vendor relationships and there, it's highly competitive. Now this is a continuous competition. And we -- sounds like we're losing any customers. We may have lost a bit of volume, but we can fight back also. Laurinda Pang: And Ramil, the competitive pressure we're talking about is predominantly on the messaging side, the traditional messaging side, right? So yes, we've had a disciplined approach, but we also have the ability to change the product mix and deliver on higher-valued products, which do bring higher gross margin. So when you look at the overall mix of the business, to your point in shifting and it is maintaining our gross margin level. And so I would just make sure that that's not lost on the audience here. Ramil Koria: Okay. And then just geographically speaking, where are you seeing the competitive pressures in terms of termination of the volumes? Laurinda Pang: So it's -- as I mentioned, a few accounts in the Americas, we're seeing large pressure in the India market very specifically, but that is intra India. It is based off of the telcos getting into the SMS business for large local companies. Those are the 2 callouts that we would make. Mia Nordlander: Next one is Predrag Savinovic from DNB Carnegie. Predrag Savinovic: The first one, based on what you said, our network connectivity and on accruals, so if we think then of organic GP growth for Q4 and sort of start of 2026, will these growth rates be declining from the level we see now in the third quarter? Johnas Dahlberg: Sorry, I didn't exactly get your question here please. The accruals? Predrag Savinovic: And based on what you said in terms of network connectivity that the growth rate there could be on an alleviated level right now in the third quarter. So if we look down to Q4 into 2026, the start of '26, could we see that the growth rates will be declining from the levels we see now in the third quarter? Johnas Dahlberg: I think as Laurinda said, you can't use the third quarter as our new baseline for the sequential development of network voice. But -- so look more at the sequential numbers you've had earlier in the year, and then we continue to improve the business. But again, we can't give any precise guidance. What we can say is this business is turnaround, and we continue to work on the cost side. Shifting out legacy TDM technology with much more cost-efficient IP technology, and that will continue to drive margins, but that will mainly come in the next year. Predrag Savinovic: Sure. And I was unclear. I was thinking more of based on the potential extra tailwind in that segment and then refer more to the organic growth rates on group level, if 5% makes sense or 4% makes sense, average of Q1 to Q3 makes sense towards the next coming 1, 2, 3 quarters? Johnas Dahlberg: Yes. So what we've said and what we continue to say is the same thing that the second half of the year on average will be in line with the first year -- first half of the year. Predrag Savinovic: Okay. Super. Then in terms of the customer account growth of 5% that you call out in Q3, if you can relate this to the first and the second quarters, please? Laurinda Pang: We've been on this study -- this is 5% on a year-to-date basis per drag and so this has been steady since Q1. I think we actually called it out in Q1 as well at 5% and what -- the definition of enterprise customers is customers who are spending north of USD 150,000 per year with us. Johnas Dahlberg: U.S. Laurinda Pang: U.S. dollars, sorry yes, U.S. dollars. Predrag Savinovic: Yes. Super. So basically, you're continuing on a healthy net adds trend on the customer side is the message here. Laurinda Pang: Yes, absolutely. Predrag Savinovic: And then on a follow-up question on what you've discussed on AI so far and the benefit you see and what drives this. So I think from the outside, it looks to me that Sinch is mostly beneficiary from playing on the infrastructure level rather than the application level compared to, for example, Twilio based on the examples you gave, but I may be wrong here, I would love to hear it takes here and more on what Sinch could be powering on an application level as well if that would be the case. Laurinda Pang: Yes. So we actually do both. We have, on the application side, I actually called out a couple of examples of what we're doing there relative to our e-mail product as well as our Sinch Engage platform. So we are embedding AI capabilities into both of those platforms to enable customers to be able to develop their own campaigns, to personalize content, to create content, et cetera. And that -- the application side of the house is the side of the house, it's the highest margin and our self-serve business is growing at a healthy double-digit rate. So that's positive. The other piece to your point is the infrastructure side. Our infrastructure -- the fabric of the network and the capabilities that we have is the perfect vehicle for AI-powered communications. And so that, I think, comes through a couple of different ways. One is through the large innovators themselves and their needs to power their customers and then also with agents more directly. And those can come from the large innovators as well as enterprises as they become more -- they lean more and more into Agentic AI. Mia Nordlander: And next online, we have Laura Metayer from Morgan Stanley. Laura Metayer: 3 questions, please. The first one is on the -- on your midterm growth targets. What do you need to do to bridge your gross profit growth to your midterm targets? And what are the key priorities? Second one is, you talked about early success in terms of benefiting from increased communications from autonomous AI agents. Can you give us a sense of the kind of contract terms that you have on those first contracts that you've been signing? Are they aligned with your usual types of contracts? And then lastly, so AI is expected to reduce the cost of coding and software development, could you please get your view on whether you think Sinch is insulated from the risk of AI disruption in the form of in-housing? And if so, why do you think that's the case? Laurinda Pang: Okay. Laura, so midterm growth. To your point, we have organic growth of 7% to 9% that we've called out and what we need to do in order to bridge that is deliver on the growth drivers that we've called out. So that's expanding enterprise that's to continue this double-digit rate in self-serve -- it's to win in the conversational in the e-mail space. And then it's also the need to win in the partners and ecosystem space. So those are the 4 key growth drivers that we've called out. When we did call those out, we didn't have AI in the mix. And so I would say that AI will be in addition to that. In terms of the contracts with these AI innovators themselves, we're not going to talk about terms per se, but I wouldn't say that they're unusual at this point. I think that right now or I know right now, these sorts of contracts are coming in at a use case level. So they're pretty limited in terms of volumes. But I would imagine as we grow with them, that there'll be terms that will become a bit more aggressive or competitive. And then finally, the in-housing or the cost of coding. Did you -- was your question, do you think we're immune from that or? Laura Metayer: Correct. Yes. Johnas Dahlberg: If there is a risk that we will be disrupted. So if I start, really, the core of our business is a communications -- infrastructure that powers communications and that will not be disrupted. If anything, it will be enabled by AI, making the communication easier and also drive more communication. So the answer is no. Laura Metayer: One follow-up, please, when you talked about the growth drivers for your midterm targets, you said that you can have AI in the mix when you call those out initially. Does that mean that with AI now representing an opportunity for you, you think you could potentially grow faster than what you said are your midterm targets? Laurinda Pang: Yes. We haven't changed our midterm targets yet, but I'm being, again, full disclosure. We had those core drivers outlined 1 year ago, and AI was not a part of it. Johnas Dahlberg: The thing I'd like to add on the midterm growth is you're asking what do we need to achieve to get there? I'd like to remind you that there is a bit of drag currently from the fixed price contracts in India that influence how we deliver on, I guess, comparable numbers. So once we're out of that drag and obviously, assuming there is no new drag coming into the business, that's also positive. Mia Nordlander: Next one is Daniel Thorsson from ABG. Daniel Thorsson: Yes. 2 questions. The first one on the phasing of the fixed price contracts in EMEA and also related to your reasoning on the financial targets being in the upper end of the margin already and now looking to reinvest into growth. Does that mean that those fixed price contracts are actually loss-making because otherwise, they would likely help you to reach a higher GP growth as you are already within the margin range. So just to understand why you do this and also if you have more to come ahead as well? Johnas Dahlberg: Yes. Thank you, Daniel. Excellent question. So the problem with the fixed-price contracts are not really the margins per se. It's more the cash flow profile and the risk profile and if you go back a couple of years, you will actually see the discussion around this contract. So it's part of more risk management and also the sustainability of those contracts is more a transaction over a limited period of time, and it becomes pretty volatile. So -- this is more the logic why we're not super excited about those contracts. We haven't taken a decision to completely exit, but it's more taking a more cautious stance. To provide some numbers here at the peak, this represented maybe 3% of GP and now 2/3 of that is gone and that has happened over a 12- to 18-month period. And now what we need is another 12 months to get it out of the comps. So that gives you a little bit of guidance of that impact. And it's predominantly consolidated in the EMEAs. That's why you see the drag on EMEA. Daniel Thorsson: Okay. Excellent. That's very clear. And then the second one on the increased competition in certain markets you mentioned here. Does that increase your appetite for a return to M&A by consolidating some markets and become a larger player? Or do you view your options differently here? Laurinda Pang: Well, first, I would say that M&A continues to be a part of our strategy, although we've been quiet for the past couple of years as we've been integrating these companies. So very much, we have an appetite for that. Certainly, we've been spending the last 2 years cleaning up inside of Sinch and while we're not complete, we've certainly made progress. So -- we certainly are in a position at this point in time. The balance sheet is strong. So again, we are in a good position. Consolidation needs to happen. We're believers in it. This continues to be a fairly disjointed or disaggregated industry. So there are plenty of opportunities there to potentially consider. Daniel Thorsson: Okay. So can I just end with the final short one here. Is the emergence of RCS and WhatsApp volumes here growing 3x year-over-year? Is that hampering net sales growth, but enhancing gross profit growth due to potentially lower prices but higher profitability for you? Laurinda Pang: No. Mia Nordlander: Next one is Fredrik Lithell from Handelsbanken. Fredrik Lithell: I thought, Laurinda, maybe if we saw Twilio report a bit earlier here last week or something like that. And they had an organic growth of north of 10% and you're about flattish. I know -- I mean, your peers, but you're not apples to apples. So if you would pick some of your pieces apart and compare, where do you see you spend in comparison to Twilio's similar units would be interesting to hear your elaboration on it without sort of picking on Twilio necessarily? Laurinda Pang: Thanks, Fredrik. Yes, it's -- to your point, it's hard to do a direct comparison because certainly, I think the normalization of the business, I know how we do it, I don't know how they do it. So that's hard. The other piece is just the business mix is different, even though we sell similar products, just the segments as well as the geos that we sell in or at least have the majority of our business in is different. If I try to peel it apart and look at a more comparable Americas business, versus Twilio and the growth that we see in the underlying API business-specific to messaging. The comparison is that the gap is not nearly as large as one might look at, at the very highest of levels. So I think for me as the leader of this business, it's important for [ Sinchers ] to play our game and to win in the markets that we have invested in. And within the Americas right now, again, the teams are doing a very good job winning new business so that we can shorten or rather lower the customer concentration in that market. We're doing it with a disciplined approach. We're doing it with multi-products so that it provides a higher value to the customers. And we're also within this diversification also being able to address a market that's a bit lower and less price sensitive than what we experienced at the very highest ends of the market. Fredrik Lithell: But is it so that you feel that you are losing market share to Twilio when you meet Twilio? Laurinda Pang: No, I don't, actually. In fact, I mentioned a lot of the wins -- the good positive wins that we're seeing in Americas and then Asia Pac as good examples, where we, of course, are winning against our competitors. So -- and they happen to be one of them. Mia Nordlander: Next one is Thomas Nilsson from Nordea. Thomas Nilsson: Since you're spending quite a bit of money investing in your network and your infrastructure, how many of your competitors are investing into the network at such an ambitious level? And how do you view this will differentiate the various players in the CPaaS market in the coming years? Laurinda Pang: The network infrastructure, maybe that I'm not sure what you're looking at. Johnas Dahlberg: Can you repeat the question? Thomas Nilsson: I mean your level of investment in your -- in CapEx is quite high. And how many of your competitors do you see investing at such a high level as you and Twilio? And how do you think this will play out in the market in competitive terms in the coming years? How many of your competitors are really investing in the networks where you are? Johnas Dahlberg: Well, I think, first of all, I'm not sure I subscribe to the idea that we have a very high CapEx level, it's around SEK 1.5 billion a year in line with historical depreciation, give and take some change. It is a level we've been at. It's a level we think we will continue to do that. And it's -- don't expect any big changes, at least not material changes in the grand scheme of things. When it comes to our competitors, I can't really comment that and their investment plans. Laurinda Pang: The other thing I would call out is just on the network connectivity piece, we are -- and this might be what you're talking about, Thomas, is -- we have been investing in the migration from a legacy network to a digital or an IP network. That cost will go away roughly at about mid next year. Mia Nordlander: Thank you very much. I think that was it for today. Thank you very much to everyone who called in today. We will be back here with Q4 report on the 17th of February. And if you have any questions, feel free to reach out to the IR Department. We are very happy to answer your questions. Once again, thank you very much, and goodbye.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. [Operator Instructions] At this time, I would like to welcome everyone to the Kinross Gold Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] Now I would like to turn the call over to David Shaver, Senior Vice President, Investor Relations. Please go ahead. David Shaver: Thank you, and good morning. In the room with us today on the call, we have Paul Rollinson, CEO; and from the Kinross senior leadership team, Andrea Freeborough, Claude Schimper, Will Dunford and Geoff Gold. For a complete discussion of the risks and uncertainties, which may lead to actual results differing from estimates contained in our forward-looking information, please refer to Page 3 of this presentation, our news release dated November 4, 2025, the MD&A for the period ended September 30, 2025, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul. J. Rollinson: Thanks, David, and thank you all for joining us. This morning, I will discuss our third quarter results, provide high-level updates across our portfolio, comment on sustainability and confirm our outlook. I will then hand the call over to the team to provide more detail. Following an excellent first half, our portfolio of mines continued to perform well in Q3. Production in the quarter was on plan, delivering 504,000 ounces at a cost of sales of $1,145 per ounce. The strength of our operating portfolio, combined with good cost management and favorable gold prices resulted in another quarter of strong operating margins. As a result, in Q3, we delivered another quarter of record free cash flow of nearly $700 million and over $1.7 billion year-to-date. Our business is in excellent shape, underpinned by a very strong balance sheet, robust operational outlook and significant cash flow generation. In accordance with our disciplined capital allocation framework, we are committed to further strengthening our balance sheet through additional debt repayment and enhancing returns for shareholders. We have returned significant capital through our dividend and share repurchases. Given our strong position, we are now planning to increase our return of capital to shareholders beyond the minimum of $650 million we committed for this year. Andrea will provide further details on our capital allocation plans later. Turning to our operational highlights. In Q3, Paracatu and Tasiast delivered substantial production at good costs, generating robust free cash flow. Paracatu was once again the highest producer in the portfolio and remains well on track to deliver close to 600,000 ounces. At Tasiast, both the mine and mill continued to perform well with production in the third quarter delivering as planned and operations remain on track to beat guidance. At La Coipa, performance improved in the third quarter and the site remains on track to meet its full year production guidance. At our U.S. assets, production and costs were on budget in Q3 and also remain well positioned to meet guidance. In Alaska, we saw consistent production with strong contributions from both Fort Knox and Manh Choh. In Nevada, production from Bald Mountain and Round Mountain were as planned. At Bald Mountain, mining of Redbird 1 continued to ramp up and study work for Redbird 2, along with numerous additional satellite opportunities is ongoing. At Round Mountain, initial production from Phase S continued to ramp up following the completion of mining at Phase W. At Phase X, underground development is progressing well with over 5 kilometers advanced to date and infill drilling continues to return excellent grades and widths. With respect to our broader project pipeline, we continue to make steady progress at Curlew, Great Bear and Lobo-Marte in the third quarter. These projects, along with other organic opportunities, continue to be backed by an extensive resource base with excellent long-term optionality. Our strong in-house technical team continues to evaluate these value-generating investment opportunities that we may choose to invest in to continue to grow shareholder value. Turning now to a few remarks on sustainability. In Q3, we continued to provide meaningful impact in our host countries. For example, in Mauritania, we contributed to local educational infrastructure by developing new school facilities in the Inchiri region. In Brazil, Paracatu's tailings facilities recently received the top level AA classification from the engineer of record. This is a strong endorsement of the site's safety practices, reflecting industry-leading standards in monitoring, maintenance and risk control. And in Nevada, Bald Mountain earned the Nevada Excellence in Mine Reclamation and Earthworks Award. Turning now to our outlook. Through the first 9 months, we have produced over 1.5 million ounces at a cost of sales in line with our annual guidance. Operations remain on track in the fourth quarter, and we are firmly positioned to achieve our full year targets. Looking forward, we will remain focused on rigorous operational and financial discipline to deliver strong margins and cash flow to support strong returns for our shareholders. With that, I will now turn the call over to Andrea. Andrea Freeborough: Thanks, Paul. This morning, I will review our financial highlights from the quarter, provide an update on our balance sheet and return of capital program and comment on our guidance and outlook. In Q3, we produced and sold 504,000 gold equivalent ounces. Cost of sales was $1,145 per ounce and with an average realized gold price of $3,458 per ounce, we delivered margins of over $2,300 per ounce. Cost of sales increased quarter-over-quarter due to planned mine sequencing and the impact of higher gold prices on royalties. All-in sustaining costs also increased as compared to Q2 for the same reasons as well as timing of sustaining capital expenditures. In Q3, our adjusted earnings were $0.44 per share and adjusted operating cash flow was $845 million. Attributable CapEx was $308 million with slightly more sustaining capital versus growth. Attributable free cash flow was a record $687 million or $538 million, excluding changes in working capital. And we received an additional $136 million of cash in Q3 from the prior divestiture of Chirano mine. Turning to our balance sheet. Our strong financial position continued to improve in Q3. We ended the quarter with approximately $1.7 billion in cash and approximately $3.4 billion of total liquidity, increasing by over $600 million over the prior quarter. As of Q3, our balance sheet is in a net cash position of almost $500 million. Our financial strength was recognized by S&P, who updated our credit outlook from stable to positive during the quarter. With respect to the Chirano proceeds, we received $136 million in the third quarter and subsequent to the quarter, an additional $96 million or a total of $232 million since the beginning of Q3. Since the closing of the Chirano transaction in 2022, we have realized approximately $314 million in cash proceeds compared with the original sale price of $225 million. As Paul noted, as part of our disciplined capital allocation strategy, we are further strengthening our balance sheet through additional debt repayments. Yesterday, we issued a notice to redeem our $500 million 2027 senior notes. The notes will be redeemed prior to year-end, resulting in approximate interest savings of $35 million over 2026 and 2027. Following the redemption, we will have $750 million of senior notes outstanding maturing in 2033 and 2041. With respect to ongoing return of capital to shareholders, in the third quarter, we continue to make regular share repurchases, canceling approximately $165 million in shares. Year-to-date, we have repurchased $405 million of our shares. Including our quarterly dividend, we have returned more than $500 million to shareholders to date in 2025, marking strong progress against our initial commitment of $650 million. As Paul noted, given our robust financial position and strong free cash flow, we are increasing our return of capital in 2025. We increased our long-standing dividend by 17%, and we intend to increase share repurchases by $100 million for a total of $600 million this year. In total, this represents more than $750 million in returns to shareholders. And when considering the $700 million of debt repayment, we will have returned a total of almost $1.5 billion in capital in 2025. This is an increase of more than 50% compared to 2024 and a total of nearly $3 billion over the last 3 years. Turning to our guidance. Full year production is on track to be slightly above the midpoint of our guidance with fourth quarter production expected to be slightly lower than 500,000 ounces. Operating costs at AISC remain on track to meet our full year guidance despite higher royalty costs from higher gold prices. All-in sustaining cost is expected to be within the upper range of our guidance as a result of a higher proportion of sustaining capital with Q4 all-in sustaining costs expected to be above Q3. Total capital expenditures remain on track to meet guidance of $1.15 billion. With respect to our cash flow outlook next year, as typical for us, we will have seasonal tax payments due in the first half. Given the higher gold price, we expect these payments to be higher as they relate largely to income realized in 2025. I'll now turn the call over to Claude to discuss our operations. Claude J. Schimper: Thank you, Andrea. This quarter, we continue to expand our Safeground brand by completing additional critical risk management training, and we have had an enthusiastic response from our workforce on this initiative, and we will continue to innovate in how we approach safety at each of our operations. Our focus remains on reinforcing a collective effort to manage costs and capture margin in this strong gold price environment. Going beyond our focus on operational performance, we have put emphasis on getting the best value available out of our contracts, increasing labor efficiencies, improving maintenance and rightsizing consumables as part of our broader cost management strategy. Moving to the summary of our operations. Starting with Paracatu, production of 150,000 ounces was in line with the prior quarter, while cost of sales of $933 per ounce decreased quarter-over-quarter. Paracatu saw strong mining rates, mill recoveries and higher grades in the third quarter. And Paracatu remains firmly on track to meet its guidance range. At Tasiast, we delivered budgeted production of 121,000 ounces at a cost of sales of $889 per ounce, with production in line over the prior quarter. Production was supported by strong mill performance, including high recoveries following the recent mill optimization initiatives. Capital development of the Fennec satellite pit also ramped up in the third quarter and remains on plan. Tasiast remains on track to meet its production guidance of 500,000 ounces at a target cost of sales of $860 per ounce for the year. At La Coipa, we produced 58,000 ounces at a cost of sales of $1,199 per ounce, which improved over the prior quarter as planned. Production and costs improved as mining transitioned into the higher-grade ore from Phase 7. Production is expected to be stronger in the final quarter as mining continues through this higher-grade ore. La Coipa remains on track to meet its full year guidance of 230,000 ounces. Collectively, the U.S. sites delivered production of 175,000 ounces at a cost of sales of $1,469 per ounce in the third quarter. Production in the U.S. operations was as planned and collectively remain on track to meet full year guidance of 685,000 ounces at a cost of sales of $1,420 per ounce. In Alaska, third quarter production from Fort Knox of 96,000 ounces was in line with the prior quarter. Cost of sales of $1,372 per ounce was higher over the prior quarter due to more operating waste tonnes. At Bald Mountain, we produced 42,000 ounces at a cost of sales of $1,148 per ounce. Production decreased over the prior quarter due to the lower grades as planned, resulting in a higher cost of sales. At Round Mountain, production of 37,000 ounces was in line with the prior quarter. Cost of sales of $2,095 per ounce were increased compared to the prior quarter, primarily due to more operating waste tonnes as Phase S transitions from capital waste into operating waste. With that, I will now pass the call over to William to discuss our projects. William Dunford: Thanks, Claude. As Paul noted, our project pipeline is backed by a significant resource base of 26 million ounces of M&I and an additional 13 million ounces of inferred, calculated at $2,000 per ounce. Our in-house technical team continues to focus on advancing these opportunities into our near- and longer-term production profile, while also leveraging ongoing exploration to augment our broader resource base and support future production. With the significant and current resource base, the strong exploration results and the long-term optionality enhanced by current gold prices, we see a number of value-creating investment opportunities emerging across the portfolio to leverage the strong gold price and enhance our production profile in the 2030s and beyond. We continue to focus on extensive technical study, disciplined investment and competition for capital to ensure the projects we approve have significant margin, return and resilience. We will provide further information on these investment opportunities and decisions in Q1 2026. Regarding the near-term project pipeline, you can see we are already well advanced and making significant progress with our projects in the U.S. and Canada. At Bald Mountain, recent exploration and technical work has been progressing well to support an investment decision for Redbird 2 and has also confirmed opportunity to augment the production profile through concurrent satellite pit mining, leveraging economies of scale and shared infrastructure at the site. At Round Mountain, Phase X underground project is well advanced with underground development, engineering, technical study work and permitting progressing to support a project decision in 2026. It's a similar story at Curlew, where engineering and technical studies on the high-grade resource that has been developed over the last few years are on track to support a project decision in 2026. We will provide a separate update for Great Bear, where AEX and main project engineering are progressing rapidly. These are the projects alongside continuation of our existing operations that support our potential to remain at 2 million ounces through the end of the decade. Turning to our longer-term project pipeline for the 30s. Our resource base has significant optionality both for new projects with large resources such as Lobo-Marte and Maricunga come online and for further extensions of mine life at our existing operating assets. We will be progressing a number of technical studies and permitting efforts across the high-quality portfolio over the next couple of years to advance the significant production potential for the 2030s we see at these assets. To provide some more detail on exploration at Curlew in Washington. This year, we have been focused on infill drilling to support the early years of the mine plan. The results of that work have been positive, confirming the strong widths and grades that we expected to see, which are supportive of high-margin underground mining potential. A few notable intersections from this last quarter included 2 meters true width at 22 grams per tonne at the EVP zone and multiple intercepts of approximately 6 meters width and 8 grams per tonne in the K5 zone. We also completed the initial development of the Roadrunner decline and further extensions of the North Stealth development this quarter. This will provide drill positions to explore for extensions of the high-grade resource at North Stealth and to follow up on high-grade intercepts at Roadrunner, which is not currently in the resource or mine plan. We will be focused on this resource extension drilling in Q4 2025 and 2026. Turning to Round Mountain Phase X exploration. You can see in Q3, we focused on further infill of the Lower Zone with results continuing to intersect strong grades and widths, proving out our exploration thesis of a bulk tonnage underground mining opportunity. The extensive infill drilling is now sufficient to support an initial underground resource estimate. Overall, our infill drilling results have been positive at Phase X, supporting potential for a larger initial resource than we anticipated when we made the decision in 2023 to advance this target. We expect to release the initial resource estimate alongside the projects and economics update in Q1 2026. At Great Bear, both the AEX program and the main project are progressing well, and the main project remains on schedule for first production in 2029, subject to permitting. Starting with updates on the AEX, earthworks activities are well advanced as can be seen on this slide. The natural gas pipeline is now complete and commissioned and the AEX camp is now operational. The water treatment plant building is enclosed with equipment installation currently ongoing. The initial development of the portal box cut is progressing well with the initiation of the exploration decline now forecast to commence in the summer of 2026, pending receipt of provincial permits. Geoff will comment further on permitting shortly. As a reminder, AEX is not on the critical path for first production in 2029, but rather is focused on providing underground drill access for infill drilling of the underground resource and exploration drilling to further delineate extensions of the mineralization at depth. With respect to the main project, which remains on track, detailed engineering for key items such as the mill, tailings management facility and other site infrastructure continues to progress well with a 30% design review for the mill completed in Q3. Initial procurement activities for major process and water treatment equipment have commenced with contract awards planned to start prior to year-end. Manufacturing of selected long lead items is expected to begin next year. I will now hand it over to Geoff to provide a brief update on the Great Bear permitting and time lines. Geoffrey P. Gold: Thanks, Will. Permitting of the AEX program and the main project continue to advance as we work with the provincial and federal authorities. For AEX, we have 3 of the 5 permits required, including our closure forestry and wildlife permits, which has enabled us to carry on significant AEX activity. We continue to work with the Ontario Ministry of Environment, Conservation and Parks, MECP, to finalize the 2 remaining AEX water permits that are required to manage contact water for exploration purposes. And in the interim, permitted activities continue as planned. For those who are not familiar, contact water is primarily rainwater that comes into contact with their site and naturally occurring underground water. Our First Nation partners, Lac Seul and Wabauskang, on whose traditional lands the project resides continue to support the project and permitting. These 2 outstanding permits are taking more time than anticipated as MECP consults with other First Nations. As Will noted, AEX is not on the critical path for the main project time line. Construction activities at the AEX site will continue uninterrupted throughout the winter months as current activities and conditions do not require the use of water-related permits. In terms of the main project, which remains on schedule, we continue to work with the Impact Assessment Agency of Canada to advance the project impact statement. The first of 3 phase submissions for the project's impact statement was filed in September with the second submission on track for filing in December. The final phase is targeted to be submitted at the end of Q1 of next year. We also continue to advance our IVA negotiations with Lac Seul and Wabauskang Nations of the Northwest Metis community. I will now turn it back to Paul for closing remarks. J. Rollinson: Thanks, Geoff. After another strong quarter, we are well positioned to meet our market commitments again this year. Looking forward, we're excited about our future. We have a strong production profile. We are generating significant free cash flow. We have an excellent balance sheet. We have an attractive return of capital through both the dividend and share buybacks. We have an exciting organic pipeline, and we are very proud of our commitment to responsible mining that continues to make us a leader in sustainability. With that, operator, I'd like to open up the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Fahad Tariq with Jefferies. Fahad Tariq: On the cost side, some of your peers, Agnico Eagle and Newmont, in particular, are focusing a lot on cost reduction efforts. Is that something you're working on? And if so, can you provide some examples of maybe productivity improvements across the portfolio? Claude J. Schimper: Yes. Thanks for the question, Tariq. It's Claude here. No, as I said in my remarks, we have a number of different initiatives globally, different projects to focus on, different cost elements, significant focus on working with our contractors and turning them into true business partners where the relationship works for both of us. At the same time, labor improvements and productivity improvements around that. We're doing a significant amount of training across all sites to sort of standardize some of our performance and then also a big focus on maintenance spares and parts and things that have been traditionally pressed by inflation. Fahad Tariq: Okay. And then maybe just switching gears to Bald Mountain. Can you just remind us, does the Redbird pit displace [ feed ] from other pits? Or is it incremental tonnes and ounces? Unknown Executive: No, it's incremental tonnes and ounces. It's a heap leach facility there. So we stack on top, and we're expanding our heap leaches as we speak to suit Redbird. Fahad Tariq: Okay. And then just lastly, just on the expansion of the heap leach, I know Redbird 2 is still -- we're waiting for the study update. But would it make sense to do the heap leach expansion even if there aren't new satellite pits identified? In other words, is the Redbird pit sufficient to justify the larger heap leach operation. Unknown Executive: Yes, absolutely. Like we do heap leach expansions at Bald fairly frequently. So it's -- we'll continue to do so for Redbird. Some of the satellites are in different areas of the operation. We have a variety of heap leach pads throughout the operation, and we expand those as needed to suit the satellites or the anchor pits such as Redbird. Operator: And your next question comes from the line of Daniel Major with UBS. Daniel Major: A few questions. So the first one, just on the capital returns and the balance sheet. I think it's very encouraging. You pushed up the dividend and committing to an accelerating buyback in the fourth quarter. If we look at the current gold price, consensus or estimates have you generated maybe $2 billion of free cash flow at spot commodity prices and you've got a run rate of about $750 million of capital returns. But when we think about what you'd be committing to next year, can you give us any indication on a balance sheet position that you'd want to get to before you would kind of commit to returning all of your excess cash to shareholders? J. Rollinson: Yes, sure. I'll maybe take a lead on that one, Daniel. It's a good question. Look, I think, number one, we've done what we said we would. We guided last year that it would be our intention to return back on our share buyback. We actually did that ahead of schedule. I would like to say in the same theme, as the year has progressed, we've had more cash than we were budgeting. And so as a result, as we've -- as we're coming into the fourth quarter, we've done more. So from my perspective, I think we've demonstrated that we want to do the right thing as it relates to return on capital as well as paying down debt and improving our balance sheet. So I think that the track record speaks for itself. As we look into next year, frankly speaking, we're right in the middle of our budget cycle. We do give our guidance, as you know, with the year-end in mid-February. That's typically when we give an update. Last year, when we gave our guidance, we were in a sort of a $2,500 gold price environment. To your point, we're in a different gold price environment today. But with that comes higher taxes, higher royalties. We do see opportunities to invest in our portfolio. So look, I think directionally, we want to keep going. But let us just get through year-end budget cycle, and we'll come out with an update in the new year. Daniel Major: Okay. Yes, I look forward to that. The second question is sort of a specific one on the tax payable accrual. If we look at current prices persisting through to the end of the year, for example, what would the working capital reversal be for the tax catch-up in Q1 of next year? Andrea Freeborough: So I mentioned in my opening remarks that we have significant tax payments in 2026 related to 2025. The first one that we typically talk about is Brazil. So we're expecting more than $300 million in January related to Brazil. And then for Q1 in total, it's close to $400 million. And that's just the tax payments that we're accruing throughout this year. And there will be installments on top of that for the 2026 year. Daniel Major: Great. It's clear it's about $400 million in Q1. Okay. That's good. And then a last question just on the permitting time line at Great Bear. You mentioned there's no impact on the project, the fact that the final 2 permits at AEX taking a bit longer. At what stage would those 2 specific permits start to impact the time line of the overall project. William Dunford: Yes. Look, the main project itself is building a mill and open pit mines and an underground, which is what AEX is focused on is the early drilling for that underground. So the whole purpose of AEX is to get ahead and do the definition drilling and do the expansion drilling for the underground. The main project itself and first production is really all about getting the mills built. And if you look at our PEA, we've got significant ore coming out of the open pit at the beginning of the mine to support that mill. So that's why it's not really a critical path right now in terms of those permits. Geoffrey P. Gold: I would also just add to Will's comments that there's really no direct link between the AEX permits and the main project permits. And at this time, we don't really believe we will experience a similar delay for the main project. Operator: And your next question comes from the line of Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Three questions. Maybe over to Paul. I'm just thinking about you're in your budgeting phase and you're thinking about your life of mine plans and your reserve and your resource base. We've had some companies put out some initial targets for what they're running their pits at gold prices on reserves and resources. I'm just wondering how you're approaching that. I know you have your reserve pricing. I think it was $1,600 in resources at $2,000. How are you balancing that with your life of mine plans and your cutoff grades and inflation? J. Rollinson: Sure. Well, I think I would expect -- I mean, everyone is kind of thinking about what the new reserve resource price will be going forward. I think we're all in a good way, lagging where we are in spot. So I do think -- I expect there'll be generally an increase in the industry in our peer group in both reserve and resource pricing. But I think we'll all probably still be well below spot, which is the right side of the line to be on, of course. As it relates to our planning, as we've said, our mills are full. We're not planning to do anything with our cutoff grades. We're really goal seeking margin and cash flow. To the extent we're thinking about cutoff grades, it's low-grade stockpiles, end of mine life, where we might put different material for end of mine life. But as it relates to the near-term production, we're holding the line and still seeking margin and cash flow. Tanya Jakusconek: Should I be then, Paul, thinking that as I look at 2026, should I be thinking that if inflation is running and some companies will go anywhere between 5%, 10%, should I be thinking that if I kind of think about your reserve pricing and think about inflation and cost in that sort of level, that would be something that would be reasonable to adjust our gold price to for reserve calculations? J. Rollinson: Yes. I think to be frank, Tanya, I mean, it's a bit of art versus science. But I think we generally -- we look at it like we do with many things from a different -- from a number of different perspectives. But I think it's not a rule of thumb, and I wouldn't say we do this exactly, but we also take into account sort of a 3-year rolling average as well. And that would be a safe place to be if you were thinking about what we were going to do. Tanya Jakusconek: Okay. All right. I look forward to your approach in the new year. Maybe just on the some of the optionality that you have and you talked about the... J. Rollinson: I'm not sure what that noise is. Tanya Jakusconek: Yes, I don't know either. I don't have anything happening on my end either. So hopefully, we can get through just the last 2 I have. Maybe just on the optionality in the short term on the projects that come in, in that '27 to 2030 time frame, just specifically Curlew and some of the satellites at Bald. Would it be fair to say that they could add incrementally 100,000 to 200,000 ounces in that time frame? William Dunford: You mean between the 3 of them. I think between the 3 of them, there's potential that if they can add more than that. I think it depends on what year you look at. Tanya Jakusconek: Yes, I'm just kind of between '28 onwards, right? I was just thinking the Bald and also just Curlew, would that be like fair in the 100,000 to 200,000 and then if we Round Mountain, that's a bit different. William Dunford: Yes. I mean, Curlew itself, ultimately, we'll provide more guidance early next year, but it might get up to the 100,000 ounce per year as we ramp it up or close to that number. Redbird itself, Redbird 2 and the satellites, depending on the year, will be in that range of 100,000, maybe a little bit higher in some years as you mine through different zones. And then Phase X, we're also targeting to try and get over the 100,000 ounce per annum target, and we'll still be processing remaining stockpiles from Phase S, particularly with these gold prices in combination with the underground at Phase X. So I think our disclosure in Q1 will help you build the profile better, but certainly between the 3 of them, they can add more than 200,000 ounces once they're all up and running. That's coming on -- as other things move in the portfolio, all of that is to try and maintain that 2 million ounces, which we believe we can with those projects. Tanya Jakusconek: Okay. So that could be supplemental to the 2. William Dunford: Sorry, it's not supplemental to the 2 million ounce base. These are the projects that keep us at 2. Tanya Jakusconek: And then my final question for Andrea. Can you -- you're looking at buying back the $500 million in Q4 of the notes and you've got the 2033s and the 2041 notes. Should I be thinking that on the $500 million that for 2026, either one of those would be something you'd be targeting as well? Andrea Freeborough: Look, I mean, we're happy to continue to grow our net cash, and that's sort of how we're looking at it. Those longer-dated notes, they're just not economic to take out ahead of time, but we'll continue to watch that. And if it did become accretive, then we would think about that. Tanya Jakusconek: Okay. And so I should be thinking that maybe the pause on the debt reduction after the Q4 and then maybe the cash flow, as Paul mentioned, would be looking on a positive bias for capital returns. Maybe just to ask, what's the minimum cash that you would need to run your business, I should think about keeping on the balance sheet. Andrea Freeborough: Sure. We typically say the minimum is about $500 million, and then it fluctuates a little bit above that. We just got to net cash as we reported this quarter. So we're certainly happy with that, and we're happy to continue to grow that net cash. So I think it will be a balance between CapEx, continuing to grow cash on the balance sheet and returning capital to shareholders. Tanya Jakusconek: Yes, bearing any changes in those 2033 and 2041 notes. Andrea Freeborough: Right. Operator: [Operator Instructions] And your next question comes from the line of Anita Soni with CIBC World Markets. Anita Soni: Tanya asked a few of them. I just wanted to circle back on, I guess, capital allocation just in broad strokes as you think about it going into next year. Is there kind of a formula that you're using in terms of how you're going to allocate the free cash flow, like obviously, the debt repayment is kind of on pause, but capital return to shareholders as a certain percentage, reinvestment in the business as a certain percentage and anything else as a certain percentage. Could you give me an idea of that? And really, what I'm trying to figure out is, obviously, there's inflation, but that you were talking about in the order of, I think it was 5% to 10%. But what should we be thinking about in terms of capital for next year? J. Rollinson: Yes. A couple of questions in there, Anita. I'll start and Andrea chime in, if you like. Again, number one, we're right in the budget cycle. So again, I'll say what I said a little bit earlier. Directionally, all things being equal, we want to continue with a healthy return of capital. We don't typically think about it on a formula basis. We do believe the majority of our shareholders prefer buybacks. That's where we're really focused. And on our internal metrics, when we look at our valuation, we still believe that, that's the right thing to do with our free cash flow. I would say, though, as I go back to the budget, there's moving parts. We do expect, as Andrea said, higher taxes, higher royalties, inflation is always there. And as we've alluded to, we do see a lot of optionality to reinvest in our business for the future. Things are getting better. Phase X is looking better. Curlew was looking better. That might drive decisions to increase capital spending for longer-term mine lives. So I think I don't really want to get pinned down on a specific. I think as we go into the new year, it's -- we're in a good place where, as you say, we've paid down the debt. We've got lots of free cash flow, lots of organic opportunities. And I think we can do all of the above. Anita Soni: Okay. And then where would inorganic opportunities fit in all that -- the M&A pipeline? J. Rollinson: Look, again, we -- as I've said many times, we're in a fortunate position that given the strength of the organic portfolio, we don't feel under any pressure. We've got a great team here technically. We do look at external opportunities. But as I know you're aware, we've probably only done 3 deals externally in the last 10 years. So we're very careful. We do look at opportunities. If we saw another Great Bear, we do it again in the heartbeat. But we're very careful, and we are not under pressure, and we'll continue to look. Anita Soni: Okay. And congratulations on very solid quarter. Operator: There are no further questions at this time. I will now turn the call back over to Paul for closing remarks. Paul? J. Rollinson: Thank you, operator, and thanks, everyone, for dialing in today. We look forward to catching up with you in person in the coming weeks. Thanks for joining. Operator: This concludes today's call. You may now disconnect. RECONNECT
Operator: Good day, ladies and gentlemen, and welcome to Frontdoor's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer, and he will introduce the other speakers on the call. At this time, we'll begin today's call. Please go ahead, Mr. Davis. Matt Davis: Thank you, operator. Good morning, everyone, and thank you for joining Frontdoor's Third Quarter 2025 Earnings Conference Call. Bill Cobb, Chairman and CEO; Jessica Ross, CFO; and Jason Bailey, VP of Finance, will be joining me on today's call. The press release and slide presentation that will be used during today's call can be found on the Investor Relations section of Frontdoor's website, which is located at www.investors.frontdoorhome.com. As stated on Slide 3 of the presentation, I'd like to remind you that this call and webcast may contain forward-looking statements. These statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the SEC. Please refer to the Risk Factors section in our filings for a more detailed discussion of our forward-looking statements and the risks and uncertainties related to such statements. All forward-looking statements are made as of today, November 5, and except as required by law, the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. We will also reference certain non-GAAP financial measures throughout today's call. We have included definitions of these terms and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in our press release and the appendix to the presentation in order to better assist you in understanding our financial performance. I will now turn the call over to Bill Cobb for opening comments. Bill? William Cobb: Thanks, Matt Davis, and good morning, everyone. What a year Frontdoor is having. Our results reflect the continuation of superior financial and operational performance and we are on track for record financial results in 2025. Let's get into the third quarter highlights on Page 4. Starting with revenue, which increased 14% period-over-period to $618 million. Gross profit margin increased 60 basis points to 57%. Net income grew 5% to $106 million and adjusted EBITDA grew 18% to $195 million. Additionally, first year organic DTC ending member count grew 8%. Real estate member count grew sequentially in Q3, a milestone that we have not seen for the past 5 years. New HVAC revenue continues to crush it. Synergies from the 2-10 acquisition remain ahead of schedule, and we have used our strong cash flows to repurchase shares, totaling $215 million through October 31. Our results speak for themselves, and they show the power of our strategy and the momentum we've built. Now flip to Slide 5. We are firing on all cylinders, and that strong momentum has positioned us to deliver across our business. First, operational excellence is at our core. Three years of disciplined execution have built a strong foundation to accelerate growth. Second, DTC continues to perform, 5 straight quarters of organic member growth. Third, we see the real estate channel turning the corner, supported by the return of a buyer's market. Fourth, retention rates are strong and remain near all-time highs. We're committed to delivering an outstanding experience for our 2 million-plus members through continuous innovation and technology. And finally, our nonwarranty growth continues to be a game changer. Leveraging the success of the new HVAC program, we are well positioned to replicate that model by expanding into other replacement categories. Let's double-click on each point, beginning on Slide 6. We've talked a lot over the past few quarters about building a foundation of operational excellence and for good reason. These efforts have translated directly into stronger financial results. Over the past 3 years, we have focused our margin improvement efforts in 2 key areas: one, pricing actions; and two, operational efficiencies. Let me start with pricing. In 2022, we faced the highest inflation in the generation, and we responded decisively with double-digit price increases, not only to catch up to those inflationary pressures, but also to address where inflation was heading. We did this using our dynamic pricing capabilities, which deliver smart and strategic price adjustments, particularly for higher usage members. We also raised our trade service fee, which is actually an offset to claims costs, providing us another lever to respond to inflation. Now turning to operations. We've made meaningful strides in improving execution and cost discipline. We have enhanced and accelerated our contractor management process. This has driven better alignment, better execution, better member experiences and better costs. One key proof point is that our preferred contractor utilization has improved 200 basis points on average over the last 3 years. Our supply chain team has done an excellent job of leveraging our purchasing volume and extensive supplier network to negotiate better terms and allocate purchases to maximize cost savings. When you combine these pricing actions and operational efficiencies, we have improved our gross profit margin over 1,000 basis points since I started in the middle of 2022. In fact, we have had so much success improving our margins that we are reevaluating the long-term margin targets we provided at Investor Day earlier this year, and we will provide more information about that on our next earnings call. Moving to the direct-to-consumer channel on Slide 7. The DTC channel is performing very well, and our efforts to drive member count growth are paying off. In the third quarter, we grew organic DTC member count by 8% versus the prior year period. This is now 5 consecutive quarters of organic growth. Our success in DTC is due to several factors. First, the Warrantina campaign is working. I'll show you supporting data on the next slide, but we developed this campaign with younger audiences in mind, specifically millennials, since the average first-time homebuyer is now 38 years old. From a targeting perspective, we have sharpened our media strategy to focus on the middle of the media funnel, where consumers go from being aware of us to considering us. This strategy has improved our marketing effectiveness and media efficiency. Next, simply speaking, our promotional pricing strategy is bringing in more members. This strategy works because we can quickly return these cohorts to traditional pricing within the first 2 years without compromising renewal rates. Further, we are directly targeting new homebuyers who did not purchase a warranty with their new home transaction. Our multichannel approach includes paid search, social media, commercial partnerships and word-of-mouth campaigns and we are getting more sophisticated in our digital marketing approach. AI is coming into play and enhancing our search strategy by moving beyond traditional keyword targeting. We are using more intelligent, context-driven approaches, which have improved discoverability and relevance with large language models or LLMs, such as ChatGPT. Let's turn to Slide 8 to talk about the effectiveness of the Warrantina campaign. The campaign is resonating, and we are leaning into education to balance the entertainment factor. Our research shows that key metrics such as likability, relevance and purchase interest are up significantly in just 6 months' time. And as you can see in red, our value proposition of budget protection and convenience is landing even more with those under the age of 45. The team's work over the past 5 quarters has been excellent. But we are not stopping here. We are allocating more marketing spend in the fourth quarter to position us for another strong year in 2026. Now turning to Slide 9 and the real estate channel. The story here is finally one of optimism. Despite ongoing macro challenges, our ending member count in the real estate channel has increased sequentially in the third quarter, the first improvement since 2020. While the macro environment in the real estate sector is showing some signs of improvement, challenges still remain. According to the National Association of Realtors, September existing home sales increased 4.1% to a seasonally adjusted annual rate of $4.06 million. However, this is still among the lowest level of home sales in 30 years. Moreover, affordability remains a concern with home prices climbing another 2% on average in September to $415,000. The bright spot Total housing inventory increased 14% year-over-year, and we are now at 4.6 months of supply. While inventory remains below pre-COVID levels, it is now at a 5-year high. This shift signals that a transition to a buyer's market is underway, where homes stay on the market longer and sellers are more likely to add a home warranty to help close the deal. Here are some of our aggressive actions to improve sales. Increasing engagement with real estate agents, we are delivering a differentiated product and agent interest has picked up significantly around our video chat with an expert feature. We are also continuing to provide education on the benefits of a home warranty and have a compelling value proposition that keeps our brands top of mind. Additionally, we have implemented targeted promotions to drive renewed interest and excitement with both agents and new homebuyers. Our actions, combined with these market dynamics are resulting in us outpacing the market. Moving on to retention rates on Slide 10. In the third quarter, our customer retention rate was at 79.4%. Retention remains strong because we are delivering a better member experience through technology and process improvements. On the technology side, we have had 2 big wins. First, AHS App adoption is growing. Launched only a year ago, almost 20% of our members have already downloaded our app, an outstanding result. This enables easier service request submission and real-time contractor updates. In the past 12 months, members have submitted 200,000 service requests through the app and usage continues to ramp. Second, and to quote one of our members, "Video chat with an expert is dope." Since the launch in February, our visual experts have completed about 35,000 video chats and members love it, giving us nearly perfect thumbs-up ratings. It is a true differentiator in the home services industry and it is free for our members. Behind the scenes, we're also driving continuous improvements to deepen member loyalty and strengthen retention such as early engagement with new members through onboarding and tailored offers, improving the number of members on AutoPay, usage of preferred contractors, which was 84% in the third quarter. And we are also leveraging technology to improve the member experience, including system improvements to support smarter job routing to our contractors, and using AI to accelerate authorizations and assist in coverage decisions, enabling a 10x increase in the speed of coverage reviews. The impact is clear. Stronger relationships, higher satisfaction and a service experience that sets us apart. Retention isn't just a metric. It's proof that our strategy is working. On Slide 11, let's talk about another bright spot of Frontdoor, nonwarranty revenue. This is a major success story and an even bigger opportunity. As a reminder, nonwarranty is comprised of a number of programs but is currently fueled by our new HVAC sales. The program is scaling fast, and we are raising our full year outlook for new HVAC revenue again. Now to $125 million, a 44% increase over 2024. The opportunity ahead is enormous. In 3 years' time, we have sold around 50,000 HVAC units to our base of more than 2 million members. The runway for expansion is clear. We are now applying these learnings to other trades. We recently expanded our appliance replacement pilot, offering great deals on a full range of new appliances, and we are looking to launch this great offer nationwide next year. We are also exploring opportunities in roof and water heater replacement. Again, together, these categories represent an opportunity of $2 billion with our members, opening the front door to significant long-term growth. We especially love this program because every sale is a relatively CAC-free opportunity across our member base. And looking into the future, we see additional potential through our 210 acquisition, which provides us access to 19,000 builder partners. This positions us to expand beyond HVAC and create new revenue streams across multiple trades and in new customer channels. We will share more about this on our next earnings call. On that high note, I'll now turn the call over to Jessica. Jessica Ross: Thanks, Bill, and good morning, everyone. I will now cover the financial results for the third quarter, beginning with revenue on Slide 13. We delivered strong top line growth of 14% in the third quarter with revenues reaching $618 million. This performance was driven by 12% from higher volume and 3% from higher price. From a channel perspective, renewal revenue was up 9%, benefiting from 2-10 volumes and higher price realization from leveraging our dynamic pricing capabilities. Real estate revenue grew 21%, driven primarily by contributions from 2-10. Direct-to-consumer revenue increased 11%, supported by volume gains from our promotional pricing strategy and targeted marketing efforts as well as contributions from 2-10. This was partially offset by lower pricing. And finally, our nonwarranty business continues to be a key growth engine with other revenues up 73% year-over-year. This growth was propelled by our new HVAC and loan programs along with contributions from 2-10 new home structural offering. Now moving down the P&L to gross profit on Slide 14. Gross profit grew 16% to $353 million in the third quarter, with gross profit margin expanding by 60 basis points versus the prior year period. During the quarter, inflation was in the low to mid-single digits across contractors, parts and equipment. Favorable weather trends reduced the number of service requests in the HVAC trade, providing a $6 million benefit and claims cost development was a $5 million benefit compared to a $3 million benefit in the prior year period. Turning to Slide 15, where we will review net income and adjusted EBITDA. For the third quarter, net income grew 5% to $106 million and adjusted EBITDA grew 18% to $195 million. Adjusted EBITDA margin improved to 32% in the third quarter, up about 100 basis points from the prior year period. Let me quickly walk you through the drivers. We had $47 million of favorable revenue conversion, primarily from the 2-10 acquisition and higher price. Contract claims costs were flat versus the prior year period, which includes the already discussed inflation impacts and favorable incidents and claims development. We also had $20 million of higher SG&A due to the addition of 2-10 and personnel costs. Now moving to earnings per share on Slide 16. On a fully diluted basis, earnings per share grew 9% to $1.42 per share, and adjusted earnings per share grew 15% to $1.58 per share. Now turning to Slide 17 and our free cash flow and financial position. Our year-to-date free cash flow increased 64% to $296 million, and our total cash position increased to $563 million. Through October, we purchased $215 million worth of shares. Now let me take a step back and really highlight our cash flow conversion. Our year-to-date cash conversion was 60% compared to 46% in the prior year period. This sustained cash generation and conversion is a defining feature of our business model and a cornerstone of our financial strength. With that, I will now turn it over to Jason to walk through the outlook. Jason Bailey: Thanks, Jessica. Now turning to Slide 18 and our fourth quarter outlook. For the fourth quarter, we expect revenue to be in the range of $415 million to $425 million. We expect fourth quarter adjusted EBITDA to be in the range of $50 million to $55 million. This range anticipates higher SG&A spend as we are reinvesting some of our gross profit favorability in the marketing to drive growth. Now turning to Slide 19 and how this translates into our full year outlook for 2025. For the full year, we are increasing our revenue outlook to be in the range of $2.075 billion to $2.085 billion, driven by better-than-expected performance in the new HVAC program, the renewals channel and the real estate channel. This is approximately a $15 million increase from our prior outlook at the midpoint. Based on this, total revenue is expected to be up 13% in 2025, driven by about 10% from the 2-10 acquisition and 3% from organic growth. Our underlying revenue assumptions include a 10% increase in renewal channel revenue, a 12% increase in real estate channel revenue, a 3% increase in D2C channel revenue and a $75 million increase in other revenue. Turning to operating performance. We are narrowing our gross profit margin expectation to be approximately 55.5%. As previously mentioned, we are increasing our sales and marketing spend during the fourth quarter which translates to full year SG&A in the range of $670 million to $675 million. Taking this combined with the strong third quarter performance, we are raising our full year adjusted EBITDA to be in the range of $545 million to $550 million. As a reminder, our full year adjusted EBITDA outlook also includes interest income and excludes $8 million of 2-10 integration costs and stock-based compensation of approximately $33 million. We are lowering our capital expenditure expectations to approximately $30 million. And lastly, our annual effective tax rate is expected to be approximately 25%. And while we're not providing 2026 guidance today, we look forward to sharing more details on our expectations and priorities during our next earnings call. I will now turn the call back over to Bill for a few closing remarks. William Cobb: Thanks, Jason and Jessica. I wanted to close with a few thoughts. Once again, the Frontdoor has delivered. Our execution has been outstanding, and we have fundamentally changed how we think and how we operate. This has helped to drive record financial performance and cash flows. We are raising our revenue and adjusted EBITDA outlook again. And with that, we expect to finish 2025 on a high note. And at the same time, we have made measurable progress on our strategic initiatives, and we remain hyper-focused on driving member growth. Now one final item. Earlier this morning, we announced that Jessica has resigned as CFO and will be succeeded by Jason Bailey effective November 10. We regularly challenge ourselves to make sure we are organized to best leverage and deploy our deep bench of talent. As Jessica feels, she has accomplished what she set out to do when she first joined us that led to her decision to resign from the company. To her credit, Jessica has agreed to stay on as an adviser to me through December to ensure a smooth transition. Jessica has made many contributions to our company over the past 3 years. During her tenure, our revenue and profits have grown to new heights, and we have delivered on our financial commitments to our shareholders. I would like to thank Jessica Ross for her dedicated service as CFO. At the same time, the Board and I are very excited to name Jason Bailey as our next CFO. Jason brings over 25 years of progressive leadership experience in finance and public accounting, including over 15 years of service with Frontdoor and its predecessor. He also has 11 years of public accounting experience at Deloitte and Arthur Andersen. I've had the privilege of working closely with Jason for the past 7 years. He knows the home services industry deeply. He is truly an expert in all aspects of our business, and I'm very confident in his ability to lead our finance organization. This will be a seamless transition. With that, operator, please open the line for Q&A. Operator: [Operator Instructions]. Thank you. Our first question is coming from Jeff Schmitt with William Blair. Jeffrey Schmitt: On the cost inflation, it sounds like it increased to maybe 4% or even 5% in the quarter. It had been trending in the low single digits. Could you talk about what drove that, whether it -- was it mainly tariff impacts just on parts and equipment and it could be temporary? William Cobb: So Jeff, it was not 5%. It was closer to 4%, just about ticking toward 4%, which means we have to call it low to mid. Obviously, for the year, we're still projecting low single-digit inflation. But essentially, you nailed it. It's -- it was a tick up in appliance cost. Most of our another component parts, but our equipment is domestically produced. So we have not been hit anywhere near as much by tariffs as some other areas, but appliance has ticked up. But like we said with our dynamic pricing model and with our trade service fee approaches, with the operational execution we have, we feel we're strongly that we're able to manage through that. But it's something we watch. Jeffrey Schmitt: Okay. And then could you talk about the promotional strategy that you implemented in the real estate channel what all is going on there? And did that drive an increase in attachment rates in the quarter? William Cobb: Yes. I think good news for us is -- as I talked about, the macro environment is improving for us, which enables our -- the initiatives we've undertaken to gain more fuel. Now specific to promotions, we ran a -- generally, we've never run price off promotions. We did do $100 off for the months of July and August. And we also did a partner -- a couple of partner specific promotions that we ran that helped us from our analysis to outpace the real estate market overall. So we're very pleased with certainly the direction and the trajectory of where real estate is going. And as I've said in the call finally. Operator: Our next question is coming from Maxwell Fritscher with Truist. Maxwell Fritscher: I'm calling in for Mark Hughes. In the nonwarranty section or segment the pilot program, what are your early observations there? What sort of timing and pace are you anticipating for that expansion? William Cobb: Yes. We're shooting -- we're not giving a specific -- we'll talk more about this in February, but we're shooting for it to expand nationwide in 2026. It's a little more complicated than HVAC in the sense of the number of appliances. We have to work through that in our platform and the like. But that's also part of the excitement of it is that we have many opportunities to interact with our members across a variety of appliances. So the plan is to go nationwide at some point in 2026. We're still working through that and we're still working through the specifics of appliance ordering and the like. But we think it's a real opportunity and our initial impression is this is being well received by our members. Maxwell Fritscher: Got it. And then a small piece of the overall revenue number here, but the DTC guide of up 3% for the full year, if my math is correct, it implies around a mid-single-digit decline there. So what's driving your thoughts around that segment in 4Q? William Cobb: So pricing is with our unit strength, which is what we feel is the #1 priority because, obviously, that feeds over time into our renewal book, which is the backbone of the company. So the price reductions that we've done, the promotional pricing strategy has taken that revenue down but we're able to offset it and maintain healthy margins and healthy pricing because of the strength of our retention rates. So we do give up some revenue upfront with our first year customers, but we made the strategic decision that that's worth it in order to get our renewal -- get that into the renewal book over time. Jason Bailey: So I'd probably also add that Q4 is impacted by our seasonal adjustment. It's our lowest quarter as we know our guidance. Operator: Our next question is coming from Sergio Segura with KeyBanc Capital Markets. Sergio Segura: Bill, Jessica. I just want to say it was a pleasure working with you and best of luck with what the future holds for you. I had 2 questions. Maybe first on the member growth in the real estate channel. How much of that success there would you attribute to the market shifting to a buyer's market versus some of your strategic initiatives and the promotional strategy and increased agent engagement that you called out in the presentation? And then on the second question, just for the SG&A for the year, the increase in the outlook. Just provide any more color on where those -- where you're investing those incremental dollars? William Cobb: Okay. So on the first one on real estate. I think what -- to your question, which is an insightful one. I think the macro environment improving helps our actions. So it's not that we've suddenly discovered some of these actions of meeting with agents. But the new thing is a promotional program that we talked about earlier. So I think that this has enabled us to -- the macro environment has enabled us to fuel some of these actions. So I'm not sure I can differentiate exactly what's macro and what's our promotional pricing. But it is all working together to help us start to turn the corner in real estate. Now as far as SG&A, where are we spending money, we're -- as we said in the call, we're pretty pleased with the Warrantina campaign, especially how it's doing relative to home -- potential homebuyers under the age of 45, which is where our marketing team is targeting their efforts. So where we're looking to deploy the extra money is around not only the Warrantina campaign, but what we call the middle of the funnel, which is where consideration is higher. So you go from the top of the funnel, which is trying to build awareness and the like, to the middle of the funnel where you're building consideration. And then we're pretty excited about some of the things we're doing in digital marketing, as I talked about, where we're enhancing our traditional search engine marketing with the work we're doing with large language models, the ChatGPTs of the world. And then we think we're getting more sophisticated in that and getting higher demand and eventually higher conversion. Jessica Ross: And thank you, Sergio. It's been great working with you as well. Yes. William Cobb: You'll not hear -- this will not be the last of Jessica Ross. Operator: [Operator Instructions] Our next question is coming from Cory Carpenter with JPMorgan. Cory Carpenter: Bill, thought it was notable that you mentioned on -- in your prepared remarks, the potential reevaluation of your long-term margin target, that's certainly been a big topic of the date given you're punching above what you said earlier this year. Maybe could you just help us with what's changed since the Investor Day that's giving you the confidence to potentially do this when you're doing the exercise this year. And Jason, just a very quick question for you. Thinking you told us organic revenue, I think you expect to be 3% for the full year. Are you able to comment on what organic revenue growth was in the quarter? William Cobb: So I'll take the first one. So Cory, I think what's giving us conviction and as I said, we'll -- we'll talk about this more in February. But with our -- with the strength of our margins, the execution we've done, all of the things I talked about in the call, our ability to price and use trade service fees to potentially combat inflation. All of those things together have given us pause to say, look, I think that we have moved to a new level. We're going to work through what that level is. But I think that the targets we gave you, which were during a time frame when there was a lot of uncertainty, not that -- well, as we go into the year, there's always uncertainty, but we feel pretty confident in our model, and so we'll be looking to come forward with a reassessment of what we said at Investor Day. So I won't comment specifically on what that will be, but that's what we're working through. We're working through getting our final plans approved by the Board, et cetera. But we'll have lots to tell you in February. Jason, as far as the organic revenue question? Jason Bailey: Yes, Cory, for Q3, we'd say it was mid-single digits, probably 3 key drivers there. One, to think about our nonwarranty pricing and then there's still some seasonal adjustment. So when you're comparing that, that's why I'd probably pull you back to the full year at 3%. Operator: Thank you, ladies and gentlemen. As we have no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Steve Madden Ltd. Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Danielle McCoy, VP of Corporate Development and Investor Relations. Please go ahead. Danielle McCoy: Thanks, Brittany, and good morning, everyone. Thank you for joining our third quarter 2025 earnings call and webcast. Before we begin, I'd like to remind you that our remarks that follow, including answers to your questions, contain statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to materially differ from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have described in our press release issued earlier today and filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. The financial results discussed on today's call are on an adjusted basis, unless otherwise noted. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release. Joining me on the call today are Ed Rosenfeld, Chairman and Chief Executive Officer; and Zine Mazouzi, Chief Financial Officer and Executive Vice President of Operations. With that, I'll turn the call over to Ed. Ed? Edward Rosenfeld: All right. Thanks, Danielle, and good morning, everyone, and thank you for joining us to review Steve Madden's third quarter 2025 results. As anticipated, the third quarter was challenging, driven largely by the impact of new tariffs on goods imported into the United States. During the period in April and May when new tariffs on Chinese imports reached 145%, wholesale customers cut back meaningfully on orders for the third quarter, and we shifted large amounts of production out of China midstream, which led to shipment delays. These factors, together with the negative impact to gross margin from the significant increase in our landed costs, resulted in substantial pressure on both revenue and earnings in Q3. Fortunately, while we will continue to see negative impacts from tariffs, we believe the worst is behind us. Order patterns from our wholesale customers are normalizing, and we are mitigating a larger percentage of the gross margin pressure through strategic pricing actions and sourcing initiatives. Most importantly, underlying consumer demand for our brands and products is strong. Despite the noise from tariffs, our team has stayed laser-focused on executing our strategy to deepen consumer connections through the combination of compelling products and effective marketing, and we are seeing those efforts pay off, particularly in our flagship Steve Madden brand. Steve and his design team have created an outstanding fall product assortment that is resonating with consumers and enabling us to outperform the competition. Boots have been the standout, led by our casual tall shaft styles, but we're also seeing strong performance in dress shoes across various heel heights as well as casuals like loafers, Mary Janes and Mules. Our marketing team is amplifying this great assortment with richer brand and product storytelling and increased investment across YouTube, TikTok, Snapchat and Pinterest, which is driving measurable increases in awareness and conversion with our key Gen Z and Millennial consumers. As a result, both wholesale sell-through and DTC sales trends for Steve Madden have accelerated meaningfully in recent months. Our new brand, Kurt Geiger London, also had strong momentum as consumers continue to respond to its bold statement-making designs and eye-catching marketing, including the current campaign featuring Emily Ratajkowski. Comp sales for the brand were up mid-teens in the third quarter. Overall, the acquisition integration remains on track, and our teams continue to make progress on revenue synergies, including expanding Kurt Geiger in international markets through the Steve Madden network and growing Steve Madden in the U.K. through the Kurt Geiger platform as well as cost savings opportunities in areas like freight and logistics. We are also making meaningful progress in advancing our other owned brands. In Dolce Vita, we're building on the outstanding success we've had over the last several years in our U.S. footwear business by expanding international markets and extending the brand into other categories like handbags. In Betsey Johnson, we are driving renewed cultural relevance for the brand with elevated talent partnerships, authentic community engagement, high-impact activations and differentiated merchandise assortments. Both Dolce Vita and Betsey Johnson are on track to deliver revenue gains for the full-year 2025 despite the headwinds from tariffs. In sum, while the third quarter was undeniably challenging and our financial results were not up to our usual standards, our team's disciplined execution of our strategy is strengthening our brands and building relevance and demand with consumers. We are confident that we will begin to see improved financial performance in the fourth quarter and looking out further that we have the brands, business model and strategy to drive sustainable revenue and earnings growth over the long term. Now I'll turn it over to Zine to review our third quarter 2025 financial results in more detail. Zine Mazouzi: Thanks, Ed, and good morning, everyone. In the third quarter, our consolidated revenue was $667.9 million, a 6.9% increase compared to the third quarter of 2024. Excluding the newly acquired Kurt Geiger, consolidated revenue decreased 14.8%. Our wholesale revenue was $442.7 million, down 10.7% compared to Q3 2024. Excluding Kurt Geiger, our wholesale revenue decreased 19%. Wholesale footwear revenue was $266.5 million, a 10.9% decrease from the comparable period in 2024 or down 16.7%, excluding Kurt Geiger. Wholesale accessories and apparel revenue was $176.2 million, down 10.3% compared to the third quarter in the prior year or down 22.5%, excluding Kurt Geiger. The majority of the organic decline in wholesale revenue can be attributed to tariff-related order reductions, shipment delays and other impacts related to the production disruption. In our direct-to-consumer segment, revenue increased 76.6% to $221.5 million. Excluding Kurt Geiger, our direct-to-consumer revenue increased 1.5%. We ended the quarter with 397 company-operated brick-and-mortar retail stores, including 99 outlets as well as 7 e-commerce websites and 133 company-operated concessions in international markets. Our license and royalty income was $3.7 million in the quarter compared to $3.5 million in the third quarter of 2024. Consolidated gross margin was 43.4% in the quarter, up from 41.6% in the comparable period of 2024 due to the impact of Kurt Geiger, which has a much higher mix of DTC than the legacy business and therefore, has higher overall gross margin. Wholesale gross margin was 33.6% compared to 35.5% in the third quarter of 2024 due to pressure from tariffs, partially offset by our mitigation efforts. Direct-to-consumer gross margin was 61.9% compared to 64% in the comparable period in 2024 due to pressure from tariffs as well as the addition of Kurt Geiger, which had lower DTC margin in the quarter than the existing business, driven by the concessions business. Operating expenses were $243.4 million or 36.4% of revenue in the quarter compared to $174.2 million or 27.9% of revenue in the third quarter of 2024. Operating income for the quarter was $46.3 million or 6.9% of revenue compared to $85.4 million or 13.7% of revenue in the comparable period in the prior year. The effective tax rate for the quarter was 23.4% compared to 23.8% in the third quarter of 2024. Finally, net income attributable to Steve Madden Limited for the quarter was $30.4 million or $0.43 per diluted share compared to $64.8 million or $0.91 per diluted share in the third quarter of 2024. Moving to the balance sheet. Our financial foundation remains strong. As of September 30, 2025, we had $293.8 million of outstanding debt and $108.9 million of cash, cash equivalents and short-term investments for a net debt of $185 million. Inventory at the end of the quarter was $476 million compared to $268.7 million in the third quarter of 2024. Excluding Kurt Geiger, inventory was $275.6 million, a 2.6% increase compared to the same period last year. Our CapEx in the third quarter was $11.6 million. During the third quarter, the company did not repurchase any shares of its common stock in the open market. The company's Board of Directors approved a quarterly cash dividend of $0.21 per share. The dividend will be payable on December 26, 2025, to stockholders of record as of the close of business on December 15, 2025. Turning to our fourth quarter '25 guidance. We expect revenue to increase 27% to 30% compared to the fourth quarter of 2024, and we expect earnings per share to be in the range of $0.41 to $0.46. Now I would like to turn the call over to the operator for questions. Brittany? Operator: [Operator Instructions] Our first question comes from the line of Paul Lejuez with Citi. Kelly Crago: This is Kelly on for Paul. Ed, you sounded pretty positive on what you're seeing on the fashion front. I'm just curious if you could talk more about how you're seeing the fashion develop this fall, how inventory levels in the wholesale channel are looking? If that makes you think differently about sort of the prospects for spring, particularly in the wholesale channel. Edward Rosenfeld: Yes. Kelly, yes, we feel really good about what we've seen in fall. As we mentioned, we've seen a pretty meaningful acceleration in the trends, particularly in that core Steve Madden women's shoe business. As I called out, I think the biggest driver has been boots. Our boot assortment has just seen really strong performance. We called out that it's been led by the casual tall shaft styles. Those have been most important, but we've got a number of other things working in the boot and booty category as well. Then as I said earlier, it's not just about boots because we've really seen a nice improvement in the dress shoe category. That's obviously a category where we think we have a really strong competitive positioning and our team has executed there. We're seeing strength in a number of different sort of looks within the dress category, and as I mentioned, really at various heel heights. Then casuals have been important, too. The fashion sneaker business has downshifted a bit, and we're picking that business up and then some in loafers and Mules and Mary Janes. Really feeling better than we have in some time about our fashion in Steve Madden and how it's performing. Yes, it does give us confidence going into spring that -- and I think we feel better than we did a few months ago about how spring is shaping up. Kelly Crago: Good to hear there. Then on the 4Q guide, well above sort of where consensus is looking. I was just -- could you just break that down a bit for us in terms of what you're expecting from the core relative to the kind of down 15% you saw in the third quarter, whether there's any shifts there or what's kind of driving any acceleration there? Just what you would expect from KG in the fourth quarter? Edward Rosenfeld: Sure. Yes. The core business, if you exclude KG, the revenue guide is essentially down 2% to down 4%. That includes increases in both wholesale footwear and DTC, but still a decline, offset by a decline in wholesale accessories and apparel. Then the KG contribution to revenue, I think at the low end, we're at $182 million and the high end $187 million. Kelly Crago: Any sense of the breakdown when we think about our models and how much of that KG revenue is coming from the DTC channel in the fourth quarter? What kind of impact that'll have on the grosses? Edward Rosenfeld: Yes. I mean, as you know, overall, KG is over 70% DTC. In the -- I think I have to -- I mean, I want to say it's probably about $135 million, something like that in the fourth quarter coming from DTC. Obviously, that does have a meaningful mix impact to gross margin. Operator: Our next question comes from the line of Anna Andreeva with Piper Sandler. Anna Andreeva: Congrats. Nice results. A couple of questions. Are you seeing stockouts in the core Madden business, just given everything that's going on with the supply chain? How quickly can you chase? Great to hear about DTC ex-KG bouncing back to positive. Ed, you mentioned a strong consumer response to a number of categories. Can you parse out how own e-com did versus brick-and-mortar? How does the 10% reduction in China affect your thinking about sourcing? Edward Rosenfeld: Sure. Yes. Look, are there certain styles where we've had stock outs? Yes. Generally speaking, we've been able to chase some of the additional demand in the core Steve Madden business. As you point out, because of the supply chain disruption, we don't have the ability to chase that we normally do and the speed that we normally do. We did front-load some merchandise here because we had good reads on these products, and so we were in a position to fill some reorders, for instance, in Steve Madden. Then also some of this product is coming -- or a good portion of it is coming from Mexico. Obviously, we -- that's where we have a lot of speed, and we can get back into reorders in 30 days. That, I think it has been an okay story. I think the second quarter was about e-commerce versus bricks and mortar. In both Steve Madden and Kurt Geiger, e-commerce is outpacing bricks-and-mortar, but we've seen -- we talked about the acceleration in Steve Madden. We've seen that in both e-com and stores in recent months. Then in terms of the final question, I think it was how does the China reduction impact our sourcing. Look, it's obviously -- it's a welcome development to see the reduction in the tariff on China. The way that the tariff regime looks right now, the math would tell us we would move quite a bit back to China. I think that we're going to be careful about that. We want to remain diversified. We don't want to get back into a position where we have 70-plus percent of our sourcing coming from one country, so we're going to continue to try to be diversified, but it obviously does give us a greater flexibility to go back to China where we need to, to get the right deliveries and quality, pricing, speed, etc. Anna Andreeva: Just as a follow-up, as we think about the KG rollout plans as we look into next year, just any color you could provide how we should think about the store growth versus wholesale? Edward Rosenfeld: Yes. Well, we will be -- we're going to, I think, not get into a lot of detail about '26 overall because we'll obviously be talking about that on the next call. I can tell you that we do plan to open a handful of stores in the United States next year for Kurt Geiger, and we're working on those plans now. As we've talked about the initial 6 stores in the United States are performing very well. We're getting pretty close on a handful of leases for next year to continue that rollout. There'll be some wholesale growth as well because I think that we have opportunity in both channels. Operator: Our next question comes from the line of Jay Sole with UBS. Jay Sole: Ed, I think I heard you say that legacy Steve Madden should be down by 2% to 4% with wholesale footwear and DTC positive. Can you just talk about how you're thinking about 4Q for the entire wholesale footwear segment and then wholesale accessories, that would be helpful. Edward Rosenfeld: Yes. Wholesale, including Kurt Geiger or excluding Kurt Geiger? Jay Sole: I guess, excluding Kurt Geiger. Edward Rosenfeld: Excluding Kurt Geiger, wholesale footwear, we're looking at up 2% to up 4.5%. Wholesale accessories and apparel, excluding Kurt Geiger, still down mid- to high teens. Jay Sole: Then I guess if you think about Kurt Geiger retail versus wholesale, I mean, how are you thinking about that? Edward Rosenfeld: Well, we've provided the DTC revenue for Kurt Geiger, which I said I think is going to be around $135 million. Then the overall number for Kurt Geiger, $182 million to $187 million is the range. Jay Sole: Then I guess just -- you asked this a couple of times, but just on your visibility, I mean, have you taken orders -- do you take orders earlier for Kurt Geiger relative to the Steve Madden business? I mean do you have visibility out into Q1 and Q2 yet for Kurt Geiger? Or is it going to be on the same sort of quick turning supply chain that Steve Madden is on? Edward Rosenfeld: No, we do take orders earlier there, so we'll have more visibility over time there. Jay Sole: I guess any comment on the order book and how that's shaping up right now? Edward Rosenfeld: I think we're going to postpone all discussion of '26 until the next call. Look, the Kurt Geiger brand continues to perform very well, and we're going to see growth next year. Operator: Our next question comes from the line of Abigail Zvejnieks with BNP Paribas. Abigail Zvejnieks: I wanted to ask on Kurt Geiger as well. I appreciate the comment on comp sales up mid-teens. Any color you can share on how Kurt Geiger performed by region in the quarter? Edward Rosenfeld: Yes. It's growing in all the core regions. They performed well in their home market of the U.K. continues to grow in the U.S., and we're also growing in Europe. Abigail Zvejnieks: Then you've talked about the revenue synergy potential there and one of the first pieces of that being plugging -- sort of plugging KG into your existing international markets. I know it's still early, but any updates on that in terms of how that's progressing or when you could start seeing some of those benefits? Edward Rosenfeld: Yes. We've been hard at work on that. Kurt Geiger, our CEO, just went on a world tour. I think he was -- he hit, I want to say, 4 continents over a 3-week period, meeting with all of our international teams and international partners. That work is underway, and I think we'll start to see some benefits in '26, probably more -- I think anything that will be meaningful to the numbers would be towards the back end of '26. Operator: Our next question comes from the line of Marni Shapiro with The Retail Tracker. Marni Shapiro: Your stores have really looked beautiful. Could we just focus a little bit on some of your smaller but growing areas? It sounds like the handbag business was a little bit disrupted. I'm guessing some late deliveries. I'm curious if you could just talk a little bit about what's going on there. Then can we get an update on the apparel business, both at stores like Macy's, Bloomingdale's and REVOLVE as well as Madden NYC at Walmart? Edward Rosenfeld: Yes, sure. In terms of handbags, look, that's obviously been a category -- talking about Steve Madden handbags that we have talked about all the year was going to be down based on the excess inventory in the channel and some of the market pressures that we've experienced there, that was -- so we came into the year expecting that business to be down double digits. That's been exacerbated by all the tariff disruption and everything that's happened with the supply chain and deliveries and everything else. We certainly felt a lot of pressure there, and we're going to continue to feel that in Q4. The good news is that the underlying demand, I think, is improving, and we've seen good sell-throughs in fall so far, improved over spring. We've got a number of things working there. I think that our online Hobos, shoulder bags, East West bags, anything in Brownsway. We've got the trends, and they're performing. I do expect that business to stabilize as we come into spring '26. Then apparel, as you know, has been a nice growth story for us. The focus, of course, is Steve Madden apparel, and that's a business that we've been -- the sell-throughs have been good, and we've been steadily growing it in those key accounts that you mentioned, Nordstrom, Dillard's, Bloomingdale's, [Topdoors] and Macy's, REVOLVE, etc., and then to your point, we also have the mass business that we do with Walmart under Madden NYC. That's an important business for us as well, although our overall business in the mass channel has definitely felt some pressure from tariffs. We expect that to get better as we go into '26. Marni Shapiro: Then can I just follow up on what's going on, on the bag side and the department stores -- I'm sorry, in the shoe side and the department stores. Are you seeing a big difference between the higher-end stores that you sell, some of the better stores or, I guess, even more fashion stores, REVOLVE is a much more fashion store than some of the others versus stores that are a little bit less fashion? Or it's across the board, your sell-through has been good and there's not a lot of price resistance to the Madden brand when the product is right? Edward Rosenfeld: Yes. We've been really pleased so far with the lack of price resistance that we've seen, particularly in the Madden brand. I think as we've said, we have a lot of very strong fashion right now. I think overall, if you look at the overall company, the real takeaway on the price increases is that when you have real fashion forward products or new fashion, the consumer is willing to pay, where you have to be much more careful with price increases is on the core and more basic product. The good news is that's how we did it, and that's how we planned it. As you know, we were very surgical about it. We didn't take a peanut butter approach where we spread the price increases evenly everywhere. We went style by style. I think that so far, we've been pleased with how the price increases have been received by the consumer. Marni Shapiro: The product really looks outstanding, some of the best product out there in the market. Operator: Our next question comes from the line of Corey Tarlowe with Jefferies. Corey Tarlowe: Ed, I was just wondering if you could talk to the AUR lift in the business. You're selling $200 boots today versus sneakers that were more like $70 previously. How is that affecting the business? What's the impact on sales and comp? How do you measure that? How do these fashion trends speak to what AUR could be next year? Edward Rosenfeld: Yes, we are seeing a pretty significant increase in AUR, and it's really twofold. It's one, it's based on the price increases that we've put through in response to tariffs. Number two, it's -- as you point out, there's a mix benefit due to selling more boots and higher-priced categories. In Q3, in our DTC, we were up about high singles in AUR. In Q4, we're running more like mid-teens increases in AUR. Corey Tarlowe: Then it does feel as if there's a bit of a tone shift in your commentary around wholesale, where kind of the first half of the year, I talked about order cancellations and now you're talking about orders ramping back up. I'm curious if is this the fact that the channels are doing better? Or is it that you see Steve Madden gaining more market share in these channels? How do you think about that? Edward Rosenfeld: I think it's both. Look, if my tone didn't get better from how I was talking when we had 145% tariffs and everybody canceled every order, then it would be pretty depressing. Look, some of that -- the external noise has abated a bit. I think things are normalizing in the wake of all the tariff disruption. In addition to that, we are also seeing improved underlying demand, improved sell-through, and that's causing the wholesale customers to come back to us with more aggressive plans. Corey Tarlowe: Then if I could just squeeze one more in. it seems like the product is resonating really nicely. Intuitively, what do you think that means for promotions? What's embedded in your outlook for that? Edward Rosenfeld: Yes. I mean the good news is we have been able -- for instance, in our DTC channels, we have so far in Q4, reduced promotional days by a pretty meaningful amount compared to what we were doing last year. We've been able to be less promotional because of the strength of the product and the trend. We'll do -- obviously, we need to remain competitive when we get into the fall -- the part of the holiday season here when everybody is promotional, but we're going to attempt to continue to be less promotional where we can. Operator: Our next question comes from the line of Tom Nikic with Needham. Tom Nikic: I wanted to ask about the margin structure of the business. Obviously, 2025 between tariffs and the acquisition and maybe some tough first half of the year at the core brand or a tough first 9 months. There was quite a bit of margin erosion this year. How do we think about how much of that is recoverable and how much may be structural? Edward Rosenfeld: I'd like to think all of it is recoverable over time. I think it's going to take a little bit of time. I don't expect us to get it all back in 2026. Certainly, the over time, I do believe that the tariffs are going to find their way into the retail prices, and we'll be able to get back to our pre-tariff margins in the core business. Then the Kurt Geiger business is obviously lower margin than the legacy business. We think that business has a path to getting to where the Steve Madden levels or potentially even higher over time, so that's the goal. Operator: Our next question comes from the line of [James Ross] with Williams Trading. Unknown Analyst: 2 questions actually. The first being, how will the mix of business with the addition of Kurt Geiger impact gross margins in Q4? I know we kind of touched on it in the first question, but I was hoping you could sort of dig into that a little deeper maybe. The second being, can you provide some color on brand growth and opportunities internationally and what that looks like going into next year? Edward Rosenfeld: Yes, go ahead. Zine Mazouzi: As far as your first question related to Kurt Geiger impacting gross margin in Q4, I think it would be similar to what we've seen in Q3, somewhere around 300 basis points. Edward Rosenfeld: I'm sorry, what was the second part of the question? Unknown Analyst: Yes. The second part was, could you provide some color on brand growth and just generally the opportunities internationally and what that looks like going into next year? Edward Rosenfeld: Okay. Is this about the legacy business or Kurt Geiger? You asking about Kurt Geiger or the legacy Steve Madden? Unknown Analyst: Steve Madden and then also Kurt Geiger as well. Edward Rosenfeld: Sure. Yes. Steve Madden, we continue to have nice momentum in international markets. For 2025, we're looking at high singles revenue growth, and that's very similar across the 3 regions. Very similar growth in the -- our 3 key regions being EMEA, APAC and the Americas, ex-U.S. So nice momentum really across the board, and we'll look for continued growth into 2026. Then Kurt Geiger, as we've said, they're in the really -- the early stages of their growth outside the U.K. and the U.S., so we'll be looking for very strong double-digit growth internationally out of them for a handful of years here. Operator: Our next question comes from the line of Janine Stichter with BTIG. Janine Hoffman Stichter: I just want to follow up on the margin recapture. If you could help us out. I think the tariffs you had that hit gross margin a little over 200 basis points in Q2. How much was it in Q3? Then how to think about Q4? Maybe help us unpack that Kurt Geiger between that and the core business. I think Kurt Geiger had been hit a bit more in the front of the year just because you hadn't been able to move as quickly there. Zine Mazouzi: Yes. As far as the tariff impact in Q3, given all the moving parts with the price increases, factory discounts, our renegotiated cost in as well as FOB differential between all the countries, I think it's best to look at it from a growth and mitigated perspective, and Q3 was about 100 basis points more than what Q2 was. I think you're asking about Q4 as well. I think it would be a little bit worse than that in Q4. Janine Hoffman Stichter: The Q4 is -- the 100 is mitigated and it will be worse in Q4 versus Q3? Edward Rosenfeld: Q3 was about 100 basis points worse than Q2, and we expect Q4 to be a little bit worse than Q3, but those are unmitigated, so the mitigation gets bigger over time. The net impact to gross margin will be considerably less in Q4 than it's been. Janine Hoffman Stichter: Then just maybe on the mitigation. I just want to clarify on pricing. I think you took 10% increases earlier this year. Have you taken more? Or do you plan to take more? Edward Rosenfeld: That's where we are right now. We'll have to look at it as we go forward. That obviously is still not enough to offset the full amount of the tariffs. Over time, we'd like to see if we can take more, but we want to be prudent about it. Operator: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: As we think about the wholesale business, what differed by type? Were there off-price department stores mass? What did you see? What do you think of the outlook going forward? Then on the DTC side, was there a difference between full price and outlet performance? Edward Rosenfeld: Yes. In wholesale, I would say we're seeing the strongest performance in the regular price channels, where we have had more pressure is in the value price channels like the off-price and the mass. In terms of DTC, we're seeing much better performance in full-price channels. Outlet remains a drag. I think we're being hurt by a couple of things there. One is, 5 of our biggest 8 outlet stores are on the border with Mexico. Those stores are running down about 40% and so that's been a big headwind there. Then the other thing is that I think we were impacted more acutely there by some of the disruption from the supply chain in the wake of tariffs. Outlet has still been trending negative and full price stores have been much better. Dana Telsey: Then just on the value side of the wholesale channel, are they just not taking orders? Are they waiting for newness? Are they waiting for more goods, not accepting the price increase? Any way to articulate it? Edward Rosenfeld: Well, they were the ones that pulled back most significantly. Again, it was during the period in April and May when China tariffs were 145%. They are coming back now, and we're seeing those businesses normalize, but that was where we felt a big part of the pullback in the last couple of quarters. Dana Telsey: Just lastly, on marketing, as you think about Q4, anything we should be watching on the marketing side given your improved social that you've had in terms of marketing as we head into the holiday season? Edward Rosenfeld: No, we're just going to continue to keep doing the storytelling. I think that we see it's working. I think our marketing teams are hitting the bull's eye, and we got -- we're just going to keep investing and keep telling our and keep engaging with consumers. Operator: Our next question comes from the line of Paul Lejuez with Citi. Kelly Crago: Kelly again. I just wanted to follow up on an earlier question around the KG margin structure. In your disclosure, you said, KG was about 9% EBIT margin business in F '24. Curious where that's going to shake out this year with the tariffs. Then as we look to '26, how much can you recover? Can you get back to the 9% next year? Just longer term, I mean, you spoke pretty positively about KG margins. Where ultimately do you think this business can land? How do you get there? Is it through SG&A synergies, anything in the gross margin to speak about? Just any color on sort of how we should think about the KG margins as we look forward? Edward Rosenfeld: Yes. In terms of this year, for the partial period that we're going to -- that we own them from May on, I think that they're going to come in around 6%. In terms of next year, we'll talk in more detail about that on the next call. Certainly, we should see improvement from where we were today from where we were this year, but I think we'll postpone any further discussion of that until that call. Then in terms of the -- the last -- the drivers to get longer term. Yes. I think there's opportunity in both gross margin and SG&A, but I think the bigger opportunity is in SG&A. There's some cost savings opportunities that they're going to get from the combination with us, which we're already -- all that work is already underway. We also think there's a significant opportunity to just leverage operating expenses over time as we grow that business. Kelly Crago: Just curious where you maybe think that those margins could go longer term? Edward Rosenfeld: Yes. I think what we said earlier was that certainly the intermediate target would be to get to where Steve Madden, the legacy business was historically, but we think there's opportunity beyond that. Operator: I'm showing no further questions at this time. I would now like to turn it back to Ed Rosenfeld for closing remarks. Edward Rosenfeld: Great. Well, thanks so much for joining us today. We hope you have a wonderful day, and we look forward to speaking with you on the next call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to this Ørsted's Q3 2025 Earnings Call. [Operator Instructions] Today's speakers are Group President and CEO, Rasmus Errboe, and CFO, Trond Westlie. Speakers, please begin. Rasmus Errboe: Hello, everyone. During the third quarter of the year, we have continued our focus on the execution of the 4 strategic priorities that we presented in February. These will continue to be the core focus as we execute on our strategy. Let me start by going through our progress across the 4 priorities. Our first priority is to strengthen our capital structure. And with the completion of the rights issue in early October, we have taken a significant step on this priority. The rights issue strengthens our financial foundation, allows us to focus on delivering our 6 offshore wind farms under construction, provides the financial robustness to manage the ongoing challenges and uncertainty as well as the financial strength to pursue upcoming attractive opportunities within offshore wind. I am very pleased and grateful for the strong support that we received from our shareholders in the rights issue, including from our majority shareholder, the Danish state. Also, we announced on November 3 that we have entered into an agreement with Apollo to divest a 50% ownership share in both the project and associated transmission asset for our 2.9 gigawatt Hornsea 3 project in the U.K. The total value of the transaction is approximately DKK 39 billion, and the transaction supports a further strengthening of our capital structure and marks a significant milestone in our partnership and divestment program. Another important element in supporting our capital structure is the continued performance of our operational portfolio. Even though wind speeds have been below the norm thus far in the year, we have delivered DKK 17 billion of EBITDA for the first 9 months of the year, which is mainly driven by the increase in the availability across our offshore portfolio due to strong performance every single day by our generation team. We remain on track to deliver earnings in the range of DKK 24 billion to DKK 27 billion for the full year. Our second priority is to deliver on our 8.1 gigawatt offshore wind construction portfolio. And we continue to make good progress across the projects, which upon completion will contribute with an annual EBITDA run rate of DKK 11 billion to DKK 12 billion. I will shortly go through the construction progress details. But first, I want to mention the stop-work order, which Revolution Wind received in the U.S. during the third quarter, instructing the project to hold offshore activities, pending completion of the Interior Department's review required by the executive order issued on January 20. Revolution Wind continues to seek a complete resolution, both by engaging with the U.S. administration and other stakeholders as well as through legal proceedings. As part of the legal part, the project filed a lawsuit and sought a preliminary injunction, which was granted on February 22 by the court while the lawsuit is ongoing. The offshore activities have resumed and since then progressed well. Our third priority is to ensure a focused and disciplined capital allocation, always prioritizing value over volume, where our focus going forward primarily will be on offshore wind in Europe and select markets in APAC. As part of these efforts, we will move towards a more flexible partnership and financing model in order to improve value creation and ensure risk diversification. On this basis, we recently entered into a memorandum of understanding with KOEN and POSCO for our 1.4 gigawatt Incheon offshore wind project in Korea. The aim is to explore cooperation on joint development, construction and operations, including potential equity participation. Finally, on our fourth priority, we have also taken steps in improving our competitiveness with the announcements of adjustments to our organization. Due to the sharpened strategic focus of our business going forward and the fact that we will be finalizing our large construction portfolio in the coming years, we will adjust our organization accordingly to become more efficient and flexible. Once all efficiency measures have been implemented, the annual cost savings are expected to amount to approximately DKK 2 billion from 2028. The cost savings related to these efficiency measures have been incorporated into our business plan. Let's turn to Slide 5, where I will talk through some of the operational highlights for the first 9 months. First, I am pleased with the operational performance with our EBITDA, excluding new partnerships and cancellation fees amounting to DKK 17 billion for the first 9 months. Despite the fact that wind speeds have been below the norm so far this year, our strong generation performance ensures we remain on track towards delivering our full year guidance of DKK 24 billion to DKK 27 billion of EBITDA. This is mainly driven by high availability within our offshore business, which stood at 93% for the first 9 months. Compared to same period last year, this is an increase of 7 percentage points and thus ensured a material earnings contribution. Market-leading performance of our 10 gigawatt offshore wind fleet is a key priority for us, and we are progressing several measures within our generation organization to improve our output and lower cost base through portfolio and operational efficiencies, technological innovation, standardization and generation excellence. During the quarter, we also made progress on the renewable share of our generation. For several years, we have had a target that renewables should consist of 99% of our generation by 2025. And this has been the case during the first 9 months of the year. The increased share of renewables was driven by the closing of our last coal-fueled CHP plant in the second half of 2024, which marked another important milestone on our decarbonization journey. Lastly, our continued and relentless focus on safety have continued, and the total recordable injury rate for the first 9 months of 2025 is at 2.5, which is in line with our target. This remains highest priority for us, and we are continuing an internal program across the full organization, which is intended to further increase training, safety awareness and management focus, all aimed at lowering the incident rate and bringing our people home safe every day. Let's turn to Slide 6 and an overview of our construction projects. I will cover the more advanced projects individually and, in more details, as usual on the next slides, while putting a few remarks on the remainder of the construction portfolio here. For Borkum Riffgrund 3 in Germany, we have installed all foundations and turbines. Commissioning of the grid connection for Borkum 3 has started according to plan. We expect first power before the end of the year, and the project is expected to be commissioned towards the end of Q1 2026. For Hornsea 3 in the U.K., construction is progressing well. The onshore works at the landfall cable route and converter stations have progressed in line with the schedule since last quarter. For the offshore scope, the project will be using 2 HVDC offshore converter stations. The first platform is undergoing final equipment installation in Norway, which is progressing well. And the second platform completed its scope in Thailand and is currently in transit to Norway to complete the same final works. We have continued with the offshore activities where we completed the removal of unexploded ordinances across the whole site during the third quarter. We continue to closely monitor a number of items related to the delivery of the project. This includes the installation schedule of the project's grid connection where we are working closely with National Grid on our onshore grid connection works to support planning of our commissioning next year. Further, we continue to focus on manufacturing of turbine monopile foundations to ensure it is delivered according to plan, enabling us to commence installation in 2026. The manufacturing has started as planned, and there are multiple suppliers contracted for the scope. And if relevant, we can utilize the flexibility gained from this to mitigate risks if they occur. Next steps in the project will be commencement of the main offshore installation activities in early 2026, which start with the installation of the offshore export cable as well as monopile foundation installation. In Poland, our Baltica 2 project is moving ahead according to schedule, and we are progressing the first phases of the construction work. In the third quarter, we have continued construction work at the onshore substation site, which includes the installation of the first part of the export cable. The manufacturing of turbine foundations is progressing well with 22 completed so far. The manufacturing of the 4 offshore substations is progressing and manufacturing of the offshore export cable started mid-October. With this progress, the degree of completion for the project has increased to approximately 15%, up from 10% in Q2. There are a number of items for the installation schedule that we are closely monitoring. This includes progress on the manufacturing of the 4 offshore substations and fabrication progress of the key components for onshore and offshore substations. We remain on track for earliest possible sail away mid-2026 from Vietnam for the 4 offshore substations. Progress on the turbine installation harbor in Poland is still on track. We are closely engaged with contractors and regulators to ensure that we progress according to the current schedule. Next steps are preparing of -- preparation of the seabed, sorry, ahead of turbine foundation installation, which is planned to commence during mid-2026. Now turning to Slide 7 and a more detailed update on our Greater Changhua 2b and 4 project in Taiwan. Overall, the installation of the remaining scopes of the project has made good progress during the quarter. Greater Changhua 4 has commenced generation, and this will continue to ramp up as more turbines get energized during Q4 of this year. For Greater Changhua 2b, the damage to the export cable means that we will only be producing power again from mid-2026, once the damaged export cable has been replaced. Looking at installation during the quarter, we have made progress across several scopes. This includes the installation of turbines where 58 turbines of the total 66 positions are now installed, and the rest are expected to be completed by end of 2025. We have installed array cables for 50 of the 66 positions, and we have mobilized additional vessels during the quarter to strengthen the installation progress or process of the remaining cables as weather conditions are expected to be more challenging during the winter season. With the progress achieved during the quarter, the project has now reached a degree of completion of approximately 65%, up from 55% in Q2. The focus of the project remains on installation of remaining turbines and array cables as well as replacing the export cable for the Greater Changhua 2b section. Turning to Slide 8 and an update on our Northeast program, starting with Revolution Wind. During the quarter, the project has made good progress as we have completed both the installation of the replacement monopile for the second offshore substation as well as the installation of the offshore substation itself such that both of the projects, 2 offshore substations are now installed. On turbine installation, we continue to make progress as we have now installed 52 of the 65 turbines for the project, and array cable installation has commenced and is progressing well. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 85%, up from 80% in Q2. The project continues to progress on a number of scopes that are critical to the delivery of the current schedule. For the onshore substation, we are continuing to progress construction activity according to the current schedule. We remain on site to manage the continued installation of the project and expect energization of the onshore substation early next year. For turbine installation, we will continue to monitor the installation rate closely as we enter into the winter season where weather conditions impact speed of the installation rate. First power is expected during first half of 2026, and the project remains on track for commissioning in the second half of 2026. Now turning to Slide 9 and our Sunrise Wind project, where we have also continued to see good progress across the different scopes. We have completed the installation of the project's single offshore converter station in September and continued the installation of turbine foundations with 50 -- sorry, 44 of the 84 positions installed now. This work will soon be paused as planned due to time of year restrictions of when turbine foundations can be installed and will be resumed when next installation season starts in the spring. The turbine installation will commence following completion of turbine installation Revolution Wind. For the onshore substation, the commissioning works are progressing according to plan with installation of nearshore section of the export cable expected in the coming months. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 40%, up from 35% in Q2. The focus remains on the items that are critical to delivery on the current schedule. The fabrication of remaining turbine foundations is progressing according to plan, and we expect to have all remaining turbine foundations completed by the end of the year. On the export cable, we have completed the final factory acceptance tests for majority of the sections, with the final ones expected to be completed by end of the year. And we will start the installation of the nearshore section at the end of this year as well. We continue to manage the risks related to the installation of the project, and we remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Trond. Trond Westlie: Thank you, Rasmus. And good afternoon, everyone. As always, unless I state otherwise, the numbers I refer to will be in Danish kroner. So before covering the third quarter development, let's go to Slide 11. And I want to start with our announcement from Monday. As we have entered into an agreement with Apollo to divest 50% stake in our 2.9 gigawatt Hornsea 3 offshore wind farm in the U.K. The transaction balances the key objectives for partnerships and divestments with an emphasis on capital management and represents a major milestone in our funding plan. The transaction supports further strengthening of our capital structure and ensures significant progress on our partnership and divestment program. The total value of the transaction is approximately DKK 39 billion and around DKK 20 billion of the total transaction value will be paid upon closing of the transaction. The remaining amount is expected to be paid under the construction agreement upon achievement of certain construction milestones. In terms of our targeted proceeds of more than DKK 35 billion across '25 and '26, it is the DKK 10 billion received under the SPA agreement, which counts towards this target. The total transaction value covers the acquisition of 50% equity stake -- equity share -- ownership share, sorry. And the commitment from the partner to fund 50% of the payment under the EPC contract for the wind farm and the offshore transmission costs, assets. The upfront noncash EBITDA effect of the transaction is in line with the expectation outlined in the prospectus of the recently completed rights issue and including the other aspects of the transaction such as the expected earnings under the construction agreement and service contract between Ørsted and the project. The expected EBITDA impact of the transaction is broadly neutral over the lifetime of the project. With that, let's turn to Slide 12 and the EBITDA for the quarter. In third quarter, we realized an EBITDA of DKK 3.1 billion. Let me walk you through the main developments for the quarter. For our offshore business, the overall earning came in at DKK 2.2 billion. The earnings from sites decreased, driven by lower wind speeds and step-down in subsidy levels from all the wind farms as well as lower power trading earnings. This was partly offset by full contribution at Gode Wind 3 compensation for Borkum Riffgrund 3 and higher availability rates across the portfolio. Earnings on existing partnership decreased as a result of updated costs for array cable installation for Greater Changhua 4. Over the summer, there were challenges -- challenging weather conditions, including a typhoon, which slowed down our planned installation speed. As a result, we have, during third quarter, strengthened our setup for the installation of the remaining array cables by mobilizing additional vessels. This has led us to revise the earnings that we expect under the construction agreement. As communicated earlier, we did not anticipate any material earnings under the construction agreement. So taking into account the strengthening of the installation setup and costs relating to extending the installation period leads to an impact in our accounts. Following this revision, the business case continued to have a comfortable headroom. Other costs, which includes unallocated overhead and fixed costs as well as expensed project development cost increased compared to last year, in line with our expectation. Part of the increase is driven by a change in our cost allocation methodology and does not impact the total EBITDA. This cost reallocation is reflected in our full year guidance for '25. For onshore, the EBITDA decreased by approximately DKK 200 million, primarily driven by lower wind speeds, which were partly offset by ramp-up generation from new assets. Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices. Earnings in our gas business increased slightly driven from -- driven by higher offtake volumes. We did not enter into any new partnerships in the third quarter of '25. Let's turn to Slide 13. In the third quarter, total impairments amounted to DKK 1.8 billion. The impairments primarily relate to our U.S. offshore projects and are driven by higher tariffs and increased cost as a result of the stop-work order for Revolution Wind, partly offset by decrease in long-dated U.S. interest rates. The impairment related to higher tariffs amounted to DKK 2.5 billion, in line with the range that was included in the prospectus released in connection with the rights issue. This amount reflects recent changes to the U.S. trade policies, including the increased tariffs on steel and aluminum. The impairment related to the stop-work order amount to DKK 500 million and is also in line with estimates that was included in the prospectus in connection with the rights issue. This reflects the higher cost for both Revolution Wind and Sunrise Wind due to extension contracts needed to complete the installation of the projects. These effects are partly offset by a reversal of DKK 1.3 billion due to the decrease in long-dated U.S. interest rates, leading to lower WACC level across our U.S. offshore and onshore projects. Our net profit for the quarter totaled a negative DKK 1.7 billion and was impacted by both the decreased earnings as well as the impairments. In Q3 '24, net profit amounted to DKK 5.2 billion, of which DKK 5.1 billion were related to a reversal of a provision related to Ocean Wind. Adjusted for impairments and cancellation fees, our return on capital employed came in at 10.2%, which was a decrease compared to last year, driven by the higher capital employed. The reported ROCE came in at 2% and was impacted by the impairment recognized over the last 12 months. Let's turn to Slide 14 and our net interest-bearing debt and credit metrics. At the end of Q3 '25, our net debt amounted to DKK 83 billion, an increase of approximately DKK 16 billion during the quarter. The increase was predominantly driven by gross investments of DKK 15 billion into the construction of our renewable project portfolio. The contribution from -- of our operating earnings in our cash flow from operating activities was more than offset by costs relating to the construction of transmission assets in the U.K. as well as seasonally in other working capital items. This was also the case for the same quarter last year. As the rights issue was completed on 9th of October '25, the proceeds of approximately DKK 60 billion will accordingly be reflected in our accounts by full year. Also, subject to the closing of the transaction before the end of the year, the proceeds from the Hornsea 3 transaction will likewise be included in the net debt numbers. Finally, the project financing package for Greater Changhua 2 were closed in July, yet had no impact on net debt as the proceeds received were matched by a corresponding increased debt. Upon closing of the planned equity divestment of the project, the asset and associated project financing package is planned to be deconsolidated, which will then have an impact on the net debt position. Our credit metric, FFO to adjusted net debt stood approximately at 14% at the end of the third quarter, which is a slight decrease compared to the previous quarter. The higher funds from operation in the 12-month rolling period was offset by the increase in adjusted net debt. The metric will expectedly increase to well above target of 30% in the next quarter as the incoming proceeds from the rights issue and closing on the Hornsea 3 transaction will be reflected in our accounts. And finally, let's turn to Slide 15 and look at our outlook for '25. With our solid operational performance for the first 9 months and heading into a quarter with seasonal higher wind speeds, we reiterate our full year EBITDA guidance, excluding new partnership and cancellation fees of DKK 24 billion to DKK 27 billion. We also maintain our gross investment guidance for '25 of DKK 50 million to DKK 54 billion. The gross investment guidance is sensitive to milestone payments being moved between years and the level of tariffs. We continue to follow the development regarding potential tariffs and other regulatory changes, particularly affecting the U.S. and are continually assessing any possible financial and wider impacts. So with that, we will now open for questions. Operator, please? Operator: This concludes the presentation, and we will now open for questions. This call will have to end no later than 15:30. [Operator Instructions] The first question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: Yes. So my question is about the expected lifetime of your offshore wind assets. So with the Hornsea 3 transaction, the other day, I understand you are looking at up to 35-year lifetime of this asset. So previously, you've been talking more to a 25-year lifetime of your offshore wind assets, which at least what I've been using in my model. So my question is essentially what would be the appropriate lifetime we should apply to our valuation of your offshore assets? Trond Westlie: Well, on the lifetime of the capitalized investments that we have from the starting point, we do use just short of a 25% year depreciation. So the economic value of that is, of course, we use the short of 25-yard -- years depreciation. When it comes to the business case as such and the lease period, that is sort of a different aspect. And that's what is included in the agreement that we have been clear, very transparent about with Apollo. And that, of course, the lease is a long period. And as a result of that, the business case is, of course, longer than the economic value that we capitalize as a start, basically, due to maintenance programs, repowering possibilities and so forth relative to the long lease of the area. So that you have to probably distinguish between how we capitalize, how we depreciate and also how we actually see the business case. Operator: The next question comes from the line of Harry Wyburd from BNP Paribas. Harry Wyburd: Can I focus on the Hornsea 3 sell-down? So thank you for the call yesterday where you educated us a bit about the cash flow profiling. My question is, given that Apollo have the rights to the majority of the cash flow in the CfD period and given that you have the majority -- there was the rights to the cash flow after that, have we opened up a new thread of book value risk or volatility here? Because presumably, you might review the NPV of those cash flows in terms of time depending on discount rates. And also your future reversion power price assumptions for the project. So is this something where we should expect some book value updates on a quarterly basis going forward? And if so, can you give us any kind of sense as to how material those changes might be relative to the other sort of impairment pluses and minuses that you typically put through over the quarter? And then an allied question, when we're modeling cash flow, we're all looking to 2028 when you got all these projects up and running. And perhaps now that the rights issue process is over, maybe you could throw in a bit of a guide for 2028 EBITDA guidance might be, given that's really the key year when everything is up and running. But should we apply a haircut to that for cash flow given that, as I understand it, the majority of the cash flows in that year would be going to Apollo? Trond Westlie: Then -- well, let's take the first one first. When it comes to the sort of the uncertainty of the fluctuations on the starting point of the provision that we actually do going forward on the sort of asymmetry, yes, it is correct that we have to evaluate that every quarter. Those evaluation will come as today's rules in IFRS. Those adjustments will come under the financial income line. Second part of this is, of course, that since we have both payable and receivable in this, there is an incorporated hedge as a result of that in addition. So I would not -- so in essence, yes, there will be elements to this being sort of adjusted every quarter. We do not expect that to be significant. And we are presenting that under IFRS rules today. It will come under the financial line. On the outlook of '28, we will not do an update on the '28 expectations so soon after the rights issue and the prospectus that we issued. We will, of course, comment more back to that and be more granular when we come to the yearly update in February. Harry Wyburd: Okay. And the comment on the cash flow haircut. I think actually in the first years of the projects, I think it was -- for 3 years, it was 50-50, and then thereafter, it reverts to 70-30 in Apollo's favor. But should we be making a cash flow adjustment? Is that how we should be thinking about it? We need to reduce a little the EBITDA you report on a proportional basis to reflect the fact that you're getting less of the cash flows in the short term. Is that the right way to think about it? Trond Westlie: Well, that's going to be the difference between the P&L -- the EBITDA P&L and the cash flow statement. So of course, in the P&L statement, that will, of course, and the adjustment that we're making right -- the loss adjustment we're making right now, will, of course, be reversed under the EBITDA. But of course, in our operational cash flow statement, we'll, of course, address that and be very specific of the noncash elements within it. Operator: We now have a question from the line of Dominic Nash from Barclays. Dominic Nash: A couple of questions, please. Second one should be quite quick. The first one is on utilization levels of your offshore wind. You always quote output, but I believe you don't give us an update on the actual potential output pre-curtailment. And I was wondering what sort of level of curtailment are you sort of seeing in your offshore fleet? And what would that do if we were to adjust for sort of likely proper underlying output capability? And the second question is a simple one here, dividend policy. You've got -- you're not giving any sort of firm numbers yet. I think in 2026, you're going to start paying a dividend. Consensus, I think, in Bloomberg is DKK 4 per share. Are you happy with that consensus number? Rasmus Errboe: Thank you, Dominic. On the sort of the utilization levels that you talk about, we don't guide on specific curtailment of our offshore wind farms -- of onshore/offshore containment of any nature. We -- what you can see is that we have delivered a very solid availability performance during the year. 93% park -- or sorry, production-based availability for the first 9 months and 94% for Q3. So therefore, I'm very, very pleased with the underlying performance, but we don't guide on the curtailment levels. And also just reminding you that there are different frameworks in different countries for curtailment. And as an example, in Germany, we are compensated for the vast majority of curtailments from the onshore grid. As for the dividend policy, we have confirmed for a while now that we expect to pay out dividend again by 2027 for accounting year '26. We will stick to that. But we will not comment on the level of the dividend. Operator: The next question comes from the line of Mark Freshney from UBS. Mark Freshney: Rasmus, if I could pick you up on some comments you made about a month ago at a conference. You mentioned that there were 2 tracks to managing the stop order on Revolution. There was the legal track and there was the negotiated settlement, the dialogue track. Clearly, there was -- your big shareholder announced some deals with the U.S. Department of Defense. Clearly, a negotiated settlement that would protect Sunrise and Revolution would always be preferable to winning in court. So can you make any comments on how that -- those negotiations may be proceeding? Rasmus Errboe: Mark, thank you very much. You are right. We are pursuing 2 tracks. One is the legal track where we received the injunction on the 22nd of September that allowed us to go back to work. And then the other track is a dialogue track with the relevant people in the administration. I -- it is not sort of my approach, Mark. So this is the same as it has been all along and that is that I don't go into details about the conversations that we may or may not have in terms of making a deal. Our focus is to get to a, you can say, complete solution for Revolution Wind, where we still have the stop-work order claim outstanding. Our focus is on the projects, and I am pleased with the progress that we have seen in terms of construction on -- across both Revolution Wind and Sunrise where we have seen that we have completion increasing from 80% to 85% on Revolution Wind and from 35% to 40% on Sunrise Wind, including the installation of all the substations. So that is really where we have our focus. Mark Freshney: I respect that. And if I may have a follow-up just on the credit rating. I mean, I think S&P were waiting for the transaction that we saw yesterday. Can we expect some news on the rating? And does your modeling suggest that the Hornsea 3 farm down gets you where you need to be on that S&P tripwire, so to speak? Trond Westlie: Well, Mark, we are aware of the comments or the statements that S&P made in their update on their rating in August. And of course, we expect them to be more comfortable as a result of having managed to actually sign this agreement and basically following our time line as both signing and closing before year-end. So hopefully, it will have some effects. We are a bit uncertain about the interpretation evaluations of S&P because they are sort of the odd man out in the 3 ratings that we do have. So we just have to refer that sort of evaluation to them, Mark. I'm sorry. Operator: We now have a question from the line of Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I guess the first part is perhaps more for Trond and perhaps the second for Rasmus, it's on capital structure and capital allocation. So the first part of the question is following the DKK 20 billion you're going to receive from the transaction and you announced this week and the rights issue technically in the 9 months, you're basically debt free. And of course, the company remains cash flow negative. But I guess my question -- the first part of the question is, is your balance sheet now fully derisked? And is there any scenario where you see the risk of having to implement incremental measures to avoid the downgrade to junk? I'm just thinking, for instance, if the U.S. project never start, can we say that even in that scenario, your balance sheet is now okay? And the second part of the question is that if you can elaborate on the first, I guess, then the question would be if the U.S. projects start to contribute, then you could say that in '28, your FFO to net debt is incredibly strong. So can you tell us how you are beginning to work for the repositioning of Ørsted at that point in time? What's your priority? Is organic growth at that point because you need to start winning awards in the next 12, 18, 24 months, I guess? Or is it more wait and see to see what happens in the United States? Trond Westlie: Well, I'll take the first one on the capital structure. I think your numbers is fairly correct relative to where we are and where we're going to be at year-end. So in starting to say that, of course, a lot of the discussion during the rights issue has been, of course, the downside risk relative to what's going to happen in the U.S. And we have been sort of elaborating a lot about that because of the stop-work order and the sort of the risk of getting more stop-work orders. I do think that along with the rights issue, we have explained the reason why we thought the DKK 60 billion was the right number. We have communicated that we expect this Hornsea 3 transaction to be signed and closed during the year. So that has been a part of our base case all the time. The downside risk is, of course, that things may happen of uncertainties in the U.S. that we cannot sort of put a probability or an estimate on. But as we have said all along, we have committed so much money into the projects of Sunrise and Revolution that closing it down is not really a good case for us because our commitment cost is almost as high as the total cost of the project. That is why we have looked at these structures and also the capital raise in this context. It is hard now to see situation that we will come into a -- that we will be downgraded into a noninvestment grade. So the scenarios you need to develop to actually get us there is now, of course, much more difficult when we have the Hornsea 3 in place. So over to you, Rasmus. Rasmus Errboe: Thank you very much. Thank you, Alberto. Yes. So I think probably 2 parts to the answer on repositioning of Ørsted on the other side of '28. First part is, Alberto, that it is for us to deliver on our plan. That is really our main focus. We have a plan with -- centered around 4 priorities to have a robust capital structure, to construct our 8.1 gigawatt of offshore wind projects in the best possible way, to stay focused and disciplined on capital allocation, always prioritizing value over volume and then also improve our competitiveness. And if you sort of look at our progress across the board on -- across these 4 priorities in Q3, you can see that, that is really where we focus. So the best way, in my view, to position us for '28 and onwards is by delivering on our plan. We will be in a very, very different position, and we will be able to meet the market from a position of strength at that point in time when we deliver on our plan. Second part is sort of how do we then think about 2028 and onwards. You talked about different kinds of sort of growth measures and what is out there. We are -- remain very bullish about the prospects for offshore wind in Europe in particular. We see the rebasing happening in the market. And the growth pockets for offshore wind in Europe, in my view, span across 3, if you will. One is, of course, the centralized tenders. There are -- '26 is probably going to be a little bit on the low side in terms of numbers of tenders that are being put out there, but then from '27 and onwards, it would take a bit of a step change. So that is one pocket that we could pursue. The other one is, of course, to mature our proprietary pipeline. And then the third pocket is more -- I would not call it inorganic, but a more, you can say, project-by-project collaborationships or M&A. Those are and basically have always been the pockets that we are looking for when we think about offshore wind growth, but we will be patient, and we would prioritize value over volume. Alberto Gandolfi: Rasmus, you've been so interesting that can I ask a follow-up? I appreciate if you say no. Rasmus Errboe: Go ahead. Alberto Gandolfi: I'm very -- this is all very clear. I'm just very intrigued by the comments you made about refocusing on Europe and potentially openness, project-by-project M&A. Would this also include potentially bigger platforms? I think it's no secret that probably lots of people on this call are thinking about the offshore portfolio of Equinor that would take out a competitor. And at that point, your balance sheet is very strong. Would this be an option worth pursuing, you think? Rasmus Errboe: That is not in our plans. Operator: The next question comes from the line of Lars Heindorff from Nordea. Lars Heindorff: The first one is regarding the correlation between EBITDA and operating cash flow. You had a few questions about this already, so maybe it's sort of a follow-up. But you've been guiding for '25 to '27 operating cash flow of DKK 50 billion. If we take the midpoint of the EBITDA guidance this year and then the minimum guidance that you've been providing for '26 and '27 that will add up to DKK 86 billion of EBITDA in the same period and a conversion ratio, which is less than 60%. So how should we think about the correlation of -- between EBITDA and operating cash flow going forward? First and foremost, in -- up and until '27, and I think given the development in Hornsea 3 and the first 3 years with a 50-50 split, that should be fine. But beyond that, that's maybe too far out. But just to get a sort of sense for what you expect in terms of operating cash flow for the coming years? That's the first part. And then the second part, just a housekeeping, which is, Trond, you mentioned the Changhua transaction. How much exactly would that impact the net interest-bearing debt for this year? Trond Westlie: Very well, on the operational cash flow relative to the EBITDA, there are 3 sort of buckets of elements that comes into the difference. It's the taxes paid. It's the reversal of noncash tax equity in EBITDA, and it's basically a working capital after changes. That is the major bucket. That's the 3 buckets. And then there is, of course, ups and downs relative to working capital changes that goes in there. But those 3 elements, taxes paid, reversal of noncash tax equity in EBITDA and working capital after changes is the 3 elements that really drives the bridge between the DKK 50 million and the EBITDA element. So that's those elements. When it comes to the Changhua 2b and 4 and the transaction, we still have the ambition to sign the transaction during the year. But since we're not able to close the transaction during the year, that there will be no transaction as such. So there will be not debt reduction as a result of that. So the statements that we have made earlier when it comes to the DKK 35 billion of the proceeds guideline that we have for '25 and '26, we have the DKK 7 billion that we did before half year. We now have the DKK 10 billion from Hornsea 3. And then the 2 outstanding elements is the around the -- short of DKK 20 billion left. And that's basically evenly divided between the Changhua and the EU onshore transaction. So -- and as I said, Changhua will not be closed during the year, so no effect. Lars Heindorff: Okay. And just a follow-up on the first part, which is the conversion between EBITDA to operating cash flow. Is that fair to assume that when you get to '28, which will be the first year, at least as we look right now without any offshore CapEx, that you will have still the same relationship, which is around slightly below 60% cash conversion from EBITDA to operating capital flow? Trond Westlie: I need to get back to that -- on that because the DKK 11 billion to DKK 12 billion coming out of the 6 projects is not going to be evenly divided as a result of how much of tax equity that comes into that gross up. So not quite sure I can guide you on that right now. Operator: We now have a question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I wanted to quiz you a bit on what the Equinor CEO has been saying about offshore wind and Ørsted, where he's been talking about new business models, the need for consolidation and industrial cooperation with Ørsted. What are your thoughts on any cooperation with Equinor and what form and over what time line? So that's the question. If you can't answer that, then I have another question, which I'd like to ask. Rasmus Errboe: I will give it a go, Deepa. Thank you very much. So I think first of all, we are, of course, very pleased with the support that we continue to receive from Equinor as the second largest shareholder. We have no doubt about it. And of course, I have also noted the comments that you are alluding to. Our focus right now -- my focus right now is to deliver on our plan, is to deliver on our strategy quarter-by-quarter centered around the 4 priorities that I mentioned before. I -- of course, as any responsible management team, if you look further out in time, of course, you will look at all options that would improve value for your shareholders, no doubt about it. I am confident that we still have a very well-suited business model for offshore wind. Operator: The next question comes from the line of Jenny Ping from Citi. Jenny Ping: So 2 questions I have are somewhat linked. Firstly, just on the negative construction EBITDA that you printed in 3Q that you say is linked with the Greater Changhua 4 project. And given some of the cost overruns that you highlighted, are we expecting this to be this magnitude effectively until the close of the project at COD in 2026, so DKK 300 million, DKK 400 million negative each quarter? And then just linked to that, I guess, going back to the Apollo deal, Rasmus. Clearly, this is a fully EPC wrapped project, which you will take on any overspend and any delays risk. So what sort of comfort can you give to the investors that this project has been operationally derisked as we go into the full construction phase to minimize any of the delays and overruns, which ultimately will be borne by Ørsted? Trond Westlie: Just taking the negative of the construction agreement provision that we made in the third quarter. That is, of course, the full amount of loss that we expect to have on the construction agreement on Changhua 4. So it's not a repetitive element. It's an estimate of the full loss on the construction agreement. Rasmus Errboe: Jenny, and as for Hornsea 3, you are right that the way we have done the CA is, you can say, our normal model where we wrap sort of parts of the construction risk the same way as it is also our normal model on the OMA part where we do O&M for our partner. We are progressing very much according to plan on Hornsea 3. It's, of course, a very big project, 197 positions. But it is in our core market, and it is in a zone that we are comfortable working with. Some of the things we have been focused on in the beginning from a construction risk perspective, if you will, are going quite well. The onshore converter stations and the cable landfall is progressing. That is a key focus point for us, also making sure that we get -- that we can deliver and also National Grid can deliver on time. We have no reason to believe not to. When we get to that point in '27, monopiles has been a key focus for us. We have now sufficient robustness on the supply chain for that project on the monopile side. We have sort of roughly a handful of monopile suppliers on the project, SeAH, EEW, Haizea, Steelwind to name a few. And we have a great deal of flexibility in terms of making sure that if one is not exactly on time, then someone else can deliver. And we are starting to see monopiles being produced with a couple of them. So that is very much on track. Half of the export cables have been produced, the offshore monopile installation will start in Q2. And also, as I said before, the 2 offshore converter stations are progressing according to plan, 1 already in Norway from Thailand, the other 1 on its way. One thing that we and I have been focusing on, and that's my last point, Jenny, from the very beginning has also very much been on installation vessels. We have 3 installation vessels that will do the work on Hornsea 3. And 1 of them is now done here in September. So during Q3, that is very good. The other 1 is working on other projects. So 1 of the 2 turbine installation vessels, the Wind Peak is now working for Sofia and on the East Anglia THREE. So that is all fine. And then the last 1 is being produced, and we expect for it to be done by the end of the year. So I would say across the board, construction and thereby construction risk is progressing according to plan. Operator: We now have a question from the line of Jacob Pedersen from Sydbank. Jacob Pedersen: Just a question for me regarding Baltica 3. You still have it as a part of your pipeline in offshore in your presentation. What is the status on this project? And will it play any role in bridging the standstill in new installations after 2027? Or will it be more attractive for you to go into other [ auctions? ] Rasmus Errboe: Thank you, Jacob. Baltica 3 is a project that we jointly own. As you know, together with our partner, PGE. We continue to be very, very pleased with that partnership, and we are also moving forward with PGE on Baltica 2. As you know, we put Baltica 3 under reconfiguration a few years ago now. And the reason being that we didn't see sufficient value as the project stands in our portfolio to move it forward. That is still the case. The project is under reconfiguration. And we will only move it forward if we see a significant improvement in the value. So it is one of the options that we have in our portfolio. But as I said before, it would also have to stack up against the other opportunities. We are very strict on value over volume and also on capital discipline and allocation. So that is what I can say about Baltica 3 right now. Jacob Pedersen: Okay. If I may, a second one, just housekeeping. The rights issue cost, will we see that in financing costs during Q4? Or is it already in the Q3 numbers? Trond Westlie: It will come in the Q4 numbers. But having said that, there was a good estimate in the prospectus. So I think you can -- if you want to have an estimate, you can use that. Operator: The next question comes from the line of Olly Jeffery from Deutsche Bank. Olly Jeffery: My first question is that my understanding is that Judge Lamberth [ and Revolution Wind -- so ] Judge Lamberth, who put in place the preliminary injunction is likely to be writing a detailed opinion, which we haven't received yet. I mean if the Trump administration were to appeal the injunction that will most likely happen after that detailed opinion is being written. Would you agree with that broad assessment? And then the second question is just on the Section 232 investigation into wind components. Has there been any development on that? And are you able at all to say if were to lead to further tariffs, would that be of any material consequence in terms of impairments? Or is that not such a risk key? Rasmus Errboe: Thank you, Olly. I can take the appeal, and then I will leave the tariff question to Trond. And I will be quite brief, Olly. I don't want to speculate in potential legal outcomes and whether or not something will be appealed. And if so, when. We rely on the injunction that we received on the 22nd of September by Judge Lamberth. And we were immediately back to work, and that is very much our focus. But as I said before, we are pursuing 2 avenues still, the legal track and also the conversation track. And our aim is to get a complete solution for Revolution Wind. Trond Westlie: Just to be clear, firm -- or have a clear view of where the tariff goes in the U.S., it's quite difficult. So -- but what we have taken into consideration is, of course, the June 4 announcement, the 19th announcement and the 21st announcement. That means that we have looked at the inquiry of the specific imports for wind turbines and associated parts. We have included more than 400 items that they have included on the list. As such, we have also considered the 50% level. And that is really the elements that we can do as best estimate as of now. And that is what we have included in our best estimate that gets us to the DKK 2.5 billion of impairment effect in the third quarter. Operator: We now have a question from the line of Roald Hartvigsen from Clarksons Securities. Roald Hartvigsen: On gross investments, you keep your DKK 50 billion to DKK 54 billion guidance unchanged, and given that you've already spent about DKK 40 billion so far this year, the low end of your guidance would suggest only an additional DKK 10 billion for the last quarter, which is like quite a material step down compared to the DKK 15 billion this quarter, especially given the fact that reported CapEx figures historically have been quite high in the end of the year quarter and that the full Hornsea 3 project will still be on your books, I guess, at least part of the quarter or so. So can you help us reconcile the expected drop in the investment level from the third quarter and give some color on what assumptions are embedded in especially the lower end of the gross investment guidance range here? Trond Westlie: I do think that you had to take the full guidance into perspective, basically DKK 50 billion to DKK 54 billion. And that if you take the upper number, it's actually going to be around the same number in gross investments in fourth quarter as in third quarter, if you take that as a sort of a possibility. Having said that, I think the important element to this is not necessarily the timing whether the payment is done the 20th of December or the 10th of January. The important thing is that our investment level for all the 3 years is around DKK 145 billion, as we have said earlier. We expect that to be DKK 50 billion to DKK 54 billion this year. And that means that it's going to be sort of in the DKK 50 billion range for the 2 consecutive years of '26 and '27. So I think it's important not to sort of be razor sharp on 31st of December. But our best guess as of now and the sensitivity we have relative to timing of payments at the year-end is between DKK 50 billion and DKK 54 billion. Operator: The next question comes from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Lots of questions already answered. So if I may just ask something a bit nitty-gritty. On Slide 23, I noticed some of these numbers have changed since 2Q. So when we look at the 10% ITC bonus, sensitivity impact, Sunrise and Revolution now add up to DKK 6 billion. And previously, I think that was DKK 4.6 billion. And the sensitivity to a 50 basis point move in WACC is now DKK 2.1 billion and previously, it was less. I'm just wondering what was going on there? And if I can just ask a clarification from earlier because the audio was a bit crackly. Did you confirm you hope to announce the deal on Changhua 2 in 2025? I know you answered that you expect to close it in 2026. But is the disposal still going to happen this year? Trond Westlie: When it comes to the Slide 23, the reason for changes is, of course, changes in some of the CapEx levels. So the elements, I don't have the sort of the gross numbers in the top of my head. So you have to contact IR to actually get the more detailed level in that. When it comes to the Changhua transaction, yes, we still have the ambition to sign the deal during this year and then close it when we have COD in the third quarter next year. Operator: We now have a question from the line of David Paz from Wolfe. David Paz: Just wanted to follow up on Revolution Wind. Just 2 quick questions; a, is the DKK 5 billion, has that been updated since August in terms of the remaining investment? I think that was your share. And then b, what of those 3 items you've listed, onshore substation, the remaining turbines and the array cables, which are the -- would you say they're like first and last? In other words, like what is the critical path, I guess, if you can just give us some color, particularly given the comments on the onshore substation being substantially complete, just what gets you to second half 2026 COD? Trond Westlie: When it comes to the CapEx on Revolution, yes, our total CapEx -- our 50% share of the CapEx is DKK 20 billion. And as last quarter, we had spent about DKK 15 billion of that. So the remaining DKK 5 billion for us, DKK 10 billion in total for Revolution has sort of been paid during the time. And basically -- but I think it's more important that we have come so far on the Revolution that the commitment we have on the whole value is there. So whether we have paid it or not, doesn't really matter relative to the timing of the -- it's more the timing of things. Rasmus Errboe: And with respect to the critical path for Revolution Wind, it is still the onshore substation that is on the critical path. It is moving forward well, as I said, on both the turbine installations with 52 and on array cables with 41 out of the 65. So -- and we -- as I said, we expect energization of the onshore substation early next year. But the reason that is still on the critical path is that following the energization of the onshore substation, you then basically go area by area in the wind park, starting with the export cables, then on to the offshore substations and then the turbines in terms of the electrification and the hot commissioning of the turbines. And that takes -- that brings us into our expectations for COD. so still on the critical path, the onshore substation. Operator: We have a follow-up question from the line of Mark Freshney from UBS. Mark Freshney: Just regarding security of some of the subsea cables, we know that there's a lot of work being done at the industry and government and NATO level on protection of those cables. But from your perspective, have any of your subsea cables being knowingly sabotaged? And when you think about that at board level as a risk to the business, how are you tackling that from your own internal perspective? Rasmus Errboe: Thank you, Mark. Mark, as I'm sure you can appreciate, I will not be super granular on this question. So I'm not going to comment on sort of impacts on individual cables and what have you. What I can say is that you can say, security and working with the governments and also you mentioned NATO before, is something that has been part of the way we do development in Europe for a very long time. Governments are asking for conversations and solutions for defense coexistence, and we see very good cooperation between the relevant authorities in the markets that we are in and also the sector, including us to develop successful mitigations from a coexistence perspective. That is as far as I can take it in terms of defense. Operator: We have a follow-up question from the line of Dominic Nash from Barclays. Dominic Nash: It's actually on Hornsea 3 and the numbers announced sort of yesterday, I just need some clarification on them, if you can help me out, please. So could you work out whether my math is right, you basically said that you've spent DKK 20 billion to date. Apollo are paying you DKK 10 billion for what you spent today, so fine. You also say you're doing DKK 70 billion to DKK 75 billion of CapEx still to go for the project, so DKK 90 billion to DKK 95 billion in total. And you say about 1/3 of that is transmission, I think. But you then -- if you then take Apollo's DKK 39 billion contribution and DKK 10 billion has been used for buying into the project for historics, at least DKK 29 billion remaining, how does that DKK 29 billion fit into the DKK 70 billion to DKK 75 billion still to go at 50% ownership? And on that, I think the transmission might be the one that's a bit odd, is that in or out of the amount of cash that they're paying into? And is that the sort of debt associated with it? Or have you got some other way of getting that one financed? Trond Westlie: Dominic, just a starting point for -- it's a bit difficult to follow sort of your math over the phone. But I think one material element in your math is that DKK 70 billion to DKK 75 billion is the total project and not what is remaining. But I do think that if you take the rest of your math together with the IR, I think they will be better of guiding you through it. Operator: We have a follow-up question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: So the question I have is on the legal process in the U.S. for Revolution Wind. So the stop-work orders allowed you to start construction, seems to be going well. What happens if you finish constructing the project, but you've not resolved the underlying challenge of the stop-work order? Can you start already selling the power and so on and energize? Or will it kind of come to a standstill? And in some scenario, I don't know if you lose the appeal at a later stage after 1 or 2 years, will you then be forced to decommission? I'm just thinking about what happens given that now you are constructing and so far, the legal process might take much longer to settle -- might take longer than your construction time line. So if you could just elaborate on those scenarios. Rasmus Errboe: Thank you, Deepa. I would be brief. The impact of the injunction relief allows us to continue the project, to continue constructing and also to produce power. Operator: We have a follow-up question from the line of Lars Heindorff from Nordea. Lars Heindorff: Very fortunate to be after Deepa's question because it's also regarding Revolution Wind. Now you got the stop-work order on the 22nd of August. You got the injunction filing on the 17th of September. That is now 47 -- sorry, 49 days ago. And if I'm correct, you have installed roughly 7 turbines in that period. You have 13 turbines left to install for Revolution Wind. How long do you expect that will take? Rasmus Errboe: Thank you, Lars. So the guidance we gave on progress is that we basically guide on COD. But of course, it is also -- as it always is, it is also relevant when you install all the turbines and also when you can have first power and that we expect during H1. Lars Heindorff: But is it fair to assume normally, I think installation of vessels taken 2 -- 1.5, 2 days and then maybe winter period, it will be longer, 4 days, something like that. Is that a fair assumption? Rasmus Errboe: Lars, I look forward to telling you about the construction progress on -- when we are done with the year. And there I will be very specific about how far we have come on the turbine installation as well. It is moving forward quite well right now. But of course, we are also entering a period with more uncertainty on the weather. But right now, turbine installation on Revolution Wind is going really, really well. Operator: We have a follow-up question from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Yes, sure. May I ask on the onshore U.S. business. I know this is a bit different to the vein we've had so far. During the rights issue process, you talked about effectively separating this out legally and financially into its own stand-alone entity. Is that still the case? And any further strategic plans for this given, of course, there is a somewhat shortage of power in the U.S. and quite a lot of optimism around that market? Rasmus Errboe: Thank you, Rob. You are right that we have progressed our separation of our U.S. onshore business. And as of 1st of October, our onshore business has become a separate business unit reporting into our global development chief. And the Americas onshore business will then continue to focus on development and operations of the projects within the U.S. We have a pipeline of 6, 7 gigawatts of projects with capacity that meets the definition of sort of IRA qualification through 2029. And there are envelope opportunities in the market. And also the 2 projects that we have under construction. So Old 300 BESS in Texas and also Badger Wind in North Dakota are moving forward really well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to CEO, Rasmus Errboe, for any closing remarks. Rasmus Errboe: Thank you all very much for joining. We appreciate the interaction and the interest as always. And if you have any further questions, please do not hesitate to reach out to our IR team, who will be here to answer all of them. Thank you very much. Stay safe, and have a great day.
Operator: Thank you for your patience. Mr. Sullivan, you may now begin. Devin Sullivan: Thank you, Michelle. Apologies for those technical difficulties. Good morning, everyone, and thank you for joining us today for Fuel Tech's 2025 Third Quarter Financial Results Conference Call. Yesterday, after the close, we issued a press release, a copy of which is available on the company's website, www.ftek.com. Our speakers for today will be Vince Arnone, Chairman, President and Chief Executive Officer; and Ellen Albrecht, the company's Chief Financial Officer. After prepared remarks, we will open the call to questions from our analysts and investors. Before turning things over to Vince, I'd like to remind everyone that matters discussed on this call, except for historical information, are forward-looking statements as defined in Section 21E of the Securities Act of 1934 as amended, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and reflect Fuel Tech's current expectations regarding future growth, results of operations, cash flows, performance and business prospects and opportunities, as well as assumptions made by and information currently available to our company's management. Fuel Tech has tried to identify forward-looking statements by using words such as anticipate, believe, plan, expect, estimate, intend, will and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on information currently available to Fuel Tech and are subject to various risks, uncertainties and other factors, including, but not limited to, those discussed in Fuel Tech's annual report on Form 10-K in section -- in Item 1A under the caption of Risk Factors and subsequent filings under the Securities Act of 1934 as amended, which could cause Fuel Tech's actual growth, results of operations, financial conditions, cash flows, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. Fuel Tech undertakes no obligation to update such factors or to publicly announce the results of any forward-looking statements contained herein to reflect future events, developments or changed circumstances or for any other reason. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in the company's filings with the SEC. With that said, I'd now like to turn the call over to Vince Arnone. Vince, please go ahead. Vincent Arnone: Thank you, Devin. Good morning, and I'd like to thank everyone for joining us on the call today. For the third quarter of 2025, we operated profitably, enhanced our gross margins, broadened the client base for our APC and FUEL CHEM business segments and maintained a strong financial position with cash, cash equivalents and investments of nearly $34 million at quarter end and no long-term debt. We are continuing to advance our Dissolved Gas Infusion technology through industry outreach and are well underway with an extended demonstration of this offering at a fish hatchery in the Midwest U.S. We also closed a modest acquisition of complementary APC intellectual property that we believe will help us address customer APC needs on a global basis. Our FUEL CHEM segment produced a solid quarter of growth, driven by increased dispatch at legacy clients and contributions from a new account added in mid-2024. Just a few days ago, we commenced a 6-month commercially priced demonstration program for a new FUEL CHEM customer in the U.S. As discussed on our second quarter call, the purpose of the demonstration is to improve boiler availability and reliability and reduce maintenance downtime for off-line boiler cleaning in order to maximize the power generation profile of this unit. This new engagement will have a positive initial effect on our FUEL CHEM results in the current fourth quarter with sustained segment contributions in 2026. We estimate the annual revenue potential from this commercial contract to be approximately $2.5 million to $3 million based on the customer running the program full time with the revenue expected to generate historic FUEL CHEM gross margins. Based on FUEL CHEM segment performance year-to-date and the impact of this new demonstration program, we now believe FUEL CHEM's full year 2025 segment revenue will approximate $16.5 million to $17 million, up from our prior guidance of $15 million to $16 million, which would be the highest level since 2022. Revenues for our APC business in the third quarter declined compared to the prior period due primarily to the timing of project execution on existing contracts. During the third quarter, however, we announced $3.2 million of new APC awards from new and existing clients in the U.S., Europe and Southeast Asia. These contracts helped to increase our consolidated APC segment backlog to $9.5 million at the end of the third quarter. We are currently pursuing $3 million to $5 million of potential additional APC contracts that we would expect to close before the end of the year or in the early part of Q1 2026. This is exclusive of data center opportunities, which I will discuss shortly. Next, I'd like to note that subsequent to quarter end, we expanded our APC portfolio through a small strategic acquisition of complementary intellectual property and customer-related assets from Wahlco, Inc., a well-established environmental equipment and services company with several hundred project installations worldwide. The total cash consideration for the transaction was $350,000, representing a strategic and cost-effective expansion of our IP portfolio and demonstrating our disciplined approach to capital allocation. We were able to secure high-value assets at a modest price, strengthening our technology base and aligning with our long-term strategy to address customer air pollution control needs globally. The acquired suite of assets includes technology applicable to flue gas conditioning systems, ammonia handling equipment for a wide range of industrial applications, and urea to ammonia conversion technologies for NOx reduction using complementary technologies to our existing portfolio in these areas. Also included as part of the portfolio, our customer installation and aftermarket data, which we believe will drive accretive aftermarket revenues. We view this acquisition as both strategically and operationally attractive, enhancing our competitive position and expanding the solutions we can offer to our APC customers worldwide. We continue to pursue additional new awards driven by an industrial expansion globally and by state-specific regulatory requirements in the U.S., and we are continuing to monitor the progress of EPA's rule for large municipal waste combustor units. This rule reduces the nitrogen oxide emissions requirements for large MWC units. Fuel Tech has had a long history of assisting this industry and meeting its compliance requirements, and we have had discussions with customers in this segment to support the compliance planning. The final rule has been delayed by EPA until December of this year, with compliance deadlines expected 3 years from the date of issue. The public comment period closed at the end of May of this year, so the final rule remains on track. That being said, there are some specific states that are currently requiring lower NOx emissions that are consistent with the proposed MWC rule, and we are actively pursuing those opportunities today. Additionally, EPA, under the current administration, is currently pursuing the rollback of rules related to the reduction of greenhouse gases. It is important to note that the proposed rollback of the 2009 EPA Endangerment Finding does not loosen the nitrogen oxide emission requirements for any sources and could potentially extend the life of some coal and natural gas-fired units that may not have to reduce their carbon dioxide emission profile. Lastly, as discussed on our previous conference calls, we are not expecting any specific tailwinds that would come from the implementation of new regulation and the opportunities that we are pursuing today are not contingent on the implementation of any specific new regulations. As we have discussed on our few prior conference calls, we are experiencing an unprecedented increase in demand for power generation in this country and globally that is being driven by the digital economy, including AI and data centers, the electrification of everything and a massive industrial and energy transition, all happening simultaneously. This represents one of the most exciting opportunities that we have seen in quite some time for our company as it relates to the application of our APC emissions control solutions as part of the proliferation and investment in data center infrastructure being built in support of the general trend for digital expansion. Data centers are expected to become the backbone of the digital age and their development is driving new power generation demand. This demand in power, in some instances, will require emissions control solutions for many of the energy sources that necessitate a low carbon footprint. In fact, the primary factors that determine whether a data center will require NOx control using SCR technology are the following: First, site location. Is the site in an attainment or a nonattainment area for ozone ambient air quality standards as NOx is a contributor to ozone. There will be more stringent NOx reduction requirements in nonattainment areas. Second, what is the planned utilization of the power generation application? Is the power generation source for primary or backup power and what are the expected number of operating hours per year of the generating source? Primary power sources and backup power that is expected to run extensively will be more likely to require SCR for NOx reduction. And third, what is the baseline NOx emission of the power generation source? Some rotating internal combustion engines or combustion turbines can be equipped with combustion controls to enable a lower NOx baseline level and possibly eliminate the need for SCR. However, ultimately, the site permit will define the required level of emissions control. Interest in our technology solutions for these applications has continued throughout the recent quarter. And as of today, we are continuing to engage with multiple potential customers, representing a sales pipeline of current outstanding project bids of approximately $80 million to $100 million for projects integrating our SCR technology with power generation sources to meet emissions control requirements for data centers planned across the U.S. over the next several years. We are continuing to work with our supply chain partners and engineering colleagues to prepare for these opportunities. While the majority of our inquiries over these past few months have been from turbine OEMs, in recent weeks, we have had discussions with a variety of different companies that are looking to address the market need for the expedient deployments of reliable power generation as either a permanent solution or as a temporary bridge solution for a gap period, such as waiting for a permanent grid connection. Such companies include those that have access to aircraft engines and are looking to bring these assets into the power generation market and also system integrators. Additionally, we are finding that the use of smaller engines and turbines is coming into favor, which is generally preferential for Fuel Tech as near-term developments require power generation in support of bringing data centers online sooner rather than later and lead times for large gas turbines are expanding to periods of 5 to 7 years or more. We see this expansion of interest from these parties as an exciting opportunity, and we will continue to investigate and pursue both conventional and nontraditional sources to ensure that our technology offerings enhance the benefits of temporary and long-term power generation solutions. For our Dissolved Gas Infusion business, we had a very successful exhibition of DGI at the Water Environment Federation Technical Exhibition and Conference, or WEFTEC, in Chicago last month and generated significant interest in the technology. We are continuing an extended demonstration of DGI at a fish hatchery on the Western U.S., which we expect will last until the end of Q1 of 2026. We are continuing discussions with multiple other end markets of interest for DGI, including pulp and paper, food and beverage, chemical, petrochemical and horticulture. As discussed last quarter, we have been looking to expand our network of sales representatives in support of DGI, and we did add one additional representative during the quarter to augment the work being done by 2 existing firms. We expect to continue to build this network as we experience further interest in DGI. As we look ahead to the balance of 2025, based on our effective backlog and pending contract awards, the APC business development activities that we are pursuing and our previously noted expectations for FUEL CHEM, we are expecting revenues for 2025 to be approximately $27 million, which represents an 8% increase over 2024. This is a base case outlook and excludes any material contributions from APC from data center contract awards and any material impact from the new business development activities for FUEL CHEM. In closing, I'd like to thank the entire Fuel Tech team for their continued dedication to advancing our strategic objectives and our shareholders for their ongoing confidence and support. We look forward to keeping you apprised of our progress as we move forward towards the end of 2025 and into 2026. Now I'd like to turn the call over to Ellen for her comments on our financial results. Ellen, please go ahead. Ellen Albrecht: Thank you, Vince, and good morning, everyone. For the quarter, consolidated revenues declined slightly to $7.5 million from $7.9 million in the prior year period due to lower APC segment revenues, partially offset by higher FUEL CHEM segment revenue. APC segment revenue declined to $2.7 million from $3.2 million, primarily related to the timing of project execution on existing contracts. As expected, FUEL CHEM had a solid quarter with revenue improving to $4.8 million from $4.6 million. Consolidated gross margin for the third quarter rose to 49% of revenues from 43% in last year's third quarter due to increases in both FUEL CHEM and APC segment gross margins. FUEL CHEM gross margin increased to 50% compared to 49% in the third quarter of 2024 due to an increased volume of sales activity, combined with relatively flat segment administrative expenses. APC segment gross margins expanded significantly to 47% in the third quarter compared to 35% in the prior year period as a result of product and project mix that included a higher proportion of ancillary revenue consisting of spare parts and service revenue, which represents a higher margin contribution to traditional capital project margins. Consolidated APC segment backlog as of September 30, 2025, was $9.5 million, up from backlog of $6.2 million at the end of 2024. Backlog at September 30 included $4 million of domestically delivered projects and $5.5 million of foreign delivered project backlog. We expect that approximately $7.1 million of current consolidated backlog will be recognized in the next 12 months. SG&A expenses were flat at $3.2 million in the third quarter. As a percentage of revenue, SG&A expenses rose to 43% from 41% in the prior year period, reflecting lower consolidated revenue in the current period. For 2025, we continue to expect SG&A expenses to increase modestly from prior year as we focus on the development of our infrastructure in support of our business segments. Research and development expenses for the third quarter of 2025 rose to $450,000 from $361,000 in the prior year period, reflecting our ongoing investment in water and wastewater treatment technologies, notably our DGI systems and the site demonstration previously referenced by Vince. Our investment in DGI will continue throughout 2025 to support ongoing site demonstrations and other growth initiatives as we ramp up towards commercialization. During the third quarter, we delivered profitable results with positive operating income, net income of $303,000 or $0.01 per share compared to a net income of $80,000 or $0.00 per share in the prior year period. And adjusted EBITDA was $228,000 compared to an adjusted EBITDA loss of $35,000 in the prior year period. Lastly, moving to the balance sheet. Our financial condition remains very strong. As of September 30, 2025, total cash and investments was $33.8 million, comprised of cash and cash equivalents of $13.7 million and short- and long-term investments of $20.2 million. Net cash provided by operating activities was $4.6 million for the 9 months ended September 30 as compared to a use of cash totaling $1.8 million for the same period in the prior year. Shares outstanding at quarter end were approximately $31.2 million, equating to cash per share of $1.08. Working capital was $26 million or $0.83 per share. Stockholders' equity was $41 million or $1.31 per share, and the company continues to have no outstanding debt. We remain greatly confident in our ability to maintain a strong financial position to fund and to fund our short- and long-term growth initiatives for our FUEL CHEM, APC and DGI business segments. I'll now turn the call back over to Vince. Vincent Arnone: Thanks very much, Ellen. Operator, let's please go ahead and open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Amit Dayal with H.C. Wainwright. Amit Dayal: This acquisition, do you need to make any additional investments to meaningfully monetize this acquisition? And just in terms of the time line for you to see any sort of contribution from this IP, should we expect anything coming in this year itself? Or is this more of a 2026, 2027 type situation? Vincent Arnone: Okay. Two questions there. I'll answer your first question at this point in time. I don't expect that we may need to make a significant amount of incremental investment here internally to capitalize on the IP that we've acquired. We are familiar with the technologies that we have brought in-house. And so, at this point in time, no, I'm not anticipating any sort of significant investment required to monetize. Your second question is, we are going to get at least some small contributions relatively quickly from some of the aftermarket opportunities that will come our way from the very large installation base that Wahlco, Inc., does have in place and that they've built historically over the past 3 decades. So we will see some near-term benefits as an incremental to our aftermarket business. But obviously, we would like to see some larger scale benefits in terms of capital project awards as we move into 2026 and beyond. So specifically, we will see some near-term favorable impacts from an aftermarket business, but those won't be what I would call extraordinarily material. As we move into '26, we'll look to capitalize on utilizing that IP to pursue some capital project awards. But from our perspective, this was an easy decision and a very solid strategic investment for us to make as we look to continue to build out our APC portfolio of solutions for our end markets here in this country and the remainder of the world. Amit Dayal: Understood. And then for the data center type opportunities, are you working with any folks in the value chain from a distribution perspective? Or are you directly approaching some of these entities with their solutions? Vincent Arnone: So as we've discussed a little bit previously, we are the back end of the solution to your power generating source. So we are typically brought into the equation for the data center build-out from one of the engine or turbine OEMs, okay? That's generally how we're brought in. And so, we're looking to work with those parties to try to bring ourselves into the opportunity that's there. As I noted in my script, so recently, we have been contacted by some other parties that are looking to enter this space that are what I would call nontraditional players. I mentioned a company that manages aircraft engines. They maintain, they lease and so on and so forth, very large organization, but they're looking to repurpose some of their aircraft engines to be applicable to generating power for data centers. So that's a new entrant that we're trying to work with to bring our solution to the opportunity. And we have been contacted recently by some of the integrators as well that are looking to package a solution and bring that solution to the end customer. So now it's the OEMs, it's some new market entrants and some integrators as well. And so, we're expanding our, call it, our method of opportunity, our method of supply chain to get into this data center marketplace. Amit Dayal: Understood. And then from a pipeline perspective, how big is the pipeline already? I don't know if you can share color on that. But I'm just trying to see if you have already started to include some of this data center opportunity from a pipeline perspective. Vincent Arnone: So from a pipeline perspective, we have 8 to 10 opportunities that we are pursuing today, and those opportunities are worth $80 million to $100 million in total. That's what we're sitting on today. Those opportunities are broken down into different categories. A couple of them are commercial, and we would expect to have finalization on those opportunities either before the end of the year or early in 2026. The majority of the remainder are what I would call more initial inquiry, budgetary inquiry in nature, whereby a customer comes to us and they are looking to evaluate how they're going to make a proposal to their end customer, and we give them a budgetary quote. So in total, as I said, 8 to 10 opportunities valued at $80 million to $100 million in total. Operator: Our next question comes from the line of [ Ankur Sagar ], who's a private investor. Unknown Attendee: Vince, as you -- thank you for elaborating on the factors for the data center opportunity. As you listed, I mean, there is an immense shortage of these gas turbines and some of the entities have even just started using like aircraft engines, which require emission control. And it's been on the news, for example, like xAI, which is a large hyperscaler, which really put this whole setup with gas turbines quickly, but then had to go back and get a permit for refitting these turbines with SCR. So there is a lot happening, and you're involved in this. But anything you can share from a time line perspective on when do you expect sort of like in any of these pipeline opportunities to come to fruition? Vincent Arnone: Yes. So as I just mentioned in my comment to Amit, 2 or 3 of these contract opportunities we consider to be commercial opportunities, and we would expect to have a response on them, again, late this year or sometime in Q1 at the latest on those 2 to 3. The remainder need to progress a little further relative to the project development phase. And so, I can't offer time lines on that as we sit here today. But with the 2 or 3 that are indeed commercial, I would expect some sort of conclusion on them here within this next few months' time frame at the most. Unknown Attendee: Okay. And then these couple -- 2 or 3 that you expect some response before that -- are these like more like where they will convert from pipeline into orders? Or these are also like platform opportunities where you are retrofitting your solution with some other vendor, whether it be a gas turbine or OEM or an integrator where you can probably have more than just the 2 orders or anything? Vincent Arnone: Can you clarify your question one more time between the -- before I give you an answer, if you don't mind, please. Unknown Attendee: The couple of opportunities that you would see some news or results on before the end of this year, are these also like platform opportunities where your solution will get retrofitted in another company's solution, whether it be an OEM turbine maker or an integrator where it will not just be just the 2 orders, let's say, you get, but there is a potential to get more than just the 2 in '26. Vincent Arnone: Ankur, thanks for the clarification. To answer specifically, these initial orders that if we're able to bring them to fruition, would be giving us the ability to expand and participate on additional opportunities that these customers would have prospectively. So yes, if these orders come in-house, I would expect that -- it's not going to be an automatic that we're fixed to all of those customers' opportunities prospectively, but it is going to give us a very nice opportunity to expand business with these entities prospectively, and we would expect then incremental orders prospectively. Unknown Attendee: Got it. Okay. One last one. In this, I think, fiscal year in the last 3 quarters, I mean, from a cash flow perspective, I think your team has done really well. Your cash on the balance sheet has increased from working capital done really good. How do you expect Q4 to be from a cash flow perspective? Vincent Arnone: Yes. I would think as we look to our cash balance towards the end of 2025, I would say flat to slightly down as we look at the end of the year. Q3 is typically our best performing quarter, generally speaking. So we have the opportunity for increased cash flow. And we did have some excellent cash collections in Q3 as well to build the amount. But as we look towards -- moving in towards the end of 2025, I'd say flat to slightly lower for the end of the year. But still, we're very pleased with our cash balance in terms of where it is today at around $34 million and no debt. It gives us a great platform to be able to evaluate and assist our potential customer base as we're looking at the landscape of opportunities that we do have. It gives us a lot of flexibility. Operator: Our next question comes from the line of Richard Greulich with REG Capital Advisors. Richard Greulich: Vince, last quarter conference call, you mentioned a global sales pipeline of, I don't know, $75 million to $100 million. Was that including the data center opportunities that you've been talking about today? Vincent Arnone: No. Actually, that number would not have included the data center. Actually, that number was the data center opportunity more specifically. And we would have had, call it, more regular ordinary recurring APC business that would have been another $10 million to $20 million in pipeline on top of that number. So today, as I'm talking about 8 to 10 opportunities for $80 million to $100 million, that's data center opportunities only. We have an additional pipeline of what I would call more standard APC business that is another $10 million to $20 million on top of that amount. Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Arnone for any closing remarks. Vincent Arnone: Thank you, operator. I'd like to thank everyone who joined the call today. We were indeed pleased with our results for Q3. We are very excited about our outlook as we look to end 2025 and move into 2026. The APC landscape of opportunities is indeed the best landscape that we have seen in several years as a company. Our goal as a team is to capitalize on that opportunity. For our Chemical Technologies business, we -- this year, we're looking at our best performance with that business segment since 2022. And with the very solid opportunity of bringing on another coal-fired unit as we look to end this quarter and move into 2026, we have a wonderful outlook for 2026 for our Chemical Technologies segment as well. So very pleased with where we are sitting today as a company. Again, thank the Fuel Tech employee team, thank our shareholder base. Everyone, have a wonderful day. Thank you. Operator: Thank you. This concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the inTEST Corporation Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Alex Villalta. Thank you. You may begin. Alex Villalta: Good morning, everyone and thank you for joining us. With me on the call are Nick Grant, our President and Chief Executive Officer; and Duncan Gilmour, our Chief Financial Officer and Treasurer. The earnings release was issued this morning as well as the slides that management will use during the call. Both of these can be found in the Investor Relations section of the intest.com website. Please turn to Slide 2 for a review of the safe harbor statement. During this call, management may make some forward-looking statements about our current plans, beliefs and expectations. These statements apply to future events that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from what is stated herein today. These risks, uncertainties and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Also, as covered on Slide 3, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. With that, I'll turn the call over to Nick. Nick Grant: Thank you, Alex and good morning, everyone. Thanks for joining us for our third quarter 2025 earnings call. We will begin today's discussion on Slide 4 of the presentation. After several months of order sluggishness as tariff and economic uncertainties complicated customers' capital investment plans, it's refreshing to see some pockets of customers break free and move forward with capital projects. We have always contended that a market recovery is a matter of when, not if. Our funnel of opportunities has been at high levels since Q1 and this quarter, the conversion rate picked up, resulting in orders of $37.6 million, our strongest level since Q2 of 2022, leading to a sequential $11.4 million increase in our backlog. Most of this improving demand is coming from customers in the automotive and defense/aerospace end markets, a clear testament to the success of our market diversification strategy. These customers are relying on our innovative and differentiated test equipment that enable better quality control in increasingly complex manufacturing processes. While this increase in orders is encouraging, conversion rates do vary by end market and many customers still remain hesitant to commit to new capital projects. This is especially true in semi. However, based on what we are seeing and hearing, it feels like we may be moving into a period of gradual recovery. Revenue for Q3 was $26.2 million, lower than Q2 and below the guidance range we provided on last quarter's call. During the quarter, our engineers encountered technical challenges in finalizing a few systems, which delayed approximately $2 million in shipments. In one case, the challenges were associated with new capabilities. In the other case, the systems were for a new customer in a new target market. These challenges have since been resolved and the systems have been shipped. We are excited about the positive impact our steadfast resolve to drive innovations and add new customers will have on our future as we execute on our VISION 2030 strategy. During the quarter, we continued to strengthen our competitive position in preparation for a broader market recovery by making more progress in penetrating targeted accounts and driving adoption of new products. We believe we have the balance sheet, the financial flexibility and capacity to support our customers as demand improves. Let me now review orders and backlog on Slide 5. auto/EV led the climb in orders this quarter, accounting for around 3/4 of the sequential growth and doubling to $14.6 million. Alfamation bookings were at an all-time record level for the business, representing strong demand for test equipment from Tier 1 electronic suppliers as they expand capacity to support 2027 model year programs and start new projects. Defense/aerospace orders more than doubled sequentially to $6.4 million, primarily due to the increased test demand for next-generation weapon systems. We continue to see success with our new products. This is especially true at Acculogic, where they have expanded their flying probe capabilities to include radio frequency and oscilloscope measurement test solutions, thereby enhancing our customers' manufacturing efficiencies. These expanded capabilities drove multiple system orders in the quarter from new customers. In addition, several defense contractors are continuing to qualify our new products. Year-over-year, orders were up 34.2%. The increase reflects the strength in auto/EV, which grew $7.4 million; industrial, which increased $2.4 million; defense/aerospace, which increased $1.9 million, life sciences increased $0.9 million and semi, which was up $0.4 million. These increases outpaced the declines in safety, security and other markets. Although we saw some pickup in semi orders, overall, the semi market remains sluggish, especially in our analog mixed signal business. Backlog at September 30 was $49.3 million, substantially above where it was at the end of the second quarter and positioning us well for the upcoming quarters. Before turning the call over to Duncan to review the financials and outlook in more detail, I want to thank the entire inTEST team for their continued dedication and commitment to our shared VISION 2030 goals. Duncan, over to you. Duncan Gilmour: Thank you, Nick. Starting on Slide 6. Revenue for the third quarter was $26.2 million compared to $28.1 million for the second quarter, a decrease of $1.9 million. Sales in defense/aerospace accounted for $1.3 million of the decline, followed by auto/EV, which declined $0.9 million and semi, which decreased $0.4 million. This decline was partially offset by an increase of $0.7 million across life sciences, safety/security and other markets. Compared with Q3 2024, revenue declined $4 million, reflecting lower semi, auto/EV, defense/aerospace and other sales totaling $5 million, partially offset by increases in life sciences and safety/security totaling $1 million. Moving to Slide 7. Starting with the sequential comparison. Gross profit decreased $1 million to $11 million and gross margin declined 70 basis points to 41.9%, primarily due to lower volume. Compared to the prior year period, gross profit declined $3 million and gross margin declined 440 basis points due to reduced volume and unfavorable product mix. We continue to execute tariff mitigation tactics to minimize gross margin impacts. As you can see on Slide 8, our operating expenses of $12.2 million decreased $0.7 million sequentially and $1.3 million compared to the third quarter last year as our cost reduction actions are flowing through in an effort to improve our long-term profitability. The consolidation of our Videology Netherlands facility, which we estimate will translate into annualized savings of approximately $500,000 beginning in 2026 remains on track. Turning to Slide 9. You can see our bottom line and adjusted EBITDA results. For the quarter, net loss was $0.9 million or a loss of $0.08 per share. Adjusted net loss, which adds back tax-affected acquired intangible amortization charges and restructuring charges was a loss of $0.02 per share. Adjusted EBITDA for Q3 was $0.4 million. Slide 10 shows our capital structure and cash flow. In the first 9 months of 2025, we reduced debt by $6.2 million, including the $1.2 million we paid down in the third quarter. Total debt outstanding was $8.9 million at quarter end for a total debt leverage ratio of 1.7x. Cash, cash equivalents and restricted cash at the end of the third quarter were $21.1 million, up $1.8 million from the end of the second quarter. We ended the quarter with approximately $61 million in liquidity. inTEST remains a cash-generating company that we believe has the financial resources to scale the business and achieve our VISION 2030 goals. Turning to Slide 11 and our guidance. Our long-term fundamentals are solid with inTEST maintaining its strong leadership position in specialized high-value applications and our readiness for a market recovery. As Nick said, we are seeing some pockets of renewed capital spending but many customers still remain hesitant to commit to capital projects and we do not have visibility into the timing of an overall market recovery. Therefore, we are continuing to offer guidance on a forward quarter basis only. Including the shipments, which slipped from the third to the fourth quarter and the orders in backlog that we anticipate to fulfill and ship, during the fourth quarter, we expect revenue in the fourth quarter to rebound to a range of $30 million to $32 million. We are forecasting gross margin of approximately 43% and operating expenses of $12.3 million to $12.7 million, excluding approximately $200,000 of restructuring expenses. Amortization and interest expense are projected to be consistent with Q3. As usual, our guidance does not include the potential impact from any nonoperating expenses such as corporate development and incremental restructuring that may occur nor does it include the potential impact from any additional acquisitions we may make. With that, if you will turn to Slide 12, I will now turn the call back over to Nick. Nick Grant: Thanks, Duncan. Although the third quarter had its challenges, we are pleased with our performance overall. Our order book expanded, our market diversification strategy continues to take hold and our innovative new products are gaining traction as we continue to execute our VISION 2030 growth strategy. The adoption of these new products position us well to capture new opportunities and expand our serviceable market. This quarter's increase in backlog, a little more than half of which is scheduled to ship in 2026 and our strong funnel of opportunities suggest that demand in some of our end markets is beginning to recover. Although as Duncan noted, visibility for a full market recovery remains limited. While our market conditions have been weak this year, we have not been idle. We have been strengthening our market recovery readiness, penetrating new target accounts, broadening our channel networks, expanding our manufacturing footprint to support global customer needs, while introducing new products that deliver more value to our customers. We believe we have the right technologies and that we are focused on the right markets and the right customers to scale the business as we advance towards our VISION 2030 goals. With that, operator, let's open the lines for questions. Operator: [Operator Instructions] Our first question is from Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: Thanks for quantifying sort of the pushouts that happened in the quarter of $2 million. I was wondering if you could kind of break out into what verticals that $2 million falls into. Nick Grant: Yes. So about $1.5 million of it was tied to the life science markets. It was the -- tied to a couple of units, a couple of systems at our Alfamation business, which is really for the medical technology kind of diversification efforts we've been driving there. And they had a little bit of a delay in getting the systems ready to go by the end of the quarter. So -- but the challenges they faced have been resolved and customer's FAT is completed and the tools have been shipped. So customer is very happy on that side. In fact, they've given us an LOI for additional systems. So very -- while it was disappointing, we didn't get those out at the end of the system -- or end of the quarter, it's -- we're pleased that the outcome there. The other was for our semi industry at Acculogic, one tool was missed, the shipments at the end of the quarter just by -- we shipped the following week. So -- but -- into the semi market. Maxwell Michaelis: And then next question. So if we look at your order growth, really solid in the quarter, especially with A&D and then automotive. You highlighted 2027 automotive programs kind of driving the demand in that vertical. I mean how -- what's the -- I mean, how long does that last? Like is that a few more quarters of strong momentum? Or kind of give us like an idea on how long we can expect this strong automotive orders to continue? Nick Grant: Yes. No, as you noted there, that the front end -- or the automotive programs tied to these new 2027 model years, really started last quarter. We saw Alfamation have a nice strong quarter in Q2 and then really picked up here in Q3. What's encouraging is, their funnel, even though they've booked quite a bit of this, activity still remains healthy. They're filling in new opportunities. And so we do see that this test investment for the new technologies around infotainment, CCUs, displays, lighting, et cetera, in these vehicles should continue for a foreseeable future here. Operator: [Operator Instructions] Our next question is from Dick Ryan with Oak Ridge. Richard Ryan: Nick, just to discuss the challenges again in the quarter, were they a continuation of the ones that you saw in the first quarter? Or are they kind of more one-off and those issues are behind? Nick Grant: Yes, very different than the ones we saw in the first quarter. Those were challenges at our ITS thermal solution and where we were seeing more, I'd say, repetitive challenges there for that business, and we needed to make a change, which we did. These were really 2 shipments that were tied to new technologies at Alfamation and Acculogic. And as you know, Dick, we're always pushing the envelope, working with customers to solve some of their toughest challenges. And it doesn't always lead to us being able to hit our time lines there. But the important thing is that we do solve the challenges. The customers are happy and we built that installed base to position us for future growth with these customers and that's where we're at. The timing was unfortunate but certainly something -- we see from time to time just because of the work we do. Richard Ryan: Sure. sure. Okay. Say on the semi side, you talked sluggish. Can you talk a little bit about front end, back end? I mean, I think some of the commentary for the analog side says at least that market is stable. There may not be much growth over the next couple of quarters. But then it seems on the silicon carbide side, commentary for '26 seems to be more growth oriented coming off of a transformational 2025. What are you seeing in those 2 markets from your customer conversations? Duncan Gilmour: I mean let me just touch on that, Dick. I mean I think on the front-end side, activity pretty anemic still as I think we see across the marketplace. Although there are signs of life, I think we're starting to see a little bit more activity. As we've talked about before, customers are still interested. We still have good dialogue in terms of projects that they're still working on. But as you indicate, looking further out into later '26, into '27, things like that. So we're still very optimistic about the future in that space. But not a great deal happening right now in terms of order placement revenue generation. On the back end, things have been a little bit softer as we indicated. And I would characterize that as some of our larger customers, for example, are still struggling a little bit with the tariff situation, still struggling a little bit with where to place their chips investment-wise. So things like investment into, say, China, is perhaps a little bit slowed. So we're certainly seeing a little bit of that. And again, I think the rhetoric around analog mixed signal with a number of the larger players, a very similar story. Operator: Our next question comes from Ted Jackson with Northland Securities. Edward Jackson: So I wanted to talk a bit about just sort of what happened during the quarter and kind of the -- what maybe has changed in the near term vis-a-vis when you entered the quarter, let's say. I mean the timing stuff, I mean, stuff like that happens. But I was -- I'm a little surprised that we didn't see with regards to the guidance in the fourth quarter, maybe a little bit more because you're basically bringing $2 million of revenue from the third quarter into the fourth. So the high end of your range at $32 million is pretty much where the consensus and everyone was looking for anyway. And so when I think about that, is that -- was there a downtick in terms of kind of the economic environment for you? And was there a shift in something or some part of the business as we kind of went through this quarter -- this last quarter and got into this quarter relative to where things were, call it, 3 months ago? That's kind of my first question. Nick Grant: Yes. So the first part of that, the issue really is around these new technologies, as we highlighted. And once our teams get these things implemented for the applications, building the next follow-on tools is less risky and challenges or what have you. So from there on, it's pretty much rinse and repeat. So we're confident that the initial challenges in this life sciences market that delayed some shipments have been resolved and additional shipments that will occur will go much smoother from that side of it. The other being the -- around that technology, specifically around our RF probes and new probes that we launched for the customer's application there, it slipped by a few days, just timing-wise. The important thing is we get it right and that's what the team did. So yes, again, positions us well. And in fact, that business at Acculogic has received multiple new orders for their RF and oscilloscope in the quarter from new systems. So that technology is really resonating with the market out there. So we're excited about that. As for Q4 kind of the range we put out there, I would say our teams are very confident given -- providing numbers on what they're going to hit this quarter. We made it very clear, slippage, things that are at risk but I don't want them in the forecast. So that's what we're kind of seeing, things that we were able to deliver on with minimal risk. Now if we get some other stuff out, then that's all upside. But these guys, they've got the message loud and clear. Duncan Gilmour: Yes. I would also add, a lot of the strong order activity in Q3, which was great to see, testament to the work that the teams have all been doing. A lot of that is for delivery in Q1 and beyond 2026. So a lot of that is slightly longer lead time stuff that isn't necessarily turning in Q4 here. So I think that's another piece of the puzzle in terms of putting together those components. Edward Jackson: You see what I'm getting at is like, so you had $2 million that slipped out that you were expecting to come in the third quarter. So your third quarter instead of being $26.2 million, it should have been $28 million. And then if you take that out, that would mean that your third -- your fourth quarter guidance is at best flat. See where I'm going with this. And... Nick Grant: I see where you're going. Edward Jackson: So my question is like -- has -- does that -- my sense is that, that's kind of -- I think you didn't give guidance, it's not like a guide down but that's a bit disappointing vis-a-vis perhaps what you would have thought last time we had a call. And maybe I'm wrong with that but that's just sort of my sense. And so I'm just kind of curious, is that because there's been some kind of change within the dynamics or that you're just kind of tightening up the things that you're putting in and counting on, you seem [ saving ] for your budget. And why I bring all this up? Because to be honest, like the tone of this call, it's the best tone that you've had all year. I mean, clearly, you're feeling better about your business today than you were 3 months ago or 6 months ago going [indiscernible]. And so there's just a disconnect with that. So I'm just trying to understand. Duncan Gilmour: Yes. I mean I think, Ted, obviously, the tone is positive. The orders were extremely encouraging. Quite honestly, there were literally 2 or 3 systems that make up the $2 million, it's a very small number of tools, which -- and quite frankly, the story behind those misses is a very positive one in terms of the new technologies, the new capabilities, they just took a little bit longer to turn around as well as on the automation side, into the life sciences, penetrating new markets. So although disappointing that it was a revenue miss, the fact that it was literally slippage of a few days, a few weeks, very positive aspects. In terms of this sequential revenue, I think we were looking at revenue growing Q2 versus Q3 versus Q4. The $2 million slips, we would have been in the low 28s, flattish with Q3. Had all of those systems gone out the door, then we would have been looking at, say, around $30 million instead of a $30 million to $32 million. So not a spectacular ramp. I think we have indicated the recovery is going to be gradual here. We do feel most of our markets are at a relatively low point. We don't see a spectacular ramp back up. So I think we feel somewhat in line with what we had painted. We're always disappointed when the numbers -- we'd always like the number to be higher, I suppose, is one way to look at it. Edward Jackson: Don't we all. Okay. Then my next thing, let's go into something a little different. So when you look at kind of the book-to-bill and you look at your different segments, so I'd like to talk a little bit maybe just about industrial. No one brings it up anymore but you've actually put up a book-to-bill number better than 1 for the 4 quarters in a row and actually 5 of the last 6. So with regards to industrial, I know it's not -- it's been -- let's just say, it hasn't been a problem child for you per se, like kind of what's happening within that segment are you... Nick Grant: Yes. No, you're right. Industrial hasn't been the most challenging segment for us. And it's stable, I would say. But we do have a number of projects in the funnels on the industrial side of things there that are still kind of delayed as customers hold back on CapEx. So it could be better. But the teams are capturing what they can capture out there. So we still believe industrial has throttled back a little bit. As we've commented, semi is still slow for us on that. But on the positive, defense/aero, really robust for us, the activities we're seeing in there, the orders we're getting, the automotive, these programs and the life science activities we're driving. So the diversification we drove really is paying off as semi will come back and our industrial base will get -- pick up stronger here as economy improves. And so we're in a good position as we go forward here and it's great to see a few of our target markets coming in nicely. Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Nick Grant for closing remarks. Nick Grant: Thank you, David. We appreciate you joining us today and thank you for your time and we welcome the opportunity to answer any further questions you may have. On Slide 13, please note that in addition to the details regarding the replay of this call, we will be participating in 2 conferences before the end of the year. We hope to see some of you there. Coming into this call, I understand there was some website technical challenges for a few folks there. Our team has been working to get that resolved and we'll continue to do so as quickly as possible if it's not already completed. So thank you again for taking the time and you all have a great day. Operator: This concludes today's conference. inTEST thanks you for your participation. You may disconnect your lines at this time.
Operator: Hello, everyone, and welcome to the Jackson Financial Inc. 3Q '25 Earnings Call. My name is Charlie, and I'll be coordinating the call today. [Operator Instructions] I'll now hand the call over to our host, Liz Werner, Head of Investor Relations, to begin. Liz, please go ahead. Elizabeth Werner: Good morning, everyone, and welcome to Jackson's Third Quarter 2025 Earnings Call. Today's remarks may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations. Jackson's filings with the SEC provide details on important factors that may cause actual results or events to differ materially. Except as required by law, Jackson is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change. Today's remarks also refer to certain non-GAAP financial measures. The reconciliation of those measures to the most comparable U.S. GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available on the Investor Relations page of our website at investors.jackson.com. Presenting on today's call are our CEO, Laura Prieskorn; and our CFO, Don Cummings. Joining us in the room are our President of Jackson National Life Insurance Company, Chris Raub; our President of PPM, Craig Smith; and the Head of Asset Liability Management, Brian Walta. At this time, I'll turn the call over to our CEO, Laura Prieskorn. Laura Prieskorn: Thank you, Liz. Good morning, and thank you for joining our third quarter 2025 earnings call. I'll begin by reviewing the quarter's positive results, including strong sales growth and diversification, robust capital generation and consistent capital return to shareholders. Following my remarks, our CFO, Don Cummings, will discuss our financial performance in further detail. Beginning with Slide 3, Jackson's third quarter performance highlights our strong earnings diversification and healthy book of business. Adjusted operating earnings of $433 million increased over 20% from the year ago quarter, led by our Retail Annuities business. Retail Annuities continued to see significant growth and diversification from investment spread income as well as solid fee income from nearly $240 billion of separate account value. Retail annuity sales for the quarter reached their highest level since we became an independent company, exceeding $5 billion for the quarter, driven by growth in RILA and traditional variable annuities. Last quarter, we highlighted the launch of Jackson's Market Link Pro III and Market Link Pro Advisory III, which we refer to as RILA 3.0. The positive reception to RILA 3.0, combined with a robust RILA market resulted in record sales of $2 billion in the quarter, accounting for 38% of overall retail annuity sales. We expect RILA to remain a valuable source of growth, providing sustainable investment spread income and earnings diversification. Our RILA account balance approached $18 billion, a 21% increase from the second quarter and a 74% increase from the prior year. While the RILA market continues to evolve and grow, we believe our RILA 3.0 product offering provides advisers and their clients with a broad range of index and crediting options and a valuable range of protection levels. Jackson's long-held focus on product innovation and consumer choice has differentiated us and is highly valued by our distribution partners and their clients. Our RILA offerings continue to drive growth in the breadth and depth of our distribution. Since launching RILA 3.0 in May, we've added over 500 new advisers. Our new RILA relationship with JPMorgan Chase is one example of accelerating RILA sales through a valued partnership. Traditional variable annuities remain core to our business and accounted for over 1/2 of our third quarter retail annuity sales. Variable annuity sales increased 13% from the second quarter and 8% from a year ago. The growth of variable annuities sold without a lifetime benefit continued and sales increased 24% for the first nine months of 2025. Year-to-date, variable annuity sales without a living benefit accounted for 38% of Jackson's total variable annuity sales. Importantly, average variable annuity balances increased by $10 billion from the second quarter, supporting an increase in third quarter fee income of 8% quarter-over-quarter. Variable annuity net outflows improved from a year ago and were consistent with strong equity market performance. For the third quarter, strong investment performance exceeded the impact of net flows by over $7 billion. The diversity of Jackson's variable annuity fund offerings remains a valued feature and for the first nine months of 2025, separate account performance exceeded 13%. We continue to believe the asset growth potential, investment flexibility and guaranteed income provided by Jackson's traditional variable annuities meet a long-term need for millions of Americans retiring each year. This profitable book of business exhibits Jackson's thoughtful product design and disciplined risk management capabilities. Fixed and fixed index annuity sales reflect our opportunistic approach to pricing and have contributed to our sales diversification. Looking ahead, we expect our recent fixed index annuity launch will contribute to future sales growth. The Jackson Income Assurance Suite has an embedded guaranteed minimum withdrawal benefit designed to meet consumer demand for income and protected growth. Jackson's fixed index products further expand our portfolio of annuity solutions, meeting a wide range of retirement planning goals for advisers and their clients. Complementing the growth of our business is the investment expertise and asset growth of our investment manager, PPM America. Last quarter, we highlighted PPM's additional investment capabilities, which support the competitiveness and profitability of our spread-based products in the market. We believe our disciplined approach to the market, combined with incremental yield provided by PPM investment capabilities position us well for future growth and profitability across spread-based annuity solutions. The profitability of our in-force business and capital generation resulted in continued free cash flow and capital distributions. Through the first three quarters of this year, free capital generation exceeded $1 billion and free cash flow was $719 million. Quarterly distributions to our holding company through the first nine months of this year have totaled $815 million. These strong results lead us to believe we are well positioned to maintain capital flexibility at our holding company and sustain future capital return to our common shareholders. We continue to return capital consistently and for the third quarter, returned $210 million, bringing our year-to-date capital return total to $657 million. Given this pace and our outlook for the fourth quarter, we expect to exceed our 2025 capital return target range of $700 million to $800 million. Since becoming an independent company, we have returned nearly $2.5 billion to common shareholders, exceeding our initial market capitalization. We believe that our balanced approach to capital management will continue to support Jackson's financial strength, ongoing investments in long-term growth and future capital return to shareholders. Turning to Slide 4. We began the fourth quarter with great momentum and are approaching the end of 2025 in a very strong position with respect to all our financial targets. I've already addressed capital return and would add that in September, our Board of Directors approved a $1 billion increase to our common share repurchase authorization. Yesterday, we announced our Board also approved a fourth quarter cash dividend of $0.80 per common share. We believe shareholder dividends underscore our outlook for long-term profitability and combined with share buyback, highlight our commitment to shareholder returns. Over the course of 2025, our strong capital generation resulted in a risk-based capital ratio that was consistently well above our targeted minimum level of 425%, and we ended the third quarter at an estimated 579%. In addition, at the end of the quarter, the cash and liquid securities position at our holding company was over $750 million. Our strong capital position, combined with holding company liquidity provides valuable capital flexibility. Jackson's resilient capital, effective hedging strategy and disciplined risk management have enabled us to navigate through periods of market uncertainty. In today's environment, we believe this experience is essential to maintaining long-term leadership in the annuity market. At this time, I'll turn it over to Don. Don Cummings: Thank you, Laura. I'll begin on Slide 5 with our consolidated financial results for the third quarter. Adjusted operating earnings were $433 million, reflecting strong performance from our spread products, where earnings were supported by the continued expansion of our RILA fixed, fixed index annuities and institutional products. Additionally, strong equity markets in the quarter led to increased variable annuity assets under management, driving stronger fee income. Our high-quality, conservative investment portfolio supporting the spread product business is well positioned with diversification and strong credit quality, a theme throughout the portfolio. The exposure of our portfolio to commercial office loans and below investment-grade securities is less than 2% and 1%, respectively. Given recent headlines on asset quality, it is also important to note that our regional bank exposure is about 1% of our portfolio, and we have no material exposure to First Brands or Tricolor. Furthermore, our CLO portfolio remains highly rated and well diversified. Our spread product sales continue to benefit from enhanced asset sourcing capabilities at PPM America, which enabled recent new money allocation to certain higher-yielding asset classes, including emerging markets, residential home mortgages and investment-grade structured securities. We believe this modest shift in our new money asset allocation, combined with an attractive product lineup will allow Jackson to maintain a consistent and stable presence in the spread product marketplace. Before discussing notable items for the quarter, I want to highlight our strong performance in book value per common share. During the first nine months of the year, we returned $657 million of capital to shareholders, which has contributed to a modest decrease in adjusted book value since year-end. Importantly, our share repurchase activity reduced the diluted share count, driving a 6% increase in adjusted book value per share to $158.44. Additionally, our adjusted operating return on common equity for the first nine months of this year was 14%, up from 13% in the first nine months of last year. Slide 6 outlines the notable items included in adjusted operating earnings. Reported adjusted operating earnings per share was $6.16 for the current quarter. Adjusting for $0.04 of notable items and the difference in tax rates from our 15% guidance, adjusted operating earnings per share was $6.15 for the current quarter, up 27% from $4.86 in the prior year's third quarter. This improvement was primarily due to the growth in spread income noted earlier as well as a reduction in diluted share count from share repurchase activity. The only notable item for the current quarter was a $0.04 negative as limited partnership results came in slightly below our 10% long-term assumption. The prior year's third quarter included a larger $0.28 negative impact from this item. On Slide 7, we highlight the diverse and growing new business profile of our Retail Annuities segment, which achieved 2% growth over last year's strong third quarter and 22% growth from the second quarter of this year. Our RILA product suite delivered record sales of $2.1 billion, up 28% from the prior year's third quarter and 49% compared to the second quarter of this year. Since its launch in 2021, RILA assets under management have grown consistently, reaching a record high of nearly $18 billion at the end of the third quarter. As mentioned earlier, our spread product offerings were further supported by enhanced capabilities at PPM, resulting in $444 million in fixed and fixed index annuity sales for the third quarter. We are confident about the future growth potential of our spread business with strong early momentum from our recently launched fixed indexed annuity suite of products. Our sales mix continues to be capital efficient, which has provided flexibility to allocate additional capital to spread products as we focus on diversifying our business. We are pleased with the progress that we've made in building a well-diversified new business mix since becoming an independent public company, and we continue to explore opportunities to write higher levels of spread business on a capital-efficient basis. Turning to net flows. The sales we generated in RILA and other spread products translated to $2.3 billion of nonvariable annuity net flows in the third quarter. Variable annuity net outflows have been elevated in recent quarters, reflecting the moneyness profile of our book, the aging of policyholders and some larger past sales years coming out of the surrender period. On a year-to-date basis, our surrender rate was flat, even though strong equity market returns led to a higher surrender rate in the third quarter. These strong market returns also resulted in separate account investment performance of nearly $25 billion year-to-date, exceeding variable annuity net outflows by over $11 billion. This has driven variable annuity account value growth year-to-date and supported our strong levels of fee income. Slide 8 highlights pretax adjusted operating earnings across our business segments. In Retail Annuities, we benefited from a favorable environment for spread products and higher levels of fee income. Like an asset management business, retail annuity earnings are driven by the level of assets under management. Growing nonvariable annuity net flows and strong separate account returns have increased our average retail annuity AUM to $263 billion, up from year-end 2024. For the Institutional segment, pretax adjusted operating earnings were up from the third quarter of last year, reflecting higher spread income from our growing book of business. Our higher level of new business activity this year reflects strong demand for spread lending and our opportunistic approach in the institutional marketplace. Our Closed Block segment reported pretax adjusted operating earnings that were up from the third quarter of last year, primarily due to higher spread income. Earnings were down modestly on a sequential basis, reflecting higher levels of mortality. Slide 9 includes a waterfall comparison of our third quarter pretax adjusted operating earnings of $505 million to GAAP pretax income attributable to Jackson Financial of $57 million. The stability in our nonoperating results has significantly improved after moving to a more economic hedging approach in 2024, which has also contributed to our consistent capital generation. During the third quarter, our hedge results included a $14 million net loss on hedging instruments supporting our variable annuity and RILA businesses. This loss was primarily from equity hedges, reflecting S&P returns of about 8% during the quarter and gains on interest rate hedges resulting from lower long-term interest rates. Our RILA business continues to provide a natural offset to the equity risk of our variable annuity guarantees. This enhances our overall hedging efficiency as higher equity markets typically result in losses on our variable annuity hedges while resulting in gains for our RILA hedges. Changes in market risk benefits, or MRB, were driven in part by the same interest rate and equity market movements in the quarter, leading to a $226 million gain that more than offset the loss on our hedges. As a reminder, changes in the MRB relate primarily to our variable annuity business and include the impact of equity index implied volatility, which was a modest benefit during the quarter. Changes in implied volatility do not impact our Brooke Re MRB measurement since its modified GAAP methodology uses a fixed volatility assumption designed to promote balance sheet stability. The reserve and embedded derivative loss of $1.2 billion during the third quarter reflects increases in RILA reserves resulting from higher equity markets, which was largely offset by a gain on our RILA hedges. Net hedging results for variable annuities also reflect the highly diversified nature of our separate accounts, which can lead to differing performance relative to the market in periods where the returns of an index are driven by a subset of companies. This dynamic was at play in the current quarter with the underperformance of our separate accounts relative to certain hedging indices, leading to a modest net hedging loss. It is important to note that this dynamic plays out in both directions. And as a result, these impacts have tended to smooth out over time. In fact, this dynamic produced a modest benefit over the first half of this year. We believe these results underscore the effectiveness of our hedging program in supporting capital stability and proactively managing the economic risks of our business. Slide 10 provides a summary of Jackson's high-quality variable annuity business, which is differentiated in the marketplace, enabling us to outperform peers. In large part, our success can be attributed to our focusing on withdrawal benefits and avoiding more challenging guarantee features. Jackson also has long been a proponent of providing customers with investment freedom without forcing allocations or managed volatility funds. This approach is supported by a rigorous fund manager due diligence and oversight process to ensure a high correlation between separate account assets and the related benchmarks over time. The strong underlying fund performance benefits both our policyholders and Jackson. Prudent pricing and disciplined product design further mitigate risk and enable agile product launches and repricing actions as market conditions evolve. We believe our variable annuity products are highly valued in the marketplace, and we remain a consistent product provider for our distribution partners and their clients. The substantial cash flows generated by our large in-force block, combined with extensive policyholder experience data, enhance our risk management capabilities. By utilizing Brooke Re, we are able to further protect our book from market volatility and hedge more closely to the economics of our business. We believe our hedging performance has been proven through recent periods of financial market stress. Slide 11 provides context on how our high-quality variable annuity book and differentiated structure support our economic hedging approach. Brooke Re creates a structure for us to manage our profitable variable annuity block without the constraint of the cash surrender value floor, allowing us to align our hedging with the underlying economics of the guarantees. Specifically, we are focused on mitigating the impact of lower equity markets and interest rates on these liabilities. The result is well-protected variable annuity guarantees at Brooke Re and stable regulatory capital and distributable earnings at Jackson National Life, which has been evident in our strong free capital generation, free cash flow and capital return over the last seven quarters. This structure is beneficial for our management of the RILA business as well. Under this framework, RILA remains at JNL, separate from the variable annuity guarantees. The RILA business is managed and priced on a stand-alone basis with capital generation included in JNL's results. RILA and variable annuity guarantees have a natural equity offset with RILA exposed to upside equity risk and variable annuity guarantees exposed to downside equity risks. Variable annuity guarantees are reserved and capitalized on a stand-alone basis under our modified GAAP framework at Brooke Re and RILA is reserved and capitalized under the statutory regime at JNL without consideration of a diversification benefit. While there is no reserving or capital benefit of the offsetting equity risks, we are able to realize a hedging efficiency by netting them off through fully settled internal trades, leaving a reduced need for external equity hedging. Importantly, this benefit would continue even if RILA grew to the point of overtaking variable annuities from an equity risk perspective, simply shifting the external equity need from downside protection to upside protection. We believe this structure is a differentiator that highlights our consistent economic approach and the strong underlying performance of our book. We remain confident in the quality of our annuity business and our risk management capabilities. Slide 12 highlights our growing capital generation and free cash flow. Jackson adheres to an earn it, then pay it philosophy for capital return. This philosophy is built upon three pillars: the generation of free capital where we earn it, the creation of free cash flow where we pay it and ultimately, the return of capital to our common shareholders. After-tax statutory capital generation was $579 million in the third quarter. We believe this metric offers helpful insight into the underlying strength of our business and provides the foundation for making capital allocation decisions that balance future growth with the return of capital to shareholders. Free capital generation was $459 million in the quarter, reflecting the estimated change in required capital or CAL, resulting from our strong and diversified new business results during the quarter. Free capital generation totaled $1.1 billion in the first nine months of the year and $1.6 billion on a trailing 12-month basis. This pace is well above our $1 billion-plus expectation for the full year. Free cash flow was strong in the current quarter, once again illustrating the stability of our capital generation. In the third quarter, $250 million were distributed to the holding company. After covering expenses and other cash flow items, the resulting free cash flow at the holding company was $216 million in the quarter. Over the last 12 months, we've distributed nearly $1.1 billion to the holding company and generated free cash flow of nearly $1 billion. Based on Jackson's market capitalization at quarter end, we have produced a free cash flow yield of about 14% for the trailing 12 months. Although there are many factors that impact valuation, we believe this metric is a strong indicator of Jackson's value, and we will continue to pursue share repurchases while investing in the growth of our business. The outcome of our strong free capital generation and growing free cash flow allowed us to return $210 million to common shareholders in the quarter, up 37% from last year's third quarter on a per diluted share basis. On a trailing 12-month basis, we have returned $805 million, and we are on pace to exceed the top end of our full year capital return range. Jackson has now returned nearly $2.5 billion to common shareholders, exceeding our initial market capitalization as an independent public company. These results reinforce Jackson's robust capital generation profile and stable growing cash distributions, delivering enhanced value to our shareholders. Slide 13 summarizes our growing capital and liquidity position. The profitability of our in-force business, driven by fee income from our variable annuity base contract and growing spread-based earnings provided strong capital generation during the quarter. Our capital position and RBC ratio at Jackson National Life continues to be less sensitive to equity market movements with the Brooke Re structure. The main impact of equity market changes is on AUM and future capital generation rather than immediate changes in capital or RBC. This results in the earnings stream at Jackson National Life being like an asset management business. Consistent with our approach of taking smaller periodic distributions, we distributed $250 million to the holding company during the third quarter. After considering the impact of this distribution on our deferred tax assets, Jackson's total adjusted capital, or TAC, increased and ended the quarter at $5.6 billion. Our estimated RBC ratio ended the quarter at 579% and remains well above our minimum target of 425%. We believe Jackson is operating from a position of strength as we head into the end of the year. During the third quarter, Brooke Re continued to operate as expected. While equity was down modestly from the second quarter, Brooke Re's capitalization remains well above our internal risk management target that reflects a variety of detailed scenarios and our regulatory minimum operating capital level. During the quarter, there were no capital contributions to or distributions of capital from Brooke Re. Going forward, we will continue to manage Brooke Re on a self-sustaining basis given the long-term nature of its liabilities. Our holding company cash and highly liquid asset position at the end of the quarter was $751 million, which continues to be above our minimum buffer and provides substantial financial flexibility. This was up from $713 million in the second quarter of this year, reflecting operating company dividends and capital return to shareholders. Our third quarter results demonstrate strong positive momentum, bolstered by a robust balance sheet and rising capital and liquidity levels that firmly position us for continued success. I'll now turn the call back to Laura. Laura Prieskorn: Thanks, Don. In September, we hit our four-year milestone as an independent company. During this time frame, we've worked hard to capture opportunities to grow profitably while diversifying our sales mix and earnings. Our third quarter results represent another period of excellent operational and financial accomplishments. As the end of the year approaches, we'll take time to reflect on our valued relationships with our distribution partners and their clients and continue our shared mission to help hard-working Americans protect and grow their retirement savings and income. Most importantly, we believe our accomplishments and ability to consistently deliver on our promises are only possible through the dedication and hard work of our associates. We are truly grateful for all they do at Jackson and in the communities we call home. At this time, I'll turn it over to the operator for your questions. Operator: [Operator Instructions] Our first question comes from Ryan Krueger of KBW. Ryan Krueger: My first question is on the actual to expected policyholder behavior. It has improved year-over-year, but it got more -- I guess, it increased in the third quarter from the recent run rate. Can you give some perspective on what's causing this? I assume it's still just higher lapses. And to what extent you may consider changing your dynamic lapse assumption given that this has been occurring for a few years consistently now? Laura Prieskorn: Ryan, thanks for the question. I'll turn it to Don to respond. Don Cummings: Ryan, yes. So just to give you a little bit of context on policyholder behavior and kind of the level of net outflows that we've been seeing on our variable annuity book. First of all, I think it's important to remember that our surrender rate is sort of an all-in surrender rate as we've talked about on prior calls. So if you decompose that 12% that we've seen on a year-to-date basis, it breaks down like about 7% of that is full surrenders. And then there's 4%, which are withdrawals, and that's just simply customers using the benefit that they purchase those products for and being able to generate income and retirement. And then the remaining 1% is related to death benefits. And I would highlight that just for the quarter, we did see a bit more a bit of an uptick in the surrender rate, primarily driven by the fact that equity markets were up, and that does tend to influence surrender activity because of the moneyness of the contracts. Just overall, the VA performance that we saw in the quarter, which was also driven by the higher equity markets was about $25 billion, and that well offset the level of net outflows that we're seeing. So in terms of how we think about that from our assumption setting process, first of all, we do take a very comprehensive look at our assumptions every year. We complete that work in the fourth quarter. And we're setting assumptions with the long-term nature of our liabilities in mind. So we do look at our recent experience, but we wouldn't take one or two quarters of experience and use that -- simply use that to set our long-term assumption, we would look at our experience over time. Having said that, we'll certainly look at the experience we've been seeing over the last couple of years as we update our assumptions in the fourth quarter. And we'll publish those results along with our overall fourth quarter results as well as our financial targets for 2026, and we look forward to being able to discuss that in February. Ryan Krueger: One follow-up on that. I've heard some suggest that there has been some targeted efforts by distributors to roll older variable annuity contracts into other products when they've been out of the money and that may be contributing to the higher lapse rates beyond just the pure markets, but also may eventually dissipate once they kind of contacted all of their clients. Is that something -- do you agree with that? Is that something that you've seen at all impact the lapse rate? Don Cummings: I would say, Ryan, it's primarily more driven by the market environment than specific activities that might take place. Operator: Our next question comes from Suneet Kamath of Jefferies. Suneet Kamath: Just wanted to ask a couple on capital. So first on the RBC target of $425 million. You've been traveling well north of that for a while. My math suggests that if you were to bring that to $425 million, it would be maybe $1.5 billion of excess could be released. I guess if $425 million is really the target, what needs to happen in order to bring your RBC back down to that level? Don Cummings: Yes. Thanks for that question, Suneet. So yes, you're right. At the 425% target, we do have a substantial amount of excess capital at JNL. As we've talked about in the past, we expect that will come down over time rather than some sort of onetime outsized upstreaming of capital to the holding company. We believe that we are in a unique position to continue our efforts to diversify our book of business through focusing on more spread product sales, as I mentioned in the prepared remarks. And that obviously will assume a bit more capital than what we've historically been writing over the years, which is variable annuity business. And we've seen some of that over the course of this year. So we believe that we can both continue to grow our business through diversifying into more spread-type products as well as continuing to return significant levels of capital, but you'll see that ratio come down over time as opposed to one sizable transaction. Suneet Kamath: Okay. And then I guess my second one is on the Closed Block segment that you have. I mean it doesn't get a lot of attention. We never get asked about it. I'm just curious what's the strategic value of having that? I know it's small, but also curious about how much capital is supporting those liabilities that are in that segment. Don Cummings: Yes, good question. We obviously look at the Closed Block very frequently, and we're comfortable with the liabilities that are there. As you mentioned, it's not a huge portion of our balance sheet. However, we believe it does provide some balance to our overall general account structure and because there are some life liabilities in there, along with some annuities and other blocks of business that came about through some acquisitions that Jackson completed a number of years ago. So we do monitor the performance of that block closely. And to the extent we find opportunities to better leverage our capital, we would be prepared to take advantage of those. Suneet Kamath: And how much capital is in that segment? Is it an amount? Don Cummings: We don't break out the allocation of -- yes. We don't break out, Suneet, the allocation of our capital across the segments, but the liabilities are roughly about $20 billion. Operator: Our next question comes from Tom Gallagher of Evercore. Thomas Gallagher: Just a follow-up question on hedging. I heard the comment about how your RILA naturally hedges part of your VA guarantees, which lowers your need to buy the quantity of derivatives and hedges you need to buy. You have a peer out there, Brighthouse, that used to make the similar point. They eventually hit a limit and the company has struggled since they hit the limit. Now I'm sure there are differences between your book and their book. Your guarantees look far less risky quite candidly from my perspective. So that might be one of the reasons. But curious why you won't hit a limit and if you've spent any time thinking about what you're doing versus what Brighthouse is doing, just so you can at least clear up any confusion about why your program is fine. Don Cummings: Yes. Tom, thanks for that question. Well, we have spent a lot of time thinking about this issue, and we're very comfortable with the structure that we have in place. The new slide that we shared in the materials this quarter is intended to kind of help explain why we're different. And it really comes down to the fact that we have -- the VA guarantees are housed within Brooke. The RILA business is at J&L, and we're able to get this efficiency from a hedging perspective as we sort of offset the internal trades and then go out to the -- our derivative counterparties to purchase external hedges. The reason we're very comfortable that we won't have the issue that others have run into is because we don't have the guarantees and the RILA business being reserved for and hedged under a statutory framework, which I think was primarily the problem that you're referring to, which is the VM-21 construct. So we're very comfortable that even if the equity risk on RILA were to surpass the equity risk that we have on the VAs, then all that does is just shift the nature of our external hedging. It doesn't mean that we would have to suddenly put up some additional level of reserves. Thomas Gallagher: Got you. That's super helpful and clear. Yes, that is. The -- just from a follow-up perspective, if there was any impact to the actuarial review to Ryan's question, would that likely show up in JNL or Brooke Re in terms of the -- any changes that we would see there? Don Cummings: Yes. Well, as I mentioned, we're still working through our actuarial assumption review. But my expectation would be that we would see very minimal impacts at JNL. Any impact related to our VA business would be sort of below the line and a component of our MRB. Operator: Our final question of today comes from Alex Scott of Barclays. Taylor Scott: I just had a follow-up on the same kind of questioning that you just had from Tom and Ryan. So on the potential for an impact in Brooke Re, if there is an impact, do I take the comments that you made earlier in your script around the self-sustaining nature of the capital in Brooke Re to mean that based on what you're seeing at least as of today, regardless of how that actuarial review pans out, you don't feel like there's a risk that you would have to fund any capital into there. Is that a correct way of reading those comments earlier? Don Cummings: Alex, yes, so my comments earlier were more long-term focus in that we do believe with -- given the nature of the guarantees in Brooke Re that over the long term that Brooke Re will actually generate capital and be self-sustaining. I don't want to get ahead of our -- the completion of our actuarial review work at this point. We'll certainly look at it. And as I said, when we report fourth quarter earnings and our 2026 financial targets, including our capital return targets for next year, we'll update you on the status of our -- or the impact of our actuarial review. Taylor Scott: Understood. Okay. And then I also wanted to ask about potential reinsurance opportunities out there. I mean, I think on one hand, we're questioning you all about actuarial studies and so forth. I know on the other hand, you guys have expressed a lot of confidence about your ability to manage VAs. I mean are there opportunities out there that you're still considering and looking at around reinsurance of other blocks of business to take advantage of what you've built there? Don Cummings: Yes. So we talked a little bit about this on last quarter's call, Alex. And we certainly believe that we have very good expertise in the VA space and with risk management and hedging. And so to the extent that there were high-quality variable annuity blocks that were available that we believe would be complementary to what we already have at Brooke Re, that would be something that we would consider. We do believe that some of the recent VA transactions that you've seen indicate there are some buyers that see value in high-quality VA blocks, and we would look to participate in that. That probably wouldn't be the highest priority on our list. I think if we were looking at some sort of transaction, we might want to look at opportunities to further accelerate all of the work that we've done since becoming an independent public company to diversify our book. And that could include reinsurance of potentially some life business or something along that line that would be complementary to the businesses that we already have. But we're certainly aware of what's going on in the marketplace and are monitoring those kinds of things closely. Laura Prieskorn: I would just add that any growth opportunities that we were to explore or evaluate would be done in comparison to the value that we received from buying back our own shares. Operator: We have no further questions registered on today's call. So I'll hand back over to Laura Prieskorn for any closing remarks. Laura Prieskorn: Thank you all for your continued interest in Jackson. As you've heard this morning, our latest results represent another period of excellent operational accomplishments. We look forward to continuing the discussions and sharing our continued progress on our 2025 targets after the end of the fourth quarter. Thank you, and take care. Operator: Ladies and gentlemen, this concludes today's call. Thank you so much for joining. You may now disconnect your lines.